EUROPEAN COMMISSION. Dear Mr Schuh,

Transcription

1 EUROPEAN COMMISSION Dear Mr Schuh, Brussels, C(2014) final Institut Luxembourgeois de Régulation (ILR) 17, rue du Fossé L-2922 Luxembourg Luxembourg For the attention of: Mr. Paul SCHUH Directeur Fax: Subject: Commission Decision concerning: Case LU/2014/1682: Wholesale call termination on individual public telephone networks provided at a fixed location in Luxembourg Case LU/2014/1683: Wholesale call origination on the public telephone network provided at a fixed location in Luxembourg Comments pursuant to Article 7(3) of Directive 2002/21/EC I. PROCEDURE On 21 November 2014, the Commission registered a notification from the national regulatory authority in Luxembourg, Institut Luxembourgeois de Régulation (ILR) 1, concerning the markets for (i) wholesale call termination on individual public telephone networks provided at a fixed location 2, and (ii) wholesale call origination on the public telephone network provided at a fixed location 3 in Luxemburg Under Article 7 of Directive 2002/21/EC of the European Parliament and of the Council of 7 March 2002 on a common regulatory framework for electronic communications networks and services (Framework Directive), OJ L 108, , p. 33, as amended by Directive 2009/140/EC, OJ L 337, , p. 37, and Regulation (EC) No 544/2009, OJ L 167, , p. 12. Corresponding to market 1 in Commission Recommendation 2014/710/EU of 9 October 2014 on relevant product and service markets within the electronic communications sector susceptible to ex ante regulation in accordance with Directive 2002/21/EC of the European Parliament and of the Council on a common regulatory framework for electronic communications networks and services (Recommendation on Relevant Markets), OJ L 295, , p. 79. Corresponding to market 2 in Commission Recommendation 2007/879/EC of 17 December 2007 on relevant product and service markets within the electronic communications sector susceptible to ex ante regulation in accordance with Directive 2002/21/EC of the European Parliament and of the Council on a common regulatory framework for electronic communications networks and services, OJ L 344, , p. 65. This market has been removed from the list of the relevant markets that may warrant ex ante regulation which is contained in the currently applicable Recommendation on Relevant Markets. Commission européenne/europese Commissie, 1049 Bruxelles/Brussel, BELGIQUE/BELGIË - Tel

2 The national consultation 4 ran from 13 October to 13 November On 2 December 2014 a request for information (RFI) 5 was sent to the ILR and a response was received on 5 December Pursuant to Article 7(3) of the Framework Directive, national regulatory authorities (NRAs), the Body of European Regulators for Electronic Communications (BEREC) and the Commission may make comments on notified draft measures to the NRA concerned. II. DESCRIPTION OF THE DRAFT MEASURE II.1. Background The market for wholesale call termination on individual public telephone networks provided at a fixed location in Luxembourg was previously notified to and assessed by the Commission under case LU/2013/ ILR proposed to impose on all operators with significant market power 7 (SMP) a set of obligations including price control based on a pure LRIC model of a hypothetical generic efficient operator. With regard to the price control obligation ILR explained at the time that the model was at the stage of national consultation and that it was planning to notify and subsequently adopt its implementing price decision, respectively, no later than April and May The Commission urged ILR to proceed with the implementation of the recommended pure Bottom-Up Long-Run Incremental Costs (BU-LRIC) model for fixed termination rates without delay, given in particular the absence of interim rates proposed in line with the Termination Rates Recommendation 8. The market for wholesale call origination on the public telephone network provided at a fixed location was previously notified to and assessed by the Commission under case LU/2013/ ILR found that EPT has SMP on the relevant market and proposed to make it subject to a range of remedies including a price control obligation based on a Long-run Incremental Cost model of a hypothetical generic efficient operator and which allows for the inclusion of common costs; i.e. a LRAIC+ model. The Commission commented on the need for a common approach to price control of call origination services and reminded ILR that the move towards pure BU-LRIC termination rates should not normally allow operators to shift costs from the wholesale call termination markets to other regulated services as this may create additional barriers to enter the retail telephony market, thus hindering competition. The Commission thus invited ILR to take this into account both when adopting the notified draft measures and in the context of the forthcoming price-related decision on the call origination market. Finally, for both notified markets, the Commission commented on the need for compliance with Article 16.6 of the Framework Directive In accordance with Article 6 of the Framework Directive. In accordance with Article 5(2) of the Framework Directive. C(2013) 8710 Entreprise des Postes et Télécommunications (EPT), Cegecom, Coditel, Luxembourg Online, Orange, Orange Business Luxembourg, Tango, Telenet Solutions, Verizon, Visual Online, Voipgate, and Voxbone. Commission Recommendation 2009/396/EC of 7 May 2009 on the Regulatory Treatment of Fixed and Mobile Termination Rates in the EU (Termination Rates Recommendation), OJ L 124, C(2013)

3 II.2. The current draft measures The present notification implements the pure BU-LRIC model and defines the level of tariff ceilings (price-caps) to be imposed on all operators designated with SMP in cases LU/2013/1521 and LU/2013/ The ILR determines the price caps for fixed voice call termination and origination services for a period of three consecutive years, i.e The price-caps are calculated on the basis of the average of the annual cost results derived from the model and then rounded to the price-cap figures in Table 1. ILR further explains that the differences among the costs results for each of the three years are so insignificant 11 that an annual adjustment of tariff ceilings would create an administrative burden which would not be justified. Thus, the IRL finds it more appropriate to apply a single price-cap for the relevant services for the whole regulatory period rather than imposing annual price-caps. Table 1: Tariff Ceilings applicable until 2016 Service concerned Tariff Ceiling (eurocents/min.) Call origination on the public telephone network provided at a fixed location Call termination on individual public telephone networks at a fixed location In its reply to the RFI, the ILR stresses that the above price-caps are not imposed in a retroactive manner, but will apply from the entry into force of the draft decision until 31 December The ILR explains in the response to the RFI that its cost model foresees the inclusion of additional commercial costs (CCAdd) based on an international comparison. Additional commercial costs include primarily labour (human resources) and billing costs directly related to the provision of these services 13. However, ILR believes that the model s result in this respect does not sufficiently take into account the specificities of the Luxembourgish market, which is characterized by much lower interconnection volumes (by EU comparison) as well as by labour costs being above the European average. For this reason, the ILR decided to fix the amount for the additional commercial costs in the In the market for the wholesale call termination on individual public telephone networks provided at a fixed location, the ILR found that EPT, Cegecom, Coditel, Luxembourg Online, Orange, Orange Business Luxembourg, Tango, Telenet Solutions, Verizon, Visual Online, Voipgate, and Voxbone have SMP. In the market for the wholesale call origination on the public telephone network provided at a fixed location, the ILR found that EPT has SMP on the relevant market. For call origination the results from the cost model range from eurocents (for 2014) to eurocents (for 2016). For fixed call termination the results from the cost model range from cents (for 2014) to (for 2016). Article 3 of the notified measure: "the present Regulation shall enter into force on the first day of the month following its publication in the Official Journal." In the response to the RFI, the ILR explains that these additional commercial costs do not involve either retail commercial costs or wholesale commercial costs that are not directly attributable to the termination or the origination of a call. ILR stresses that these costs do not occur if no termination or origination is billed or provided. 3

4 cost model at 0% and to add, instead, a flat cost of eurocents /minute to the model cost output. This mark-up is based on commercial costs actually incurred by individual operators in Luxembourg, and which are then adjusted for efficiency. In line with ILR s explanation in case LU/2013/1520, price-caps for call origination services will be calculated on the basis of a LRAIC+ model. Moreover, IRL explains that a mark-up is included in the call origination price-cap to allow for the recoupment of common costs for call termination which according to ILR are no longer covered by the pure BU-LRIC based fixed termination rates 14. III. COMMENTS The Commission has examined the notification and the additional information provided by the ILR and has the following comments: 15 The treatment of additional commercial costs The costing model was initially designed to consider wholesale commercial costs based on an international comparison. However, according to the ILR this approach would not permit to reflect correctly national specificities in Luxembourg. Consequently, the ILR sets the parameter for commercial costs at 0% in the model and calculates instead the efficient wholesale commercial costs based on data gathered from operators in Luxembourg and adjusted for efficiency. The resulting value for wholesale commercial costs is then added to the output of the model. The Commission notes that wholesale commercial costs account for around 75% of the total costs of an efficient operator providing the relevant termination service in Luxembourg. According to information available to the Commission, some NRAs entirely disregard wholesale commercial costs in their BU-LRIC cost models. For those NRAs which did include wholesale commercial costs in their model, these did not represent more than 20% of the total fixed termination costs. The Commission has already acknowledged 16 that the Termination Rates Recommendation allows for the inclusion of wholesale commercial costs in the termination increment to the extent that these costs are directly related to the provision of the wholesale termination service to third parties. However, the Commission has already in the past pointed out that a 75% ratio of wholesale commercial costs to total fixed termination costs appears very high by EU comparison 17. Moreover, the Commission considers that wholesale commercial costs should be derived from the costing model itself rather than being calculated outside the costing model based on data provided by the established operator. The Commission therefore invites the ILR in the context of the next update and/or review of the costing model to amend it accordingly. Against the background of the high share of wholesale commercial costs of the overall termination rate compared to other Member States, the Commission invites the ILR to cooperate The mark-up for common termination costs is, however, very small amounting to eurocents/minute. In accordance with Article 7(3) of the Framework Directive. See e.g. case AT/2014/1618 and AT/2013/1457. See case AT/2014/1618 4

5 more closely with other NRAs and BEREC to redress inconsistencies in its modelling approach. Average pure BU-LRIC price-cap ILR calculates the pure BU-LRIC annual rates for the period. However, instead of imposing annual price-caps, it calculates the average of the rates calculated over the three years and imposes this average rate as a price cap to be applied from the adoption of the current draft measure until the end of The Commission takes note of ILR's explanation that given the insignificant difference in rates for 2014, 2015 and 2016, applying annual price obligations would be overly burdensome and disproportionate. The Commission notes, however, that other Member States where this is the case have opted for annual price ceilings reflecting the exact pure BU-LRIC cost of providing the relevant termination service. Moreover, it remains unclear why the 2014 BU-LRIC cost would be part of the average price-cap proposed by the NRA given that the decision will not apply in Against this background, the Commission calls upon ILR to assess in the next review of the market whether an approach based on annual price-caps is more appropriate, in particular where the difference between annual BU-LRIC levels were to become more important. Pursuant to Article 7(7) of the Framework Directive, the ILR shall take the utmost account of the comments of other NRAs, BEREC and the Commission and may adopt the resulting draft measure; where it does so, shall communicate it to the Commission. The Commission s position on this particular notification is without prejudice to any position it may take vis-à-vis other notified draft measures. Pursuant to Point 15 of Recommendation 2008/850/EC 18 the Commission will publish this document on its website. The Commission does not consider the information contained herein to be confidential. You are invited to inform the Commission 19 within three working days following receipt whether you consider that, in accordance with EU and national rules on business confidentiality, this document contains confidential information which you wish to have deleted prior to such publication. 20 You should give reasons for any such request. Yours sincerely, For the Commission, Robert Madelin Director-General Commission Recommendation 2008/850/EC of 15 October 2008 on notifications, time limits and consultations provided for in Article 7 of Directive 2002/21/EC of the European Parliament and of the Council on a common regulatory framework for electronic communications networks and services, OJ L 301, , p. 23. Your request should be sent either by CNECT-ARTICLE7@ec.europa.eu or by fax: The Commission may inform the public of the result of its assessment before the end of this three-day period. 5