EUROPEAN COMMISSION. Comments pursuant to Article 7(3) of Directive 2002/21/EC

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1 EUROPEAN COMMISSION Brussels, C(2016) 6021 final Institut Luxembourgeois de Régulation (ILR) 17, rue du Fossé, L-2922, Luxembourg Luxembourg For the attention of: Mr. Luc Tapella Directeur Fax: Dear Mr Tapella, Subject: Commission Decision concerning Case LU/2016/ : wholesale call termination on individual public telephone networks provided at a fixed location in Luxembourg (market review and rates) Comments pursuant to Article 7(3) of Directive 2002/21/EC 1. PROCEDURE On 17 August, the Commission registered two notifications from the national regulatory authority in Luxembourg, Institut Luxembourgeois de Régulation (ILR) 1, concerning the review of the market for wholesale call termination on individual public telephone networks provided at a fixed location 2 (LU/2016/1903) and setting the fixed termination rates (LU/2016/1904) in Luxembourg. The national consultation 3 ran from 13 June 2016 to 13 July 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 In accordance with Article 6 of the Framework Directive. Commission européenne/europese Commissie, 1049 Bruxelles/Brussel, BELGIQUE/BELGIË - Tel

2 On 25 August 2016 a request for information 4 was sent to ILR and a response was received on 30 August. A supplementary RFI was sent on 30 August 2016 and a response was received on the following day. 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. 2. DESCRIPTION OF THE DRAFT MEASURE 2.1. 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 6 (SMP) a set of obligations including price control based on a pure LRIC model of a hypothetical generic efficient operator. At that time the Commission urged ILR to implement the recommended pure Bottom- Up Long-Run Incremental Costs (BU-LRIC) model without delay, given in particular the absence of interim rates proposed in line with the Termination Rates Recommendation 7. Subsequently, under case LU/2014/1682 8, ILR notified a measure concerning the implementation of a pure BU-LRIC model and the setting of a price-cap of 0.14 eurocents/minute for the period, to be imposed on all SMP operators. In its comments letter, the Commission expressed concerns regarding the high share of wholesale commercial costs in the overall termination rate set by ILR compared to other Member States. Furthermore, the Commission called upon ILR to assess in the next review of the market whether an approach based on annual price-caps would be more appropriate than the averaging over the market review period, in particular if the difference between annual BU-LRIC levels were to become more important. 9 Under cases LU/2015/ and LU/2016/ ILR notified its draft measures concerning two additional market entrants; the Commission made no comments 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(2014) ILR imposed a single price cap to be applied from the adoption of the measure until the end of The rate corresponds to the average of the annual rates calculated by the model over the three year period ( ). C(2015) 9537 C(2016) 717 2

3 2.2. Market definition ILR proposes to include in the relevant market definition call termination services at national and regional level to geographic and non-geographic numbers by means of a commuted telephone network and in managed VoIP/VoB mode. Unlike in its previous review of the market, ILR now concludes that voice call termination to non-geographic numbers is part of the relevant market. In its reply to the request for information ILR explains that the inclusion of termination services to non-geographic numbers in the relevant market is mainly due to the increasing usage of VoIP/VoB telephony for which the non-geographic numbers are allocated (previously such numbers were mainly reserved for value added services), and the number portability of geographic and nongeographic numbers. ILR concluded that call termination to non-geographic numbers is characterised by the same competition problems as call termination to geographic numbers. 12 The relevant geographic market corresponds to the network of each operator providing the termination services Finding of significant market power ILR, on the basis of market shares, competitive dynamics, entry barriers, and limited countervailing buyer power proposes to designate the following operators as having SMP: BT Global Services Luxembourg S.à.rl, Cegecom Coditel S.A., Eltrona S.A., Post and Telecommunications Company, Join Experience S.A., Luxembourg Online S.A., Mixvoip S.A., Netline, NV Verizon Belgium Luxembourg S.A., Orange Business Luxembourg S.A., Orange Communications Luxembourg S.A., Tango S.A., Telenet Solutions Luxembourg SA, Visual Online SA, Voipgate S.A., Voxbone S.A Regulatory remedies ILR proposes to impose on all SMP operators the following obligations: (i) access and interconnection; (ii) non-discrimination; (iii) transparency; and (iv) price control based on a pure BU LRIC model of a hypothetical generic efficient operator. With regard to the price control remedy ILR notified also its draft decision concerning the level of the fixed termination rates, resulting from its updated model calculations. Following the Commission's previous comments ILR proposes now individual FTRs for each year of the validity of the decision. ILR has also in more detail assessed the calculation of the wholesale commercial costs, which are added after determining the pure LRIC costs 13. As a result of the new calculations ILR proposes to set the following tariff ceilings for FTRs: ILR clarified that the current termination rates related to non-geographic numbers, which are currently not regulated, are not higher than the regulated tariff of voice termination to geographic numbers. The wholesale commercial costs are strictly related to the provision of voice call termination services, and include billing, invoicing and administration. Given the lower interconnection volume of the hypothetical operator in Luxembourg such costs are non-negligible. 3

4 Year FTRs in Eurocent/min COMMENTS The Commission has examined the notification and the additional information provided by the ILR and has the following comment: 14 Market definition: inclusion of voice call termination to non-geographic numbers In the notified draft measure ILR considers that the termination of calls to nongeographic numbers is characterised by market and competitive conditions that are not different from those prevailing in the context of voice call termination to geographic numbers. Hence, ILR concludes that the relevant termination market includes the termination of calls to all types of fixed non-geographical numbers including to numbers for value-added services. The Commission refers to the Explanatory note to the Recommendation on Relevant Markets according to which the mechanics of the termination of calls to nongeographic numbers for the provision of value added services would rather argue in favour of excluding this type of termination from the relevant market. 15 Nevertheless, the Commission takes into consideration the arguments provided by ILR in its response to the request for information, specifying that the increasing popularity of VoIP/VoB telephony (used for inter-personal communication, but assigned with non-geographic numbers), coupled with the number portability between fixed networks operators and VoIP/VoB providers might lead to a situation where the distinction between geographic and non-geographic numbers becomes less relevant and the termination to non-geographic numbers is characterised by the same market failure as the voice call termination to geographic numbers. In view of the above the Commission urges ILR to include in the final measure the additional information related to the treatment of voice call termination to non In accordance with Article 7(3) of the Framework Directive. The Commission's Explanatory Note to the Recommendation on Relevant Markets specifies that in the case of call termination services to non-geographic numbers used by service providers (e.g. for the purposes of providing premium rate services), operators do not seem to be indifferent to the termination charge paid by the calling party as this affects their competitive advantage, as long as they themselves operate in downstream markets that are characterised by competition in the services that they provide. As the choice of terminating operator and the resulting price affect the revenues of the called service providers, the party being called is both aware of and sensitive to the price of termination. In that respect, these services differ from traditional voice call termination services interconnecting two end-users. Therefore, in the case of calls to non-geographic numbers operated by service providers, the service provider may purchase termination from any network operator and is able to switch network operators with a view to increase its profit and/or to reduce its costs. As a consequence, the terminating operator is generally facing a competitive constraint, being presented with a risk that its service provider end customer can switch to another network operator in case of an increase of termination rates, causing a loss of revenue, unless there are objective and insurmountable obstacles to switching terminating operator. 4

5 geographic numbers, as well as further substantiate its reasoning in a thorough quantitative analysis, including the growth of the number of VoIP/VoB customers and the actual number portability figures between fixed networks and VoIP/VoB. Such an analysis must also include an investigation of the number of providers of value added services, their respective market shares and how these market shares evolved over time, the tariffs that are applied and how these tariffs evolved over time. ILR should also investigate whether service providers offering value-added services are able to constrain SMP operators behaviour when setting termination rates, whether those service providers face barriers to switching between network operators and whether such switching has occurred in the past. Finally ILR should consider whether, in view of the additional information gathered, it is appropriate to include all termination services to non-geographic numbers in the same broader fixed call termination markets, or whether the inclusion may apply only to those non-geographic numbers which are used for interpersonal VoIP/VoB based communication as opposed to the provision of (certain) value added services. Pursuant to Article 7(7) of the Framework Directive, 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 16 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 17 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. 18 You should give reasons for any such request. Yours sincerely, For the Commission, Roberto Viola 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