The Italian regulatory authority AGCOM has published delibera n. 465/04/CONS, which is its formal public consultation document covering market definition, assessment of Significant Market Power, and proposed regulatory obligations for Market 16: "voice call termination on individual mobile networks".

AGCOM found no sufficiently important supply-side and demand-side substitutes for wholesale mobile call termination, and therefore identifies no reasons to deviate from the market definition contained in the European Commission’s Recommendation on Relevant Markets Susceptible to Ex-Ante Regulation. However, it conducted studies and made interesting remarks in this context.

At the wholesale level, AGCOM studied possible substitution by Wireless LAN, mobile roaming, and ESP/MVNO arrangements. At the retail level, AGCOM studied the effects of number portability, call-forwarding, call-back, SMS, and the behaviour/attitude of end-users. The document reveals that 6.7% of Italian mobile users have a subscription to more than one mobile network and, as regards users’ sensitivity to the cost of being called, AGCOM refers explicitly to studies conducted by Ofcom and ComReg, rather than having conducted its own study.

The consultation document is of particular interest in its analysis of potential substitutability of wholesale mobile call termination by retail SMS messages. AGCOM commissioned a study, involving interviews with 2008 end-users. The outcome of the study was that a significant majority of end-users do consider SMS to represent an alternative for voice calls… However, in paragraph 67 of the document, AGCOM states its opinion that this is not relevant, given that an essential input – SMS termination – is supplied by the same operators that supply (wholesale) voice call termination, and for whose supply (retail) SMS could have been an alternative. In paragraph 68, AGCOM goes on to state that each mobile operator enjoys a monopoly position for SMS termination on its network, and in paragraph 70, AGCOM indicates that it is likely that the terminating operator can set wholesale charges for both terminating services (i.e. voice call termination and SMS termination) taking into account the substitution/complement of both services in order to maximise its profit on a multi-product market.

Paragraph 71 makes clear that AGCOM will not immediately regulate SMS as part of Market 16, but will analyse the merits and conditions of a subsequent regulatory intervention on wholesale SMS termination, i.e. it will consider defining an additional market in accordance with Article 7(4) of the Framework Directive 2002/21/EC.

T-REGS Note: The French regulatory authority ART has already indicated several months ago that it intends to conduct a formal review of wholesale SMS termination. See also our previous news item on this topic. Defining an additional relevant market is subject to a veto power of the European Commission.

AGCOM proposes to define a single-network wholesale mobile voice call termination market, i.e. each of the 4 active mobile operators (TIM, Vodafone, WIND and H3G), independently of the technology(ies) they use (TACS, GSM, DCS1800, UMTS), is deemed to have 100% market share of the relevant market, while there are major barriers to further market entry (evidenced by the market exit of DCS1800 operator BLU and the failure of IPSE to use its UMTS licence). Countervailing buyer power is deemed to be very low, given that wholesale mobile call termination charges have only declined as a result of regulatory intervention. Profitability is considered to be high. AGCOM also concludes that there is no evidence of a so-called “waterbed effect” on the Italian market.

The regulatory obligations (‘remedies’) put forward by AGCOM are not identical for the 4 mobile operators.

Part 2 of this news item, which will address AGCOM's proposed selection of remedies, will be published on 2 Feb 2005…