The Dutch Trade and Industry Appeals Tribunal (College van Beroep voor het Bedrijfsleven - CBB) has today published its reasoning for granting part of the appeals that were filed against the OPTA decisions of 14 Nov 2005 and 31 May 2006 relating to the wholesale markets for voice call termination on individual mobile networks (Market 16 of the European Commission's Recommendation on Relevant Markets Susceptible to Ex-Ante Regulation). 

The CBB annulment ruling is extremely far reaching. The CBB’s overall conclusion, contained in point 11.6.5 of the judgement, is translated in full hereafter: 

The annulment of the OPTA decisions has as a consequence that the markets defined by OPTA are, until further notice, unregulated. The CBB College sees no grounds for taking temporary measures in accordance with art. 8:72, fifth paragraph, Awb (general administrative law), irrespective of what the contents of such temporary measures would be. The CBB College notes that the mobile providers have reciprocally committed themselves not to increase their wholesale mobile call termination charges until 1 Dec 2006. In addition, during the session of 14 June 2006, it has been put forward on behalf of the mobile providers that they will not subsequently increase these charges within the current regulation period and/or that an increase is very improbable. From the documentation filed during the proceedings, it has not appeared that the removal of regulatory obligations (be it temporary or not) of access, non-discrimination and transparency would have consequences that would extend so far as to require consideration of the adoption of temporary measures. 

T-REGS Note: This also confirms the assessment we provided on 30 Aug 2006, i.e. that the judgement affects the entire glide-path for reductions of wholesale mobile call termination charges, including the reduction which came into effect on 1 July 2006. 

An extensive summary of the key points of the CBB judgement is provided hereafter.

Market definition

The CBB agrees that the market definition ‘voice call termination on individual mobile networks’ (‘gespreksafgifte op afzonderlijke mobiele netwerken’) put forward by OPTA is appropriate and rejects objections from operators in this respect. Two particular points of interest in the context of market definition are discussed below:

Status of the Telfort network (Telfort was acquired by KPN)

A key issue of contention in The Netherlands is the treatment of the Telfort network (1800 MHz network) following its acquisition by KPN Mobile (900 MHz network) for the purposes of market definition and regulatory obligations. OPTA had decided to treat KPN Mobile/Telfort as a single network market for the purposes of the regulation of wholesale call termination, and to apply differential wholesale call termination charges for the 900 MHz networks (KPN Mobile/Telfort and Vodafone) compared to the 1800 MHz networks (Orange and T-Mobile). The CBB notes that it has received evidence that the wholesale divisions of KPN Mobile and Telfort have been merged, and notes also that OPTA is required to conduct a prospective analysis of the market, and on this basis the CBB considers that OPTA’s decision on treating KPN Mobile/Telfort as a single network is appropriate. 

T-REGS Note: Whilst this validates a key point of OPTA’s market definition and selection of regulatory obligations (‘remedies’), the overall effect of the CBB judgement overrides this. 

Treatment of MVNOs

Tele2 (which operates as an MVNO on an 1800 MHz host network) questioned OPTA’s decision to consider that it has a network and the resulting SMP designation. The CBB notes that Tele2 controls access to its own end-users, which has as a consequence that, for the purposes of terminating a call to those users, other operators have to purchase wholesale call termination from Tele2 (directly or indirectly). On this basis, the CBB confirms OPTA’s decision to designate Tele2 as an MVNO as a separate relevant single network market.
 

SMP assessment: focus on countervailing buyer power

The CBB criticises OPTA for attaching excessive importance to market share (100%) as a criterion for finding SMP on Market 16 and, more importantly, for insufficient attention to issues surrounding countervailing buyer power, especially:

 a)     countervailing buyer power between mobile operators.

 b)    countervailing buyer power of KPN and KPN mobile, who, as the CBB states, have in the past refused to pay the full amount of wholesale call termination charges levied by other operators.

As regards countervailing buyer power between mobile operators, the CBB concludes that OPTA has insufficiently contradicted the argument that ‘there exists a certain interdependency among mobile operators’. According to the CBB, it cannot be excluded that the mobile operators are ‘in a certain equilibrium’, and it cannot be excluded that ‘some and probably all mobile operators are not genuinely able to behave independently of one-another’.

In addition, the CBB states that OPTA has insufficiently investigated the factual position of each individual mobile operator on the retail market for mobile telephony and on the wholesale markets for call termination on each network.

As regards countervailing buyer power of KPN (the fixed incumbent operator) in particular, the CBB questions whether high wholesale mobile call termination charges are due exclusively to market power for wholesale mobile call termination. The CBB puts forward a potential alternative explanation, namely the possibility that the absence of countervailing buyer power can be explained by regulation of fixed telephone services, and in particular wholesale fixed call termination, which may impede the creation of a balance of power between fixed and mobile operators in terms of the determination of their wholesale call termination charges and retail tariffs. The CBB calls into question whether OPTA has really taken a situation absent regulation as a basis for its analysis of Market 16, and asks which consequences are derived or are to be derived from the fact that fixed markets (including fixed wholesale call termination) would or would not be regulated.

OPTA is enjoined to make a thorough and complete analysis of the economic characteristics of the market, including the points outlined above.

Furthermore, the CBB states that OPTA has insufficiently explained and justified what ‘excessive’ means (in the context of excessive wholesale mobile call termination charges), and why the mobile operators’ charges would be excessive. In this context, the CBB confirms that OPTA admitted in the session of 14 June 2006 that it had not examined the underlying costs of mobile operators. The CBB also largely rejects the benchmarking approach adopted by OPTA in the context of its finding that charges were ‘excessive’.

 T-REGS Note: The grounds for rejection are partial in the case of the comparison with the decisions made by Ofcom in the UK.

 
Overall conclusion on SMP assessment: link with differentiation of remedies

 On the basis of the points outlined above, and other elements that are not discussed in this T-REGS summary, the CBB conclusion is that it cannot be excluded that, if OPTA had been more diligent in conducting its research and analysis, and given that OPTA has not properly justified its decision, a different conclusion could be reached on the question as to whether mobile operators have significant market power on the markets for voice call termination on individual mobile networks.

If OPTA intends to re-designate several or all mobile operators as having SMP, OPTA is enjoined to demonstrably verify whether the mobile operators have a different degree of SMP, and if so, whether this gives rise to grounds for differentiation in the imposition of regulatory obligations. 
 

Further elements

Sufficiency of competition law

 The CBB adds to its judgement that, irrespective of the weaknesses it sees in OPTA’s analysis, there is also the issue of sufficiency of competition law to address possible competition problems. The CBB considers it insufficient to rely on the European Commission’s Recommendation on Relevant Markets Susceptible to Ex-Ante Regulation (especially given that it is 3 years old) in this regard, and considers that this issue needs to be addressed by OPTA.

Impact assessment

OPTA is also criticised for not having sufficiently weighed up the benefits and drawbacks of regulatory intervention, and in particular the possible pros and cons of wholesale charge regulation for fixed and mobile operators and for fixed and mobile end-users. In this context, reference is made to the arguments presented by mobile operators that they are not able to retain possibly important profits derived from high wholesale call termination charges, because these profits are ‘competed away’ on the retail market for mobile calls. It is added that increased competition for retail mobile services boosts mobile take-up and usage, which is globally in the interests of fixed users as well.

The glide-path: issues of legal certainty

The CBB considers that it is not possible to assess the appropriateness of wholesale charge regulation and in particular the duration of the glide-path to cost-orientation, without having sufficient insight in the objective costs incurred by mobile operators for mobile call termination, and without it being clear which charge level or charge levels OPTA considers as being cost-oriented.

OPTA is also criticised for having created an unclear situation, by requiring the mobile operators to reduce their wholesale call termination charges on 1 July 2006, whilst OPTA was not able to definitively establish the level of charges to be applied as of 1 July 2006, and OPTA did not consider changing the date of applicability of the first step in the glide-path. The CBB concludes that this may be contrary to the principle of legal certainty.
 

Overall conclusion

The CBB’s overall conclusion is that the OPTA decisions must be annulled in their entirety, and that it is to necessary to adopt interim measures. OPTA is enjoined to re-conduct the analysis of Market 16. In the meantime, market 16 is unregulated in The Netherlands. However, as is indicated in the introduction of this T-REGS news item, the mobile operators have given certain indications to the CBB with regard to their intentions going forward.
 

For a discussion of this important development, please contact This e-mail address is being protected from spam bots, you need JavaScript enabled to view it . 

The full text of the CBB judgement (in Dutch) can be accessed by clicking here.