On 15 Feb 2005, the German regulatory authority RegTP notified the European Commission of its proposed market definition and market analysis concerning the markets for call termination on individual public telephone networks provided at a fixed location (Market 9).
RegTP’s market definition is in line with the definition contained in the European Commission’s Recommendation on Relevant Markets Susceptible to Ex-Ante Regulation: RegTP identified 54 separate relevant markets, corresponding to the network of the incumbent operator Deutsche Telekom AG and to the networks of 53 alternative access network operators.
Each of the 54 network operators is considered to have 100% market share for the termination of calls on its respective network, but RegTP considered that only Deutsche Telekom AG has Significant Market Power (SMP). The 53 other operators are considered by RegTP to be subject to countervailing buyer power from Deutsche Telekom AG, to the extent that it does not allow the alternative network operators to behave to an appreciable extent independently of their competitors (at the retail level), and in particular Deutsche Telekom AG, and from their customers, when providing call termination.
The eCommunications Consultation Task Force (eCCTF) of the European Commission requested and received additional information from RegTP, but has now published a letter (dated 11 March 2005 but made available subsequently) expressing “serious doubts” as to whether RegTP has presented sufficient evidence to support its finding of absence of SMP on the part of the alternative network operators. The letter also expresses “serious doubts” as to whether the SMP determination proposed by RegTP meets the requirements laid down in Articles 14 and 16 of the Framework Directive 2002/21/EC, as well as Article 8.2 (a) and (b) of the Framework Directive, read in conjunction with Articles 10 and 82 of the EC Treaty.
Therefore, a so-called “Phase II Investigation” is opened, and in accordance with Article 7(4) of the Framework Directive, RegTP’s draft measure may not be adopted by the German regulatory authority for a period of 2 months.
T-REGS Note: It is clear that the German authorities and the European Commission are engaged in a process which can fairly be characterised as a sophisticated chess or poker game, which may last several years. This occurs against the backdrop of a German Telecommunications Act which clearly and intentionally deviates from the EU directives (as is evidenced by its explanatory memorandum), which will inevitably have to be considered by the European Court of Justice as part of infringement proceedings, and in the context of the fact that the RegTP notification, and the European Commission’s reaction, must be analysed especially in the light of the forthcoming consideration of mobile call termination (Market 16).
The most salient citations from a generally very interesting eCCTF letter are as follows:
[…] Such an interconnection obligation seems to exist also in Germany under the Telekommunikationsgesetz13 (“TKG”). RegTP argues, however, that this interconnection obligation does not force DTAG to accept unreasonable rates. RegTP could have demonstrated this by showing that, in the recent past, DTAG has been able to exert sufficient pressure on the individual ANOs to keep their call termination rates at competitive levels. RegTP presents no evidence of this behaviour. In fact what seems to have constrained the individual ANOs’ call termination rates in the past is not the countervailing buyer power on the part of DTAG, but the regulatory regime under which RegTP has imposed a price ceiling on the individual ANOs’ termination rates without any prior SMP assessment. Presently, it seems that, under the German law, the interconnection charges (i.e. also call termination rates) of a non-SMP operator may indeed be regulated in case of failure of private interconnection negotiations and without the need for any prior SMP finding.
Against this regulatory background and following applications by 37 ANOs, RegTP has since mid September 2004 decided that the ANOs are allowed to charge 25% more for the call termination on their respective networks than DTAG15. This implies that, at least for these ANOs, de facto call termination rates seem to be constrained by what appears to be price regulation rather than DTAG’s exercising its countervailing buyer power.
In response to the Commission’s request for information, RegTP indicated that it intends to continue the existing price regulation for ANOs, despite the fact that according to RegTP they would not have SMP. Independently of whether such regulation would be compatible with the EU regulatory framework16, such price regulation, if it were to be taken into account, appears to limit DTAG’s supposed countervailing buyer power. In a situation where all ANOs use the regulatory procedure to enforce higher call termination charges upon DTAG and are virtually guaranteed a 25% mark-up, DTAG’s ability to negotiate lower rates during private negotiations appears to be severely limited. […]
[…] The Commission is of the view that RegTP should have taken into account the regulation of DTAG’s own termination tariffs, combined with the interconnection obligation, as limiting its countervailing buyer power. Since RegTP intends to designate only DTAG with SMP and consequently price-regulate its termination rates only, the Commission is of the view that RegTP provides insufficient evidence to conclude that DTAG still holds countervailing buyer power in the market for wholesale call termination. […]
[…] Finally, RegTP has failed to analyse ANOs’ market power vis-à-vis each other and vis-à-vis MNOs. Although, as RegTP points out, these operators may only play a marginal role on the demand side of the termination markets (since most of the traffic originating on their networks is terminated indirectly, using the transit and termination services provided by DTAG), an analysis of those direct interconnection agreements that exist between ANOs and/or with MNOs could have provided further information on the market power of ANOs. This is in particular the case for those agreements that, unlike the interconnection agreements with DTAG, have been negotiated in an unregulated context. […]
Within the period up to 11 May 2005, the European Commission may, after consulting the Communications Committee (CoCom), take a decision under Article 7(4) of the Framework Directive, requiring the German regulatory authority to withdraw the draft measure, i.e. exercise its veto power over the (lack of) SMP designation.
The full text of the European Commission’s “serious doubts” letter can be accessed by clicking here (access is restricted to registered users of the T-REGS website, but registration is free of charge).
For a detailed discussion, please contact Yves Blondeel or Alexa Veller.