Update 8 May 2012: Today, the European Commission issued its comments letter on the Spanish CMT’s re-notification. The European Commission decided NOT to escalate the case again. Indeed, the European Commission now accepts postponement of the final step to pure BU-LRIC and symmetry between MNOs to 1 July 2013. Key elements of the comments letter are cited below:

With regard to reaching pure BU-LRIC:

Having said this, the Commission appreciates that regulators are confronted with the need to strike a balance between protecting consumer welfare and avoiding a disruptive impact on the operators. To that end, the Commission acknowledges that NRAs have a certain margin of discretion, which could allow them to delay to a degree the introduction of fully cost-oriented rates.

Against this background, and based on the information available to the Commission, a delay – if very limited – in the implementation of the cost-oriented rates is acceptable, taking account of the need to minimise business and regulatory uncertainty in the Spanish markets flowing from an important decrease in MTRs. The Commission considers that, in the light of particular national circumstances (footnote 15), a small deviation of a few months is sufficiently justified (i) given that the revised measures set a level of rates which tend towards the pure BU LRIC rates which are to be implemented by 31 December 2012 by all NRAs, (ii) due to the fact that pure BU-LRIC rates will be achieved much earlier than under the previously notified draft measure, and (iii) due to the fact that the proposed measure now strikes an appropriate balance between the increased consumer welfare on one hand and the risk of disruptive impacts on the sector (through too short a glide-path) on the other hand.

Therefore, the Commission considers that the application of MTRs at a level of 1.09 €ct/min based on a BU-LRIC costing methodology as of 1 July 2013 at the latest would still sufficiently address the pressing need to ensure that consumers derive maximum benefits in terms of efficient cost-based termination rates as soon as possible after the 1 January 2013 by eliminating competitive distortions associated with above-cost termination rates.

Moreover, the Commission takes note that CMT indicated that the consumer surplus of the draft measures relative to those previously notified will increase by around 80 million €.

Nevertheless, the Commission notes that the proposed glide-path would maintain MTRs in Spain at relatively high levels in its first stages (16 April 2012 to 29 March 2013) while leading to a very steep and sudden decrease in its last stage (1 March to 1 July 2013). Against this background, in order both to bring more quickly the benefits of lower MTRs to the consumers and avoid excessively steep glide-paths at the end of the transition, the Commission asks CMT to reconsider the individual steps of the proposed glide-path in order to reduce termination rates in Spain earlier and more gradually.

With regard to symmetry:

The Commission notes that CMT’s decision also leads to a period until 1 July 2013 during which asymmetric MTRs on Xfera/Yoigo continue to be applied.

The Commission recalls that, given that Xfera/Yoigo entered the market in 2006, in principle any asymmetry beyond 31 December 2012 should not be justified, as the higher (asymmetric) termination rates would be maintained beyond the time needed by such operator to adapt to market conditions and become efficient over time (which could even discourage such operator from seeking to expand its market share).

However, the Commission acknowledges that the proposed timeframe for ending such asymmetry – only 6 months beyond the recommended deadlines – would have a limited impact on competition. This is due, in particular, to the fact that the impact of the remaining asymmetry for January – July 2013 should be low given Xfera/Yoigo’s relatively low retail market share.

Footnote 15:

CMT justifies the deviation from the Commission’s Termination Rates Recommendation with the disproportionate and disruptive impact an earlier introduction of the fully cost-oriented rate (i.e. a steeper glide-path) would have on the MNOs in general (and Xfera/Yoigo in particular). The Spanish operators affected by the measure, have important investment commitments in the next three years linked to the recent spectrum tender and reframing procedures. In particular, Vodafone’s network investment commitments amount to 160 million € and Yoigo’s to 60 million €.

Update 9 April 2012: As a matter of fact, the Spanish CMT also formally withdrew its original Article 7 notification on 30 March 2012, and at the same time re-notified its proposed revised glide-path (details are as indicated below). The CMT’s new notification was registered by the European Commission on 2 April 2012.

Update 31 March 2012: Yesterday, the Spanish CMT put forward a revised glide-path, essentially bringing forward each of the MTR reductions by 6 months, so as to achieve symmetric BU-LRIC MTRs of 1,09c/min on 1 July 2013. A press release (in Spanish) with graphics has been made available by the CMT. T-REGS Note: The final step to symmetry and to BU-LRIC as proposed by the CMT remains beyond the timeframe contained in the 2009 EC Recommendation on the Regulatory Treatment of Fixed and Mobile Termination Rates in the EU.

Today, the European Commission invited interested parties to file their observations (by 23 March 2012) on its expression of serious doubts about draft regulatory obligations (‘remedies’) put forward by the Spanish national regulatory authority CMT relating to Market 7 (wholesale voice call termination on individual mobile networks).

The full text of the European Commission’s escalation letter addressed to the CMT in application of Article 7a(1) of the revised Framework Directive has also been released (this follows the issuance of a press release on 5 March 2012). The files can be accessed below:

 ES-2012-1291 (EC escalation letter)

 ES-2012-1291 (EC invitation to file observations)

The CMT’s draft decision (available only in Spanish language) puts forward a proposed reduction over time of wholesale mobile call termination rates (MTRs) to specific levels, in accordance with a costing method that the CMT has proposed to adopt. The CMT also puts forward a timeframe for achieving symmetric MTRs between, on the one hand, Movistar, Vodafone and Orange, and, on the other hand, Xfera Moviles (commercial name Yoigo), which is a late entrant on the Spanish mobile market.

Both aspects of the CMT’s proposed draft regulatory obligations would imply that the obligations to be imposed on Spanish mobile network operators (and also on Spanish MVNOs) would extend beyond the timeframes which are indicated in the EC Recommendation on the Regulatory Treatment of Fixed and Mobile Termination Rates in the EU which was issued by the European Commission on 7 May 2009. This 2009 EC recommendation calls for MTRs to be based on a pure bottom-up LRIC costing methodology by end-2012 and calls for symmetric MTRs to be achieved no later than 4 years after late entrant MNO market entry (Xfera Moviles entered the market more than 4 years ago).

In accordance with Article 19 of the revised Framework Directive, Member States are required to ensure (by means of national legislation/regulation) that their national regulatory authorities ‘take utmost account’ of EC Recommendations.
Noteworthy elements in the European Commission’s 12-page escalation letter include: (i) its description of the proposed treatment by the CMT of ‘interconnection commercial costs’, (ii) its comments on the balance between, on the one hand, consumer interests (the interests of Spanish consumers and of consumers in other EU Member States), and on the other hand, Spanish mobile network operators’ interests, (iii) deviation from the 2009 EC Recommendation, and (iv) the EU Single Market dimension. Spanish mobile network operators’ investment plans (invoked by the CMT), and the financial crisis in Spain (also invoked by the CMT), are also the subject of explicit European Commission comments linked with consumer interests and with the EU Single Market.

T-REGS Note 1: The balance between consumer interests and operators’ interests was a parameter in the judgment of the CBb appeals court in The Netherlands which annulled and substituted OPTA’s decision on MTRs (and instructed OPTA to revisit FTRs). OPTA’s subsequent notification to the European Commission is itself also currently the subject of an Article 7a(1) procedure.

The CMT has publicly reacted to the European Commission’s escalation of the case, by posting a lengthy item on its blog (in Spanish language) on 5 March 2012, in which it emphasises (including by making use of graphic representation) that it is by no means the only national regulatory authority in the EU to have put forward a MTR glide-path extending beyond end-2012. The CMT’s blog item also addresses the extent to which the CMT considers itself bound by the 2009 EC Recommendation, and by potential subsequent specific European Commission action on the case, in accordance with the procedure provided for by Article 7a(1) of the revised Framework Directive.

The case at hand in which the European Commission is challenging the Spanish CMT on Market 7 has now entered the 3-month co-operation procedure. As has been indicated above, interested parties are invited to file comments by 23 March 2012.

T-REGS Note 2: If no solution can be found in the 3-month co-operation procedure – described here involving the CMT, BEREC and the European Commission – Article 7a(1) of the revised Framework Directive empowers the European Commission to adopt a Recommendation requiring withdrawal of the draft measures notified by the national regulatory authority on the specific case being examined.
This has never occurred to-date.
The EC/CMT case at hand could conceivably become a test-case in this regard.

T-REGS Note 3: Article 19 of the revised Framework Directive contains not only the power for the European Commission to adopt harmonization Recommendations (such as the 2009 EC Recommendation on the Regulatory Treatment of Fixed and Mobile Termination Rates in the EU) and the requirement of ‘taking utmost account’, it also empowers the European Commission, under specific circumstances (notably 2 years after the prior issuance of a European Commission harmonization Recommendation on the same subject), to go further and adopt harmonization Decisions. This has never occurred to-date. If the EC/CMT case is not resolved through the 3-month co-operation procedure, and if the track record of all national regulatory authorities by end-2012 with regard to the EC Recommendation on the Regulatory Treatment of Fixed and Mobile Termination Rates in the EU would be mitigated, these elements could ultimately contribute to the potential adoption of a European Commission harmonization Decision on the Regulatory Treatment of Fixed and Mobile Termination Rates in the EU in the year 2013.

T-REGS Note 4: At the time of adoption of the revised Framework Directive, a number of EU Member States issued a formal Statement (last page of the linked document), in which they interpret the power for the European Commission to issue Article 19 harmonization Decisions in a manner which would not extend to the selection of regulatory obligations (‘remedies’) or to the extent of such remedies. The last paragraph of the Statement was as follows:
“These Member States therefore considers that the scope of the Commission’s decision-making powers under Article 19 of the Framework Directive by reference to Articles 15 and 16 of the Framework Directive is limited to matters concerning market definition,  assessment of significant market power and the effect of market analysis on whether obligations should be imposed or not on undertakings but does not extend to the choice and design of remedies under Articles 8 of the Access Directive or Article 17 of the Universal Service Directive.”