On 20 and 21 Sep 2004, a Decision Chamber (Beschlusskammer) of the German regulatory authority Reg TP concluded precedent-setting proceedings relating to the wholesale call termination charges of a number of fixed new entrant network operators.
The operators in question (which operate fixed access networks, mostly in German cities) are now entitled to apply wholesale call termination charges that are up to 25% higher than the traditionally regulated wholesale call termination charges of the fixed incumbent operator Deutsche Telekom AG (whose call termination charges are subject to LRIC-based cost-orientation and element-based charging, resulting from its declaration as an operator with Significant Market Power under the outgoing regulatory framework) and which had historically applied reciprocally between the incumbent operator and new entrant operators.
Reg TP’s decisions (and therefore the resulting wholesale call termination charges of the operators that are the subject of the decisions) are applicable until 31 May 2006.
The regulatory authority justified its decisions as follows:
– According to the new Telecommunications Act (TKG) which entered into force on 26 June 2004, Reg TP investigated (in these particular cases of operators which had not been declared as having Significant Market Power under the outgoing regulatory framework) whether charges are “not abusive”. T-REGS note: this particular aspect of the TKG is one of the elements which is the subject of discussions between the German authorities and the European Commission relating to conformity with EU directives.
– Reg TP tested whether charges are “not abusive” by performing a benchmarking exercise, comparing the German wholesale call termination charges with the equivalent charges applicable in other European countries. Reg TP’s benchmark showed that charges are, on average, 17% higher than in Germany. Reg TP applied a ‘safety margin’, yielding the 25% conclusion in the proceedings.
– It took into account the fact that the operators in question entered the market after the incumbent operator Deutsche Telekom AG, and have a smaller customer base (and -implicitly- are temporarily enjoying lower economies of scale).
Reg TP specified very clearly that the effects of its decisions should be transitory, and that it expects that wholesale call termination charges ‘will settle at an equivalent level’ in the medium term.
The full text of the Reg TP decisions has not yet been made public.
T-REGS notes: It is very likely that the Reg TP decisions in question will be appealed, by one or more parties to the proceedings. Reg TP’s announcement makes no reference to the upcoming review of Market 9 (call termination on individual public telephone networks provided at a fixed location) as identified by the European Commission’s Recommendation on Relevant Markets Susceptible to Ex-Ante Regulation.