The European Commission's eCommunications Consultation Task Force (eCCTF) has opened a Phase II investigation about a market analysis notified by the Finnish regulatory authority Ficora, and is formally inviting interested parties to submit their observations no later than 17 Aug 2004.

This is the second Phase II procedure (i.e. the procedure which can lead to a veto by the European Commission in application of Article 7.4 of the Framework Directive 2002/21/EC) since the formation of the eCCTF in 2003 (the first case also concerned Finland, see the relevant T-REGS news item).

The Phase II investigation concerns Market 15: "access and call origination on public mobile telephone networks".

Ficora's market definition is equivalent to that of the European Commission's Recommendation on Relevant Markets Susceptible to Ex-Ante Regulation, i.e. it includes all mobile networks and Ficora found that the market is national in scope.

The issue at stake is that Ficora proposes to declare TeliaSonera as having Significant Market Power (TeliaSonera's market share is estimated to be above 50%, and other factors are identified by Ficora), whereas the eCCTF considers that there is "lack of reasoned evidence of the finding of SMP".

The eCCTF expresses "serious doubts as to the compatibility of the draft measures with Community law and in particular the objectives referred to in Article 8 of the Framework Directive".

A detailed citation from eCCTF's letter, dated 3 Aug 2004, and containing the European Commission's objections, is provided hereafter.

[...] On the basis of the evidence available, the Commission has serious doubts as to the proposed SMP determination. The assessment submitted in the present case does not seem to be in line with Articles 14 and 16 of the Framework Directive, in particular with regard to Article 8(2)(b) of the Framework Directive read in conjunction with Articles 10 and 82 of the EC Treaty. The Commission expresses serious doubts in this regard for the following reasons:

Lack of evidence to support the finding of SMP: Despite the fact that the market share of TeliaSonera in the relevant market is in excess of 50%, the Commission considers that in the circumstances of the given case there is not sufficient evidence for the existence of a dominant position, nor does there seem to be a full assessment of the dynamics of competition. The Commission notes that service providers in Finland have been able to conclude agreements on a commercial basis with each nationwide-operating mobile network operator in the relevant market, even though there is no regulatory obligation for network operators to provide access. Therefore, there must have been economic incentives for network operators to provide access to service providers. However, Ficora, in its notification, neither refers to such incentives nor analyses the conditions under which the agreements with service providers have been concluded. In this respect, the Commission notes that the recent developments in the retail market indicate that service providers, on the basis of their wholesale agreements with network operators, have succeeded in gaining subscribers from them. In particular two service providers have increased their market shares over the past 18 months to a considerable extent.

This raises the question of the impact the dynamics observed in the retail market could have on the relevant wholesale market. For instance, independent service providers seem to have built their own market reputation very rapidly. This reputation may translate into a strong incentive for TeliaSonera to keep these service providers on its own network. It could also be argued that due to the dynamics in place, the other network operators, in particular Elisa and Finnet Verkot, would have a strong incentive to provide these service providers with access to their networks, in order to take advantage of the wholesale services they could provide them with instead of TeliaSonera.

These economic incentives of Elisa and Finnet Verkot seem to be apparent, in particular as both network operators, by way of competitive moves, are currently trying to offer to those services providers operating on their own networks completely different tariff schemes. Such competition in the relevant market is likely to rein in TeliaSonera’s alleged market power, provided that service providers are not locked-in to their suppliers and not subject to either high switching costs or capacity constraints of networks. In such an environment, independent service providers would be able to induce a competitive check on each of the network operators, irrespective of which one they would operate on in the end. The information provided by Ficora so far does not enable the Commission to assess definitively whether such an effectively competitive environment exists.

Indeed, although Ficora refers to high switching cost and to capacity constraints resulting from past allocation of frequencies, the arguments provided are not sufficiently substantiated and detailed to allow the conclusion that TeliaSonera has SMP. The Commission considers that, taking into account the market shares so far gained by independent service providers in the mobile retail market, it is crucial to analyse in depth the ability of independent service providers to use their successful penetrating competition at retail level for negotiating favourable wholesale agreements and avoiding any lock-ins with network operators.

The Commission is also of the view that other arguments provided by Ficora to support its finding of SMP, while not contesting them a priori, should have been substantiated by further factual data. Ficora refers inter alia to TeliaSonera’s economic strength, scale and scope economies, network infrastructure built under monopoly rights, without providing sufficient market data and/or analysis as to what extent these factors prevail in the relevant market and how they support its conclusions.

For the rest, when looking at the non-discrimination requirement which Ficora proposes for TeliaSonera, there is a risk of even impeding the currently positive competitive development in both the relevant market and the mobile retail market, by way of regulatory intervention. In the particular circumstances of the case, this requirement would tend to lead to greater horizontal transparency and might put TeliaSonera at a disadvantage when negotiating terms. Such transparency may reduce price competition in the relevant market, as TeliaSonera´s competitors Elisa and Finnet Verkot’s might only to a lesser extent be forced to offer competitive conditions to service providers to get them onto their networks.

Against the background of the above arguments, and in particular in light of the fact that the relevant market seems to function on a commercial basis, Ficora does not provide sufficient arguments to support the finding of TeliaSonera to have SMP in the wholesale market for access and call origination on public mobile telephone networks in Finland. [...]"

The full text of the eCCTF letter addressed to Ficora can be accessed by clicking here. The letter has also been added to the T-REGS repository of eCCTF letters, which can be accessed by clicking on Documents at the top right of this website.

The European Commission's notice of initiation of the Phase II investigation can be accessed by clicking here.