On 5 Oct 2004, the European Commission issued Decision C(2004)5682final (published on 11 Oct 2004), which requires the Finnish regulatory authority FICORA to "withdraw a notified draft measure".

This is the second veto decision taken by the European Commission based upon Article 7(4) of the Framework Directive 2002/21/EC.

The veto decision follows the opening of the Phase II Investigation, i.e. the issuance of "serious doubts" letter by the European Commission on 3 Aug 2004, and follows a public consultation (8 comments were received), and a discussion in the Communications Committee (with representatives of all Member States) on 28 Sep 2004.

The decision concerns the market analysis of the wholesale market for access and call origination on public mobile telephone networks in Finland (Market 15).

The substance of the issue between FICORA and the European Commission was already covered by a previous T-REGS news item, but the following points from the veto decision can usefully be highlighted:

- The European Commission considers that FICORA has not presented sufficient evidence of Significant Market Power on the part of TeliaSonera, and considers that FICORA should have made a prospective analysis, looking forward 2-3 years.

- In particular, the European Commission states that FICORA should have taken more account of recent developments, such as the appearance of MVNOs (which negotiated access with multiple operators on commercial terms), the successful introduction of number portability (since June 2003), evidence that mobile network operators want to provide access to optimise their network capacity utilisation, and evidence of a strengthened demand-side position of service providers and MVNOs.

- As regards network effects and economies of scale, the veto decision is distinctly precedent-setting, and we therefore quote the relevant paragraphs hereafter:

[...] (31) While not contesting that network effects and economies of scale and scope resulting from the overall size of a network may be taken into account as indicators of SMP, in this case these factors are themselves – in the absence of more detailed evidence as explained above – insufficient to substantiate a finding of SMP.

(32) While some economies of scale may exist due to a difference in size and coverage of TeliaSonera’s network compared to that of its competitors, TeliaSonera’s competitive advantage seems to stem primarily from its superior capacity utilisation, i.e. a currently much larger number of customers on its nationwide network. Thus, and based on the information received subsequent to the Commission’s serious doubts letter, advantages of TeliaSonera would not primarily relate to (scale) economies resulting from a better positioning on the long-run average cost curve, but to cost savings resulting from lower short-run average costs.

(33) As opposed to differences in scale, ceteris paribus, differences in capacity utilisation do not offer a sustainable competitive advantage to an operator and can be overcome by attracting a larger number of customers onto existing capacity.

(34) The specificities of the market for mobile access and call origination are such that MNOs can improve their capacity utilisation considerably by allowing SPs onto their network, which is what TeliaSonera appears to have been doing successfully. Due to the asymmetries in capacity utilisation, the remaining MNOs have an even stronger incentive to attract SPs or MVNOs onto their networks by offering attractive conditions. This situation points towards a functioning market for mobile access and call origination.

(35) As far as network effects are concerned, these are claimed to be particularly strong due to differences in prices for on-net and off-net calls. However, such differences are mainly relevant for the assessment of the retail mobile market. Moreover, depending on the nature of the underlying market structures and regulations in place, such price differences might be addressed in other (wholesale) mobile markets. In any event, and given the absence of capacity constraints, all MNOs can take advantage of such network effects by attracting more customers onto their networks. [...]

The European Commission's key conclusion is as follows:

[...] the Commission concludes that the evidence in the present case does not support the conclusion that TeliaSonera has SMP in the market for access and call origination on public mobile telephone networks, and the draft measure is thus not compatible with Community law. The Commission therefore requires Ficora to withdraw the draft measure. [...]

The full text of the veto decision can be accessed by clicking here. The link also gives access to the first European Commission veto decision, which concerned a retail market in Finland (see the previous T-REGS news item).

For a detailed discussion of this development, and the events leading up to this veto decision, please contact Yves Blondeel.