The French Competition Council (Conseil de la concurrence) has today published its Advice on the draft market definition and market analysis conducted by the ART (Autorité de Régulation des Télécommunications) relating to Market 15: “access and call origination on public mobile telephone networks”.
In Avis n° 05-A-09 (formally dated 4 April 2005), the Competition Council expresses its agreement with the market definition, and with the ART’s proposal to include it on the list of relevant markets susceptible to ex-ante regulation. In addition, the Competition Council endorses the ART’s proposal to impose regulated MVNO (mobile virtual network operator) access on all three MNOs (mobile network operators) present on the French mainland: Orange France, SFR and Bouygues Télécom.
Very importantly, however, the Competition Council does not go so far as to declare or accept a finding of joint dominance / joint SMP by the three MNOs. In fact, the Competition Council states literally (paragraph 59) that the three cumulative criteria established by the jurisprudence of the European Court of Justice for the finding of joint dominance are not conclusively met. These criteria are contained in the Airtours/First Choice ruling of 6 June 2002 and in the FIFA ruling of 26 Jan 2005.
Nevertheless, the Competition Council also considers that it is not possible to cast aside the possibility of a collective (tacit) strategy of the three MNOs to prevent MVNOs from exercising effective competition at this stage of the development of the wholesale market (characterised by a limited number of commercial MVNO deals that entail severe limitations – discussed below).
The Competition Council comes to the following key conclusions:
1. There is a risk of insufficient competition as a result of possible joint dominance on the wholesale market, because the characteristics of the relevant market are such that tacit collusion is structurally possible.
2. This is a case in which sector-specific regulation appears to be more effective than competition law.
3. In the present circumstances, ex-ante (preventive) regulation can be justified to prevent the risk of the emergence of a ‘collusive equilibrium’.
4. The regulatory measures proposed by the ART would reinforce the negotiation power of MVNOs, enabling them to demand improvements of the applicable contractual conditions and enabling them to achieve critical mass, and hence to weaken potential collusion by the MNOs.
5. Accompanying regulatory interventions relating to number portability and commercial practices on the retail mobile market are necessary (see below).
6. Ultimately, the appearance of more solid MVNOs could lead to interest on the part of one or multiple MVNOs (perhaps in combination with a fixed network operator) to take up the 4th UMTS licence, for which no expressions of interest have been received.
Key further noteworthy points are as follows:
In the introduction to its Advice, the Competition Council takes note (paragraph 9) of the recent flurry of MVNO deals being announced in France, and openly expresses its opinion that most of these deals are likely to result from a very recent change of position by the MNOs, stimulated by political and regulatory pressure, including in particular the market analysis process.
T-REGS Note: An important background element in this respect is the fact that the European Commission vetoed the proposal of the Finnish regulatory authority FICORA to impose MVNO access on TeliaSonera Finland, on the grounds that there was sufficient evidence of commercially negotiated MVNO access involving multiple operators. For background information, please refer to previous T-REGS news items.
The Competition Council also observes (paragraphs 29 through 38) that the existing French MVNO deals do not enable MVNOs to exercise effective competitive pressure on (or more precisely: across all segments of) the retail market.
Elements highlighted in this respect include: a retail-minus approach for wholesale access charges, which allows the MNOs to control the extent of competitive pressure from MVNOs and enables them to apply a margin squeeze on certain retail market segments, thereby avoiding head-to-head competition between the host operator and its MVNO(s). In addition, no MNO has granted access to its Home Location Register (HLR), and MVNO deals were concluded for period up to 9 years, with prohibitions on the MVNO from switching to another host operator (for +/- 2 years).
Further in its Advice (paragraphs 23, 24 and 25), the Competition Council adds that there is weak competitive pressure on the retail mobile market in France, that retail prices are not the sole factor in influencing market shares (competition between operators is considered to be focused on brands and services rather than on price) and that there are major switching costs for end-users, such as: 24-month contracts, handset renewal offers with subsidies, slow and complex number portability arrangements (porting a mobile number currently takes 2 months), and long subscription cancellation times.
T-REGS Note: Separately from the market analysis procedure, the ART has recently advised the Minister (upon his formal request) to improve the number portability process for operators and for end-users (suggesting, amongst others, the establishment of a Common Reference Database, removing the requirement for the end-user to contact both the donor and the recipient operator, etc.), and to enforce subscription cancellation times of maximum 10 days. The full text (in French) of this ART advice can be accessed by clicking here.
Advice n° 05-A-09 of the Competition Council will be scrutinised in great depth by legal and regulatory professionals, and it remains to be seen how the European Commission’s eCCTF will assess the notification, which can be expected to follow in the next few weeks or months.
For an in-depth discussion, of a document for which it is extremely difficult to provide a fully accurate summary, please contact Yves Blondeel.