The European Commission (eCommunications Consultation Task Force) has validated the conclusions reached by the Swedish regulatory authority Post & Telestyrelsen (PTS) that the retail markets for publicly available local, national and international telephone services provided at a fixed location no longer need to be regulated.
On 25 May 2005, PTS had re-notified (after it withdrew earlier notifications following discussions with the European Commission) the European Commission (and in parallel opened a national consultation) relating to its provisional conclusions that Markets 3-6 are not relevant for ex-ante regulation, on the grounds that these retail markets are not characterised by high or non-transitory barriers to entry (i.e. the first of the three cumulative criteria contained in the Recommendation on Relevant Markets Susceptible to Ex-Ante Regulation is not met), especially given the facts that:
a) the market share of the fixed incumbent operator TeliaSonera is steadily declining.
b) other regulatory obligations (interconnection for call termination, local loop unbundling, naked DSL, wholesale line rental, carrier selection/preselection) are in place and are functioning in such a way that they enable competitors to enter and operate successfully on the retail telephone calls markets.
In a letter dated 24 June 2005 (published on 30 June 2005), the eCCTF described the PTS' conclusions, and only formulated a comment on the inclusion of IP-Telephony (VoIP) in the notified markets, thereby in effect validating and confirming the PTS' conclusions.
T-REGS Note: It is particularly interesting to observe that the eCCTF letter focuses almost entirely on the PTS' assessment of absence of Significant Market Power, whilst the PTS itself had strongly emphasised its opinion that the markets in question do not meet the first of the 3-criteria, and hence are not susceptible to ex-ante regulation. It is of course clear that absence of SMP and the first criterion are intimately linked. This is the first time that a national regulatory authority concludes that markets which are contained and described in the European Commission's Recommendation do not meet the test that was set by the European Commission, in the particular national circumstances.
As regards market definition, PTS included all retail telephony services provided through a fixed connection in the relevant product markets, irrespective of the underlying technology, i.e. including PSTN, ISDN and broadband connections supporting telephony (IP-telephony). The geographic market is considered to be national in scope for all 4 markets examined.
PTS conducted an assessment of Significant Market Power, and concluded that, in June 2004, TeliaSonera's market share was 50% for national calls provided to residential customers, 38% for international calls provided to residential customers, whilst it was 59% for national calls provided to non-residential (business) customers, and 34% for international calls provided to non-residential (business) customers. PTS also produced information showing that the market share of the incumbent provider was declining substantially over time (since 2002) and continued to decline in 2004, and that TeliaSonera had not increased its retail prices since previous retail price caps were lifted in July 2004. This led to the conclusion that, irrespective of market shares exceeding 40%, here were sufficient other reasons to conclude that no Significant Market Power applies.
The European Commission's comment relating to IP-telephony (VoIP) is quoted in full below.
Inclusion of IP-telephony in the notified markets: PTS has included IP-telephony in the notified markets without supporting this conclusion by a substitutability analysis assessing whether and to what extent IP-telephony belongs to the same markets as traditional fixed telephony services in Sweden. When assessing whether IP-telephony services are part of any of the markets for publicly available fixed telephony services, national regulatory authorities must examine - taking national circumstances into account - the objective characteristics, prices and intended use of the IP-telephony services, as well as their demand-side and supply side substitution with other fixed telephony services. As the Commission’s Guidelines on market analysis and the assessment of significant market power (“Guidelines”) state, in order for products to be viewed as demand-side substitutes it is not necessary that they are offered at the same price, but what matters is the likely responses of consumers following a relative price increase. Furthermore, the Guidelines acknowledge that the convergence of various technologies leads to an increasing similarity in the performance and characteristics of network services using distinct technologies and for example, a packet-switched network may be used to transmit digitised voice signals in competition with traditional voice telephony services.
However, in the present cases, since the inclusion of IP-telephony does not have an impact on the SMP assessment, the Commission is of the view that in the absence of a substitutability analysis by PTS, the market definition in this regard can be left open. The Commission takes note of the fact that PTS will monitor the market development on a regular basis. In this context, the Commission would like to invite PTS to pay particular attention to IP-telephony and its impact on the development of the competitive situation in the notified markets.
For a discussion of the implications of his particularly precedent-setting development, which is clearly of major importance not only in Sweden, but, on a forward-looking basis, also in all other EU Member States, and for the upcoming review of the Recommendation on Relevant Markets Susceptible to Ex-Ante Regulation, please contact Yves Blondeel.
For reference, we also provide a link to the English summary of one of the PTS notifications, relating to Market 5 (local and national calls, for non-residential customers).