On 21 July 2004 we reported that the Austrian regulatory authority RTR had issued a market review consultation document, containing the proposed conclusion of the Austrian Telekom-Control-Kommission (TKK) that there is effective competition on the wholesale market for transit services in the fixed public telephone network.

The proposed conclusions were also notified to the European Commission (and to other national regulatory authorities in the EU).

Today, the European Commission made public the fact that on 20 Aug 2004, it formally informed the Austrian regulatory authority that it has "serious doubts" as to the compatibility of the notified draft measure with Community law (Article 8(2)(b) of the Framework Directive 2002/21/EC, read in conjunction with Articles 10 and 82 of the EC Treaty) in particular as to whether sufficient evidence was included to support the findings of the TKK in relation to the market definition and their subsequent impact on the assessment of Significant Market Power (SMP).

Therefore, a so-called "Phase II Investigation" is opened, and in accordance with Article 7(4) of the Framework Directive, the draft measure may not be adopted by the Austrian regulatory authority until 20 Oct 2004.

Within the period up to 20 Oct 2004, the European Commission may, after consulting the Communications Committee (CoCom), take a decision under Article 7(4) of the Framework Directive, requiring the Austrian regulatory authority to withdraw the draft measure, i.e. exercise its veto power over the market definition and the (lack of) SMP designation.

Interested parties are invited to present their observations to the European Commission, at the latest on 1 Sep 2004.

Market Definition

TKK included direct interconnections between operators and self-supply by operators in the relevant market. The European Commission considers that, on the basis of the evidence available, TKK’s market definition is not tenable, specifically as regards the inclusion of direct interconnections. TKK indicates in the notification that Telekom Austria’s share of a market which does not include direct interconnections is near 90%. According to the European Commission, such a market share would not support a finding of absence of SMP.

Market Analysis

With regard to TKK’s market analysis, the European Commission concludes that, even if all TKK’s conclusions with regard to self-provision could be supported, the question arises as to whether Telekom Austria would still have SMP on the market for transit services with a market share of approximately 45%, and states:

In this regard, TKK does not provide further substantial evidence, other than market shares, to support the finding of absence of SMP. Conversely, TKK’s findings of high barriers to market entry as well as the additional cost associated with self-provision might still point to TA’s having SMP".

Anticipated Effects

The European Commission considers it incorrect that the Austrian regulatory authority has failed to apply a so-called 'green field approach/consideration' of alternatives to Telekom Austria’s ubiquitous network in the absence of regulation, and in this respect states the following:

"A green field approach would focus on the effects any withdrawal of obligations may have on TA’s actual supply of transit services. In this regard, TKK’s analysis is limited to finding that the proposed withdrawal of regulation may lead to competitive disadvantages to operators with relatively small networks. TKK qualifies this finding with the suggestion that such an outcome would provide incentives for further network roll-outs of such operators.

More information is required on how business models of alternative operators are affected by deregulation. TKK itself states that replacing transit services with self-provision requires a high level of investment and substantial time and effort. As it seems, TA operates the only network with nationwide coverage. Hence, smaller operators which cannot afford to replace transit services with self-provision may be forced to exit the markets if TA increased its wholesale tariffs in response to a withdrawal of obligations."

The full text of the European Commission's “serious doubts” letter can be accessed by clicking here.

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

The letter and formal notice have also been added to the T-REGS repository of eCCTF letters, which can be accessed by clicking on Documents at the top right of the website.