EC: Wholesale Markets Monopolistic Despite New Rules

The report is the first EC assessment of the workings of the “Art. 7” procedures under which national regulatory authorities (NRAs) must analyze 18 separate e-communications markets’ competitiveness, imposing antitrust remedies where appropriate. It will feed into a newly launched EC review of the entire NRF. Under Art. 7, NRAs must define relevant markets in their countries and decide if any operators hold significant market power (SMP). The Commission can’t veto NRAs’ remedies but can make comments regulators “must take utmost into account.” In 4 of 229 market assessments as of Sept. 2005, the EC told NRAs to withdraw proposed measures as incompatible with European Community law.

The Commission noted several market review process trends. In all EU member countries, the incumbent still is dominant in the fixed telephony retail access market. But competition is emerging in the domestic and international calls market due to remedies such as carrier preselection, wholesale line rental and rollout of VoIP and other new technologies.

Wholesale markets “have shown few signs of sustainable competition” except sometimes in the market for transit services -- that is, conveyance and/or switching or routing of calls, the EC said. Call origination is “an enduring bottleneck.” All wholesale termination service providers have been found to have SMP since each operator’s network is deemed a separate market on which it has a monopoly for terminating calls.

In the last mile of telephony networks, incumbents still hold nearly 100% market share, the Commission found. Local loop unbundling and wholesale price curbs have helped give competitors more access to the networks, however.

European markets for mobile services and networks are far more competitive, the EC said. There’s no retail level control and wholesale oversight is limited to wholesale termination. NRAs generally have avoided regulating the access and call origination market due to the high level of competition, but in several nations a single mobile operator was found to dominate or 2 or more collectively to have SMP. All mobile operators have been found dominant in the mobile call termination market.

No NRA had completed its analysis of the wholesale international roaming market as of Sept. 30, the Commission said. The high cost of international mobile calls in Europe has been a sore point for years, and NRAs are trying to resolve the problem. Information Society & Media Comr. Viviane Reding will announce a proposal today (Wed.) to force mobile operators to cut international roaming rates to the level of national charges (CD Feb 7 p9).

Regulators uniformly have required incumbents to provide wholesale broadband access, the report said. Until now, the market has revolved around services based on traditional telephony. To spur competition in satellite, cable and other technologies the Commission has insisted on actual evidence of a wholesale product based on some other technology and proof that that wholesale product can be substituted for ADSL.

It is in wholesale markets for broadcast transmission services that NRAs most often deviate from EC ideas on how to analyze markets, the report said. Lack of substitution between different platforms at wholesale has led regulators to subdivide the market by platform. In most member states, the main roadblocks to competition seem to occur in national analog and digital terrestrial systems, the Commission said.

On balance, the market review scheme works, said the EC. “Although a large number of national markets remain subject to regulation there are signs of sustainable competition in other markets,” particularly on the retail side. Before its summer break, the Commission will decide whether the 18 markets need updating and whether to streamline interaction between itself and NRAs, Reding’s spokesman said at a news briefing.

In dealing with the more than 350 notifications of market analyses submitted so far, a kind of “European regulatory culture” has sprung up between NRAs and the Commission, said Reding’s spokesman. That cooperation may be relevant as the EU looks to open other common markets.

The market review approach needs no major overhaul, the European Competitive Telecom Assn. (ECTA) said earlier in response to an EC request for input on the relevant market recommendation. Even so, ECTA urged changes, including a focus on “clusters” of relevant markets in which regulators would focus on key infrastructure and wholesale access and related resale and retail products. The Art. 7 process has worked well, but must be more open, and regulators and the EC should do better at explaining decisions, ECTA said.

The European Telecom Network Operators’ Assn. already made clear its opposition to sector-specific regulation (CD Feb 2 p8). ETNO Dir. Michael Bartholomew said most NRAs act in a “mechanical way,” and only a few make a “comprehensive economic analysis.” Regulation reacts too slowly to a rapidly changing market, he said: “A fundamental change in the methodology is needed if we want the regulatory framework to really lead to deregulation.”

The EC report highlights “how much homework needs to be done in Germany, the largest telecom market in Europe,” said Axel Spies, a Swidler Berlin attorney representing the German Competitive Telecom Assn. Among the 18 markets the EC found only one in Germany with “partial competition.” The report provides more evidence that easing regulations for incumbents’ new markets doesn’t automatically bring innovation and lower prices, Spies said.