The European Commission is currently seeking input on the review of its Recommendation on relevant markets, which has to be completed by the end of 2020 to comply with a provision of the Electronic Communications Code. While at this stage the EC is not setting out what that will look like, it is likely that some markets will be removed from the list of those subject to ex-ante regulation, in line with the outcome of previous reviews. However, the EC is also hinting at the creation of a specific market for wholesale physical infrastructure access, which shows how the review is focused around the development of 5G and fibre networks.
The Recommendation has been used as a means to achieve a more consistent regulatory approach across the EU
The European Commission’s Recommendation on Relevant Markets has been a key tool to regulate the telecommunications sector in Europe. While Recommendations are not legally binding, national regulatory authorities (NRAs) have adopted the process in a relatively consistent way; with NRAs rarely deviating from it. This has also been facilitated by the EC’s thorough oversight, which requires NRAs to submit their draft decisions to the Commission and to take the ‘utmost account’ of the EC’s feedback; any departure from the Recommendation should be justified by the NRA. Successive reforms of the Framework Directive further strengthened the EC’s power to hold NRAs to account: when the EC raises ‘serious doubts’ on a market analysis, it can block NRAs from adopting it in its final form.
Over time, the Recommendation has been reviewed to reflect market evolution, with the removal of markets no longer found to require ex-ante regulation. The decision of which markets to include has been subject to a three-criteria test, whereby each market has to satisfy three conditions to warrant ex-ante regulation: it has to have high barriers to entry; it must not be naturally tending toward competition; and ex-post competition law has to be deemed insufficient to address existing market failures. The first version of the Recommendation, in 2003, included 18 markets, seven of which were retail markets; these were reduced to seven (one retail, six wholesale markets) in 2007, and further cut to four wholesale markets in 2014. The EC is now starting the work for a further review, to comply with a provision of the newly approved European Electronic Communications Code.
Call termination markets could be deregulated, but new markets could be added to the list
The trajectory of the previous reviews of the Recommendation suggests that, once again, the European Commission could reduce the number of markets susceptible to ex-ante regulation. However, the EC is only seeking stakeholders’ input at this stage, before it makes a decision. In fact, while some passages of the consultation’s foreword and questionnaire suggest a couple of markets could be removed, it also leaves the door open for the identification of new relevant markets, potentially warranting ex-ante regulation. The markets most likely to be deregulated are the fixed and mobile call termination markets, for two reasons. Traditional voice services have been in decline for both fixed and mobile networks, increasingly replaced by over the top applications; in addition, the European Commission will have to set a European termination rate (“Eurorate”) to help harmonisation across countries. This will effectively remove the need for NRAs to set national termination rates, and in turn to carry out market reviews for call termination.
The addition of new markets cannot be ruled out. In particular, the consultation’s questionnaire examines the possible need to identify one or more relevant markets for physical infrastructure access i.e. elements such as pipes, masts, ducts, inspection chambers, manholes, cabinets, buildings or entries to buildings, antenna installations, towers and poles, as defined in the Broadband Cost Reduction Directive. The EC’s thinking is along the lines of the “Modified Greenfield approach” as defined in paragraph 17 of the Guidelines on Significant Market Power of 2018; namely, that existing market conditions, as well as possible market developments over the course of the next market review period in the absence of regulation, should be taken into account. At this stage, the EC does not comment on the likelihood of new regulation being introduced; the questionnaire asks whether separate wholesale markets for access to physical infrastructure would meet the three-criteria test at the EU level, and requires respondent to suggest product and geographic scope of these markets. Other, more generic questions of the consultation ask whether there are other markets potentially susceptible to ex-ante regulation at the EU-level (such as markets currently regulated in specific countries) and whether there are any transnational markets that could be part of the next Recommendation. Here, the Commission does not make any specific example, which leads to think they have not yet reached a provisional stance and welcome inputs from industry.
The EC could be trying to facilitate 5G development
The EC’s consultation is open until 10 May 2019. This is the first step toward the completion of the review, which will have to be completed by December 2020, and will likely feed into the Commission’s work to draft the Recommendation. The EC has already signalled it will consider major market and technological developments, such as the deployment of 5G networks, internet-based applications and services, convergence between different types of networks and services, and the development of fibre.
The attention the EC is seemingly putting on wholesale physical infrastructure market is a telling signal of the Commission’s focus on 5G. Physical infrastructure access already sees ex-ante regulation as part of the current Market 3a (wholesale local access); the Commission hints at a possible creation of a separate wholesale market for passive elements, thereby widening the scope of that market beyond the purpose of fixed broadband networks within which it is currently confined. This could facilitate mobile operators’ ability to seek access to telcos’ passive infrastructure. Assembly’s Regulated Wholesale Access: Fixed Tracker shows that access to passive infrastructure is generally not available to mobile operators on regulated terms. Even in the UK, where the latest market review has lifted previous restrictions, PIA usage solely for mobile backhaul is “unlikely to meet the usage requirements” according to Ofcom. Among the countries observed in our tracker, Portugal is the only country where restrictions are not in place due to legislation which introduced symmetrical obligations to grant passive infrastructure access. The creation of a separate relevant market could be seen as a way to help MNOs in building the much needed fibre infrastructure to support 5G through adequate backhaul.
