The European Commission’s proposal brings the number of markets susceptible to ex-ante regulation down to two. This confirms the direction taken by the previous reviews, which have seen the list of regulated markets fall from 18 in 2003 to four in 2014, as markets became more competitive.
The two markets still warranting ex-ante regulation are the market for fixed wholesale local access, and the market for wholesale dedicated capacity (i.e. leased lines). The EC decided against the identification of a separate market for civil engineering infrastructure access, despite it being commonly mandated in wholesale local access market review, and confirms that dark fibre access should not be mandated for the purpose of mobile backhaul, as has been the case up until now.
The new Recommendation will remove voice interconnection markets from the list. However, this will not result in complete deregulation of these markets, because the EC is about to set pan-European fixed and mobile call termination rates. Both fixed and mobile voice are declining across Europe, and these markets are gradually losing importance for consumers and for operators compared to data.
The number of regulated markets has been gradually reduced over time
The European Commission’s Recommendation on relevant markets has been the key guide national regulatory authorities have followed when reviewing telecommunications markets and imposing remedies on operators found to have significant market power (SMP) in a given market. The Recommendation has been subject to regular reviews over time, which has followed a consistent removal of markets no longer warranting ex-ante regulation, and in regulating at the wholesale level; reducing the need to interfere at the retail level.
Accordingly, the EC moved from a list of 18 markets (11 at the wholesale level, seven at the retail level) in 2003, to seven markets (six of which were wholesale, and one retail) in 2007. In 2014, the list was further narrowed down to four wholesale markets, two of which are actually part of the wholesale broadband access market (Markets 3a and 3b). It is therefore unsurprising that in its new proposal, the EC is now looking to further reduce the list to two markets. The draft published on 25 August 2020 includes the market for fixed wholesale local access (WLA), equivalent to current Market 3a, and the market for wholesale dedicated capacity, equivalent to current Market 4. The latter includes leased lines and other business uses requiring a high-quality level of connectivity. The EC has submitted the draft Recommendation to BEREC, and expects to finalise the review by 20 December 2020, in line with the entry into force of the new European Electronic Communications Code.
The EC maintains that high-quality access remedies should not be mandated for mobile backhaul
Under the current Recommendation, Market 3 is split between Markets 3a and 3b, corresponding to WLA and wholesale central access (WCA), respectively. The EC carried out the three-criteria test for both markets, and found the WCA market to tend towards effective competition, due to the presence of different types of access providers. The EC notes the WLA market still meets the three-criteria test, due to the presence of high and non-transitory barriers to entry (generally, only one infrastructure can offer local access products on a national scale), and to the market not tending towards effective competition (the availability of multiple infrastructures is not yet a common occurrence across the EU). This market is still regulated in most EU countries, with limited exceptions (Romania, Bulgaria, the Netherlands, and some regions of Italy and Poland). The EC does not consider access to civil engineering infrastructure (e.g. ducts and poles), to be part of this market, due to it not being a substitute of data transmission products. However, it can be a remedy imposed in the WLA market, and Article 72 of the new European Electronic Communications Code allows regulators to impose it as a stand-alone remedy in any relevant wholesale market. This, together with the significant differences in network topologies across the EU, leads the EC to refrain from identifying a separate market for civil engineering infrastructure, despite some regulators recently taking that approach (France and the UK).
The market for wholesale dedicated capacity is still subject to ex-ante regulation in 20 of the 27 EU countries, with the exception of Bulgaria, Denmark, Estonia, Lithuania, Romania, Slovakia, Sweden. Our Regulated Wholesale Access: Fixed Tracker shows that the product scope of this market can vary widely across countries, although Ethernet Layer 2 is likely to be the prevailing interface for bandwidths of up to 1Gbps. Access to dark fibre is also included in the product scope in some countries (e.g. Austria and the UK), and mandated for operators with SMP, because dark fibre connections can provide dedicated capacity and there is evidence that operators and large businesses use it in a similar way as active leased lines. While there may be circumstances under which dark fibre and active connections belong to the same market, the EC requires NRAs to make sure that the relevant wholesale products correspond to the retail market problem identified. Because currently retail mobile markets are considered competitive, it is not generally justified to mandate regulated wholesale access to dedicated capacity for mobile backhaul, despite some respondents to the consultation of 2019 calling for an inclusion of dark fibre for mobile backhaul in the scope of the market.
Voice interconnection will no longer be regulated at the national level, but EU-wide termination rates are coming
The EC’s proposal will remove fixed and mobile call termination markets from the Recommendation. For the first time, wholesale voice markets will be seen as not warranting ex-ante regulation, leaving only broadband markets on the list. However, this does not mean the complete end of regulation for voice interconnection, since the EC is also in the process of setting pan-European call termination rates to which all countries and operators will have to conform. This should end the divergences in the level of termination rates across EU countries, which the EC has seen as detrimental to the fostering of the internal market and distorting competition, and will mean national regulators will no longer have to develop their own cost models to set those rates. The termination rates proposed by the EC are €0.002/min for mobile, and €0.0007/min for fixed. These will be reached through a glidepath between 2021 and 2024.
Individual national regulators will not be able to override the termination rates set by the EC, but they will still be able to impose other remedies where relevant and necessary. In its explanatory note to the Recommendation, the EC notes that the threat of re-regulation is likely to be a sufficient incentive for operators to refrain from refusing access and interconnection, or to do so under discriminatory conditions. NRAs will retain the power to review these markets and impose obligations, with the exception of price controls. The risk of an operator refusing interconnecting with other networks is also relatively low, considering that any operator who did so would become less attractive to customers. Finally, voice services (particularly fixed voice) are declining, and are suffering from the competitive pressure exerted by OTT/VoIP communications. Over the coming years, the EC expects that data transmission will form the basis of the vast majority of communications services, and managed voice services will have fully migrated towards IP in most cases.
What the impact will be for consumers
The removal of call termination markets from the Recommendation is likely to have minimal impact on consumers across the EU, due to the tendency toward effective competition of the voice markets and the fact that they are gradually losing relevance due to the alternatives that consumers are enthusiastically embracing through mobile apps. Retail voice markets had already been removed in the previous review of the Recommendation, as national regulators found them not to need ex-ante regulation in most countries. In their offers, operators are now commonly offering fixed and mobile voice as unlimited services, which confirms their decrease in value and the presence of market constraints that would make it difficult for them to do otherwise. The EC has already proceeded to regulate the only service where it still had concerns of excessive prices, by setting a cap on intra-EU phone calls (€0.19/minute) and on SMS texts (€0.06/SMS) as of May 2019.
With regard to broadband, consumers will be able to continue to choose between different operators for their home connections since wholesale access regulation remains in place. Regulatory authorities will be able to mandate wholesale access to fibre networks where necessary, so that alternative operators will continue to market their offers; and while competition between infrastructures is still relatively uncommon, there have been signs of improvement on this front in several countries, which could lead to more choice for consumers and reduced need for access regulation in the long run.
