The CNMC looks to adopt a more flexible approach to its economic replicability test, reflecting the EC’s Gigabit Recommendation and recent M&A activity in the market
The economic replicability test determines whether an efficient operator could offer an equivalent service to Telefónica at a similar price
On 15 July 2024, the Comisión Nacional de los Mercados y la Competencia (CNMC) launched a public consultation on the methodology of the economic replicability test for Telefónica's broadband products in the residential market. The consultation marks the sixth review of the test parameters to determine whether the former incumbent’s fibre offers can be replicated by its retail competitors (i.e. whether an efficient operator can offer an equivalent service at a similar price). Specifically, the methodology establishes the criteria for the CNMC to determine whether the prices of certain wholesale fibre access services – ‘NEBA local’ and ‘NEBA fibra’ – that Telefónica charges to alternative operators allow for effective competition in the areas identified as non-competitive by the regulator’s latest market review. Telefónica can freely set wholesale prices, with the only condition being that it passes the replicability test for its most popular, or “flagship”, fibre products. If any of these products fail the replicability test, Telefónica must reduce the price of access to its fibre network until the test is passed.
Taking into account its proposed changes, the CNMC believes Telefónica’s flagship fibre access products pass the test
The CNMC’s consultation contains a number of proposals, including that:
The analysis will be carried out on a portfolio of flagship products, and replicability will be assessed in an aggregate manner. Currently, each of Telefónica's flagship products individually passes the test. Under the new approach, Telefónica will have greater flexibility in designing its commercial offering;
The time limit for promotions related to premium sports content, set at two-thirds of the season, will be removed. This will allow Telefónica to set the same promotional period as for the rest of the products;
The calculation of the parameter corresponding to commercial costs will be simplified, which will be set at a fixed value; and
Telefónica's reporting obligations will be reduced, meaning that it will no longer be necessary for the operator to notify the CNMC of the launch of new products or promotions before they hit the market. This will give Telefónica greater flexibility in changing its commercial propositions.
In addition, the consultation updates the parameters for calculating the net present value (NPV). Based on these parameters and taking into account the proposed modifications, the CNMC has provisionally concluded that the prices of NEBA local and NEBA fibra meet the conditions for replicability.
The regulator’s adjustments to the methodology are intended to offer greater flexibility, reflecting the EC’s Gigabit Recommendation
Stakeholders have until 16 August to submit responses to the consultation, including views on the direct and indirect fibre products that should be captured by the test, and the parameters the CNMC should consider when determining replicability. The regulator’s overall approach to its latest review (reviews take place every six months) is to propose making the test more flexible, adapting it to changes in the regulatory environment and in particular to the new Gigabit Recommendation that was adopted by the EC in February 2024. The Recommendation, which proved controversial with some stakeholders, provides guidance on regulating access to the networks of operators with significant market power (SMP), suggesting that regulators in EU Member States consider pricing flexibility for SMP operators’ wholesale products. The relaxation of the test may also be a reflection of changes in Spain’s wider telecoms landscape, with Telefónica losing its position as the country’s market leader following the merger of its rivals Orange and MasMovil.
