Retail and Wholesale Markets in the Regulatory Framework

1. Is wholesale regulation enough?The role of retail regulation in liberalised marketsAlberta CoronaMarket Analyses Department - Agcom, Italy

2. Retail and Wholesale Markets in the Regulatory Framework In the electronic communication sector there are at least two main types of relevant markets to consider: • Retail (or downstream) markets: services provided to end-users • Wholesale (or upstream) markets: access to facilities for operators necessary to provide retail services to end-users According to the EC Recommendation on relevant markets the purpose of every regulatory interventions is to advantage final customers by making retail markets competitive.

3. The sufficiency of wholesale regulation • Regulatory controls on retail services should only be imposed where NRA consider that relevant wholesale measures would fail to achieve the objective of ensuring effective competition and the fulfilment of public interest objectives. • This does not imply that, in cases where wholesale measures are deemed to be effective, retail market do not play any role in wholesale market analysis: indirect constraints exercised by the former on the latter should be taken into account either at the market definition or at the SMP assessment stage. • Should a NRA demonstrate that wholesale interventions have been unsuccessful, the relevant retail market may be susceptible to ex ante regulation provided that the three criteria are met.

4. Commission Recommendations on relevant markets • In 2003, European Commission (EC) identified 18 markets susceptible of ex ante regulation (7 retail markets and 11 wholesale markets)‏ • In 2007, EC identified – on the basis of three-criteria test – 7 markets susceptible of ex ante regulation (1 retail market and 6 wholesale markets).

5. Retail markets susceptible of ex ante regulation

6. Wholesale markets susceptible of ex ante regulation

7. Three criteria test • When identifying mkts other than those listed in the Rec., NRAs should ensure that the following three criteria are cumulatively met: • the presence of high and non-transitory barriers to entry. These may be of a structural, legal or regulatory nature; • a market structure which does not tend towards effective competition within the relevant time horizon. The application of this criterion involves examining the state of competition behind the barriers to entry; • the insufficiency of competition law alone to adequately address the market failure(s) concerned. • An important qualification of the first criterion is whether high entry barriers are likely to be non-transitory in the context of a modified Greenfield approach (i.e. in the absence of regulation in the market concerned under this regulatory framework but including regulation which exists outside this framework).

8. Retail Markets Analysis – First round AGCOM identified one additional markets to those listed in the 2003 EC Rec (dial-up internet access). However this market was found to be competitive. Telecom Italia (TI) was notified as having SMP in all 7 retail mkts listed in the 2003 Rec. The main obligations imposed on TI were: • WLR in local exchange areas not open for full LLU and shared access (actually this is a wholesale remedy in a retail market) • a price cap for the access to PSTN for residential users • access to CS and CPS • non-discrimination between end-users • transparency • obligation not to price squeeze or to charge predatory prices for the market of national telephone services provided at a fixed location for residential customers

9. Wholesale Markets Analysis – First round (1/2)‏ AGCOM identified one market additional to those listed in the 2003 EC Rec. (fixed International Termination). However this market was found to be competitive. TI was notified as SMP operator in the following markets: • Fixed Call origination; • Fixed Call termination (as well as other 40 ANOs)‏ • Transit services • ULL (physical) network infrastructure access (including shared or fully unbundled access) at a fixed location • Wholesale broadband access • Wholesale terminating segments of leased lines • Wholesale trunk segments of leased lines H3G, TIM, Vodafone and Wind have SMP on Voice call termination on individual mobile networks RAI and RTI have a joint SMP in the market of broadcasting transmission services

10. Wholesale Markets Analysis – First round (2/2)‏ The main obligations imposed on TI were: • access to, and use of, specific network facilities • price control • cost accounting • transparency • non-discrimination incl. adequate administrative separation between retail and wholesale business units • accounting separation

11. Retail Markets Analysis – Second round No markets additional to those listed in the 2003 EC Rec. were identified as susceptible of ex ante regulation. TI has significant market power only in the market for “Access to PSTN for residential and non-residential users” The main obligations imposed on TI at retail level are: • non-discrimination • accounting separation • no unreasonable bundling • ex ante price squeeze test

12. Retail Markets Analysis – Second roundFocus on market 1 • AGCOM considered wholesale regulation and TI’s operational separation and behavioural commitments (largely become remedies in market analyses) sufficient to ensure effective competition in the retail markets. • For this reason no prices control has been imposed to TI on this market . Nevertheless, in order to ensure replicability of ANO’s offers and to prevent margin squeeze practices, AGCOM has imposed to TI the prior notification of retail offers 30 days before commercial launch.

13. Retail Markets Analysis – Second roundFocus on markets ex 3-5 • Although the market is characterized by: • moderate sunk costs • scope economies • vertical integration of the incumbent • horizontal integration among retail services • AGCOM considered wholesale regulation sufficient to ensure ANOs to enter market. The first criterion is not satisfied (absence of high and not transitory entry barriers). • For this reason these markets are not susceptible to ex ante regulation and no obligations has been imposed to TI.

14. Retail Markets Analysis – Second roundFocus on markets ex 4-6 • AGCOM considered that: • obligations imposed to TI in the wholesale markets (markets n. 8-10-11-12 listed in the 2003 Rec.) are sufficient to ensure effective competition in the retail markets. • Furthermore markets ex n.4 - 6 are characterized by the absence of: • infrastructures not easily duplicated • substantial economies of scale and economies of scope • high sunk cost • The first criterion is not met and markets are not susceptible to ex ante regulation. • No obligations has been imposed to TI

15. Retail Markets Analysis – Second roundFocus on market ex 7 • Although the market is characterized by: • sunk costs • scope economies • economies of density • vertical integration • AGCOM considered the development of alternative infrastructures and wholesale regulation sufficient to ensure ANOs to enter market. • The first criterion is not satisfied (absence of high and not transitory entry barriers) and the market is not susceptible to ex ante regulation • No obligations has been imposed to TI.

16. Thank you Alberta Corona E-mail: a.corona@agcom.it