Theory and Practice Under The New Regulatory Framework: Some Case Studies

1. Theory and Practice Under The New Regulatory Framework:Some Case Studies Peter Alexiadis Partner Gibson, Dunn & Crutcher LLP/Brussels FROM TELECOMMUNICATIONS TO ELECTRONIC COMMUNICATIONS 28 March 2005 Hotel GRANDE BRETAGNE/ATHENS

2. TABLE OF CONTENTS • Mobile Access & Call Origination • Mobile Call Termination • Leased Lines • Fixed Transit • Fixed Call Termination Services

3. 1. Access and call origination on public mobile telephone networks (mkt 15) • A. Characteristics: • Network access and call origination are typically supplied together by a network operator as part of the same market (absent the introduction of call selection on mobile networks). • The market is still subject to entry barriers in the absence of spectrum trading, entry by acquisition or future spectrum assignments. • Intervention at the wholesale level may not be warranted if the level of competition at the retail level is satisfactory.

4. B. Issues arising from case studies: • The role of pre-pay and post-pay. • The role of advanced services. • The interaction between wholesale and retail levels. • The importance of whether there exist commercially negotiated access agreements. • The role of MVNOs. • Measuring single market dominance. • Elements of collective dominance (retaliation/transparency/price competition/fringe competition). Finland / Austria / UK / Ireland

5. 2. Voice call termination on individual mobile networks (mkt 16) • A. Characteristics: • There is limited evidence of widespread constraints on the pricing of wholesale call termination, despite the fact that: (i) mobile end-users have a choice between networks, and (ii) the relative ease of switching between networks. • Supply side substitution might in theory constrain wholesale call termination charges if a network operator’s attempt to raise termination prices was unprofitable, but such substitution is not currently possible (e.g., software-enabled SIM cards).

6. Demand side substitution at the retail level could in theory constrain termination charges, but this is a matter of adducing empirical support. There is currently no reason to believe that any of the demand substitutes would operate at a level that would constrain the operator’s behaviour. • Under a Calling Party Pays system, the conclusion is that call termination on individual networks is the appropriate relevant market. Such a definition would only be undermined by: (i) technical possibilities to terminate via other networks; (ii) evidence that users can otherwise circumvent high termination charges; or (iii) evidence that users subscribe to networks on the basis of what it costs to be called (i.e., a market definition which brings together access, call origination and termination). • Whether every mobile operator has market power will still depend upon whether there exists any countervailing buyer power which would render unprofitable any non-transitory price increase.

7. B. Issues arising from case studies: • Market structure. • Countervailing bargaining power. • Use of SSNIP test surrogates. • Impact of GSM gateways. • Treatment of smaller mobile operators. • The use of “glidepaths”. • Importance of “best practices” for termination. • Accounts separation / transparency considerations. Greece / UK / Portugal / Ireland

8. 3. Wholesale terminating segments of leased lines (mkt 13) • Wholesale trunk segments of leased lines (mkt 14) • A. Characteristics: • Dedicated connection may be an alternative to unbundled local loops and vice versa in certain circumstances. Dedicated trunk or long distance connections may also be an alternative to long distance call conveyance. • Dedicated capacity or leased lines may be required by end-users to construct networks or link locations, or be required by undertakings that in turn provide services to end-users. It is therefore possible to define retail and wholesale markets that are broadly parallel.

9. The key elements in the demand and supply for dedicated connections are bandwidth, distance and the location or locations to be served, and there may also be qualitative characteristics (to distinguish between voice grade and data grade circuits). • At the retail level, specific reference is made to the provision of the minimum set of leased lines under the Universal Service Directive. It is not necessary to identify specific market for each category of leased line in the minimum set, since the market structure will be similar for each sub-set. It is also not necessary to expand the retail leased line categories to capacities beyond the minimum set, since there must be a presumption that intervention at the wholesale level will be sufficient to address any problems that arise. • At the wholesale level, it is possible to distinguish separate markets, especially between the terminating segments of a leased circuit (i.e., “tails” or local segments) and trunk segments. What constitutes a trunk segment will depend on the topology specific to particular Member States, and will be decided upon by the relevant NRA.

10. B. Issues arising from case studies: • Difficulties with “legacy” definition for minimum set (not accounting for innovation – dedicated/uncontended/transparent). • Difficulties in differentiating between retail and wholesale lines ( evidentiary issues). • Difficulties in breaking down “tails” and “trunks” at wholesale level (especially regarding “end-to-end” products). UK / Ireland / Sweden / Finland

11. 4. Transit services in the fixed public telephone network (mkt 10) • A. Characteristics: • The long distance conveyance of switched calls on the public telephone network provided at a fixed location (contra the provision of dedicated capacity – even if some transit services are provided over leased circuits or lines). • An alternative could be to use interconnected leased lines or dedicated trunk capacity (for a limited number of end-users). • The range of operators providing services or the necessary network elements depends on traffic volumes on particular routes. ‘Thin’ routes have little or no available capacity.

12. Depending on network topologies, the delineation between call origination and transit services can vary, and it is left to the NRAs to define those elements constituting each part. • If call origination and call termination are already defined, transit is also defined by default.

13. B. Issues arising from case studies: • Boundaries between origination/termination/transit. • Critical question of treatment of self-supply. • Absence of indirect pricing constraints (i.e., 5% of retail call costs). • Application of “greenfield” approach. Austria / Ireland

14. 5. Call termination on individual public telephone networks provided at a fixed location (mkt 9) • A. Characteristics: • Alternatives for demand and supply substitution do not appear currently to provide sufficient discipline on call termination at fixed locations or an argument in favour of a wider market definition than any individual fixed networks. • The key aspects giving rise to a rise in call termination prices are: (i) that there is no technical alternative by which a call can be terminated; and (ii) the calling party pays for the call. Such an incentive would not arise/would be limited if no charge was levied for incoming traffic or if the receiver rather than the caller paid any charge, or if there was a very close financial relationship between the calling and the called party.

15. A relevant market of call termination on individual networks does not automatically mean that every network operator has SMP; this depends on the degree of any countervailing bargaining power and other factors potentially limiting that market power. It would in principle be more difficult for a small network to resist a move by a large network to lower its termination charges.

16. B. Issues arising from case studies: • Distinction between termination to end-to-end users or service providers. • Role of “other” retail relationship with service provider. • Distinction between termination where retail service is provided under the Called or Calling Party Pays principle. • Timing of “greenfield” approach. • Countervailing bargaining power issues. Ireland / UK / Finland / Germany