Competition: Commission endorses, with comments, Spanish regulator´s measure to make mobile market more competitive - Main contents

The European Commission today endorsed a measure proposed by the Spanish national telecom regulator `Comisión del Mercado de las telecomunicaciones' (CMT) to regulate the market for mobile access and call origination in Spain, but also asked the Spanish regulator to keep the market development under close review.

As a result of this measure, so called Mobile Virtual Network Operators (MVNO) will be granted access to the networks of the three Spanish mobile telephony operators Telefónica, Vodafone and Amena. In the future, MVNOs will be able to offer mobile telephony services to their own retail customers and under their own brand name.

MVNOs are operators that offer mobile telephony services using network infrastructure leased from other mobile telephony operators. Experience from other Member States has shown that the entry of MVNOs can boost competition with tangible benefits for consumers in terms of lower prices. The Commission's decision is based on Article 7 of the EU Framework Directive for electronic communications (2002/21/EC), whereby the Commission ensures that there is a consistent application by national regulatory authorities of competition law principles in this sector.

"CMT's measure will increase competition in the Spanish retail mobile telephone market and benefit 40 million Spanish consumers", said Competition Commissioner Neelie Kroes i.

Under Article 7 of the EU Framework Directive for electronic communications (2002/21/EC), the Spanish regulatory authority for telecommunications is obliged to examine the state of competition in a number of fixed and mobile telephony markets, including the wholesale market for mobile access and call origination, and notify the results to the Commission. Access and call origination services need to be purchased by MVNOs to be able to offer mobile telephone services to their own retail customers.

CMT believes that Telefonica, Vodafone and Amena have a common interest to prevent entry of MVNOs onto the Spanish market since further competition in the retail mobile market could lead to price cuts and a decrease in profits for the three operators.

CMT has been able to demonstrate to the Commission that the market for access and call origination is not competitive and that the three operators hold a position of collective dominance in this market. Consequently CMT can now impose on Telefónica, Vodafone and Amena an obligation to provide access and origination services to MVNOs. This will allow MVNOs to compete on the Spanish retail mobile market.

The Spanish situation is very specific, and retail mobile prices in Spain are high and well above EU average.

Background:

1) What is the Article 7 consultation mechanism?

The regulatory framework for telecommunications in the European Union (which came into force on 25 July 2003) builds on the principles of EU competition law and aims to progressively withdraw sector specific regulation as markets become more competitive. Under the regulatory framework each national regulatory authority (NRA) has to analyse the state of competition in at least 18 specific markets which have been identified by the Commission in its Recommendation on relevant markets^[1] as susceptible to ex ante regulation. Subsequent to their analysis of such markets, and if trade between Member States is affected, the NRAs must notify the outcome - i.e. whether or not one or more undertakings are dominant (have significant market power) in these markets - by way of a consultation mechanism described in Article 7 of Framework Directive^[2] (the so-called Article 7 consultation mechanism). Only if a market is found not to be competitive, a regulator should intervene by imposing at least one remedy on such dominant undertakings.

The Commission as well as other NRAs may make comments on the notified draft measures within one month ("1^st phase"). If the Commission informs the NRA concerned that it considers the notified draft measure to create a barrier to the single market, or if it has serious doubts as to its compatibility with Community law, then within a further period of two more months ("2^nd phase") it may take a decision requiring the NRA to withdraw the draft measure ("veto decision").

The main goal of the Article7 consultation mechanism is to enforce a harmonised application of competition law principles on which ex-ante regulation is based.

The Article 7 consultation mechanism is enforced jointly by the European Commission's Competition and Information Society departments since the entry into force of the new regulatory framework.

For further details of the Article 7 procedure, see MEMO/05/255.

2) What is this individual case about?

The Commission received from the Spanish regulatory authority `Comisión del Mercado de las telecomunicaciones' ("CMT") on 30 January 2005 a draft regulatory measure concerning the wholesale market for access and call origination on public mobile telephone networks in Spain. Access and call origination needs to be purchased by mobile virtual network operators (MVNO) to be able to offer mobile telephone services to their own retail customers. There are a number of MVNOs such as for example Tele2, which already operate in other European countries but have so far not been able to enter the Spanish market.

There are three mobile network operators (MNOs) currently active in Spain, namely Telefónica, Vodafone and Amena (recently taken over by the France Telecom group).

According to CMT retail prices in Spain remain high and are well above EU average.

CMT finds that Telefónica, Vodafone and Amena jointly hold a position of collective dominance on the wholesale market for access and call origination on public mobile telephone networks in Spain. No access to Mobile Virtual Network Operators (MVNO) has been granted so far. According to CMT, Telefónica, Vodafone and Amena tacitly agree not to grant access to MVNOs.

CMT believes that the incentive not to grant access is strong as any new entrant into the market (such as an MVNO) would bring retail prices down. Hence by not granting access to an MVNO at the wholesale level Telefónica, Vodafone and Amena can effectively prevent competition on the retail market for mobile telephone services and protect prices which are well above European average.

What is the Commission's line in this case?

The Commission did not raise "serious doubts" as to the draft measure and consequently did not challenge the finding of collective dominance. The Commission considered that on the basis of national circumstances and the evidence provided by CMT, the draft measure was neither contrary to the EC Treaty nor to the Single Market. Each future case will be examined on the basis of its own merits.

• However, CMT should closely monitor the effects of a possible entry of the fourth network operator, Xfera, in 2006 on the future sustainability of the collectively dominant position. Any concrete evidence of developments in the retail market not linked to the mandated MVNO access that would cast doubt on the sustainability of the collectively dominant position will require a review of the relevant market.

Has the Commission approved CMT's draft regulatory measure?

The Article 7 consultation mechanism is not an approval regime. Under Article 7 of the Framework Directive, NRA's have to make their draft regulatory measures accessible to other NRAs and the Commission. The Commission has the power either to make comments on the notified measure, to make no comments, or, if the market definition or market analysis are not compatible with Community law, to enter into a second phase investigation. It is however not for the Commission to conduct itself a market investigation. The Framework Directive explicitly accords this role to the national regulatory authorities. The NRAs have a certain discretionary power in this regard and the Commission's role is to ensure that the NRA's findings are compatible with Community law, in particular the EU competition rules. Likewise, the Commission verifies whether the proposed remedies are appropriate and proportionate in view of the competition problem identified by the NRA (if any) and the objectives laid down in Article 8 of the Framework Directive (namely the promotion of competition in electronic communications, the development of the internal market, and the promotion of the interest of the EU citizen).

^[1] Commission Recommendation 2003/311/EC of 11 February 2003 on relevant product and services markets within the electronic communications sector susceptible for ex ante regulation in accordance with Directive 2002/21/EC of the European Parliament and of the Council of 7 March 2002 on a common regulatory framework for electronic communications networks and services, OJ L 114, 8.5.2003.

^[2] Directive 2002/21/EC on a common regulatory framework for electronic communications networks and services