Measure 3: divestiture of CATV networks. The EU and individual Member States
should take what steps they can to require fixed incumbents to divest themselves of any remaining interests in CATV network operators. They should consider, with a view to increasing competition, whether such divestiture should extend to geographic areas where there is more than one CATV operator currently providing service or to countries where the fixed CATV and fixed telecommunications industry are both highly fragmented.
Overall, the public welfare case for requiring fixed incumbents to divest themselves of their CATV network businesses is a strong one which commands general support
amongst those to whom we talked to during this study. Such separation can be achieved at relatively low cost to create an alternative infrastructure which can compete strongly with the fixed incumbent in the supply of broadband services and voice telephony. Section 7.4 provides a detailed analysis.
Measure 4: divestiture of mobile subsidiaries. NRAs and national competition
authorities in Member States where the fixed incumbent owns the leading mobile operator, should monitor the possibility of leverage between these two parts of the incumbent’s business closely. Where anti-competitive conduct occurs, they should consider requiring structural separation or divestiture.
The current concentration of market power within the telecommunications industry, more particularly where the leading fixed and mobile operators in a given Member State are in common ownership, is a cause for concern. In addition, there are possible market developments, especially the development of integrated fixed and mobile services, which could increase these concerns. However, in our view, the current case for increased separation between the incumbent’s fixed and mobile businesses is not yet sufficiently strong to warrant immediate action.
Measure 5: equivalent regulation of fixed and mobile call termination charges.
NRAs should ensure that the call termination charges of fixed and mobile operators are regulated on a consistent basis.
In the past EU NRAs have typically required fixed incumbents to set call termination charges to recover cost and their fixed rivals to charge on a reciprocal basis. This has usually meant charging the same price for the same service129. In contrast, NRAs have, until recently, done relatively little to set mobile call termination prices at cost oriented levels. As a result, mobile operators have had strong incentives to let call termination charges rise (relative to retail charges), so that they can use the profits made from call termination to subsidise prices in the competitive retail mobile markets.
This difference in the regulation of the fixed and mobile industry means that, where they do compete for customer spend, fixed and mobile operators do not compete on equal terms. The mobile operator is able to subsidise its retail prices from its call termination charges; the fixed operator cannot. According to one recent report,130 this asymmetry in the regulation of the fixed and mobile industry has led to a transfer of funds from the fixed to the mobile sectors of France, Germany and the UK equal to €19 billion over the past five years.
In recent years, some NRAs have taken steps to control mobile call termination charges. At the same time, the EU’s Recommendation on markets susceptible to
ex ante regulation proposes that the individual call termination services of both fixed
129
We consider under Measure 7 whether this is an appropriate requirement
130
“How mobile termination charges shape the dynamics of the telecommunications sector”, by Bomsel, Cave, le Blanc and Neumann, July 2003.
and mobile operators are distinct markets in which, by implication, the sole supplier should be regulated in a manner that is proportionate to its degree of market power. Measure 5 simply takes this thinking to its logical conclusion. Given the likely growing importance of competition between fixed and mobile networks, this is an important measure to maximise effective cross platform infrastructure competition.
Measure 6: fixed and mobile competition for corporate voice traffic. NRAs or
national competition authorities should investigate whether mobile operators are acting in an anti-competitive manner in the pricing of the services which they offer to large corporate customers for the termination of their voice traffic on public networks.
Fixed operators which specialise in providing large corporate customers with
telecommunications services complain that they cannot compete with the offers which mobile operators make to their customers for terminating voice traffic from corporate networks on public mobile networks. They allege that the mobile operators are creating a margin squeeze. The fixed operator must pay the mobile operator’s standard call termination charge for terminating voice traffic destined for the mobile network. At the same time, the mobile operator charges its own corporate end users a much lower price. Fixed operators claim that this “price squeeze” is so substantial that they find it difficult to compete for voice traffic destined for fixed terminals as well as for voice traffic destined for mobile terminals.
We believe that, in the long term, Measure 5 should be adequate on its own to address any such conduct131. However, Measure 5 will take a long time to implement. In the meantime, Measure 6 provides a relatively speedy way for regulators to
ensure, providing the case against the mobile operator is proven, that a specific exploitation of the current asymmetric regulation of fixed and mobile call termination charges is closed to mobile operators and that competition for corporate voice traffic between fixed and mobile operators is increased.