C(2020) 7245 Final

EUROPEAN COMMISSION

Brussels, 16.10.2020 C(2020) 7245 final

Bundesnetzagentur (BNetzA) Tulpenfeld 4 53113 Bonn Germany

For the attention of: Mr Jochen Homann President

Subject: Case DE/2020/2270: Wholesale voice call termination on individual mobile networks in Germany

Article 7(3) of Directive 2002/21/EC: No comments

Dear Mr Homann,

1. PROCEDURE

On 17 September 2020, the Commission registered a notification from the German national regulatory authority, Bundesnetzagentur (BNetzA)1, concerning Germany’s market for wholesale voice call termination on individual mobile networks2.

The national consultation3 ran from 3 June 2020 to 10 July 2020.

1 Under Article 7 of 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 (Framework Directive) (OJ L 108, 24.4.2002, p. 33), as amended. 2 Corresponding to market 2 in Commission Recommendation 2014/710/EU of 9 October 2014 on relevant product and service markets within the electronic communications sector susceptible to ex ante regulation in accordance with the Framework Directive (2014 Recommendation on Relevant Markets) (OJ L 295, 11.10.2014, p. 79).

Commission européenne/Europese Commissie, 1049 Bruxelles/Brussel, BELGIQUE/BELGIË - Tel. +32 22991111

2. DESCRIPTION OF THE DRAFT MEASURE

The present draft measure concerns the fifth round of market review in Germany. It covers only the market definition, the three-criteria test and BNetzA’s assessment of significant market power (SMP).

2.1. Background

The market for wholesale voice call termination on individual mobile networks in Germany was previously notified to and assessed by the Commission under case DE/2015/18084. BNetzA defined separate markets for voice call termination on the networks of the mobile network operators (MNOs) Telekom Deutschland, Vodafone, Telefonica and its subsidiary E-Plus as well as all mobile virtual network operators (MVNOs), namely Lycamobile, Truphone, sipgate Wireless and OnePhone5. The geographic market was defined as national. BNetzA designated the above mentioned operators as having significant market power (SMP) in the market for wholesale voice call termination on their respective (virtual) mobile networks6.

In case DE/2016/18877, BNetzA notified to the Commission draft measures imposing remedies on those SMP operators. Notably, the remedies required the SMP operators to apply symmetric mobile termination rates (MTRs). For MNOs, these had to be based on a ‘pure’ bottom up long run incremental cost (BU-LRIC) methodology and for MVNOs on national benchmarking of 'pure' BU-LRIC rates applied to MNOs. The Commission had no comments.

In case DE/2017/19648, BNetzA notified updated MTRs based on a ‘pure’ BU- LRIC methodology. The Commission had no comments on the proposed measures.

In case DE/2019/21949, BNetzA proposed to remove the access and price control obligations for calls originating outside the EEA, subject to the condition that the MTR applied by the relevant German MNO did not exceed the MTR charged for a comparable termination service in the relevant non-EEA country. Should the German MNO not comply with this requirement, the previous remedies regime would re-apply. The Commission issued a comment asking BNetzA to monitor any case of refusal of access to avoid any potential harm to German end-users caused by any lack of interconnection.

3 In accordance with Article 6 of the Framework Directive. 4 C(2015) 9324. 5 OnePhone was subsequently acquired by Voiceworks. 6 In case DE/2017/2012, C(2017) 7325, BNetzA notified a draft measure covering only the market definition and SMP designation of a new operator, TelcoVillage, active in the market for voice call termination on individual mobile networks. BNetzA specified that the network-based approach to market definition was complemented with a number-based approach. . BNetzA subsequently notified, under case DE/2018/2070, C(2018) 2734, its proposals for the remedies to be applied to TelcoVillage. 7 C(2016) 5072. 8 C(2017) 1367. 9 C(2019) 6381.

In case DE/2019/2211 and DE/2019/222310, BNetzA notified new MTRs applicable to the regulated mobile operators, including a WACC calculation.

2.2. Market definition

BNetzA defines distinct markets for voice call termination on the networks of the MNOs (Telekom Deutschland, Vodafone, Telefonica) and MVNOs (Argon Networks, Lycamobile, Multiconnect, Sipgate Wireless, TelcoVillage, Truphone, and Voiceworks). Differently from the previous market review, BNetzA considers that a number-based approach to market definition is appropriate. The relevant factors to consider are (i) whether a provider has control over the routing of calls to mobile numbers, and (ii) whether a provider offers voice call termination services as a network operator in the context of network interconnections entailing a potential negotiating power over the provision of voice call termination services. In line with the principle of technological neutrality, BNetzA includes in the market all call termination services provided via cellular mobile networks or the open internet. As in its previous notifications, BNetzA proposes termination of calls in a so-called Home Zone11 to be part of the termination markets. BNetzA does not distinguish between termination services provided to calls originated within or outside the Union, as there are no functional differences between them12.

BNetzA has analysed whether the communication services provided by over-the-top providers (OTTs) could substitute voice call termination provided by MNOs and MVNOs. Despite the increased penetration of data-enabled smartphones and increasing mobile internet usage, BNetzA concludes that there are no substitutes to wholesale voice call termination services offered in mobile networks. BNetzA notes that despite the apparent growth of popularity of OTT applications the volume of terminating minutes continues to increase, OTTs do not offer any interoperability between different platforms (i.e. do not ensure sufficient any-to-any communication), and require that end users are simultaneously logged in to the same OTT provider. Moreover, there is still a significant number of end users who do not use data-enabled smartphones, high-quality mobile internet is not universally available, and there are differences in quality of OTT services. Finally, the observed (partial) substitution at the retail level does not mean that such substitution exists also at the wholesale level; in fact OTT providers are not in a position to substitute the voice call termination services provided by MNOs and MVNOs.

The geographic scope of each market coincides with the geographic coverage of the network concerned and is determined as national.

10 C(2019) 8475, C(2019) 8740 respectively. 11 See cases DE/2008/0813 and DE/2015/1808. A Home Zone business model allows customers of a mobile service to call via an additional geographical number at the same tariffs as fixed numbers. It is therefore an integrated fixed and mobile package which assigns both a geographic and a mobile service number to customers. 12 Nevertheless, BNetzA points out to the possibility to differentiate its approach related to the setting of remedies concerning the non-EEA originated calls, as well as points out to the treatment of non-EEA originated calls in the Delegated Act setting the Eurorates.

2.3. Three criteria test

Irrespective of the fact that that the market for voice call termination is included on the list of markets susceptible to ex ante regulation (with regard to which the fulfilment of the 3 criteria is presumed), BNetzA undertakes the assessment of the 3 criteria.

High and non-transitory barriers to entry

BNetzA considers that the markets for wholesale voice call termination on individual mobile networks continue to face significant and persistent structural and legal barriers to entry, which cannot be eliminated or even reduced in the course of this review period. BNetzA considers in particular that termination services are a structural monopoly as only the operator which controls the traffic over the mobile number can deliver the call termination or initiate call termination through a third party, and wholesale customers cannot switch to an alternative supplier of termination to a specific mobile number. As there are no legal solutions13 to overcome the termination monopoly, BNetzA also notes that barriers to entry are not only high, but absolute and permanent. Those barriers would be insurmountable, and BNetzA cites the WIK Study commissioned by the Commission to inform on the review of the Recommendation on Relevant Markets which concludes that barriers to entry will remain after the introduction of single maximum Union-wide mobile termination rates. Therefore, the first criterion is considered to be met.

Tendency towards effective competition within the relevant time horizon

BNetzA considers that markets for wholesale voice call termination on individual mobile networks will not tend towards effective competition in the relevant time horizon. In BNetzA’s view, it is technically impossible for competitors to enter the termination market of the respective MNOs, being a monopoly market where each wholesale supplier has a 100% market share. Further, there is no direct or indirect countervailing buyer power limiting the operators’ ability to set prices.

BNetzA also explains that at the time of the national consultation of the draft measures the regulatory changes at Union level were not known in detail. Also, Article 75 of the European Electronic Communications Code provides for the possibility of a transitory period of maximum one year to introduce single maximum Union-wide mobile termination rates, and the Delegated Act addresses purely tariff- related issues, and it does not deal with other aspects, namely interconnection conditions.

Therefore, the second criterion is considered to be met.

Competition law alone is insufficient to adequately address the identified market failures

BNetzA considers that since the previous market review, no market developments have occurred which have changed the structure of the market in such a way that

13 BNetzA explains that OTT bypass business models, have been considered illegal as prohibited by laws on numbering.

general competition law could be deemed sufficient to address market failures14. BNetzA also considers that there is a structural rather than individual risk of creating barriers to interconnection (e.g. refusing or delaying access) and charging excessive termination rates. Therefore, the third criterion is considered to be met.

2.4. Finding of significant market power

BNetzA intends to designate all the above mentioned operators as having SMP in the market for wholesale voice call termination on their respective individual (virtual) mobile networks.

The main criteria considered by BNetzA when reaching its conclusion are: (i) the market shares (each operator has a 100%-market share on the market for voice call termination on its network); (ii) absence of direct and indirect countervailing buyer power and (iii) barriers to entry.

3. NO COMMENTS

The Commission has examined the notification and has no comments.15

Under Article 7(7) of the Framework Directive, BNetzA may adopt the draft measure and, where it does so, shall communicate it to the Commission.

The Commission’s position on this particular notification is without prejudice to any position it may take on other notified draft measures.

Pursuant to Point 15 of Recommendation 2008/850/EC16 the Commission will publish this document on its website. If BNetzA considers that, in accordance with EU and national rules on business confidentiality, this document contains confidential information that you wish to have deleted prior to publication, please inform the Commission17 within three working days of receipt18. Please give reasons for any such request.

Yours sincerely,

14 According to BNetzA, SMP operators may have incentives to deny interconnection in order to delay or prevent market entry. Ex post competition law in these cases would be insufficient. 15 In accordance with Article 7(3) of the Framework Directive. 16 Commission Recommendation 2008/850/EC of 15 October 2008 on notifications, time limits and consultations provided for in Article 7 of Directive 2002/21/EC of the European Parliament and of the Council on a common regulatory framework for electronic communications networks and services, OJ L 301, 12.11.2008, p. 23. 17 By email: [email protected] 18 The Commission may inform the public of the result of its assessment before the end of this three-day period.

For the Commission Roberto Viola Director-General