Analysis of the Market for Access and Call Origination on Public Mobile Telephone Networks
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Analysis of the market for access and call origination on public mobile telephone networks Annex 1 Case 1804194 26.03.2020 Summary The Norwegian Communication Authority (Nkom) has previously issued decisions in the wholesale market for access and call origination on public mobile telephone networks (formerly market 15 - hereinafter referred to as the market for access and call origination on mobile networks) on 23 January 2006, 5 August 2010 and 1 July 2016. This decision presents Nkom's assessment of whether there is still a need for sector-specific ex-ante regulation in the relevant market in the coming two to three years (three-criteria test) and an updated analysis of whether there is/are a provider(s) with significant market power. Chapter 1 contains a description of the background and framework for the analysis. Chapter 2 contains Nkom's definition of the relevant market. Nkom has found that the relevant wholesale market is technology-neutral and includes wholesale access to be able to offer voice call origination, text messaging and data services for the following external access types: Access by national roaming MVNO access Service provider access Both access in order to offer ordinary mobile services and access in order to offer mobile broadband are included. Co-location is also included as a separate form of access within the relevant wholesale market. The geographic market is defined as Norway. Chapter 3 provides an overview of the market development and operators on the supply and demand sides in the relevant market. In Chapter 4, via the three-criteria test, Nkom has assessed whether the market is still susceptible to sector-specific ex-ante regulation. The three cumulative terms on which the assessment is based are: 1. The presence of high and non-transitory structural or regulatory barriers to entry. 2. The market structure does not trend towards effective competition within the relevant time horizon. 3. Competition law alone is insufficient to adequately address the identified market failure(s). Nkom believes that the market for access and call origination on mobile networks continues to be characterised by high and non-transitory entry barriers in the form of very costly roll-out, a high percentage of sunk costs, restrictions on access to financial resources and substantial Norwegian National Communications Authority 2 economies of scale for already established operators. On this basis, Nkom has concluded that the first criterion has been met. In the assessment of the second criterion, Nkom took account of any structural changes and market behaviour since the previous analysis, and the impact this will have on the market dynamics within the time horizon of the analysis. Telenor and Telia still control a very large part of the market. At the end of first half of 2019, the two established operators accounted for 85 per cent of bundled mobile subscriptions and around 91 per cent of the sales in this retail market. At network level, there are still only two providers of access to external operators, Telenor and Telia. Ice offers data traffic on its own network to its own retail activities while voice and SMS are primarily produced on Telia’s network. Telenor has a market share of 51 per cent on wholesale level based on the number of subscriptions, while Telia’s market share is 40 per cent. Ice has just over nine per cent of the subscriptions. Of the total data traffic in the market, around 55 per cent goes via Telenor’s network, 41 per cent via Telia’s network and only four per per cent via Ice’s network. To establish as a competitive operator offering wholesale access to external operators takes longer time than to establish in the retail market. Nkom has no clear evidence that Ice will be able to establish itself as a competitive provider for external buyers in the wholesale market within the time horizon of the analysis. Thus, Nkom cannot conclude that Ice would be sufficiently able to discipline the established network providers in the relevant wholesale market within the analysis' time horizon. On this basis, Nkom believes that there is no sufficiently clear evidence of dynamics in the market within the analysis' time horizon which would indicate that the market will trend towards sustainable competition without ex-ante regulation. The second criterion is therefore fulfilled. Reliable access to infrastructure is important to achieving the goal of sustainable competition in the market for access and call origination on the mobile network. Nkom believes that general competition law alone is not sufficient to achieve this predictability, and the third criterion is thereby also met. On this basis, Nkom has concluded that the three criteria for sector-specific ex ante regulation are still fulfilled. In Chapter 5, Nkom assesses whether one or several providers alone or together have significant market power in the relevant market, i.e. whether any provider has financial strength to largely behave independently of its competitors, customers and consumers. The Norwegian National Communications Authority 3 assessment is based on the providers' market shares. Telenor's sustained high market share, both at retail and wholesale level, gives an indication that Telenor has significant market power alone. Telenor has also had stable high profitability over time, and this also supports the presumption that Telenor has significant market power. Furthermore, the perception appears to exist, particularly among business customers, that Telenor has the best network in terms of coverage. The perception of the networks among retail customers suggests that Telenor’s strong position in the market will continue. The assessments of both vertical integration and economies of scale support the presumption that Telenor has significant market power. Nkom has also assessed whether there are disciplining factors which mean that the company nonetheless cannot act independently of competitors, customers and consumers within the time horizon of the analysis. Neither the assessment of buyer power nor potential competition indicate that there are sufficient disciplining factors. On this basis, Nkom believes that Telenor can largely behave independently of competitors, customers and consumers during the period covered by the analysis, which means that Telenor has significant market power in the wholesale market for access and call origination on mobile networks. In theory, the existence of single dominance excludes findings of joint SMP1 in the same market. However, Nkom has still also assessed whether it is probable that Telenor and Telia would find it rational, on a permanent basis, to tacitly collude in the absence of regulation. In order to be able to establish joint SMP, three cumulative criteria have to be satisfied: - The market must be transparent enough for each member of the oligopoly to monitor each other’s behaviour in a sufficiently detailed manner and in real-time. - The tacit collusion must be possible to maintain over an extended period. - It must be probable that neither the current nor potential future competitors or customers can prevent the goals of the coordinated behaviour from being achieved. An assessment of joint SMP must be based on the focal point of potential tacit collusion. Denial of access, either in the absolute sense or more indirect in the form of unreasonable terms, has been identified as the core problem in the market and thereby constitutes a natural focal point. Despite there being many similarities between Telenor and Telia, the analysis of single dominance shows that there are several factors that differentiate the two operators and which influence their incentives to engage in tacit collusion to prevent wholesale access. Telenor’s ▬ 1 Section 3-1 of the Electronic Communications Act states that a provider “individually or jointly with others” may have significant market power. When a provider has significant market power alone, this is referred to as single dominance, while if several providers together can act independently of their customers, competitors and consumers to an appreciable extent, this is referred to as joint SMP. Norwegian National Communications Authority 4 stable market position, both in the form of market share and profitability, differs from the development Telia has undergone and is still undergoing. Wholesale agreements make an important contribution to Telia’s profitability and will also be able to continue to do so within the next two to three years. This may indicate that Telia will consider itself better served by selling access to wholesale customers rather than denying access. Nkom is also of the opinion that it is uncertain as to whether the wholesale-market can be said to be sufficiently transparent for the operators to be able to monitor coordination to not grant access on sufficiently favourable terms. Furthermore, it is also uncertain whether any tacit collusion could be maintained over time. It is therefore Nkom’s conclusion that currently there are insufficient grounds for claiming that Telenor and Telia would consider it rational to permanently engage in tacit collusion to deny access. Norwegian National Communications Authority 5 Contents 1 Background and framework for the analysis ........................................................................... 8 2 Definition of the relevant market ........................................................................................... 10 2.1 Market definition in general .....................................................................................................