The Plenum of the Competition Council As Constituted

THE COMPETITION CONSILIUL COUNCIL CONCURENŢEI

PLENUM OF THE COMPETION COUNCIL DECISION

No APD – 8 mun. Chişinău As of 26 September 2013 The Plenum of the Competition Council as constituted:

Viorica CĂRARE – Chairperson Emil GUŢU – Vice Chairperson Mihail CIBOTARU – Vice Chairperson Ion MAXIM – Member Victoria BUZULEAC – Secretary, Acting on the grounds of art. 41 para. (1) let. h) and art. 93 ale The Law on Competition no.183 as of 11 July 2012, Parliament Decision no. 179 as of 12.07.2013 on appointing members of Plenum of the Competition Council, Having analyzed the investigation report on the case initiated by the Disposition Administrative Council of National Agency for Protection of Competition1 no.42 as of 19 July 2011 and the attached materials, HAS FOUND: On 12 July 2011 the National Agency for Protection of Competition (hereinafter NAPC) received the application form the economic agent JV „Moldcell” JSC claiming the actions of JV „Orange Moldova” JSC on launching the promotional campaign - „SMS and MMS for 10 bani to any number on every weekend in July”, which is deemed by JV „Moldcell” JSC to be abuse of dominant position by setting low monopolist prices. The Administrative Council of NAPC by the Disposition no. 42 as of 19 July 2011 ordered the initiation of the action to the object of infringement of art. 6 of the Law no. 1103-XIV as of 30.06.2000 on the protection of competition by JV „Orange Moldova” JSC.

1Successor of rights is Competition Council from the Republic of Moldova 1

The parties concerned:  JV „Orange Moldova” JSC, subsidiary of France Telecom Group, operating on the grounds of License Series A MMII. no. 024155 as of 06.03.1998 for providing cellular mobile telephony services, GSM standard, and the License Series AA no. 065139 as of 08.08.2008 for the use of radio frequencies and channels in the provision of networks and cellular mobile communications services of third-generation– 3G.  JV „Moldcell” JSC part of a big family of GSM operators from Fintur Holdings BV, operating on the grounds of License no. 04 as of 29.09.2008 for providing telephony services delivered by means of land public mobile networks. According to official data of National Regulatory Agency for Electronic Communications and Information Technology (NRAECIT) in 2011, JV „Orange Moldova” JSC had a coverage on the territory of the republic with radio signal from own networks of 2nd generation (2G) of 99%, JV „Moldcell” JSC – of 97,35%. Relevant market: the relevant product and geographic market I. Relevant product market The relevant product market contains products deemed by consumers as being interchangeable or substituible due to use thereof, due to phisical characteristics, fuctionaly and price. The identification of relevant product market started with the claimed action and services provided for by the party concerned by the investigation (SMS and MMS services). SMS service (i.e. Short Message Service) implies that the technology allows for reception and sending of short messages by mobile telephone. MMS (i.e. Multimedia Messaging Service) is a system of transmitting multimedia messages (photo, audio, and video) in the mobile telephony networks. It allows for sending messages not only the mobile telephone, but also to electronic mail. MMS consists of two parts. The first is the information which enters in the MMS and is kept on a special server of the operator (WAP-server). The second is the SMS which is sent to the recipient. Therefore, MMS is an additional setup that combines services of SMS and WAP. In the Republic of Moldova the services of SMS and MMS are used only together with voice telephony service and are not granted separately. In order to benefit from SMS and MMS services, one should be user of mobile telephony (having subscription or prepaid cards) of one of the existent providers (JSC „Moldtelecom”, JV „Moldcell” JSC or JV „Orange” JSC). Substitutability at the level of demand is the essence of defining relevant market 2 and shall identify products which are considered substitutable by the consumers, products which shall be sufficiently similar; insofar the consumers or beneficiaries should consider them while making purchasing decision. Two products must not be identical from the point of view of physical and functional characteristics, of quality or price, in order to be deemed as substitutable or interchangeable from the point of view of buyers. It is important that the products have sufficient degree of substitutability in order to satisfy the needs and the wishes of buyers, insofar each of the products constitute a real economic alternative for other products, the consumer having the possibility to choose while taking the purchasing decision.

The Competition Council deems there are no arguments for sustaining substitutability of the demand between the services of message (SMS, MMS), on the one hand, and the services of calls to mobile points, on the other. Firstly, among main elements differentiating between these message categories (SMS or MMS) from voice calls to mobile points, there is the relevant time horizon for sending content, and the time necessary for sending the message itself. In this respect, a SMS, MMS needs a longer time to be compound, in case of SMS-es, being limited to a certain number of characters, consequently 160. Another distinctive element among the two categories of services is the lack of promptness of replies in case of sent messages. Therefore, while making a call, the promptness of reply is immediate, the communication being carried in real time, assuring the caller that the called party has received the information transmitted, and may act accordingly. As to SMS and MMS, the recipient may or may not notice the reception thereof in proper time, occurring a gap between the moment of interaction between the two parties. In conclusion, SMS or MMS does not represent a viable alternative for voice calls. Moreover, from the point of view of the way of use or functionality, the services of message and voice calls are perceived as being complementary by the end users. Although the services of SMS or MMS do not participate in the civil independent circuit, SMS and MMS are separate services. Therefore, within the investigation, the following relevant product markets were distinguished:  The market for providing SMS service, and  The market for providing MMS service. II. Relevant geographic market The relevant geographic market shall be defined as the entire territory of the Republic of Moldova. Found acts and facts In the submitted application, JV „Moldcell” JSC notified that on 29.06.2011 JV „Orange-Moldova” JSC, by launching the campaign „SMS and MMS for 10 bani to any number on every weekend in July”, promoted the commercial policy which may not be 3 repeated on other players on the telecommunications market without having/bearing major losses. The offer was designed to the users of mobile telephony of the company JV „Orange Moldova” JSC who have the possibility to send messages to own network of mobile telephony and other national operation in the weekends with only 10 bani. JV „Moldcell” JSC supposes that this offer used by an operator with the market share of 71,77% depending on the turnover and 62,1% by number of subscribers (in accordance with the official data presented by NRAECIT) may distort the competition on the market of telecommunications namely on the market of mobile telephony in the Republic of Moldova by setting low monopolistic prices. In this way, in the opinion of JV „Moldcell” JSC, JV „Orange-Moldova” JSC infringed the interdictions set by art. 6 let. (g) of the Law no.1103-XIV as of 30 June 2000 on the protection of competition by setting low monopolistic prices. In letters no. APD-12/289-1081 as of 26.07.2011 and no. APD-12/382-1508 as of 20.10.2011 requested the legal and economic argumentation of the promotion campaign SMS and MMS for 10 bani to any number in the country on every weekend in July 2011 from JV „Orange-Moldova” JSC. In this respect, JV „Orange-Moldova” JSC notified that the mentioned offer aimed at to stimulating consumption and retaining customers but not at the acquisition of new customers. The peculiarity of such offer lies in the fact that it is addressed to the existent customers and is not related to connecting to the service. The mentioned offer had as its object complementary services (SMS and MMS), but not basic ones (voice calls). JV „Orange-Moldova” JSC notified that the calculation i.e. economic argumentation was grounded on the methodology of average total costs. Based on the cost price calculation of the mentioned offer grounded on the average costs (the result of dividing total costs to the number of produced unities), presented by JV „Orange-Moldova” JSC, showed that the promotional action carried out in July 2011 had a profit of [… %]2. Analyzing the method of carrying out the mentioned campaign, it was found that SMS-es and MMS-es were offered for 10 bani only in weekend in July 2011. Proceeding from this, during the working days the consumers used SMS and MMS services for standard tariffs displayed officially on the web –site of JV „Orange Moldova” JSC, in accordance with the chosen package. In accordance with the information published on the web site of JV „Orange Moldova” JSC as to the conditions of the mentioned campaign, it was valid both for subscription and for PrePay. In this vein, taking account the period (month) and the conditions for promotional campaign (10 days out of 31), as well the fact that in order to benefit from the promotion campaign one should have been Orange subscriber, it was set that the promotion campaign launched on 29 June 2011 was not aimed at attracting new clients. The potential new customers may not be tempted only by a promotion campaign for SMS or MMS services, since the given services are less used as compared to the voice call service. Pursuant to the information published by the NRAECIT in the report ”The

2 Confidential information 4 evolution of the markets on electronic communication in 2012”, as well the data of mobile telephony providers (JV „Orange Moldova” JSC and JSC „Moldtelecom”), SMS service was used about 11% in 2011 and about 7% in 2012 as compared to the voice call service. According to the information submitted by JV „Orange Moldova” JSC, on 07.11.2011 by letter no. 4127, as to the total number of SMS-es and MMS-es sent by the subscribers of JV „Orange Moldova” JSC during the mentioned campaign, the following were found: I. Total volume of SMS-es sent in the network in July 2011 constitute […%], out of the total volume of SMS-es sent in the same period. The total volume of SMS-es sent to other networks including the international ones constitute […%] out of the total volume of the SMS-es sent (out of which […%], messages sent to Moldcell and Unite) in July 2011. During the campaign the volume of SMS-es sent in weekend constitute […%] out of the total volume of the SMS-es sent in July 2011 and […%] were sent during the working days. The volume of the SMS-es sent in weekend to Moldcell and Unite constitute […%] out of the total volume of the SMS-es sent in weekend. The volume of the SMS-es sent to Moldcell and Unite during the working days constitute […%] out of the total volume of the SMS-es sent in the working days. II. The total volume of the MMS-es sent in the network in July 2011 constitute […%] out of the total volume of the MMS-es sent in the same period. The total volume of the MMS-es sent to other networks including international ones constitute […%] out of the total volume of the MMS-es sent (out of which […%], messages sent to Moldcell and Unite) in July 2011. During the campaign the volume of MMS-es sent in weekend constitute […%] out of the total volume of the MMS-es sent in July 2011 and accordingly […%] were sent during the working days. The volume of the MMS-es sent in weekend to Moldcell and Unite constitute […%] out of the total volume of the MMS-es sent in weekend. The volume of the MMS-es sent to Moldcell and Unite during the working days constitute […%] out of the total volume of the SMS-es sent during the working days. Therefore, it has been noticed that during the promotion campaign, about one third of SMS-es and MMS-es were sent at the tariff of 10 bani, the others – at standard tariffs published on the web page of JV „Orange Moldova” JSC, according to the chosen package. An important and essential aspect which must be analyzed is the fact whether the promotion campaign at issue restricted the competition or damaged the interests of JV „Moldcell” JSC. In this vein, the following were found. In the letter no. 4005 as of 12.08.2011 JV „Orange Moldova” JSC provided the subsequent evolution of the promotion launched on 29 June 2011 on the market of retail mobile telephony services. Therefore, the share of JV „Orange Moldova” JSC on the mobile telephony market decreased (from 67,1% on 31.12.2009 to 63,2% on 31.12.2010). In contrast, the share of JV „Moldcell” JSC increased (from 28% on 5

31.12.2009 to 32,7% on 31.12.2010). In the I semester of 2011, this tendency was more pronounced. Therefore, in the I semester the share of JV „Orange Moldova” JSC reduced by 1,1%, and in the II semester – by 0,6% (reaching 61,5%). In the same time, the share of JV „Moldcell” increased by 1,2% in the I semester, and decreased by 0,3 in the II semester (reaching 33,6%). The share of JSC „Moldtelecom” (Unite) increased as well (from 3,4% on 30.09.2010 up to 4,9% on 30.06.2011). In the last semester, the share of JSC „Moldtelecom” (Unite) increased by 0,9%. In the last 15 months, the share of JV „Orange Moldova” JSC according to the revenues reduced by 3,58%.In the same time, the share of JV „Moldcell” JSC increased by 3,28%, and the share of JSC „Moldtelecom” (Unite) – by 0,66%. In the I quarter, JV „Orange Moldova” JSC connected 19,4 thous. of new subscribers, and JV „Moldcell” JSC – 66,6 thous. In the same quarter, the sales of JV „Orange Moldova” JSC increased by 2,5%, those of JV „Moldcell” JSC – by 14,5%, and those of JSC „Moldtelecom” (Unite) – 26,6 thous. In total, in the I quarter JV „Orange Moldova” JSC connected 33,6 thous. new subscribers, JV „Moldcell” JSC – 78,4 thous., and JSC „Moldtelecom” (Unite) – 29,7 thous. In the same quarter, the sales of JV „Orange Moldova” JSC increased by 2,2% (or MDL 26,1 mln.), those of JV „Moldcell” JSC – 14,5% (MDL 45,6 mln.), and those of JSC „Moldtelecom” (Unite) – by 28,5% (MDL 13,3 mln.)3. The above mentioned information was confirmed by NRAECIT as follows: Pursuant to the annual report for 2011, during 2011, JV „Moldcell” JSC increased mostly its users’ data base– by about 329, 5 thous. The users’ data base of this provided increased compared to 2010, by 31,5%, and reached 1 mln. 360 thous. The number of JV „Orange Moldova” JSC users increased by 129,8 thous. and reached 2 mln.129 thous., and that of JSC „Moldtelecom” – by 94,1 thous. which was 225,3 thous. According to the report „The evolution of the markets on electronic communication in 2012”, in 2012 the users’ data base of JV „Moldcell” JSC increased most of all– by about 242,4 thous. The users’ data base of this provider increased compared to 2011, by 17,8%, and reached 1 mln.603 thous. The number of mobile communications users of JV „Orange Moldova” JSC increased by 214,0 thous. and reached 2 mil.343,5 thous., and that of JSC „Moldtelecom” – by 90,7 thous. which was 316 thous. The most significant share of mobile communications market, depending on the number of users, - 54,99% - was hold by JV „Orange Moldova” JSC. JV „Moldcell” JSC had a market share of 37,6%, and JSC „Moldtelecom” – 7,41%. In the same time, the statistical data showed that in the last 3 years, the market share of JV „Orange Moldova” JSC decreased by approximately 10 p.p. In this vein, taking account of the fact that the users’ data base of JV „Moldcell” JSC increased, it has to be stated that the promotion campaign of JV „Orange Moldova” JSC has not limited the competition and has not damaged the interests of JV „Moldcell” JSC.

3 Press releases of ANRCETI on http://www.anrceti.md/news09082011 and http://www.anrceti.md/node/17271.

Legal qualification Having analyzed the above stated actions, the Competition Council holds the following:  in accordance with the calculation of the cost price of the offer mentioned based on the average costs (the result of dividing total costs to the number of product units), it appears that the promotion action carried out in July 2011 has a profit of […%];  taking into account the period (month) and the conditions for the promotion campaign (10 days out of 31), as well as the fact that in order to benefit from the promotion at issue, one should have been subscriber of JV „Orange Moldova” JSC, it was stated that the promotion campaign launched on 29 June 2011 was not oriented towards attracting new clients;  according to the information submitted by JV „Orange Moldova” JSC on the total number of SMS-es and MMS-es sent by the subscribers of JV „Orange Moldova” JSC during the mentioned campaign, it was noted that about one third of SMS-es and MMS-es were sent at the tariff of 10 bani, the others – at standard tariffs published officially on the web page of JV „Orange Moldova” JSC, in compliance with the chosen package;  considering that the users’ data base of JV „Moldcell” JSC increased, it was found that the promotion campaign of JV „Orange Moldova” JSC did not limit the competition and did not damaged the interests of JV „Moldcell” JSC. Therefore, it was found that the action claimed by JV „Moldcell” JSC did not meet constitutive elements of the component for infringement provided for by art.6 let. g) of the Law no. 1103 as of 30.06.2000 on the protection of competition. Observations to the investigation report In compliance with the provisions of art. 59 din The Law on Competition no.183 as of 11.07.2012, by letters no. APD-12/139-387 and no. APD-12/138-388 as of 07.06.2013, the Competition Council sent the investigation report, offering in this way the possibility to JV „Orange Moldova” JSC and JV „Moldcell” JSC, to submit observations on it within 30 working days. I. Observations JV „Moldcell” JSC JV „Moldcell” JSC did not provide observations within the deadline set by para. (3) art.59 from the Law on Competition no.183 as of 11.07.2012, moreover, it did not request the extension of the deadline (para. (4) art.59 from the Law on Competition no.183 as of 11.07.2012). II. Observations JV „Orange Moldova” JSC The observations on the investigation report by JV „Orange Moldova” JSC, provided for by letter no. 5325 as of 05.07.2013, were the following: „Orange Moldova considers that the market for providing SMS service and the

7 market for providing MMS service are not different from the market of market for "retail mobile services." As the report mentions correctly, „ SMS and MMS services (retail – note of CC) are services which are used only together with the voice call service and shall not be granted (commercialize – note of CC) separately. In order to benefit from SMS and MMS services, one has to be user of mobile telephony (subscription or prepay card). Moreover, from the point of view of use and functionality, the message services and the services of voice calls are perceived by end users as being” In other words,, final users perceive message services as being additional functionality (benefit) different from the voice call, used in certain specific situations (lack of money on the account, for saving money, not to disturb the recipient, to address or reply urgently where a call may not be made, to keep anonymous, for transmitting an exact piece of information (number, address, link, picture), etc.). For these reasons, we consider that in the case at issue, the relevant market must be the market for "retail mobile services." ” The position of the Competition Council to the observations of JV „Orange Moldova” SA In accordance with art. 28 para. (3) of the Law on Competition no.183 as of 11.07.2012 the identification of the relevant market represents an instrument for identification and definition of the framework in which the competition occurs. Depending on the nature of the competition problem, the dimensions of the relevant market may be different. In this vein, it shall be mentioned that while identifying the relevant product market, account was taken by the action claimed, namely-launching the promotion campaign „SMS and MMS for 10 bani to any number on every weekend in July”, fact which determined the constraint of the relevant product market. In another train of thoughts, the Competition Council considers there are no arguments for sustaining substitutability of the demand between the message services (SMS, MMS), on the one hand, and services of calls to mobile points, on the other hand, fact described in the chapter relevant product market. Based on the findings set, pursuant to art. 41 of the Law on Competition no. 183 as of 11.07.2012, the Plenum of the Competition Council, DECIDES: 1. To cease the examination of the case initiated by the Disposition of the Administrative Council of NAPC no. 42 as of 19 July 2011 related to the lack of infringing the Law no. 1103 as of 30.06.2000 on competition protection; 2. This Decision shall enter into force on the date of its adoption and shall be notified to the parties; 3. The decision of the Competition Council can be appealed in court.

Chairperson of the Plenum Competition Council Viorica CĂRARE 8