Future Electronic Communications Markets Subject to Ex-Ante Regulation Final Report
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Interdisciplinary Centre for Law & ICT Future electronic communications markets subject to ex-ante regulation Final report Client: DG Connect Rotterdam, 18 September 2013 Future electronic communications markets subject to ex-ante regulation Final report Client: DG Connect Rotterdam, 18 September 2013 The opinions expressed in this Study are those of the authors and do not necessarily reflect the views of the European Commission. About Ecorys At Ecorys we aim to deliver real benefit to society through the work we do. We offer research, consultancy and project management, specialising in economic, social and spatial development. Focusing on complex market, policy and management issues we provide our clients in the public, private and not-for-profit sectors worldwide with a unique perspective and high-value solutions. Ecorys’ remarkable history spans more than 80 years. Our expertise covers economy and competitiveness; regions, cities and real estate; energy and water; transport and mobility; social policy, education, health and governance. We value our independence, integrity and partnerships. Our staff comprises dedicated experts from academia and consultancy, who share best practices both within our company and with our partners internationally. Ecorys Netherlands has an active CSR policy and is ISO14001 certified (the international standard for environmental management systems). Our sustainability goals translate into our company policy and practical measures for people, planet and profit, such as using a 100% green electricity tariff, purchasing carbon offsets for all our flights, incentivising staff to use public transport and printing on FSC or PEFC certified paper. Our actions have reduced our carbon footprint by an estimated 80% since 2007. ECORYS Nederland BV Watermanweg 44 3067 GG Rotterdam P.O. Box 4175 3006 AD Rotterdam The Netherlands T +31 (0)10 453 88 00 F +31 (0)10 453 07 68 E [email protected] Registration no. 24316726 W www.ecorys.nl 2 NL1325979 PdB/OV Table of contents Preface 9 Executive Summary 11 1 Introduction 37 2 Methodological considerations 41 2.1 Introduction 41 2.2 Ex-ante and Ex-post 41 2.3 Three Criteria 42 2.3.1 Rationale for the Three Criteria 42 2.3.2 Review of the Three Criteria Test 43 2.4 General competition policy principles and techniques 44 2.4.1 Relevant markets in theory 44 2.4.2 Competition problems 47 2.4.3 Wholesale and retail 49 2.4.4 Note on geographic market definition 54 3 Retail and wholesale markets 57 3.1 Retail and wholesale markets 2014 57 3.2 Markets 2003 and 2007 57 4 Trends and drivers 59 4.1 Bundles 59 4.1.1 Trends 59 4.1.2 Drivers 62 4.1.3 Impact on competition and markets 64 4.2 LTE 66 4.2.1 Trends 66 4.2.2 Drivers 67 4.2.3 Future developments 67 4.2.4 Impact on competition 68 4.3 OTT Communications 69 4.3.1 Trends 69 4.3.2 Drivers 74 4.3.3 Future developments 74 4.3.4 Impact on competition 75 5 Fixed voice telephony 77 5.1 Background 77 5.1.1 The problem 77 5.1.2 Current legal practice 78 5.1.3 The representative Member State 79 5.2 Defining the retail market 83 5.2.1 PSTN and Broadband Access 83 5.2.2 Fixed and mobile access 86 Future electronic communications markets subject to ex-ante regulation 3 5.2.3 High-capacity and low-capacity 87 5.3 Potential competition problems at retail level 88 5.4 Assessment of the wholesale markets 90 5.4.1 Market definition 90 5.4.2 Conclusions on the Three Criteria Test 91 5.5 Conclusions 92 6 Call termination 93 6.1 Introduction 93 6.1.1 The problem 93 6.1.2 Current legal practice 94 6.2 Relevant markets 94 6.2.1 The relevant retail market 94 6.2.2 The relevant wholesale market 94 6.3 Analysis of competition problems 95 6.3.1 A ‘notional’ retail market approach 95 6.3.2 A greenfield wholesale market approach 97 6.3.3 Conclusions on the Three Criteria 99 6.4 Conclusions 100 7 Mass-market broadband access 101 7.1 Introduction 101 7.1.1 The problem 101 7.1.2 Current legal practice 102 7.1.3 Current trends and drivers 102 7.1.4 Representative Member State 104 7.2 Relevant retail markets: greenfield assessment 106 7.3 Local or physical access: market definition and competitive assessment 109 7.3.1 Current situation 109 7.3.2 Market definition 2016 – 2020 110 7.3.3 Competitive assessment 114 7.3.4 Conclusions on the Three Criteria Test 115 7.4 Relevant retail markets: modified greenfield assessment 115 7.4.1 Competitive reassessment 115 7.4.2 Impact of NGA trend 116 7.5 Wholesale central access: market definition and competitive assessment 116 7.5.1 Current situation 116 7.5.2 Market definition 2016 – 2020 117 7.5.3 Competitive assessment 122 7.5.4 Remedying wholesale central access at local level 123 7.5.5 Conclusions on the three criteria 124 7.6 Summary 125 8 Wholesale central access in the non-residential segment 127 8.1 Demand for bespoke connectivity by non-residential users 127 8.1.1 High(er) quality 127 8.1.2 Single supplier 128 4 Future electronic communications markets subject to ex-ante regulation 8.1.3 Summarising: three typical profiles of business users 129 8.2 Implications at the wholesale level 131 8.2.1 Implications of bundling 131 8.2.2 Implications for the geographical market(s) 132 8.2.3 Concluding on SMP of the incumbent 132 8.3 Pan-European business market 133 8.4 Conclusions 134 9 Leased lines and other high-quality business data connectivity services 137 9.1 Introduction 137 9.1.1 The problem 137 9.1.2 Current legal practice 138 9.1.3 Trends and drivers 138 9.2 Market definitions 140 9.2.1 Retail markets 140 9.2.2 Retail markets – Greenfield assessment 143 9.2.3 Wholesale market definitions 144 9.3 Competition analysis 146 9.3.1 Conclusion on the Three Criteria Test 146 9.4 Summary 147 10 New candidate markets 149 10.1 Access to physical infrastructure 149 10.1.1 The problem 149 10.1.2 Current legal practice 149 10.1.3 Competition analysis 150 10.1.4 Conclusion 151 10.2 ‘Over the top’ (OTT) services 151 10.2.1 Current legal practice 151 10.2.2 Relevant retail markets 151 10.2.3 Relevant wholesale markets 152 10.2.4 Competition analysis 152 10.2.5 Conclusion 153 10.3 Access to ‘special rate’ services 153 10.3.1 The problem 153 10.3.2 Current legal practice 153 10.3.3 Competition analysis 154 10.3.4 Conclusion 155 10.4 Access to international calls 155 10.5 SMS termination 155 10.5.1 The problem 155 10.5.2 Current legal practice 155 10.5.3 Trends and drivers 156 10.5.4 Competition analysis 156 10.5.5 Conclusion 157 11 Former candidate markets back on the list? 159 Future electronic communications markets subject to ex-ante regulation 5 11.1 Market 15/2003 - MVNO access 159 11.1.1 The problem 159 11.1.2 Current legal practice 160 11.1.3 Trends and drivers 160 11.1.4 Competition analysis 161 11.1.5 Conclusion 162 11.2 Market 18/2003 - Broadcasting 162 11.2.1 The problem 162 11.2.2 Current legal practice 163 11.2.3 Representative Member State in figures 163 11.2.4 Competition analysis 164 11.2.5 Conclusions 168 12 Conclusion on the list of relevant markets 171 13 Measuring regulatory burdens 173 13.1 Introduction 173 13.2 Approach and methodological remarks 173 13.3 Regulatory burdens of the current Recommendation 177 13.3.1 Process of market review 177 13.3.2 Regulatory burdens for NRAs and operators 178 13.4 Impact of a change in the Recommendation 2007/879/EC 181 14 Economic costs and benefits 185 14.1 Approach 185 14.2 Deregulating fixed voice telephony 188 14.2.1 The model 188 14.2.2 Data 190 14.2.3 Results 192 14.2.4 Estimations of the size of the pool of captive users 194 14.2.5 Incentives to invest/innovate 196 14.2.6 Conclusions 197 14.3 Regulating call termination on fixed and mobile networks 197 14.3.1 The model 197 14.3.2 The Data 198 14.3.3 The results 199 14.3.4 Conclusions 200 14.4 Regulating local access 201 14.4.1 Existing empirical research 201 14.4.2 The model 202 14.4.3 Data 204 14.4.4 Results 205 14.4.5 Welfare effects 207 14.4.6 Conclusions 211 14.5 Regulating wholesale central access 211 14.6 Regulating high quality business connectivity services 211 6 Future electronic communications markets subject to ex-ante regulation Appendix 1 Trend and data analysis 213 Appendix 2 Legal analysis 287 Appendix 3 Methodological note 357 Appendix 4 Business review 435 Future electronic communications markets subject to ex-ante regulation 7 Preface More than four years after the current version of the Recommendation on relevant markets has been adopted, the Commission considered it appropriate to start the procedure for the revision of the list of relevant markets. To obtain “a quantitative and qualitative analysis of EU electronic communications markets” and an assessment of “the impact of altering the list of relevant markets against the key policy objectives”, the Commission published on 17 July 2012 an invitation to tender for a study on “Future electronic communications markets subject to ex-ante regulation (Recommendation on relevant markets)" – SMART 2012/0007.