In Norway, a recent dispute between the incumbent Telenor and an alternative network operator (ANO) draws attention to the issue of asymmetric regulation of termination charges. This case demonstrates the opportunities of a dominant operator to discipline behaviour of smaller players, by applying a range of measures. In our opinion, it serves to illustrate the appropriateness of light hand regulation of ANOs in the termination markets.
The Commisions position on asymmetric regulation
According to the Commision?s Recommendation on Relevant Markets under the new regulatory framework, call termination in each fixed (and mobile) network shall be considered to be a separate market, in which the network operator will have a monopoly and presumably also significant market power (SMP). However, the Commision has stated that there is a wide margin of discretion for NRAs to apply asymmetric regulation.
In a recent notification by the German regulator, RegTP, it claimed that alternative network operators were not in a position to raise prices above the competitive level, as the incumbent DT could exert sufficient pressure when negotiating call termination charges. On this basis, RegTP proposed not to regulate other termination charges than that of the incumbent. The Commision vetoed this proposal, stating that RegTP had not provided sufficient evidence for the lack of market power of ANOs.
Norway - ANO termination charges
In Norway, like most other European countries, the SMP decisions under the new regulatory framework are under preparation, and the old regulatory regime is still in force. Currently, only the incumbent Telenor, is deemed to have SMP on call termination in fixed networks and is subject to cost oriented termination charges, currently at appr. 0,5 Eurocent/min.
Traditionally, the termination charges in fixed networks have been identical for all fixed network operators, due to a requirement of reciprocity in the interconnection agreements of the incumbent. When this requirement was removed some time ago, several ANOs increased their termination charges, with 30 % at the most. These price increases did not cause any reactions from Telenor or the authorities.
In november 2004 a small ANO, here called "TelCo", decided to set its termination charge to the same level as the incumbent?s mobile operator, at approximately 9 Eurocent/min. TelCo argued that since mobile operators are allowed to charge termination rates high above cost and subsidise outgoing calls, fixed operators should have the same opportunity.
Within soon, Telenor brought the matter before the Norwegian Post and Telecommunication Authorities (NPTA). The NPTA found that the termination charge of TelCo was not in breach of regulations, since TelCo does not have SMP under the current regime. Telenor also brought a complaint before the Norwegian Competition Authorities, claiming that the TelCo had abused its dominant position in the termination market. The NCA has not yet reached a final decision.
Subsequently, Telenor took several measures against TelCo. First, Telenor stated that it would bar all incoming international calls to TelCo?s network. This measure was denied by the NPTA as being a unporportionate limitation of use. Telenor then notified TelCo that it would no longer carry out invoicing of termination of calls from TelCo to Telenor?s international interconnection partners on behalf of TelCo. In practise, this would force TelCo to enter into separate international interconnection agreements.
The other measure of Telenor was to apply an automatic voice message on all calls to TelCo?s network from the customers of Telenor. The voice message would appear before the call was answered, informing the customer of the charge for the call. TelCo brought the measure before the NPTA, arguing that a voice message would distort the quality of service and have devastating effects for TelCo in the end user market. The NPTA, however, found that a voice message did not constitute a limitation of use that required the prior consent of the authorities.
When the voice message was applied, it caused malfunction of telefax communication to TelCo?s customers, raising a storm of complaints. On this background, the NPTA ordered Telenor to lift the measure temporarily until the problems were solved. Despite the voice message being in force for only a couple of days, the TelCo lost many of its customers.
In March 2005, TelCo sold its assets to another ANO and abandoned its telephony business.
One could argue that the substantial price increase of TelCo?s termination charge shows that TelCo was able to set the price independently of the market in the first place, and that ex-ante price regulation should apply also to ANOs termination charges.
On the other hand, the measures taken by Telenor against TelCo resulted in the TelCo exiting the market within a short period of time.
Considering the effects that Telenor?s measures had on TelCo, it is likely that the mere threat of applying measures, such as a voice message or denial of invoicing of international calls, will considerably restrict the pricing of any other ANOs. Thus, Telenor will probably be able to strongly limit the power of ANOs to act independently in the termination market.
The Norwegian case could supply some of the evidence that the Commision has inquired from the German regulator. In any case, it provides strong arguments for light hand regulation of ANOs termination charges.
- The author, Tomas Myrbostad, is an expert within Telecommunications- and IT-Law, with prior experience from the Norwegian regulatory authority. Tomas has now returned to his practice as a lawyer, and can be found in the Telecom department of the Lawfirm Schjødt in Oslo, Norway.