Fixed telephony in Ireland - the EC veto

The European Commission (EC) took the rare step in September of overturning a market review by a national regulator, ComReg in Ireland, disagreeing with its analysis and conclusions.?

In this article I look at the background to that decision and some lessons that other regulators may draw from it.

THE EC REVIEW OF NRA DECISIONS

Under the European Electronics Communications Code (and its predecessor, the "Framework Directive") the EC has an oversight role for National Regulatory Authorities (NRAs) in telecommunications. Under Article 32 of the Code, NRAs must publish a draft of any decision to impose measures on an operator that it has found to have Significant Market Power (SMP) in any relevant market, and notify the EC, at least a month before the decision is due to take effect.?The EC, any other EU NRAs and BEREC (the association of EU NRAs) review and may comment on the decision. Under the Code, any comments from the EC must be taken into "utmost account" by the NRA concerned in issuing its final decision.

In practice, although the EC regularly comments upon NRA decisions, they seldom cause immediate major changes to these, perhaps because NRAs are short of time at that late stage of the review process and unwilling to extend deadlines. Nevertheless, where an NRA decision is appealed to a higher national authority, any EC comments may be significant in the assessment of the decision.

THE EC'S VETO POWERS

In rare cases, the EC may go further than simply commenting and express "serious doubts" as to the NRA's decision. It will then refers the matter to BEREC for its opinion as to whether these doubts are justified, invite submissions from interested parties, and, after considering these, can then veto the NRA's decision, requiring that it will be withdrawn or amended.

Two recent examples concern Hungary and Sweden.

In 2018, the Hungarian NRA (NMHH) found that Magyar Telecom (MT) had SMP in a national market for leased lines and imposed a price control. The EC issued a "serious doubts" letter concerning the finding of SMP and the calculation of the control. After considering the response from BEREC, it lifted its reservations on the SMP finding, but the price calculation was amended by the NMHH to avoid any further EC action.

In 2019, the Swedish NRA (PTS) defined a national market for local access at the wholesale level, but the EC considered that its analysis was flawed. BEREC agreed and the EC vetoed the review. As at October 2021, no revised market review has yet taken place.

CALL ORIGINATION AND LINE RENTAL

The Irish case concerns the wholesale call origination and wholesale (telephony) line rental markets. These markets were at one time regulated throughout the EU. In recent years though, NRAs have removed regulations, as competition in voice calls from "over the top" IP and from mobile services have meant that the market is unlikely to satisfy the "three criteria" test (3CT) for regulatory intervention. (Under this test, the market must have all three of the following: high barriers to entry; no tendency to effective competition; and insufficiency of competition law remedies alone to address any market failure.)

Ex-ante regulation of these markets now remains in place in only five of the 27 member states today and in these a market review is now due, or overdue (the most recent reviews were in 2016 in France, Spain and Italy and in 2018 in Croatia).?

THE FACO MARKET REVIEW

The Irish NRA, ComReg, in its recent review of this area, found two wholesale product markets (it considered the calls and lines to be in the same markets, "FACO", but segmented into "high level" and "low level" product sets), and two geographic markets, Urban and Regional, based upon differing competitive conditions. It found Eircom to have SMP in the Regional FACO markets and imposed remedies accordingly.?

The EC expressed serious doubts as to the product market definition, primarily because it excluded mobile calls as a substitute for fixed calls, and serious doubts as to the geographic market definition, as ComReg set a very high threshold for prospective competition (at least 80% coverage by a next generation network in an exchange area, that is excluding cable networks and IP voice over ADSL). As a consequence, it also doubted the conclusions of the 3CT and SMP assessment.

BEREC in its review did not share the EC's doubts on the definition of the product markets, but agreed that ComReg's criteria for defining regional markets was not sufficiently substantiated (although it noted that this does not necessarily make the conclusions incorrect). The EC and BEREC both considered that ComReg's assessment was insufficiently forward looking.

Nevertheless, the EC did not withdraw any of its doubts after submissions from BEREC and others, and has issued a veto decision. Comreg is now required to reconsider its review and the existing measures (which in fact are more extensive than those proposed, including retail market controls) remain in place pending any further action.

CONCLUSIONS

Several conclusions can be drawn from the EC decision.

Firstly, the EC's views on the regulation of for wholesale line rental and call origination appear to have evolved since the Croatian review in 2018, which was adopted without comment (albeit there are some differences from the Irish market). This is likely to influence the next review by Croatia and the overdue reviews by the three larger countries that still regulate these markets. It seems likely that?ex-ante?regulation of these wholesale telephony markets will not continue for much longer anywhere in the EU.?

Secondly, NRAs will note the EC's comments on the criteria for geographic regulation. Geographic segmentation is increasingly important in defining broadband and leased line markets throughout the EU and beyond. The criteria for the definition of these vary between member states and may become subject to increasing debate.

Finally, this case will be a reminder to NRAs that the EC does retain veto powers and that its views must be considered when performing market reviews. The next steps by the Irish and Swedish regulators will be of great interest.?

Read all my articles on my website, competition.finance.