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News article | Foilseachán

Commission closes its in-depth investigation on the proposed Czech regulation on mobile access market

Today, the European Commission has issued a decision requiring the Czech regulator, CTU, to withdraw its draft decision proposing measure to impose wholesale access by third parties to mobile networks in Czechia.

The wholesale mobile access market is considered as ‘not susceptible for ex-ante regulation at EU level’ (in principle requiring access measures) since 2007, and is not regulated in such a way anywhere in Europe. The Commission’s decision means that CTU cannot adopt its draft measure, as notified.

On 20 November 2021, the Czech National Regulatory Authority (CTU) notified to the Commission its draft measure proposing regulation of the mobile access market in Czechia. On 20 December 2021, the Commission informed CTU that it had serious doubts as to the compatibility of the draft measure with EU law and opened an in-depth investigation. On 24 January 2022, the Body of European Regulators for Electronic Communications (BEREC) issued its opinion on the Commission’s serious doubts, partially supporting Commission’s initial findings. Today, the European Commission issued its final decision closing the in-depth investigation. The European Commission required CTU to withdraw its draft measure  proposing regulation of the wholesale mobile access market.

Wholesale mobile access is purchased by mobile operators which do not have their own or sufficiently developed infrastructure. Such mobile virtual network operators (MVNOs) are able to provide their mobile services to end users by relying on networks owned and operated by mobile network operators (MNOs). Such so-called national roaming agreements are usually established through commercial negotiations. However, in the absence of a commercial agreement, access can be mandated under narrowly described conditions by a regulatory (or competition) authority as pre-conditions for spectrum licences, as part of merger remedies, or to safeguard competition in case of proven market dominance.

In its notified draft measure, CTU referred to the fact that retail prices for mobile telephony are particularly high in Czechia. According to CTU, virtual mobile operators are not able to offer competitive services due to allegedly unfavourable wholesale access conditions. Therefore CTU proposed to designate the three largest mobile operators (i.e. O2, T-Mobile and Vodafone) as jointly having significant market power (“SMP”), and consequently proposed to oblige these three operators to provide national roaming to all operators.

The Commission considers however that CTU’s draft measure is not sufficiently justified since it does not sufficiently take into account current and likely short-to mid-term market developments.

Under the 2020 5G auction conditions, O2 is already obliged to provide national roaming to the three holders of 5G spectrum i.e. CentroNet, Nordic Telecom and to PODA. This obligation to provide access to O2’s spectrum is based on cost oriented terms and is valid until 2029. This is why the Commission considers that it is in the interest of access seekers to enter as quickly as possible in order to recover their costs and to benefit from this regulation for a longer period. This would allow those operators to effectively compete with the three MNOs at retail level. Furthermore, in case O2 would refuse or delay giving access for unjustified reasons CTU has the necessary legal instruments to enforce this already existing regulation. Furthermore, O2 cannot prohibit the three entrants to further resale such access to virtual operators.

The Commission therefore considers that the enforcement of already existing regulatory obligations imposed as part of spectrum conditions should help to bring about positive changes in the retail mobile market in Czechia. The market entry of a new mobile operators (CentroNet, Nordic, PODA), based on the use of the national roaming obligation imposed on O2 and/or through the deployment of their own networks in near future, has the potential to create competitive pressure in the retail and wholesale market. It is the Commission’s understanding as already expressed in the serious doubts letter, that in case of two new entrants (Nordic Telecom and PODA), they either already reached the thresholds of the base stations or are close to it. The Commission’s assessment of that specific aspect goes hand in hand with that of BEREC, which published its own opinion regarding the case.

The CTU proposes to impose a full set of ex ante obligations based on the finding of joint dominance between the three main MNOs active on the Czech market. However, according to the principles of competition law and jurisprudence, a finding of joint dominance requires that a number of strict criteria are met, i.a. that the market is symmetric and transparent for the members of the oligopoly, that all the three operators de facto pursue a common policy and that they can retaliate if one of them deviates from the joint policy.

The Commission considers that in Czechia, these criteria for joint dominance are not met.  Where operators apply different pricing strategies and where one operator (O2) needs to comply with strict access regulation, the market cannot be considered as symmetric and transparent. Furthermore, the different market shares (at wholesale level) and different cost structures of the three main operators (in particular for Vodafone, who, while active on the wholesale market, is not part of the network sharing agreement between T-Mobile and O2/CETIN) may further underline this asymmetry.

The Commission also observes that over time, the retail price decreases, usually initiated by one operator, are followed by others and lead to lowering of the overall level of retail prices in the market. If the price decreases had been of a retaliatory nature and the three operators had been able to act independently of their competitors and customers, prices would have gone back up, close to the previous levels after a period of retaliation.

Overall, the Commission observes that the structure of the Czech market does not support CTU’s conclusions on collective significant market power. To the contrary, in the Czech market there are already favourable conditions for market entry of a new mobile operator, which could evolve from MVNO towards MNO (based on the national roaming supplied by O2 on cost oriented terms, or as a consequence of acquired spectrum rights). Such new entrant(s) could also itself offer MVNO access and may be expected to create additional competitive pressure both at retail and wholesale level to the benefit of Czech consumers.

 

The Commission’s decision on this case is available online on CIRCABC.