By Magnus Franklin ( May 30, 2012, 09:46 GMT | Insight) -- Brussels – The EU body of telecoms regulators Berec has rejected part of the European Commission's 'serious doubts' concerning French regulation of wholesale rates for delivering calls, which may allow French regulator Arcep to maintain 'asymmetric' levels of rates for three new entrants compared with established operators.
The case concerns the 'termination rates' charged by new mobile network operator Free, and two 'virtual' operators (MVNO) without their own wireless infrastructure, namely Lycamobile and Oméa Télécom. Arcep had proposed their rates should be allowed to be higher than those of incumbent operators for a transitional period, until 31 December 2013.
In its 13 April 'serious doubts' letter (see here), the commission contested two justifications brought forward by Arcep to explain the difference in rates between the two sets of operators.
The commission will now need to take Berec's opinion into 'utmost account' before deciding, by mid-July at the latest, whether to escalate the 'serious doubts' into a formal recommendation requiring Arcep to re-draft its measure. In the meantime, the French authority will be able to withdraw and re-draft the proposal, or submit an amended version to the commission, allowing the EU regulator to lift its serious doubts.
- Circularity -
First, the commission questioned a provision under which the rate that Free could charge would be based on a mix of the coverage of its own network, and the areas where it would need to deliver calls relying on a 'roaming' agreement with one of the established operators.
While calls delivered over its own network would be assumed to incur the same cost as the established operators, calls delivered over roaming would likely incur higher costs.
But the commission said that such an arrangement would lead to a 'circularity' effect, whereby established operators would hike roaming prices in the knowledge that the roaming operator would be allowed higher fees, and also to recoup the higher cost of delivering calls to Free's subscribers.
More expensive roaming agreements would then be fed into the cost model, leading to higher regulated rates, leading to a never-ending cycle of spiralling wholesale tariffs.
In its opinion (see here), Berec acknowledged that Arcep had attempted to take measures to curb such an effect, but that nevertheless the effect would remain, and - if allowed - would also set a worrying precedent for other regulators considering similar asymmetric tariff levels.
While supporting the commission, Berec also pointed out that the commission's serious doubts in this case seem to nullify a specific clause in an EU recommendation on the regulation of termination rates, specifically granting an opportunity for asymmetric termination rates "in case it can be demonstrated that a new mobile entrant operating below the minimum efficient scale incurs higher per-unit incremental costs than the modelled operator."
Berec concludes that the French case has revealed a problem, in that it is not clear when this provision can be applied in practice, and asked the commission to provide further guidance on the applicability of the clause.
- Traffic imbalance -
But while the commission gathered the support of Berec in relation to roaming, the body of telecoms regulators questioned the EU executive on the second aspect on which it challenged Arcep, relating to 'traffic imbalances.'
In its notification, Arcep argued that smaller operators, to gain market share, engage in commercial strategies in which they offer large bundles of outgoing calls to users.
Such strategies encourage users to make more calls than they receive, meaning that the operator needs to pay others more in termination rates than it receives from incoming calls.
In its opinion, Berec concludes that the commission's challenge in this regard does not explain where Arcep's reasoning is incorrect.
Rather, Berec concludes that there is a "clear relationship between the financial imbalance and the termination cost incurred," which should warrant higher termination rates.
"The commission’s serious doubts on the asymmetry based on national roaming costs are justified, while the serious doubts on the asymmetry that is based on traffic imbalance costs are not justified," Berec's opinion states.
Berec also takes the opportunity to challenge the commission on its assertion that asymmetric termination rates lead to internal-market barriers.
"The new entrants’ higher rates will also be paid by operators and ultimately their subscribers in other member states from which the call originates," Berec notes, but added that this effect "seems relatively minor," particularly given the extent of the asymmetry.
As a warning shot to future instances in which the commission may want to draw on the 'internal market' argument, Berec adds that "the creation of barriers to the internal market is not a necessary condition to justify serious doubts."...