The EC raises a red flag to Poland’s proposed MTR regulation

OVUM VIEW

Summary

The Polish communications regulator, the UKE, recently found itself the subject of the EC’s new regulatory powers twice in as many weeks. On November 7, 2011 the EC wrote to the UKE to express serious doubts regarding its proposed regulation of MTRs. In doing so it exercised for the first time the new powers granted under Article 7a of the 2009 reform of the EU Telecoms Framework Directive. The EC questioned the regulator’s decision not to formally regulate MTRs, and argued that its proposed approach would create uncertainty, result in higher charges, and make a single market even more unreachable. Later that month, the EC intervened again, this time to prevent the UKE setting MTRs for a new MNO, Aero2, without any formal analysis. On January 12 and 13, 2012 the UKE withdrew its notifications concerning the proposed regulation of operators PTC, PTK, Polkomtel, and P4, as well as that of Aero2. The regulator must now develop new draft measures, taking the utmost account of the comments it has received, or face having the EC at its door for a third time.

Brussels flexes its muscles for the first time

In 2009 the EC gained controversial new powers that gave it oversight of regulatory remedies. Its role had previously been limited to challenging market definition and SMP designation, and the choice of remedies to correct the abuse of dominance had been left entirely up to national regulators. The EC’s expression of serious doubts regarding the UKE’s draft measures followed the amended Article 7 procedure, which came into force in May 2011. When it has such doubts concerning regulatory measures, the EC may now undertake an in-depth review that can last up to three months.

It is not surprising that the EC has used these powers for the first time in a market analysis decision relating to mobile termination rates. It is an area that has seen considerable divergence across Europe, and in which national circumstances cannot always explain away the huge variation in fees charged by mobile operators. The UKE is expected to work closely with the EC and BEREC on potential modifications to its draft measures, and on ensuring their full compliance with EU law and objectives.

Despite imposing a price control, the UKE did not plan to set binding MTRs

On October 4, 2011 the UKE notified the EC of its latest round of market 7 analysis for PTC, PTK, Polkomtel, and P4. In addition to the usual set of remedies, the UKE proposed not imposing a legally binding price control, but instead publishing non-binding (i.e. recommended) MTRs on its website. The UKE intended to allow operators to negotiate MTRs among themselves, and planned to intervene only if no agreement was reached after a 60-day period.

The UKE made two later notifications, on October 17 and November 14, 2011. These concerned the settlement of disputes relating to voice call termination on Aero2′s network. The regulator had not carried out market analysis or SMP designation, as the operator had yet to commence services. It did, however, publish a glidepath that had considerable asymmetries in favor of Aero2 extending well beyond January 1, 2013, the date by which the EC expects MTRs to be symmetrical and cost-based.

Recommended rates could have generated uncertainty and unpredictability

The EC’s concerns regarding the UKE’s announcement on PTC, PTK, Polkomtel, and P4 were that the lack of a legally enforceable price control obligation would generate unpredictability and uncertainty in the market, and might ultimately result in MTRs far higher than the recommended level. BEREC shared these doubts. It suggested that the proposed measures could raise concerns in terms of legal predictability, and act as barriers to the single market. BEREC requested that the UKE make every effort to ensure that MTRs will be consulted, notified, and implemented based on calculations using a BU-LRIC model.

In terms of the UKE’s announcement on Aero2, the EC’s view was that arbitrarily setting its MTRs above those of its competitors would significantly deviate from EU regulatory principles. BEREC agreed, and added that the regulator’s draft measures were not consistent with Articles 15 and 16 of the Framework Directive, or Article 8(3) of the Access Directive. It proposed that the UKE undertake market analysis, define the market (if possible, given Aero2’s lack of activity), and set MTRs using a clear cost methodology.

The withdrawal of the notifications was not unexpected. The challenge now facing the UKE is to amend its approach to MTR regulation, especially as it has also proposed to regulate the MTRs of four new entrant operators: CenterNet, Cyfrowy Polsat, Mobyland, and Sferia.

APPENDIX

Disclaimer

All Rights Reserved.

No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior permission of the publisher, Ovum (an Informa business).

The facts of this report are believed to be correct at the time of publication but cannot be guaranteed. Please note that the findings, conclusions, and recommendations that Ovum delivers will be based on information gathered in good faith from both primary and secondary sources, whose accuracy we are not always in a position to guarantee. As such Ovum can accept no liability whatever for actions taken based on any information that may subsequently prove to be incorrect.