The CMT’s latest review of the retail market brings Spain into line with the rest of the EU5

OVUM VIEW

Summary

The Comision del Mercado de las Telecomunicaciones’ (CMT) latest review of the fixed retail market in Spain is a further step toward removing regulation at the retail level, and is in line with both the direction taken in the previous market reviews and the ongoing trend in other European countries. The regulator’s decision to remove ex-ante regulation on Telefonica’s monthly rental rate brings Spain closer to the other members of the EU5. However, Telefonica’s status as universal service provider means it will continue to face some form of price regulation until at least 2017.

The CMT has retained the power to carry out ex-ante tests on Telefonica’s retail offers to ensure that the incumbent does not behave in an anti-competitive manner. The regulator’s decision appears to be the right one in the current market conditions, given the importance of enabling alternative operators to compete with Telefonica on bundled offers.

Telefonica still faces some price regulation due to its status as universal service provider

The Spanish regulator, the CMT, concluded its third review of the market for access to the fixed telephone network (market 1 of the EC’s recommendation on relevant markets of 2007) in December 2012. It confirmed the trend of decreasing regulation at the retail level, lifting the RPI-X price control on Telefonica’s monthly line rental fee. However, the fact that the operator is the universal service provider means that it will not be immediately free to set the price for that service. The operator must ensure that all the households in the country have access to the fixed line at an accessible price, and attached to this condition is an obligation to only increase the rate according to the RPI until 2016. Nonetheless, given that the price control in place until the latest market analysis was on a RPI-X basis, with “X” equal to the RPI for the past five years (effectively blocking the price), Telefonica now faces a less restrictive obligation than before.

In 2017 the Ministry for Industry, Energy, and Tourism (MINETUR) will have to redesignate one or more universal service providers. It may as well maintain a price control obligation on the newly designated universal service providers, but it will be important to take into account the market conditions at that moment in time. This includes the number of fixed lines, which is likely to continue to fall.

Fewer fixed lines and increasing competition explain the CMT’s decision

It is clear why the regulator has considered it disproportionate to maintain a price control on Telefonica’s line rental rate. The Spanish fixed market is shrinking, while at the same time becoming increasingly competitive. As Ovum noted in the latest version of the Spain (Country Regulation Overview) report, the penetration of fixed lines stood at 42.2% in 1Q12, compared to 43.2% in 1Q11 and 43.6% in 1Q10. At the same time, Telefonica has reduced its market share in the fixed retail sector, which was 56.5% at 1Q12 for fixed telephony (a 5.0 percentage points drop on the previous year) and 49.4% in fixed broadband (a 3.2 percentage points decrease on 2011). In a market that has seen signs of shrinking owing to the general economic downturn, mobile connections are increasingly seen as a substitute to fixed connections. This suggests that few concerns are likely to arise with regard to competition following the CMT’s decision, especially considering the obligation related to the provision of universal service.

The decision brings Spain into line with the rest of the EU5

Regulation at the retail level has gradually been removed in all the EU5 markets in the last few years. This is largely due to the successful implementation of regulation at the wholesale level, which has enabled a significant increase in competition. However, as Ovum’s Regulatory Scorecard 2013: Europe noted, most regulators have been more prompt than the CMT in lifting obligations. Ofcom in the UK and ARCEP in France completely removed retail price controls between 2006 and 2008; BNetzA in Germany carries out ex-post controls, as does AGCOM in Italy, where ex-ante retail regulation was waived in 2009. In the UK, Ofcom went so far as to remove the condition of SMP in market 1 from the national incumbent BT. Until the latest market analysis, this had left Spain as the only country in the EU5 to keep some form of ex-ante retail price regulation. Even allowing for the constraints coming from Telefonica’s universal service obligations, the CMT’s ruling finally brings Spain into line with the other EU5 countries.

The decision to maintain oversight of bundles is correct for the time being

Despite the progress toward price deregulation, the CMT has retained most obligations at the retail level in the current market review, including the obligation not to unreasonably bundle services. This means that the CMT must carry out some ex-ante tests on Telefonica’s retail offers. While in other countries these obligations have already been removed – in France in 2007, and the UK in 2009, for example – Ovum believes that, for the time being, this is a reasonable decision. This is because the ability to compete on bundled offers has proved to be crucial. The proportion of fixed voice services sold as part of a bundle has significantly increased in the last few years in Spain, from 53.9% of the total in 2008 to 67.6% in 2011, and it is therefore important to ensure that alternative operators are able to replicate the incumbent’s offers.

APPENDIX

Author

Luca Schiavoni, Analyst, Regulation and Policy

luca.schiavoni@ovum.com

Further reading

Regulatory Scorecard 2013: Europe (January 2013)

Spain: Country Regulation Overview (August 2012)

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