Analysis of the market

Transcription

Analysis of the market for access and call origination on public mobile telephone networks
Annex 1
Analysis of the market for access
and call origination on public mobile
telephone networks
5 August 2010
1
Summary ....................................................................................................................... 4
1
Background and framework for the market analysis ....................................... 7
2
Definition of the relevant market ...................................................................... 10
2.1 General comments on market definition ................................................................... 10
2.1.1 The product market ............................................................................................ 10
2.1.2 The geographic market ....................................................................................... 11
2.2 The market definition in the decision of 23 January 2009 ........................................ 13
2.3 Definition of the product market ............................................................................... 13
2.3.1 Access and call origination (outgoing voice calls) on public mobile network at
the wholesale level ........................................................................................................... 13
2.3.2 Access and origination on fixed networks ......................................................... 14
2.3.3 Voice over Broadband (VoB) ............................................................................ 14
2.3.4 Business and non-business customers ................................................................ 14
2.3.5 Prepaid cards/subscriptions and post-paid subscriptions ................................... 14
2.3.6 SMS (Short Messaging Service) ........................................................................ 15
2.3.7 Other data services ............................................................................................. 15
2.3.8 International roaming ......................................................................................... 17
2.4 Definition of the geographic market .......................................................................... 17
2.5 Conclusion on market definition ............................................................................... 18
3
Overview of market actors ................................................................................ 19
3.1 Operators on the supply side ..................................................................................... 19
3.2 Operators on the demand side ................................................................................... 20
3.3 Other potential operators in the relevant market ....................................................... 20
3.4 Summary on market actors ........................................................................................ 21
4
Three-criteria test ............................................................................................... 21
4.1 First criterion: High and non-transitory entry barriers .............................................. 22
4.1.1 Structural entry barriers ...................................................................................... 22
4.1.2 Regulatory entry barriers .................................................................................... 30
4.1.3 Conclusion on the first criterion ......................................................................... 32
4.2 Second criterion: The market does not tend towards effective competition ............. 33
4.2.1 Introduction ........................................................................................................ 33
4.2.2 Assessment of second criterion in Norway ........................................................ 34
4.2.3 Development of market shares ........................................................................... 34
4.2.4 Market concentration .......................................................................................... 40
4.2.5 Costs of switching .............................................................................................. 41
4.2.6 Prices and price development ............................................................................. 43
4.2.7 Product differentiation........................................................................................ 49
4.2.8 Barriers to expansion .......................................................................................... 52
4.2.9 Market behaviour and incentives ....................................................................... 57
4.2.10 Technological development and innovation....................................................... 66
4.2.11 Potential competition.......................................................................................... 68
4.2.12 Conclusion on the second criterion .................................................................... 69
4.3 Third criterion: General competition law is insufficient ........................................... 70
4.3.1 General comments on the third criterion ............................................................ 70
4.3.2 Sector-specific regulation and competition law ................................................. 71
4.3.3 Assessment of whether general competition law is sufficiently effective ......... 73
4.3.4 Conclusion on the third criterion ........................................................................ 75
4.4 Conclusion on the three-criteria test .......................................................................... 75
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5
Analysis of the market – single dominance ...................................................... 76
5.1 Introduction ............................................................................................................... 76
5.2 Market share .............................................................................................................. 77
5.3 Profitability ................................................................................................................ 79
5.4 Entry barriers ............................................................................................................. 80
5.4.1 Size of undertaking............................................................................................. 81
5.4.2 Access to sales channels ..................................................................................... 82
5.5 Provider behaviour .................................................................................................... 83
5.5.1 Vertical integration ............................................................................................. 83
5.5.2 Horizontal integration ........................................................................................ 84
5.5.3 Product differentiation........................................................................................ 85
5.5.4 Prices and price developments ........................................................................... 88
5.6 Conditions on the demand side .................................................................................. 89
5.6.1 Customers’ access to information, switching costs and lock-in mechanisms .... 89
5.6.2 Market power/countervailing buying power ...................................................... 91
5.7 Conclusion on significant market power and designation of undertaking with
significant market power ...................................................................................................... 93
3
Summary
Norwegian Post and Telecommunications Authority (NPT) issued decisions in the market for
access and call origination on public mobile telephone networks (former market 15 hereinafter referred to as the market for access and origination on mobile networks) on 23
January 2006.
This document contains NPT’s assessment of whether there is still a need for sector-specific
ex ante regulation in the relevant market in the coming 1.5 to two years and an updated
market analysis.
The market analysis will provide the basis for applying sector-specific measures in markets in
which an operator or operators with significant market power is/are identified. Chapter 1
contains a description of the background and framework for the market analysis.
Chapter 2 contains NPT’s definition of the relevant market. The market definition is based on
the market definition NPT adopted in its decision of 23 January 2006. Following a new
assessment in which market developments have been taken into consideration, NPT believes
the relevant market shall include the following:
access and call origination (outgoing voice calls) on public mobile networks
at the wholesale level, including on 2G and 3G networks
access by prepaid cards/subscriptions and post-paid subscriptions
access for non-business customers/residential customers and business
customers
originating SMS
other data services
In NPT’s assessment the market does not include.
access and origination on fixed networks
mobile broadband telephony
international roaming
The geographic market is defined as Norway.
Chapter 3 provides an overview of providers in the relevant market. Telenor and NetCom are
the only providers to have nationwide mobile networks. Network Norway has an agreement
on national roaming, while Tele2, TDC and Ventelo have MVNO access. In addition, around
20 providers have service provider access.
The market for access and origination on mobile networks is not included in ESA’s new
Recommendation on relevant markets. NPT must therefore do an assessment of whether the
market is still entitled to sector-specific ex ante regulation. The assessment is presented in
Chapter 4, in which NPT assesses whether the relevant market meets three cumulative
criteria:
1. There are high and non-transitory structural or regulatory entry barriers in the relevant
product market.
2. The market has characteristics such that it will not tend towards sustainable
competition.
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3. General competition law does not sufficiently address the objectives behind sectorspecific regulation.
NPT believes the market for access and origination on mobile networks is characterised by
high entry barriers in the form of very costly rollout, high percentage of sunk costs and
substantial economies of scale for already established operators. For this reason NPT has
concluded that the first criterion has been met.
Under the second criterion NPT assessed whether the market tended towards competition in
the absence of regulation. In the assessment NPT took into account structural changes and
market behaviour since the previous analysis, and the impact this will have on the dynamics
of the market within the time horizon of the analysis.
Network Norway’s establishment in 2007 as a provider with a national roaming agreement
represents the largest structural change in the market since the previous analysis. The
company’s rolling out of infrastructure together with Tele2 provides in NPT’s opinion a basis
for eventually achieving sustainable competition in the relevant market. Network Norway is
still far smaller for the two established providers, measured in number of customers, calls and
revenues. NPT does not expect dramatic changes in these figures in the next 1.5 to two years.
In 2008, Network Norway switched host operator from NetCom to Telenor, while Tele2
conversely switched host operator from Telenor to NetCom. The moves between the two host
operators may be a sign that competition works. However, NPT believes this is not
necessarily the case. The agreements were entered into in a regulated market, and the
processes surrounding the entry into the agreements indicate that Network Norway and Tele2
had little buyer power in the negotiations.
The Norwegian market is characterised by big differences in the relative strength of the
established providers with nationwide networks and the other providers. Dependency on
access to the established providers’ infrastructure reduces the disciplinary effect of the newly
established providers in the market. The dynamics in the market going forward will be
completely dependent on the access terms provided by the two established network owners
during the period covered by the analysis. NPT believes that there are not enough facts for
claiming that the market will tend towards effective competition if regulation is removed.
NPT thus believes that the second criterion has been met.
The capacity for rapid intervention, predictability for operators and need for comprehensive
and detailed regulation means that NPT believes general competition law is insufficient for
achieving sustainable competition in the market for access and origination on mobile
networks. For this reason NPT believes the three criteria for continued sector-specific ex ante
regulation have been met.
In Chapter 5 NPT assesses whether there is a provider who alone has significant market
power in the relevant market, in other words whether any provider has economic strength to
largely behave independently of its competitors, customers and consumers. Given that
Telenor was designated as an undertaking with significant market power after NPT’s previous
analysis of the relevant market and the company’s high market shares, NPT has based its
assessment of the relevant factors on Telenor’s position.
At the end of 2009, Telenor’s market share at the wholesale level was about 57% based on
traffic volume. If calls that are originated by Network Norway’s customers on Telenor’s
network are included, the market share increases to [Exempt from public disclosure: XXX].
Also based on revenues and number of subscriptions Telenor has a market share of well over
50%. Telenor’s market share in the relevant market is thus over the level the Commission has
specified as the threshold value for presumption of significant market power (50%) regardless
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of which parameter is used. In such cases it would be exceptional not to consider the provider
as having significant market power.
However, Telenor’s market share at the wholesale level has fallen since the previous analysis.
The drop was the biggest in the first part of the period. On the basis of how Telenor’s market
shares have developed and the dynamics in the market, NPT believes it is not very probable
that the market share will fall below 50% within the time horizon of the analysis. NPT thus
finds that it would be a presumption that Telenor has significant market power in the relevant
market during the entire period covered by the analysis.
NetCom’s market share at the wholesale level was around 36% measured in call minutes at
the end of 2009. The market share itself gives no clear indication of significant market power,
particularly in light of the existence of another operator in the market with a substantially
higher market share. However, NetCom has strengthened its market share over time. In NPT’s
view it is still unlikely that NetCom’s market share will through competition reach a level in
the near future indicating significant market power. Nor in the analysis has NPT found other
factors indicating that NetCom has significant market power alone.
In assessing whether Telenor to a large degree can behave independently of customers,
competitors and consumers NPT has also examined criteria other than market shares,
including structural indicators, entry barriers, provider behaviour and demand-side conditions.
Following such an assessment NPT has not found a basis for departing from the presumption
of significant market power.
On this basis, NPT believes that Telenor can largely behave independently of NetCom,
Network Norway and other competitors, customers and consumers during the period the
analysis covers, and that Telenor consequently has significant market power in the relevant
market.
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1
Background and framework for the market analysis
1.
The regulatory framework for electronic communication is based on five directives
adopted by the European Union (EU).1The directives have been implemented in Norwegian
law through the Electronic Communications Act and associated regulations, including the
Regulations of 16 February 2004 on electronic communications networks and services (Ecom
Regulations).
2.
The framework shall lay the foundation for the harmonisation of regulation in the
EU/EEA, limit entry barriers and facilitate sustainable competition to the benefit of users.
3.
On 23 January 2006, the Norwegian Post and Telecommunications Authority (NPT)
issued a decision on designating providers with significant market power and imposition of
special obligations in the wholesale market for access and call origination on public mobile
telephone networks (former market 15 – hereinafter known as the market for access and
origination on mobile networks). The decision was based on NPT’s market analysis of the
same date, see Annex 1 of the decision.
4.
The EFTA Surveillance Authority (ESA)’s new Recommendation on relevant
markets,2 which entered into force on 5 November 2008, reduces the number of predefined
markets for ex ante regulation from 18 to 7. ESA’s Recommendation corresponds to the
European Commission’s Recommendation3 of 17 December 2007. The market for access and
origination on mobile networks was one of the markets removed from the Recommendation.
However, NPT has the opportunity to define markets departing from the Recommendation.
For a market that departs from the Recommendation to be susceptible to sector-specific ex
ante regulation, three cumulative criteria (three-criteria test) specified in Paragraph 2 ff of the
Recommendation must be met.
1. There are high and non-transitory structural or regulatory entry barriers in the
relevant product market.
1
Directive 2002/21/EC on a common regulatory framework for electronic communications networks and
services (Framework Directive); Directive 2002/20/EC on the authorisation of electronic communications
networks and services (Authorisation Directive); Directive 2002/19/EC on access to, and interconnection of,
electronic communications networks and associated facilities (the Access Directive); Directive 2002/22/EC on
universal service and users’ rights relating to electronic communications networks and services (Universal
Service Directive); Directive 2002/58/EC concerning the processing of personal data and the protection of
privacy in the electronic communications sector (Directive on privacy and electronic communications).
2
EFTA Surveillance Authority Recommendation of 5 November 2008 on relevant product and service markets
within the electronic communications sector susceptible to ex ante regulation in accordance with the Act referred
to at point 5cl of Annex XI to the EEA Agreement (Directive 2002/21/EC of the European Parliament and of the
Council on a common regulatory framework for electronic communications networks and services), as adopted
by Protocol 1 thereto and by the sectoral adaptations contained in Annex XI to that Agreement.
3
Commission Recommendation of 17 December 2007 on relevant product and service markets within the
electronic communications sector susceptible to ex ante regulation in accordance with Directive 2002/21/EC of
the European Parliament and of the Council on a common regulatory framework for electronic communications
networks and services.
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competition.4
5.
In this document, NPT assesses whether the three criteria have been met in the
Norwegian wholesale market for access and origination on mobile networks. If all the criteria
have been met, there is a basis for undertaking a new analysis of the market according to
current regulations for electronic communication.
6.
In our subsequent reference to this document as the “market analysis”, this includes
the three-criteria test, market definition and assessment of whether there is an undertaking or
are undertakings with significant market power.
7.
As described in the document “Methodology for Market Analysis” 5(the methodology
document), work on the market analyses may be divided naturally into three phases:
1. Define relevant markets by defining relevant product markets and defining markets
geographically.
2. Undertake market analyses of each of the relevant markets, with a view to
uncovering whether any undertaking or undertakings has/have significant market
power in the market.
3. Identify undertakings with significant market power in each of the relevant markets
and issue decisions on specific obligations for undertakings designated as an
undertaking with significant market power.
8.
This document contains NPT’s assessment of whether the three criteria have been met,
along with NPT’s assessments in phases 1) and 2). The analysis is an annex to decisions in
which NPT imposes obligations on Telenor, which is considered to have significant market
power in the relevant market in question.
9.
The Electronic Communications Act’s definition of significant market power in
Section 3-1 reads:
“A provider has significant market power when the provider individually or jointly
with others has economic strength in a relevant market affording the provider the
power to behave to an appreciable extent independently of competitors, customers
and consumers. Significant market power in one market may result in a provider
having significant market power in a closely related market.”
10. The term significant market power in the Electronic Communications Act is very close
to the competition law standard “dominant position” (“dominance”). It follows from
Norway’s obligations under the EEA Agreement that identification of undertakings with
significant market power is to be carried out in accordance with the guidelines and
4
Here the Recommendation uses the term “effective competition”, which may best be translated into Norwegian
as “virksom konkurranse”. The Guidelines define this as a market in which operators with significant market
power are absent, cf. paragraph 19. This cannot be interpreted in an antithetical manner, i.e. the presence of an
operator with significant market power will prevent the market from becoming more competitive. Proposition
No. 58 (2002-2003) to the Odelsting p. 99 states: “If none of the providers has significant market power then
there is assumed to be sustainable competition in the market.” NPT therefore assumes that the terms will
coincide for this purpose.
5
“Methodology for market analysis”, 11 June 2009, NPT.
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recommendations prepared by ESA under the new Framework Directive for electronic
communications services:
The Guidelines on market analyses and the assessment of significant market
power (hereinafter referred to as “the Guidelines”)6
Recommendation on relevant markets7
11. According to the Guidelines an assessment of relevant markets and significant market
power must be based on a market analysis. The assessment is to accord with competition law
methodology. The Guidelines and the Recommendation, together with the provisions of the
Electronic Communications Act, particularly Sections 3-1 to 3-3, will therefore form the
legal framework for the market analysis.
12. However, the Guidelines are not exhaustive and therefore in its methodology
document NPT has elaborated on the criteria for the market analysis on certain points. If the
Guidelines and the Recommendation are amended, NPT will amend this document
accordingly. The methodology document in effect at any given time shows the
methodological starting point for the market analyses NPT undertakes. This analysis is based
on the methodology document dated 11 June 2009.
13. The methodology document is not legally binding, but expresses NPT’s understanding
of the guidelines to which NPT is obliged to adhere. The market analyses will therefore be
carried out in accordance with the perceptions and assessments that are expressed in the
methodology document. However, the methodology document is not legally binding. Should
there prove to be discrepancies between the methodology document and the Guidelines or the
Recommendation, the Guidelines or the Recommendation will take precedence.
14. The document “Methodology for Market Analysis” in no sense regulates the
Norwegian Competition Authority’s assessments in accordance with the Competition Act.
Even though NPT’s assessments according to the methodology document will largely be
based on competition law methodology, NPT’s assessments will be based on the need for
general ex ante regulation. The assessments of the competition authorities will as a main rule
be done ex post in connection with specific cases. NPT’s and the Competition Authority’s
assessments in accordance with the two sets of rules may therefore differ even within the
same or overlapping markets.
15. In accordance with the Electronic Communications Regulations, ex ante regulation of
providers with significant market power is only to be used where this is necessary in order to
achieve sustainable competition in the relevant or adjacent markets. In the Norwegian market
regulatory obligations may only be imposed on operators with significant market power in
those markets in which ESA or NPT has decided that sector-specific regulation is necessary.
In each of these relevant markets NPT must assess the extent to which sustainable
competition exists.
16. The market analyses will be subject to regular review. In markets with frequent and
comprehensive changes such reviews will have to be carried out relatively frequently. The
market analyses are therefore limited in the extent to which they are forward-looking, cf.
paragraph 20 of the Guidelines. This analysis has a time horizon of 1.5 to two years.
6
7
EFTA Surveillance Authority Guidelines 14/07/2004 July.
EFTA Surveillance Authority Recommendation 05/11/2008 with the Commission’s Explanatory Note
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2
Definition of the relevant market
2.1
General comments on market definition
17. As stated above, in regard to the market analyses, NPT must assess whether the
markets defined by ESA suit Norwegian circumstances. A description/definition of the
product market is to be given and the geographic market defined.
18. The definition of relevant markets will follow the same procedure used for market
definition within competition law. In some cases, however, markets defined by competition
authorities can differ from markets defined in ESA’s Recommendation or by national
regulatory authorities pursuant to Article 15, paragraph 3 of the Framework Directive8. The
preparatory work on the Electronic Communications Act further makes clear that sector
regulation can have a broader perspective on the market classification than competition
regulation since it seeks to take further developments into account.9
2.1.1 The product market
19. The starting point for the definition of a relevant product market is an assessment of
demand-side substitutability. However substitutability may also exist on the supply side and
may thus be relevant in definition of the relevant market.
20. Demand-side substitutability exists when two or more products in the market are, in
the perception of the end user, mutually exchangeable or substitutable on the basis of
characteristics, price and area of utilisation.
21. Supply-side substitutability exists when providers of other (non-substitutable)
products, in response to a marginal price change in the short term, can change their
production or distribution and offer substitutable products without incurring significant
additional costs or substantial risk.
22. An acknowledged method of analysing substitutability is the so-called “hypothetical
monopolist test” (SSNIP),10. where one endeavours to find the best-defined market in which a
hypothetical monopolist can exercise market power. The SSNIP test is performed by
assuming a small but significant (in practice 5-10 per cent), non-transitory relative increase in
price for the relevant product. In isolation, the price increase could increase the earnings of
the hypothetical monopolist. However, the relative price increase can also be expected to lead
to a certain decline in the sales of the relevant product. The key point of the SSNIP test is to
assess the effect of the relative price increase on revenues of the relevant product with a view
to establishing whether the price increase will be profitable for the hypothetical monopolist.
23. The method depends on a significant amount of data that will often be difficult to
obtain. The Recommendation does not make use of the SSNIP test an absolute requirement in
market definition for the market analyses. The description of the SSNIP test in the
Recommendation should be understood as a description of a procedure and a set of criteria
for assessing market definition. Other methods may therefore also be used.
24. The hypothetical assessment should be supplemented by factual information on
behaviour on the supply and demand sides to the extent that such information is available. On
the demand side, factors such as the end users’ access to information, the costs of changing
8
EFTA Surveillance Authority Guidelines of 14 July 2004, paragraph 26.
Ot.prp nr. 58 2002-2003 page 99.
10
“Small but Significant Non-transitory Increase in Price”. See the Guidelines, paragraph 40.
9
10
and other lock-in mechanisms should be taken into consideration. On the supply side,
account should be taken of the actual potential a provider has to change production as well as
any regulatory conditions that prevent rapid market entry by competitors in the market.
25. Products that are not substitutable can also be included in the same product market. In
the Explanatory Note11 the Commission states that in some cases consumers may prefer to
purchase the services as a bundle from a single supplier and that “the bundle” may become
the relevant product market. Reduced transaction costs from purchasing products together
plus the convenience of being able to receive many services via the same handset and SIM
card, have been cited as factors for arguing that the “bundle” constitutes the relevant product
market.12
26. However, the Commission emphasises that “the bundle” will still not constitute the
relevant product market if a sufficient number of end users want to purchase the products
separately in the event of a small but significant non-transitory relative increase in price for
“the bundle”.
27. The logic behind the market definition is to assess whether the opportunities for
substitution (on the supply and demand sides) can contribute to undermining a hypothetical
monopolist’s ability to increase the price of a wholesale product and thus increase overall
profits because those who buy the product choose a closely related wholesale product.
However, not being able to demonstrate substitution between two products at the wholesale
level, will not necessarily be an indication that the hypothetical monopolist can price the
different services independently of each other. If there are other factors indicating that a
hypothetical monopolist cannot price the services independently of each other, there can still
be reason to include the services in the same market.
28. One assessment criterion in market definition is also how the products are viewed by
the operators on the demand side. If those who demand the products largely see the pricing of
the products as a whole, and it is therefore the overall price that has an impact on demand,
such a common pricing constraint may indicate that the products are in the same market.
2.1.2 The geographic market
29. Once the relevant product markets are determined, the geographic market is defined.
In accordance with the Guidelines, paragraph 57, the geographic market may be defined as
that area in which the relevant product is offered on approximately similar and sufficiently
homogeneous conditions of competition. However, the Guidelines, paragraph 60, point out
that geographic markets in electronic communications have traditionally been defined by
reference to the relevant network’s area of coverage as well as the effective boundaries
(jurisdiction) of the legal regulation of the market.
30. The relevant geographic market is that area in which the relevant products and services
are provided on sufficiently similar or homogeneous competitive terms. In assessment of
substitutability on the demand side one should take account of preferences and geographic
purchase patterns, if such information is available. With this as the basis the markets can be
defined regionally within the national frontiers, nationally or trans-nationally. However, NPT
can only define regional or national markets. The expertise for defining transnational markets
is vested in ESA.
11
12
Explanatory note page 16
Explanatory note page 40
11
31. ERG published its “Common Position on Geographic Aspects of Market Analysis
(definition and remedies)”13 (ERG Common Position) in October 2008. Here, ERG
recommends a step-by-step process for geographic definition of the market. The first step in
this process is to identify whether it is necessary to undertake a detailed geographic analysis.
“Preliminary analysis”, paragraph 1, page 2 of the ERG Common Position reads:
“Before going into the details of geographic analysis, NRA‟s should look at a
number of criteria which are easily accessible and indicate whether competitive
conditions are such that a national approach to market definition, market analysis
and the implications of remedies is justified. Indicators pointing in this direction are:
- The hypothetical monopolist test suggests that there is sufficient demand- and/or
supply-side substitution between different areas.
- Competitive conditions are sufficiently homogenous:
Alternative networks either have small coverage and market shares or have
(close to) national coverage with similar prices;
There is a uniform price of the incumbent operator and similar prices of
alternative operators;
There are no significant geographical differences in product characteristics.”
32. The relevant question during the hypothetical monopolist test for geographic definition
of the market is whether a marginal, but non-transitory price increase (5-10%) in an area
means that a sufficient number of end users will move to a different area or whether
providers from other areas will begin to offer the product in the relevant area in response to
the price increase, so that the price increase would not be profitable.
33. Assessment of the relevant geographic market will be somewhat different depending
on whether the assessment is made ex post or ex ante. An ex ante definition of the geographic
market must necessarily have a wider basis and a more general approach than is taken with
an ex post definition. An ex post definition is based on an actual event the extent of the
effects of which one can chart, whilst the forward-looking assessment must be based on
somewhat different circumstances. This will therefore also characterise the scope of the
assessment of the relevant geographic market.
34. In accordance with Section 1-3 of the Electronic Communications Act, cf. Regulation
No. 882 of 4 July 2003, the Electronic Communications Act applies to Svalbard, Jan Mayen,
the dependencies and Antarctica. However, as far as Svalbard is concerned, exemptions have
been made for Chapter 3 (significant market power), Chapter 4 (access) and Section 9-3
(consultation procedure). However, electronic communications on Jan Mayen, the
dependencies and Antarctica are assumed to have very little significance for the market
analyses NPT carries out in accordance with the Electronic Communications Act.
35. Further reference to Norway as a jurisdiction should be taken to mean mainland
Norway/Norwegian land territory, cf. the description of the applicability of the Electronic
Communications Act in Section 1.3.2.
13
http://www.erg.eu.int/doc/publications/erg_08_20_final_cp_geog_aspects_081016.pdf
12
2.2
The market definition in the decision of 23 January 2009
36. The starting point for the market definition in NPT’s analysis of the market for access
and origination on mobile networks on 23 January 2006 was the description of the relevant
market in the original Recommendations from the ESA14 and the Commission15. NPT
assessed whether the predefined market suited Norwegian conditions and concluded that the
product market included the following:
access and call origination (outgoing voice calls) on public GSM networks
and 3G networks at the wholesale level
customers
originating SMS
37.
In NPT’s assessment the market does not include:
access and call origination on fixed networks
38.
The geographic market was defined as Norway.
2.3
Definition of the product market
39. In establishing the market definition in this analysis, NPT proceeded from the market
definition used on 23 January 2006. In this connection, NPT assessed whether changed
market conditions provide a basis for updating and amending the market definition.
40. Explanatory comments are given where the Authority believes there is a basis for
updating and amendment.
2.3.1 Access and call origination (outgoing voice calls) on public mobile
network at the wholesale level
41. In its previous analysis NPT concluded that access and call origination was part of the
same market, at both the retail and wholesale level. NPT cannot see reasons supporting a
departure from the conclusions of the previous analysis and refers to the assessment made in
section 2.3.1.
42. On the basis of the substitution assessments between voice telephony on 2G and 3G
networks, NPT defined both technologies as part of the same market, see section 2.3.7 in the
previous analysis. NPT sees no reason to change this conclusion and maintains that the
market includes access and origination on both 2G and 3G networks.
43. NetCom has commenced rollout of LTE networks and covers the Oslo area at this
time. Telenor has said that they will not offer services on LTE networks before 2012. The
LTE networks will be pure IP networks. It is uncertain at this time and how voice will be
implemented on LTE networks. For this reason NPT believes that it is unnecessary at this
14
15
EFTA Surveillance Authority Recommendation of 14 July 2004
Commission Recommendation of 11 February 2003
13
time to take a position on whether access and call origination on LTE networks shall be part
of the relevant market. If needed, NPT will return to this issue.
2.3.2 Access and origination on fixed networks
44. In the previous analysis, NPT concluded in section 2.3.2 that national fixed telephony
services did not belong to the market in question. Since then total mobile-originated calls
have increased steadily at the expense of calls from fixed networks. In the first half of 2005,
mobile-originated calls amounted to just over 26% of total traffic charged per minute from
fixed and mobile phones. The corresponding figure for the first half of 2009 was 61%. In
other words, there seems to be relatively strong demand-side substitution from fixed-line
telephones to mobile phones. However, there is no substitution from mobile telephone use to
fixed telephone use on either the demand or supply side. For this reason, NPT sees no need
for further assessment of this issue and maintains that access and origination on fixed
networks are not included in the relevant market.
2.3.3 Voice over Broadband (VoB)
45. In section 2.3.3 of the previous analysis NPT concluded that it did not consider VoB to
be a substitute for traditional mobile telephony over GSM or UMTS networks and that VoB
was thus not part of the market for access and call origination on public mobile telephone
networks.
46. Since the previous analysis there has been development in the form of far better 3G
coverage, and the 3G networks are now fully upgraded to HSDPA, providing better
opportunities for mobile broadband telephony. However, mobile broadband telephony is still
not very widespread. Among other things, this may be because data traffic on mobile
networks is still costly and requires relatively advanced mobile phones to use the voice
options. Besides, the user friendliness associated with such solutions is probably still not so
good that the option will be adopted by many end users.
47. NPT does not expect mobile broadband telephony to gain significantly greater
coverage before LTE technology is fully implemented. This will not happen within the
analysis’ time horizon of 1.5 to two years.
48. For this reason NPT maintains the conclusion from the previous analysis that VoB is
not part of the relevant market for access and origination on mobile networks.
2.3.4 Business and non-business customers
49. In section 2.3.4 of the previous analysis NPT concluded that non-business
customers/residential customers and business customers are in the same market at the
wholesale level, mainly because the access products sold at the wholesale level are identical,
regardless of whether the external provider chooses to sell to non-business customers or
business customers.
50. NPT does not see that this situation has changed and maintains the conclusion from
the previous analysis. Hence, the relevant wholesale market will cover non-business
customers/residential customers and business customers.
2.3.5 Prepaid cards/subscriptions and post-paid subscriptions
51. In the previous analysis NPT concluded in section 2.3.5 that prepaid
cards/subscriptions and post-paid subscriptions were part of the same market. NPT cannot
see that there has been any change to indicate that this conclusion should be changed.
14
2.3.6 SMS (Short Messaging Service)
52. In the previous analysis NPT concluded in section 2.3.6 that most end users do not
consider SMS a substitute for voice telephony. Because subscriptions, voice telephony and
originating SMS are sold together in both the retail market and wholesale market, and that
end users see the pricing of the services in conjunction, NPT still concluded that the relevant
market covered originating SMS. The factors behind these assessments have not changed
since the previous analysis. NPT therefore maintains that SMS is part of the relevant market.
53. NPT cannot see that there is a basis for changing the conclusion from the previous
analysis that terminated SMS messages fall outside the relevant market. Terminated SMS
messages are thus not part of the relevant market.
2.3.7 Other data services
54. In addition to voice telephony, mobile subscriptions and prepaid cards can give the
end user access to data services through Internet access via mobile data carriers. The use of
such mobile data services has until now accounted for a small part of the providers’ total
revenues.
55. In the previous analysis NPT concluded that mobile data services are not part of the
relevant market. The main reason for the conclusion was that there was little or no demandside substitutability between voice telephony and SMS on the one hand and mobile data
services on the other, and that the use of Internet access through mobile networks was not
very widespread.
56. Certain services that are accessible through mobile Internet access can to some degree
constitute a substitute to voice and SMS. For example it has become more common to receive
and send e-mail by mobile phone. Sending and receiving messages in this manner can for
some user groups be a substitute for voice and SMS. Most users will probably view e-mail on
mobile phones as a more bothersome and difficult manner of communicating than voice and
SMS. Moreover, many mobile phones still do not have such functionality. The same
assessments largely apply to various audio message services16 which can be used through
mobile Internet access. The change can thus support the claim that there is now a somewhat
higher degree of substitution between services that rely on mobile Internet access and voice,
than during the previous analysis. NPT nevertheless maintains that substitution assessments
to a small and insufficient degree provide a basis for including mobile data services in the
relevant market.
57. However, the use of data services through mobile Internet access has grown rapidly.
Figure 9 in section 4.2.8 shows the growth of revenues for mobile broadband in the past three
years, while figure 10 in the same section shows volume growth for data traffic linked to
ordinary mobile subscriptions during the same period. NPT’s statistics for the t half of 2009
show that just over 52% of all mobile subscribers have generated data traffic in the past three
months.17
58. Mobile data services are sold as part of a joint service package to the end customer,
i.e., bundled together with subscription (access), voice and SMS. A provider of mobile
telephony is thus the provider of a platform for mobile communication. When the end user’s
need for mobile communication changes, it can thus have an impact on the definition of the
relevant market.
16
17
E.g. Microsoft’s “Messenger” program
NPT: The Norwegian Market for Electronic Communication Services, 1st half of 2009, page 18.
15
59. As long as data traffic in the mobile networks has had low coverage, the prices of such
services have generally had little impact on the end user’s choice of subscription. As use
gradually increases, the prices for data traffic will be increasingly more important to the end
user. It is therefore expected that end users will increasingly see pricing of data services in
connection with the pricing of subscriptions (fixed charge), voice and SMS. Mobile data
services will thus constitute a bundled package of products with voice and SMS where the
overall price of the services will have an impact on the end users’ choice of provider and
subscription. For this reason, along with many requests from users, providers and media,
NPT included data traffic as a parameter on Telepriser.no in the spring of 2008.
60. Similar “bundling” is also done at the wholesale level. The access agreements for
service providers, MVNOs and national roaming cover purchase of originating voice, SMS
and mobile data services. To be able to offer end users attractive products, buyers of access
must offer these services jointly. The precondition for being able to offer the services
together is that the services are purchased by the same provider.
61. However, there are examples of service providers with agreements with several
network owners18. If the purchaser of access wants to base its provision of mobile data
services on access agreements with a different network owner than the one delivering voice
and SMS, the services must be offered on different SIM cards. The end user must thus switch
SIM cards to gain access to the two groups of services. In NPT’s opinion, such a solution will
not be a satisfactory alternative to mobile subscriptions that provide an opportunity for voice,
SMS and mobile data services on the same SIM card. For buyers of national roaming two
access agreements have moreover shown themselves not to be commercially possible to
achieve19.
62. At the retail level, access to the Internet through the mobile networks is also provided
independently of voice telephony and SMS. Such mobile broadband subscriptions, which are
usually offered at a flat rate for use, have had a high rate of growth that is expected to
continue in coming years. The sale of such mobile broadband subscriptions has thus taken on
increasing importance in the battle for end users. Due to the rapid growth of mobile
broadband subscriptions NPT included mobile broadband on Telepriser.no in the spring of
2009.
63. NPT believes it is impractical to distinguish between mobile broadband subscriptions
sold as a freestanding product and mobile data traffic sold bundled with voice and SMS with
respect to definition of the product market. In contrast to the retail level, mobile broadband
products are not offered as a freestanding product at the wholesale level. The cost associated
with the production of mobile data traffic will also not be connected to how the product is
offered in the retail market. Moreover, the development of the retail market with increasingly
more smart phones has led to a relatively large increase in mobile data traffic unconnected to
pure mobile broadband subscriptions. Consequently, convergence can be expected between
pure mobile broadband and other mobile data traffic.
18
For example, Hello has agreements with Telenor, NetCom and ICE.
In reference to Telenor’s refusal of Network Norway’s request for access to its mobile network in the autumn
of 2006 and NetCom’s support that the request was unreasonable on page 22 of the response to the consultation,
and the clause [Exempt from public disclosure:
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX]
19
16
64. To NPT’s knowledge the Spanish regulatory body (CMT) has found that the relevant
market covers the wholesale products that are necessary to permit buyers of access to offer
traditional services such as voice and SMS, as well as data services to its end users20.
65. On the basis of the above assessments, NPT believes that mobile data services on the
2G and 3G networks shall be included as part of the relevant market.
2.3.8 International roaming
66. International roaming constituted a separate relevant market in the first
Recommendation from ESA and the Commission21. NPT shared the viewpoints for not
including international roaming in the market for access and origination on mobile networks,
ref. section 2.3.9 in the previous section.
67. In the updated Recommendation international roaming is not defined as a relevant
market. However, international roaming is regulated by the EU Regulation, which has been
incorporated in the EEA Agreement. Furthermore, the Regulation has been included as an
annex to the Ecom Regulations, cf. Section 2-7 of the Ecom Regulations.
68.
2.4
NPT maintains that international roaming is not part of the relevant wholesale market.
Definition of the geographic market
69. As stated in Section 2.1.2, geographic markets in the electronic communications sector
have traditionally been determined by reference to the relevant network’s area of coverage as
well as the effective boundaries (jurisdiction) of the legal regulation of the market. The
markets have thus been viewed as national.
70. It might make sense in the case of some product markets to divide them into
geographic markets smaller than the nation-state, since there are local providers of electronic
communication services covered by the relevant product market.
71. The GSM and the UMTS licences issued to Telenor and NetCom are connected to
Norway’s boundaries, and on Svalbard. Similarly, the licences of the infrastructure company
Mobile Norway are tied to Norwegian land territory. According to the owners’ business
plans, over the course of 2011 the network will cover 75% of the population in Norway.
72. Hi3G Access Norway AS (The developer of “3”, hereinafter Hi3G) has a UMTS
licence with rollout conditions that inter alia requires establishment by 2012 with 40%
coverage. The progress of any rolling out and subsequent possible price structure from Hi3G
is unknown at the time of this analysis.
73. To be able to offer an attractive mobile product, providers are dependent on being able
to offer coverage over the entire country. As of today, there are no providers that only offer
coverage in parts of Norway. New network owners therefore depend on national roaming22 in
areas where they do not have their own network. Providers with an agreement on national
roaming will have different cost structures in different parts of the country. The cost of calls
in areas where they use national roaming will mainly consist of the variable costs paid to the
host operator, while in areas where the provider has its own network, the cost of calls will
20
An English-language summary of the notification is found here:
http://circa.europa.eu/Public/irc/infso/ecctf/library?l=/espaa/registeredsnotifications/es20050330/market_15/sum
mary_market_15pdf/_EN_1.0_&a=d
21
Market 17 in EFTA Surveillance Authority Recommendation 14/07/2004.
22
In the decision of 23 January 2006 “Nasjonal gjesting” was described as “national roaming”.
17
depend on the fixed rollout costs. If such a provider has a lot of calls on its own network, the
unit cost for these calls can be lower than the cost of calls with the host operator. This can
form the basis for different retail prices. Teletopia, which was the first provider with an
agreement on national roaming, operated with different retail prices depending on whether
calls were made on its own network or with the host operator. The differentiated pricing is
due to higher costs associated with national roaming than for calls on own network.
However, the differentiated pricing ceased when MTU took over the network.
74. NPT see it as not very likely that other providers with national roaming will use such
differentiated retail prices, inter alia because it will probably be viewed as not very attractive
from an end customer perspective. In addition, such pricing models will be most relevant for
very small providers and thus not have a major impact on the definition of the geographic
market in this analysis.
75. At the wholesale level Telenor has had the same prices for national roaming in the
entire country. In its decision of 6 October 2006 the Ministry of Transport and
Communications expressed the opinion that geographic differentiation of access price was
not desirable. Ministry of Transport and Communications directed Telenor to calculate the
access charge on the basis of call charges in Telenor’s most reasonable subscription (key
account agreements) and not differentiate according to geographic conditions23.
76. Varying product quality is another factor weighing in favour of a division into many
geographic markets. In NPT’s opinion, there are no material geographic differences with
respect to product quality in the national market.
77. In NPT’s view, different competitive conditions do not exist in stable and clearly
defined parts of the country to indicate that a geographic division of the market is necessary.
For this reason, NPT believes that further analysis of the question of whether the market shall
be divided geographically is unnecessary, and a national approach to market definition and
analysis is well documented.
78. The fact that retail prices for mobile telephony are the same throughout the country
and that mobile customers naturally move around, also indicates that the relevant market
should not be divided into several market segments.
79. NPT thus maintains that the geographic market for access and origination on mobile
networks is Norway.
2.5
80.
Conclusion on market definition
In NPT’s opinion the relevant market covers the following:
access and call origination (outgoing voice calls) on public mobile networks
at the wholesale level, including 2G and 3G networks
customers
originating SMS
23
Ministry of Transport and Communication’s decision of 6 October 2006 in the appeal of NPT’s decision of 23
January 2006 on the designation of undertakings with significant market power and imposition of special
obligations in the market for access and call origination on public mobile telephone networks, page 24.
18
other mobile data services
81.
In NPT’s assessment the market does not include:
access and origination on fixed networks
82.
3
The geographic market is defined as Norway.
Overview of market actors
83. The previous analysis of the relevant market is dated 23 January 2006. This chapter
provides an overview of providers and buyers in the relevant market and the changes that
have taken place in the market since the previous analysis.
3.1
Operators on the supply side
84. Telenor Norge and NetCom are the only operators with virtually nationwide GSM
networks (GSM 900/1800) in Norway. Both of the companies operate as network operators,
service providers and content providers and must be viewed and as vertically integrated
companies. Telenor Norge is a wholly owned subsidiary of Telenor ASA (Telenor). Telenor
owns most of the infrastructure for electronic communication in Norway, both the fixed
access network, trunk network for leased lines etc.24 Telenor has ownership interests in a
number of mobile companies in Europe and Asia. NetCom is owned by TeliaSonera AB.
TeliaSonera also has mobile activities in several countries in Europe and Asia. TeliaSonera’s
operations cover most areas in the electronic communications sector.25 Both Telenor and
NetCom received a licence/permission to establish UMTS network in 2000. In December
2004, Telenor launched services in its UMTS network, while NetCom opened its UMTS
network for data traffic in February 2005.
85. Network Norway took over Norway’s third GSM licence in 2005. The company
entered into an agreement on national roaming with NetCom and launched commercial
services in February 2007. In April 2008 Network Norway entered into a new agreement on
national roaming with Telenor and terminated the agreement with NetCom at the same time.
The agreement gave Network Norway the occasion to use Telenor’s GSM and UMTS
networks. The company’s market share increased quickly with the acquisition of service
providers Lebara and OneCall in 2008. Based on figures from the end of 2009 the company
had around a 7% market share based on the number of subscriptions.
86. Today, Network Norway offers access to service providers and can in principle also
offer MVNO access, ref section 4.2.9.3. The company is still dependent on national roaming
to be able to offer nationwide products at the wholesale level, and is therefore also on the
demand side in the relevant market.
87. In September 2007 it was announced that Tele2 and Network Norway wanted to build
mobile networks together through the network company AMI. AMI later changed its name to
24
25
A description of Telenor is found inter alia at http://www.telenor.no/om/.
A description of TeliaSonera is found at http://www.teliasonera.se/channelfront1/0,2855,l-se_h-12453,00.html
19
Mobile Norway. The new network company was awarded Norway’s fourth 3G licence in the
2100 MHz band in December 2007.
3.2
Operators on the demand side
88. At the time of the previous analysis Teletopia was the only provider that had signed a
national roaming agreement. The company had rolled out a GSM network in Oslo. The
agreement covered 2G telephony, SMS and data transfer and made it possible for Teletopia
to offer services outside Teletopia’s footprint. Teletopia never captured more than well under
1% of the customer base. MTU Gruppen AS purchased Teletopia’s network in the first
quarter of 2007, but went bankrupt in November 2008. As far as NPT is aware, this network
is not operating at this time.
89.
As of today, Network Norway is the only buyer of national roaming.
90. At the time of the previous market analysis three MVNO agreements had been entered
into. Tele2 had MVNO agreements with Telenor from 2002, where they obtained access to
Telenor’s GSM and UMTS networks in Norway. However, Tele2 chose to purchase access
from NetCom when the agreement was to be renegotiated in the spring of 2008.
91. In the autumn of 2005 TDC and Ventelo also signed MVNO agreements with
Telenor. Mundio Mobile signed an MVNO agreement with Telenor in December 2006 and
launched services in July 2007. The agreement between Mundio Mobile and Telenor ended
in December 2009. NPT has no knowledge that the company has entered into a new access
agreement.
92. An MVNO has all the technical systems that are necessary for interconnection with
other network operators, but does not in contrast to providers that seek national roaming have
its own frequency resources or own radio network. As an MVNO the provider will have its
own IMSI code (International Mobile Subscriber Identity Code), its own network code
(MNC) and offers its own subscription (SIM card) and services to end users. An MVNO can
also be a provider in the wholesale market by having its own service providers.
93. In the previous market analysis there were less than 20 service providers in the market.
Several bankruptcies, acquisitions and mergers have taken place since then. However, the
total number of service providers was around 20 at the end of 2009. A service provider
agreement gives providers without their own network a non-exclusive right to offer, market
and deliver services through prepaid cards or subscriptions to end users. The end user has
exclusively a contractual relationship to the service provider. The service provider’s calls are
routed according to the network operator’s interconnection agreements and roaming
agreements with others.
3.3
Other potential operators in the relevant market
94. Since 2003, Hi3G has had a licence to establish UMTS networks in Norway. The
Norwegian company is owned by Hi3G in Sweden, which is part of the multinational
company Hutchison Whampoa. The Ministry of Transport and Communications has
postponed the deadline for meeting rollout requirements in the licence until March 2012.
Hi3G has not commenced rollout at this time.
95. In June 2004, Nordisk Mobiltelefon was awarded frequencies previously used for
NMT 450 to establish a third generation mobile network-based on CDMA450 technology. In
20
2006, the company launched mobile broadband under the brand name Ice.net and has built a
network that means they can offer mobile broadband in large parts of the country. However,
the company encountered financial problems and was declared bankrupt in February 2009.
The Nordisk Mobiltelefon network was quickly purchased by the U.S. company Access
Industries, which has continued its operations. Access Industries has also purchased Ice.net
in Sweden. Ice.net does not offer voice telephony. The main reason for this is probably that
there are no handsets for CDMA technology that are compatible with GSM and UMTS
networks, which rules out national and international roaming. NPT therefore considers, and
for the reasons stated in section 2.3.7, it is highly unlikely that Ice.net will contribute to any
degree to competition at the wholesale level in the market for access and origination on
mobile networks within the time horizon of the analysis.
3.4
Summary on market actors
96. The changes in the market with respect to providers and requesters are summed up in
the table below.
2006
2010
Telenor
NetCom
Telenor
NetCom
Providers with
MVNO access
Teletopia
Tele2
TDC
Ventelo
Network Norway
Tele2
TDC
Ventelo
Service providers
Less than 20
Around 20
Providers with
nationwide network
Providers with
national roaming
agreement
Table 1. Providers and buyers in the market for access and origination on mobile networks.
97. As stated in the table, as with the previous analysis only Telenor and NetCom still
offer products in the wholesale market exclusively based on its own infrastructure. However,
the fact that Network Norway has been established as a provider with national roaming and
offers access to service providers is a significant change since the analysis on which the
previous decision was based.
98. Network Norway’s establishment as a relatively large buyer of national roaming also
constitutes a significant change on the demand side since the previous analysis.
4
Three-criteria test
99. In the following NPT will assess whether the Norwegian market for access and call
origination on mobile networks is entitled to sector-specific ex ante regulation. As mentioned
under section 1.1, the three cumulative criteria are as follows:
1. There are high and non-transitory structural or regulatory entry barriers in the
relevant product market.
21
competition.
100. The starting point in assessing whether the three criteria have been met shall be based
on a so-called “Modified Greenfield Approach”. This means that the criteria shall be assessed
under the precondition that the relevant market in question was not subject to ex ante
regulation. Regulation in adjacent markets shall nevertheless not be taken into consideration.
The approach means that the three criteria must be met for the call origination market and
access to mobile networks without the existing ex ante regulation. A key issue will thus be to
what extent the current market conditions can be attributed to current obligations.
101. According to ESA’s recommendation26 the crucial indicators that are included in the
assessment of the first and second criterion will be similar to those used in an analysis of
whether there are operators in the market with significant market power.
4.1
First criterion: High and non-transitory entry barriers
102. Entry barriers can be different and occur for different reasons. Entry barriers limit
competition by reducing the opportunities for new operators to enter the market. This chapter
contains an assessment of structural and regulatory entry barriers.
103. One issue related to entry barriers is the type of establishment referred to. NPT finds
that the nature of the establishment in question must be able to affect the market dynamics in
a manner that can contribute to achieving the purposes of sector-specific regulation.
104. In the decision of 19 May 2009 following Network Norway’s appeal of NPT’s
decision of 17 November 2008, the Ministry of Transport and Communications stated that 40
per cent of the population coverage, as the requirement was in Mobile Norway’s frequency
licence, would be too little to constitute an adequate competitor to today’s two nationwide
networks27. Furthermore, the Ministry said that the rollout degree adopted in Mobile
Norway’s business plans, i.e. 75% population coverage, was sufficient for achieving a right
balance between own production and leasing of capacity from other providers with national
roaming.
105. In NPT’s opinion, the Ministry of Transport and Communications provides in NPT’s
opinion indications on what type of establishment that should be used in assessing entry
barriers. NPT thus believes that the relevant assessment subject is entry barriers that a mobile
provider with its own infrastructure of this size may meet. However, NPT emphasises that
entry barriers shall be assessed on a general basis and not be related to certain operators’
rollout of mobile networks.
4.1.1 Structural entry barriers
106. The Recommendation refers to structural entry barriers as follows28:
”Structural barriers to entry result from original cost or demand conditions that
create asymmetric conditions between incumbents and new entrants impeding of
preventing market entry of the latter. For instance, high structural barriers may be
26
Recital 7 of the Recommendation
See page 23
28
Recital 22 of the Recommendation
27
22
found to exist when the market is characterised by absolute cost advantages,
substantial economies of scale and/or scope, capacity constraints and high sunk
cost.”
107. NPT has assessed the following structural entry barriers29:
Control of infrastructure not easily duplicated
Sunk costs
Economies of scale and scope
Access to financial resources
Access to distribution and sales channels
Other entry barriers
4.1.1.1 Control of infrastructure not easily duplicated
108. If an operator controls infrastructure not easily duplicated, and this infrastructure
represents an important input factor in the relevant market, this could represent a substantial
entry barrier to potential competitors.
109. Without taking a position on whether the relevant infrastructure in the affected market
may be seen as an “essential facility” in terms of competition law, NPT has assessed whether
control of infrastructure not easily duplicated can be seen as an entry barrier in the relevant
market.
110. It is necessary either to own or control in another manner physical infrastructure in the
form of mobile networks to offer adequate, nationwide access and origination on mobile
networks. Step-by-step investment can be done combined with access to national roaming in
already established networks. One of the preconditions for establishing a mobile network will
be access to sufficient frequency resources, and access to financial and commercial resources.
111. Frequencies are a limited resource and place restrictions on new entries in the market
for access and origination on mobile networks. Frequencies are available for mobile networks
in Norway, see section 4.1.2. As long as frequencies are available, access to frequencies as
such will not constitute a constraint with respect to being able to duplicate existing networks.
Thus, the question will largely be the economic and commercial entry barriers related to
duplicating infrastructure.
112. With its distinctive topography and spread-out settlements, rolling out mobile
networks in Norway requires very large investments. In its 9 September 2008 letter to the
Commission concerning regulation of termination charges, the Ministry of Transport and
Communications stated:
“Furthermore it can be argued that geography and topography in Norway, makes it
a high cost country to serve when its landmass is compared to its total population.”
113. According to a report prepared by the consulting firm CSMG on behalf of Tele2,
Norway has the fewest number of mobile subscribers per square kilometre of all EU/EEA
countries.30
29
The criteria are based on the criteria in paragraph 79 of ESA’s Guidelines. Sunk costs are particularly
mentioned in footnote 86.
30
Mobile Subscriber Density, CSMG 2008
23
114. In the 1980s, Telenor established the NMT mobile network and was able to recycle
parts of this infrastructure by rolling out the GSM network, which gave the company an
advantage compared to NetCom. Through its virtually nationwide mobile network Telenor
and NetCom have an advantage compared with new network operators.
115. With respect to other commercial factors, the well-developed networks of Telenor and
NetCom have laid the basis for high expectations for coverage and quality. Both providers
cover around 99% of the population and thus have virtually full coverage where people live.
The two providers’ geographic coverage is still somewhat lower. Both are still improving the
coverage of their mobile networks.
116. Telenor and NetCom became established as network owners at a time where end users
had less reason to require high coverage. Nor did end users at this time have any alternative
providers with better coverage. It appears reasonable to assume that end users will have
corresponding high expectations for coverage with a new network provider as with Telenor
and NetCom. A provider that is considering to build networks now must thus be able to offer
similar or nearly similar coverage and quality as Telenor and NetCom to be able to be a
competitive alternative.
117. However, access to national roaming means that new providers will be able to enter
the market with more limited investments. By expanding in the major cities a relatively large
share of the population is covered in a relatively short time. However, rolling out geographic
coverage beyond this will be considerably more time and resource-consuming. The degree to
which national roaming will be able to lower the entry barrier will depend on the conditions
for such access. NPT assumes that providers of national roaming will not have any incentive
to provide access on conditions that promote competition at the network level, cf. section
4.2.9. Network Norway is an example of a provider that has entered the market with the use
of national roaming. The company would presumably not have been able to enter the market
as a network provider without such access.
118. Through LRIC modelling, NPT estimated the costs incurred for an operator who
wishes to take the step from MVNO to national operator with its own radio network covering
75% of the population by 2011. The estimate includes investments in own BSCs, MSCs and
transmission capacity (E1 links) to connect them. The cost of such an investment is
calculated to 1.89 billion31. In NPT’s opinion, an investment cost of this size will in all cases
represent a considerable entry barrier.
119. In summary, NPT believes that control of infrastructure represents a considerable
entry barrier for new providers. Telenor and NetCom own mobile networks that are
technically possible to duplicate. However, Norwegian end users’ expectations concerning
coverage and quality make completely different requirements of an operator who enters the
market now than when these providers rolled out their networks in the 1990s. To be able to
provide competitive retail services new providers have to be able to offer from launch
virtually the same coverage and quality that Telenor and NetCom have accumulated over
time. Access to already rolled out infrastructure in the form of national roaming on
predictable and reasonable terms, is crucial for becoming established as a network owner in
today’s market. Such access may reduce the entry barrier somewhat. Rolling out a
sufficiently large mobile network will in all cases be highly resource-intensive.
31
The calculation is based on NPT’s LRIC model, version 7.0. The estimate concerns the establishment of a
third mobile network that will reach 75% of the population by 2011 (in 2009 kroner).
24
4.1.1.2 Sunk costs
120. Sunk costs can be defined as already incurred irreversible costs. In the ecom sector
sunk costs will, for example, consist of the costs of developing, building and establishing
networks for mobile communication. Incurred costs are irreversible in the sense that they
cannot be recouped or compensated through use of the network.
121. Sunk costs are often portrayed as a counterweight to avoidable costs, including
variable costs. Variable costs may be allocated to the actual use of the network, such as the
costs of producing and transporting mobile communication. Variable costs of production in
the network will cease as the use of the network ceases.
122. The establishment of brands will normally be considered marketing costs. Such costs
may also be viewed as irreversible immediately when they are incurred. Building up a
sufficient customer base for any new mobile network is expected to entail considerable
marketing costs.
123. The size of sunk costs increases in step with the scope of the network expansion.
However, frequency licences can carry requirements concerning the scope of the network. As
described in the previous chapter, new network owners will in addition have to relate to the
expectations of mobile customers concerning quality and coverage. To be competitive, new
providers of mobile communication must be able to offer nationwide service from the entry
date. A national roaming agreement will be able to reduce the level of sunk costs during the
establishment phase.
124. In summary, NPT believes that sunk costs represent a considerable entry barrier in
Norway. Sunk costs will undoubtedly be a factor for anyone who wants to become
established as a network owner. Customers’ expectations concerning quality and coverage
reinforce this entry barrier.
4.1.1.3 Economies of scale and scope
125. Economies of scale exist when an increase in production causes the unit cost to fall.
This is characteristic of production based on technology with relatively high fixed costs and
low variable costs.
126. Economies of scope are reductions in average unit cost when more than one service is
produced using common means of production, for example common infrastructure or
common administrative systems.
127. Economies of scale strengthen the market power of established operators and can
simultaneously function as an entry barrier to new network operators. The established
network operators have dimensioned their networks to achieve optimal use of them. A new
network operator will need time to build up a customer base and traffic and can in the initial
phase not expect to derive the same economies of scale as the established operators. In this
manner, economies of scale contribute to creating an asymmetric relationship between new
and established providers, who in turn can impact the competitive situation.
128. Parts of a telecom operator’s infrastructure and support systems can be used for the
production and delivery of various services. A horizontally integrated operator will as a result
of its broad product portfolio and large customer base in several electronic communication
markets, have increased economies of scope in the relevant market.
129. The economies of scale are largely found in the access network, which consists of
costly elements such as base stations, masts and radio equipment. Since Norway has a
25
relatively small population, low population density and few big cities, it will be difficult to
exploit economies of scale in many areas.
130. The LRIC model for termination provides information on the connection between the
unit cost for termination and development of market shares for Norwegian providers32. The
figure below shows the connection between the unit cost for termination on Telenor’s,
NetCom’s and the third network operator’s network, and the traffic volumes of these
operators in the LRIC model.
Figure 1. Economies of scale on Norwegian mobile network. Source: NPT, the figure is based on
sensitivity analyses from NPT’s LRIC model for mobile termination v. 7.
131. The unit cost (NOK) on the y-axis shows the per minute cost of terminating a call on
Telenor’s, NetCom’s and the third network operator’s network, respectively. The x-axis
shows the traffic volume in relation to their traffic volume in the LRIC model (based on the
forecast for 2011). The figure shows lower traffic volume than projected, for example less
than 35-40% would have produced a substantially higher unit cost. Economies of scale
become gradually exhausted for all providers when the network is filled with traffic.
132. The LRIC modelling shows that both Telenor and NetCom have dimensioned the
networks so that they use economies of scale to virtually the same degree. Consequently, they
have virtually the same unit cost even though they have different market shares to start with.
In other words, Telenor and NetCom have the same opportunities to exploit economies of
scale. Even though NetCom has a lower market share, the company can thus take part in
increasingly larger economies of scale on equal terms with Telenor.
133. The impact of economies of scale can be reduced if new providers choose to start
rolling out in only densely populated areas. With the prerequisites in the LRIC model the
calculations show that the third network operator will be able to benefit from similar scale
advantages as the established network providers in Norway. However, this will largely
depend on how quickly such a provider can account for a major share of its own production
of services.
134. As mentioned in the previous chapter, new entrants will then depend on national
roaming agreements to be able to offer a competitive product. How quickly a provider with a
32
In 2005 NPT developed an LRIC model for Telenor and NetCom. Over the course of 2009 the model was
updated and refined to also include 3G and new network owners.
26
national roaming agreement will be able to benefit from economies of scale depends on how
quickly the traffic is transferred to its own network and how much is produced via national
roaming. The host operator will have an opportunity to affect this through, for example,
volume commitments. Volume commitments are an efficient way of keeping traffic on the
host operator’s network and thus an opportunity to affect how quickly new network owners
can achieve falling unit costs as a result of increasing volume on their own network.
135. When several operators share infrastructure such as masts, buildings and radio
infrastructure, the fixed costs each operator must bear are reduced by having mobile coverage
in an area. Economies of scale can be exploited with such infrastructure sharing, lowering
unit costs.
136. There can also be economies of scale and economies of scope related to sales,
customer service, billing systems, administration, etc., even though the importance of this is
probably substantially less than the economies of scale of the actual network. However, such
advantages can be significant for operators that are active in several countries and/or within
several types of services and can share these types of costs. In this way new providers can
reduce their costs if they are part of a larger group.
137. In summary, NPT believes that economies of scale in the Norwegian mobile market
represent a substantial barrier to entry. Rolling out mobile networks in Norway entails high
fixed costs. In combination with a relatively small population this means that unit costs can
be disproportionately high unless a customer base of a certain size can be rapidly achieved.
However, the importance of economies of scale can be reduced if new providers are
permitted to start rolling out in only densely populated areas and use national roaming in less
populated areas.
4.1.1.4 Access to financial resources
138. Access to financial resources will be of great importance to an operator’s opportunity
to enter markets requiring large initial investment. Differences between operators relating to
access to financial resources could comprise a major entry barrier.
139. It will be very capital-intensive to establish adequate alternatives to Telenor’s or
NetCom’s nationwide mobile network. A national roaming agreement can reduce the need
for initial investments and can to some degree reduce the importance of access to capital.
However, building a mobile network covering 75% of the population will in any case be
capital-intensive.
140. For this reason, NPT believes that good access to financial resources will be necessary
to be able to become established as a real challenger in the market.
4.1.1.5 Access to sales channels
141. Access to the distribution and sales network can function as an entry barrier to new
operators. In markets where there are large costs associated with establishing distribution and
sales channels and where certain providers already have well-established channels, this can
create considerable asymmetry between established and new providers.
142. For example, access to physical sales outlets can represent an entry barrier. Teleplan’s
report “Kampen om mobilkunden”33 (The Battle for the Mobile Customer) showed that about
70% of all switching of mobile subscriptions can be linked to sales of subsidised mobile
phones. Furthermore, the same report shows that nearly 80% of all subsidised phones are sold
33
Teleplan: Kampen om mobilkunden (The Battle for the Mobile Customer), 9 June 2008. Page 55.
27
in shops. Many customers want to deal with a physical sales outlet, both during the
purchasing situation and in the event of any defects and complaints. The fact that phones are
becoming increasingly more complex, can contribute to maintaining this need in the future
too. In both the non-business and business market end users want the opportunity to be able
to contact a physical sales outlet.
143. Large electronics chains such as Elkjøp, Expert and Lefdal account for the majority of
sales of consumer electronics. Only the three largest providers, Telenor, NetCom and Tele2
are represented in these chains. Most traditional specialised dealers of mobile telephony, such
as Telebutikken, Telekiosken, Nordialog and Klart Svar, are wholly or partly owned by
Telenor or TeliaSonera (NetCom and Chess). In these chains only the owner’s providers are
represented.34
144. Many small providers have expressed the opinion that it is generally very difficult to
gain access to physical sales channels. In addition, it is costly to gain entry to the large
chains. A normal campaign to capture 10,000 customers could tie up NOK 24-25 million at a
provider. Of this, 4-5 million will be commissions and start-up costs. The rest will largely be
repaid by the customer over the course of the lock-in period35.
145. Among alternative sales channels, sales via the Internet are growing. Sales via the
Internet can take place via a provider’s own home page or through other web shops.
However, with respect to other web shops, the same mechanisms and cost elements more or
less apply as for sales in physical shops. Elkjøp and Lefdal web shops sell only Telenor
subscriptions together with mobile phones, while Expert sells phones only without a
subscription. Large web shops such as mpx.no and Komplett.no also sell only Telenor
subscriptions.
146. Social media, clubs, organisations and other associations are also possible channels for
obtaining customers. However, it may be the case that the customers reached through social
media are more price conscious and/or less loyal to the provider than customers recruited
through traditional sales channels. Certain surveys carried out show that interaction between
traditional sales channels and the opportunity to use complementary sales channels are
necessary to attract the more loyal types of customers.36
147. NPT is aware that certain operators have achieved a not so insignificant customer base
through alternative sales channels, including social media. However, NPT believes there is a
basis for a view that interaction will be necessary between different sales channels to achieve
a sufficiently large customer basis. Alternative sales channels are thus a factor that to only
some degree can reduce the importance of difficult access to physical sales channels. On the
other hand use of alternative sales channels can be appropriate for strengthening already
established positions in the market since a high degree of knowledge of brand names can be
assumed to be an advantage that will increase the effect of alternative sales channels.
148. Moreover, for sales of subsidised handsets physical channels still appear to be the
most important.
149. In summary, NPT believes that access to physical sales outlets still represents an
important entry barrier since such access represents a considerable cost and is necessary for
obtaining a sufficient customer base. Increasing sales over the Internet and other channels can
34
Teleplan: Kampen om mobilkunden (The Battle for the Mobile Customer), 9 June 2008. Page 48
Teleplan: Kampen om mobilkunden (The Battle for the Mobile Customer), 9 June 2008. Page 44
36
Development of multi-channel strategy: Betydning av sømløshet og samspill mellom distribusjonskanaler
(Development of multi-channel strategy: Importance of seamlessness and interaction between distribution
channels), Furseth and Samuelsen, IB Forskningsrapport 2008
35
28
on the one hand reduce this entry barrier somewhat, while at the same time the channel can
amplify already established positions in the market. For this reason NPT believes there is
insufficient reason to conclude that alternative sales channels will reduce the importance of
access to physical sales outlets as entry barriers in the short to medium term. Moreover, the
desire and need of end users for a physically accessible sales outlet for mobile phones will
probably not change considerably within the time horizon of the analysis.
4.1.1.6 Other entry barriers
150. In meetings with NPT several providers mentioned the entry of CPA (Content
Provider Access) agreements and agreements on international roaming as entry barriers.
151. MVNOs and providers with a national roaming agreement must sign separate CPA
agreements to enable content providers to deliver their products to the provider’s end users.
Service providers are offered access to the host operator’s CPA agreements and do not
therefore need to enter into such agreements separately.
152. To be able to supply a sufficiently attractive mobile product, an agreement must be
entered into with several content providers. Providers have said that it is necessary to enter
into between 80 and 200 such agreements. At meetings with NPT, smaller providers have
explained that it is not only time-consuming, but in many cases also difficult to for them to
enter into such agreements at all. Content providers will also have the cost of implementing
new providers (mobile operators) in their systems, and the smaller providers are therefore
usually not prioritised. Consequently, it can take up to a couple of years before all
agreements are completed. It is also costly to develop the necessary service platforms. The
necessity of entering into CPA agreements, compared with the actual opportunities to enter
into such agreements, will thus be able to create barriers to entry.
153. To be able to offer end users mobile coverage abroad, network owners must enter into
agreements on international roaming. Such agreements can be entered into in various ways.
Normally, agreements on international roaming have been entered into bilaterally between
network owners in the individual countries. One alternative can be to enter into agreements
through so-called “roaming hubbing”. Roaming hubbing means that agreements are entered
into with so-called “hubs” of providers, which can reduce the number of agreements that
have to be entered into. However, providers that have assessed such a solution have told NPT
that this system is currently in an early phase where there are relatively few members per hub
and where testing still has to be done bilaterally. NPT has no knowledge of Norwegian
providers actually using roaming hubbing. Consequently, it appears that agreements on
international roaming are still entered into bilaterally.
154. In many cases its turns out that foreign network owners do not prioritise new small
providers with limited coverage when they already have agreements with one or both of the
two nationwide network owners in Norway. It can therefore be difficult and also very timeconsuming for new providers to achieve a sufficient number of agreements.
155. For MVNOs it can be even more difficult to sign direct agreements on international
roaming since they do not have their own network and can thus not offer anything in return.
However, MVNOs with Telenor have been given the opportunity to use Telenor’s bilateral
agreements and can therefore avoid having to negotiate their own agreements. For network
owners with a national roaming agreement it is not possible to implement this in the same
way since network owners have their own IMSI series.
156. However, new network owners can enter into agreements to use a foreign network
owner’s agreements on international roaming. Such a solution requires end users’ SIM cards
29
to have two profiles, one for use in the network owner’s national network and one for use
abroad. To be able to use the mobile subscription abroad, end users must change profiles by
restarting the mobile phone and then keying in a new PIN code when he or she arrives in the
new country. Because the solution is more complicated than the end user is used to, such
solutions are considered less attractive than using the agreements to the entity access is
purchased from.
157. In summary, the above description does not give a clear picture of how large an entry
barrier the signing of CPA agreements and agreements on international roaming represents. It
still appears clear that it is highly important to have equally good or just as many agreements
as the established providers in order to be able to offer competitive products. This entails an
asymmetry between established providers that have the advantage of already signed
agreements and new providers that have to spend up to several years on acquiring these
agreements. In this manner both the entry into CPA agreements and agreements on
international roaming will be factors complicating entry.
4.1.2 Regulatory entry barriers
158. Regulatory entry barriers are not based on economic factors, but exist when market
access is limited by regulatory conditions, for example public licences, resource restrictions
or restrictions in regard to health, environment or safety (direct regulatory restrictions).
Furthermore, various forms of price control may also have entry-deterring effects, cf. recital
10 of the Recommendation.
159. Typical examples of regulatory barriers may be:
administrative authorisations such as access and/or licence provisions
access to frequencies
other regulation, including price controls.
160. Frequency licences are viewed as a limited resource. No requirements are made of
authorisation and the like to become established as a network owner in Norway. However, it
is necessary to have permission to use and simultaneously have the right of disposal over
frequencies. The lack of access to frequencies can be a regulatory entry barrier. Frequencies
can have different qualities with respect to range and penetration capacity. Which frequencies
are available will thus be relevant for the assessment of regulatory entry barriers. An operator
must also take into account the fact that frequency licences are issued with time limitations
when it decides whether to enter the relevant market.
161. Frequencies with a long range and good penetration capacity are often viewed as the
most attractive with a view to establishing mobile networks. Frequencies in the 900 MHz
band are of this type, and the available capacity of 2 x 35 MHz is fully used. Three 2 x 5
MHz licences have been issued respectively to Telenor, NetCom and Mobile Norway.
Furthermore, two 2 x 10 MHz licences have been issued respectively to Telenor and
NetCom. The three former run through 2013, while the latter two run until 2017.
Consequently, no capacity is available in the 900 band.
162. However, the Government has decided that part of the frequency resources (790-862
MHz) from the digital dividend shall be used for mobile communication and mobile
broadband. The frequencies in the digital dividend have largely coinciding characteristics as
the 900 band with a view to the reach of signals and are well suited to covering large areas
with relatively few base stations. However, there are several uncertainty factors connected
with the use of the digital dividend. Among other things, the allocation method and terms
have not been determined. Furthermore, nor is any terminal equipment adapted to this band
30
available at this time. In NPT’s view, the uncertainty factors mean that it is too early to draw
clear conclusions about the significance of this band.
163. There is available capacity in the 1800 MHz band. However, the frequencies in this
band have a shorter range and poorer capacity than the 900 band to penetrate buildings. The
range of frequencies is crucial for how close the base stations have to be built. Shorter ranges
can thus be a disadvantage in that the provider will have to be able to set up many base
stations to achieve the same coverage. This requires many building permits and increases
establishment costs. The disadvantage will be particularly evident in more sparsely populated
areas.
164. No capacity is available in the 2.1 GHz band that is used for 3G. Four licences have
been issued. Telenor and NetCom have licences through 2012. Hi3G and Mobile Norway
have licences in effect until 19 September 2015 and 1 January 2020, respectively. However,
the 900 MHz band and the 1800 MHz band will be opened to use with other technology.
Having frequency licences in low frequency bands such as the 900 MHz band can thus
provide a considerable advantage in rolling out new technology.
165. Operators have the opportunity to report interest for special frequencies three years
before the expiry of a licence. A competitive process is considered in the event of excess
demand. The holder of a frequency licence shall be given an opportunity to state its plans at
least two years before the expiry of the licence. The holder must be expected to have a certain
advantage with a new allocation of the frequencies in question since equipment such as base
stations have already been obtained and adapted to the frequencies in question.
166. The Storting establishes the amount of the frequency fee during the annual budget
debates. Based on experience, the annual frequency fee amounts to just over NOK 1 million
per double MHz that is used. The fee is the same in all frequency bands and is not connected
to the size or revenues of the provider. The frequency fee can thus be a factor that favours
established operators and can make establishment less attractive.
167. The demands made of coverage and how quickly new networks can be rolled out
varies in the various licences. In general, rollout requirements are reduced compared to
earlier, where both Telenor and NetCom through so-called beauty contests committed
themselves to relatively high rollout requirements. When Mobile Norway was awarded 3G
frequencies, the demand was 40% coverage of the population within 6 years.
168. The Electronic Communications Act regulates the processing time for issuing
licences/allocations to normally 6 weeks, but can in particular cases be expanded to a
maximum of eight months, for example in a situation where auctions are held. The
processing time in connection with frequency management is thus generally not an obstacle
to establishment. With respect to general regulation, a relatively liberal policy has been
established in which the authority seeks the least possible intervention for resale and
subleasing of frequency licences.
169. Price controls can in certain cases have the effect of regulatory entry barriers. With
respect to regulation of termination charges on mobile networks, NPT and Ministry of
Transport and Communications emphasised that existing infrastructure shall be effectively
used through inter alia price cap regulation based on LRIC for Telenor and NetCom37. At the
same time, the authorities have emphasised reducing entry barriers for new providers in that
only an obligation of reasonable price has been imposed on them38. In its decision of 19 May
37
See NPT’s decision of 8 May 2007 on voice call termination on individual mobile networks.
See inter alia NPT’s decision of 17 November 2008 and the Ministry of Transport and Communications’
decision of 19 May 2009.
38
31
2009 Ministry of Transport and Communications found that Tele2 and Network Norway,
because of their plans to roll out a third mobile network, would benefit by more lenient
regulation until additional revenues from termination equal their investment in networks.
170. In its 26 March 2010 notification of decisions, NPT notified phasing out asymmetric
regulation of termination charges for all providers. The notified scale-down of termination
charges will entail a large loss of revenues for providers who previously have only had an
obligation of reasonable price imposed on them. Nor can potential new providers expect to
receive additional revenues from termination beyond a limited start-up period. However, the
regulation of termination charges can in NPT’s view not be considered an entry barrier per
se. The sharp restrictions that are notified can still have a major impact on the establishment
because it reduces expected revenue flows of potential new operators.
171. In summary, it can be concluded that there are regulatory entry barriers to some
extent in the relevant market. Today, frequency resources do not represent an absolute entry
barrier since frequencies are available. However, the available frequencies, with the
exception of the digital dividend, are part of the frequency band that relatively speaking is
less attractive, since it would be more costly to use. Having frequency resources in low
frequency bands will represent a major advantage with the rollout of new technology, since
fewer base stations are then needed to build coverage than with frequency resources at higher
bands.
172. The strict regulation of termination charges is not an entry barrier per se, but can still
be expected to have an impact on establishment.
4.1.3 Conclusion on the first criterion
173. NPT believes the Norwegian market for access and origination is characterised by
large structural entry barriers. Key in this respect are control of infrastructure not easily
duplicated, large sunk costs and economies of scale.
174. Market developments, including customers’ high expectations concerning coverage
and quality, indicate that new providers must be able to offer virtually equally good products
as the established providers, Telenor and NetCom, from the launch date to be competitive.
NPT cannot see indications that customers’ expectations concerning coverage and quality
will abate going forward; the opposite is rather the case. Duplicating the networks fully
before the launch date will supposedly not be financially justified inter alia due to very high
sunk costs. New providers will thus completely depend on access to existing infrastructure to
be able to compete in the market.
175. Access to existing infrastructure could remedy entry barriers. However, the degree to
which such access may remedy entry barriers will depend on the conditions for access,
including how quickly new network owners have the opportunity to transfer calls to their
own networks. Such factors are discussed further in the second criterion.
176. Regardless of access to infrastructure there are many other factors that can complicate
new entries, including access to financial resources, access to sales channels, establishment
of CPA agreements and agreements on international roaming.
177. Regulatory barriers also exist to a certain degree. Frequency resources for mobile
networks are still available, so frequency resources do not represent an absolute barrier. The
regulation of termination charges is not an entry barrier per se, but the tightening that has
now been notified may have an impact on market entry in that it affects new providers’
expectations and opportunities for additional earnings from termination.
32
178. On this basis NPT believes there are high and non-transitory barriers to entry in the
relevant market. The first criterion is thus met.
4.2
Second criterion: The market does not tend towards effective
competition
4.2.1 Introduction
179. In the recital to paragraph 13 of the ESA Recommendation it is argued that even
though a market is characterised by high entry barriers, other structural factors can mean that
the market tends towards effective competition within the relevant time horizon.
180. It shall thus be assessed whether the market has qualities that tend towards effective
competition within the relevant period. The Commission emphasises in the Explanatory
Note39 that reduction of market shares alone or uncertainty with respect to future
technological development are not per se sufficient to conclude that the second criterion has
been met. A broad approach will thus have to be used in an assessment on whether the
market tends toward competition.
181. In its 23 January 2006 decision, NPT instructed Telenor to provide access to national
roaming, MVNO access and co-location and imposed an obligation of non-discrimination
with respect to price and other terms. Telenor was also required to prepare reference offers
for all access forms for publication on the company’s website40. In order for NPT to follow
up the obligation of non-discriminatory MVNO access, Telenor was instructed to report
accounting separation. Furthermore, national roaming was to be offered at a price based on
the retail-minus method41, while co-location was to be offered at cost-oriented prices. In
assessing whether the second criterion has been met for the relevant market, NPT shall
disregard these obligations (“modified greenfield approach”).
182. The assessment of the second criterion is forward-looking. NPT has assumed a time
horizon of 1.5 to two years for the market analysis. The second criterion shall nevertheless
not be understood to mean that effective competition necessarily must be achieved within the
time horizon of the analysis. This is addressed in detail in the Explanatory Note42:
“It simply means that there is clear evidence of dynamics in the market within the
period of review which indicates that the status of effective competition will be
reached in the longer-run without ex ante regulation in the market concerned.”
183. In the Explanatory Note the Commission states that the degree of competition
generally observed in the retail market can indicate that ex ante regulation at the wholesale
level is not justified. In support of the view that there is no reason for regulation of the
relevant market, the Commission subsequently refers to the fact that network owners enter
into access agreements on commercial terms in most Member States. Following a discussion
of various incentives a network owner can have, the Commission concludes the following:
39
See page 10.
The requirement does not include information about prices that Telenor will only make available vis-à-vis
providers who contact Telenor.
41
NPT originally imposed cost-oriented prices in the decision. However, the Ministry of Transport and
Communications changed price controls to retail-minus following an appeal from Telenor.
42
The European Commission’s Explanatory Note, page 10
40
33
[…] on the basis of current experience under Article 7 procedure there is evidence
that the market tends towards effective competition behind any entry barriers that may
exist. “
184. For this reason the market for access and origination on mobile networks was removed
from the Commission’s Recommendation of relevant markets. This market was similarly
removed from ESA’s Recommendation.
4.2.2 Assessment of second criterion in Norway
185. Norway has two nationwide mobile networks. Only Telenor and NetCom can offer
MVNO access and national roaming on their own infrastructure.
186. Like that stated in the Explanatory Note of the Recommendation, service provider,
MVNO and national roaming agreements have also been entered into in Norway. However,
there is not necessarily a connection between entering into access agreements and that the
market tends toward competition. Based on national marketing factors, NPT must therefore
undertake a specific assessment of the weight that can be attached to the agreements in
assessing whether the market will tend towards effective competition without regulation. A
special factor that must be taken into consideration is that the access agreements have been
entered into under a regulated regime where specific obligations including access obligations
have been imposed on Telenor. The importance of the agreements entered into for assessment
under the second criterion is presented in section 4.2.9.
187. In the following chapters the various criteria for determining whether the market tends
toward effective competition are assessed. In the assessment NPT used the following criteria:
Development of market share
Costs of switching
Prices and price developments
Market concentration
Barriers to expansion
Product differentiation
Market behaviour and incentives
Potential competition
4.2.3 Development of market shares
188. The first criterion that can provide information about whether the market tends toward
competition, is market share and development of market shares. High and stable market
shares over time can indicate that there are undertakings with significant market power and
that there is thus not effective competition in the market43. Drops in the market shares of the
largest providers can conversely be a factor in supporting a conclusion that the market tends
toward effective competition.
189. In the following, NPT assesses the development of market shares at the retail and
wholesale levels.
43
The Guidelines, paragraph 76.
34
4.2.3.1 Development of market shares at the retail level since the previous analysis
190. The figure below shows the development of market shares at the retail level since the
previous decision in market 1544 was issued.
Figure 2. Market shares based on the number of subscriptions for Telenor, NetCom, Tele2, Network
Norway, Ventelo and other providers in the first half of 2005 to 2009.
191. In the figure above Talkmore is included in Telenor’s market share starting with the
full-year figures for 2007. Chess is included in NetCom’s market share starting with the fullyear figures for 2005. Network Norway’s market share includes OneCall and Lebara starting
from 2007. Providers with less than 1% market share are not included in the figure. Nor are
subscriptions related to peer-to-peer communication included. At the end of 2009 the number
of SIM cards for peer-to-peer communication amounted to about 440,000.45
192. Since the previous market analysis, Telenor’s market share based on the number of
subscriptions has been reduced from nearly 56% to around 53% at the end of 2009, i.e. a
reduction of about 3 percentage points over this period. However, the majority of the
reduction took place early in the period, so that the market share appears to have stabilised at
around 53% from around 2006.
193. In the previous market analysis NetCom had around 27% of the number of
subscriptions. The acquisition of Chess increased its market share to over 31% in 2005. In the
years since then the company’s market share has fallen somewhat and was at the end of 2009
again around 27%.
194. For the largest providers the development of the share of subscriptions thus showed
that the situation for NetCom is relatively the same as with the previous analysis, while
Telenor’s share of subscriptions in the retail market has fallen somewhat, taking the entire
period into account.
44
45
Decision 23 January 2006. The analysis was based on statistics from the first half of 2005.
Source: NPT’s ecom statistics for 2009.
35
195. At the end of the first half of 2005 Tele2 had a market share of around 5%. Since then
the market share increased to nearly 9% at the end of 2009. The market share seems to have
stabilised since around 2007.
196. Network Norway’s market share increased by around 2 percentage points in the first
half of 2008. This is primarily due to the acquisitions of OneCall and Lebara. At the end of
2009 the company had a market share of around 7%.
197. The table below summarises the development of market shares based on the number of
subscriptions since the previous analysis:
Subscriptions
1st half 2005
2009
Telenor
56%
53%
NetCom
27%
27%
Tele2
5%
9%
Network Norway
7%
Ventelo
2%
3%
Other
10%
2%
Table 2. The development in market shares at the retail level based on the number of subscriptions
from the first half of 2005 and the end of 2009. Source: NPT’s ecom statistics for the first half of 2005
and 2009.
198. The figure below shows the development in market shares based on revenues in the
retail market from the first half of 2005 until the end of 2009.
Figure 3. The development in market shares based on revenues in the retail market from the first half of
2005 until the end of 2009. Revenues from termination and further sales are not included.
199. When market shares in the retail market are estimated based on revenues, Telenor
(including Talkmore) has a market share of around 55%. The company’s market share based
on revenues is thus somewhat larger than based on the number of subscriptions. During the
previous analysis (first half of 2005) Telenor had 54% of the revenues in the retail market.
Telenor’s share has thus increased in this period.
36
200. NetCom (including Chess) had a market share of 27% based on revenues from the
retail market at the end of 2009. Ventelo had 3% of the revenues in the retail market at the
same time. These providers therefore had similar market shares based on revenues, as based
on the number of subscriptions. Tele2’s market share based on revenues was just under 8% at
the same time, while the market share of Network Norway (including Lebara and OneCall)
was under 6%. Both Tele2 and Network Norway thus had lower market share based on
revenues than based on subscriptions. The ratio is somewhat more applicable to Network
Norway.
201. A characteristic feature of the distribution of market shares is that Telenor has larger
market shares based on revenues than measured by number of subscriptions. The
development based on revenues also shows that Telenor has strengthened its position in the
retail market in the specified period. In NPT’s view market shares measured in revenues
provide to a greater degree evidence of the relative strength between providers than the
number of subscriptions.
202. The revenue figures include all services. As stated in section 4.2.8, mobile data is a
rapidly growing area that will take on increasing importance. NPT’s report “Mobildata per
tredje kvartal 2009”46 (Mobile data as at third quarter 2009) shows that Telenor has larger
market shares in mobile broadband measured by revenue compared with the share measured
by subscriptions. Furthermore, the report shows that Telenor attracts a relatively large share
of all new mobile broadband subscriptions and that this applies in particular to most
profitable customer segments. In NPT’s opinion these factors can help explain why Telenor
is stronger measured by revenues than the subscription market as a whole. Furthermore, these
factors indicate that Telenor manages to position itself in growing segments.
4.2.3.2 Development of market shares at the network level since the previous analysis
203. In assessing market share at the wholesale level, NPT looked at two different
measures: the number of customers connected to the three networks and originated voice
telephony minutes. Both measures include figures from external MVNOs and service
providers.
204. The table below shows the development in market shares at the network level, based
on the number of subscriptions, since the previous analysis. The numbers include customers
of MVNOs and service providers47.
Subscriptions
1st half 2005
2009
Telenor
68%
57%
NetCom
32%
36%
Network Norway
7%
Table 2. The development in market shares at the network level based on the number of subscriptions
from the first half of 2005 and the end of 2009. Source: NPT’s ecom statistics for the first half of 2005 and
2009.
205. The table shows that Telenor’s market share at the network level has fallen by 11
percentage points since the previous analysis. The reduction is mainly due to two factors.
One is Telia’s acquisition of Chess in 2005. About two-thirds of Chess’ customer base was in
Telenor’s mobile network when the acquisition took place. After the acquisition they were
46
http://www.npt.no/ikbViewer/Content/114293/09063101%20Mobildata%20pr%203.%20kvartal%202009%202193403.pdf
47
For Telenor the numbers for 2009 include the number of subscriptions with Ventelo, Hello, Telio Telecom,
ACN Norge, Bellit, Tussa 24 and Mobitalk. For NetCom, Tele2, Chess, TrigCom and Phonect are included. The
figures for Network Norway include OneCall, Lebara, Lyse Tele and Telipol.
37
gradually transferred to NetCom’s network. The other factor is Tele2’s transfer from
Telenor’s to NetCom’s network in 2007, which meant that over 8% of the total customer base
changed networks. However, Network Norway’s transfer to Telenor in 2008 has balanced
these factors with respect to traffic on the networks.
206. NetCom’s market share in the same period increased by 4 percentage points. This is
due to the cited purchase of Chess in 2005 and the MVNO agreement with Tele2 in 2007.
However, Network Norway’s acquisition of Lebara and OneCall in 2008 reduced the traffic
volume on NetCom’s network. The two providers were originally service providers with
NetCom, but were transferred to Network Norway’s network after the acquisition.
207. The table below shows the development in market shares at the wholesale level, based
on the number of subscriptions since the previous analysis. Traffic from MVNOs and service
providers are included in the market share of network owners.
Call minutes
Telenor
NetCom
Network Norway
1st half 2005
71%
29%
2009
57%
36%
7%
Table 3. The development in market shares at the network level from the first half of 2005 and at the end
of 2009 based on originated minutes. Source: NPT’s ecom statistics for the first half of 2005 and 2009.
208. The traffic figures show more or less the same characteristics as for subscriptions.
Telenor’s market share (based on traffic) has been reduced from around 71% to around 57%
at the end of 2009, namely by 14 percentage points. However, it must be taken into
consideration that a relatively large share of Network Norway’s traffic will be carried on
Telenor’s network within the decision period. As of today around [Exempt from public
disclosure: XXX] of Network Norway’s traffic on Telenor’s network is national roaming.
Since Telenor has income from this traffic an assessment of the relative strength of the
wholesale market will therefore be reasonable to attribute this part of Network Norway’s
traffic to Telenor’s network. The table below shows the distribution of market shares after
Network Norway’s traffic on Telenor’s network is taken into consideration in calculating
market shares.
1st half
Call minutes
2005
2009
Telenor
71%
XXX
NetCom
29%
36%
Network Norway
XXX
Table 4. The development in market shares at the network level from the first half of 2005 and the end of
2009. Source: NPT’s ecom statistics from the first half of 2005 and 2009, plus information from Network
Norway.
209. NPT believes that table 4 provides the most correct picture of market shares at the
wholesale level and will use these figures further in the analysis. With these preconditions,
Telenor’s market share amounted to nearly [Exempt from public disclosure: XXX] based on
traffic at the end of 2009, and Network Norway’s market share just over [Exempt from public
disclosure XXX]. Telenor has therefore seen a reduction in market share at the wholesale
level since the previous analysis. However, the reduction is less than Table 3 indicates. Since
the previous analysis NetCom has increased its market share by around 7 percentage points.
38
4.2.3.3 Assessment of future development in market shares
210. The acquisitions that have taken place in recent years and Tele2’s change of network
show that market shares at the network level can swing relatively quickly. However, NPT
believes there is no reason to expect equally large fluctuations in market shares at this level
within the time horizon of the analysis.
211. Network Norway’s rapid growth at the retail level since the launch in 2007 is largely
due as mentioned to the acquisition of relatively large service providers. As of today there are
no service providers of similar size that are not owned by the established network providers.
212. Network Norway wants to expand its mobile network within the time horizon of the
analysis and thus could increase the traffic share on its own network. However, in any case
the company will have considerable parts of its traffic on Telenor’s network within the next
1.5 to two years. [Exempt from public disclosure:
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXXXXXXXXXX]
213. [Exempt from public disclosure:
XXXXXXXXXXXXXX]
214. Ventelo is the second largest MVNO and has an MVNO agreement with Telenor. The
agreement is non-exclusive, i.e. the company has the opportunity to enter into MVNO
agreements with other network owners. If Ventelo should replace host operators within the
decision period, it will entail a reduction of Telenor’s market share at the network level.
Ventelo’s market share (based on the number of subscriptions) at the end of 2009 was around
3%. TDC also buys MVNO access from Telenor and could thus also reduce Telenor’s market
share by changing host operator. The company had a market share of less than 1% at the
same time.
215. Even if both Ventelo and TDC were to change network owner over the course of this
decision period, Telenor will as it currently appears still have a market share of more than
50% at the network level based on both the number of subscriptions and traffic.
216. Market shares can also be changed as a result of providers winning or losing
individual customers. However, NPT believes that the development in market shares after the
two large provider switches, namely Tele2’s transfer from Telenor to NetCom and Network
Norway’s transfer from NetCom to Telenor, shows that there are limited opportunities for
organic growth. NPT is aware that certain providers have reported that they achieved not
insignificant market shares through organic growth. Nevertheless, NPT cannot see that
organic growth with the capacity to change market shares at the wholesale level has taken
place to a greater degree within the time horizon of the analysis. NPT also refers to section
4.2.6.1 which states that termination revenues through asymmetric regulation appear to have
been a factor enabling alternative providers to set low prices in the retail market and must
thus be expected to have an impact on the opportunity for organic growth for these providers.
217. In recent years alternative providers like Tele2 and OneCall have been price leaders in
the sense that in many consumer categories they have ranked at the top of Telepriser’s
39
overview of the most favourable mobile subscriptions. The development in market shares
nevertheless shows that companies have seen relatively modest growth. While Tele2 has not
increased their market share measured in number of subscriptions between the end of 2007
and the end of 2009,,cf. section 4.2.3, OneCall and Lebara together grew by under one
percentage point in the last year (2009). This can indicate that it is difficult to achieve organic
growth through the competitive parameter of price. Furthermore, the ratio can support one of
the conclusions in SIFO’s rapport, ref. section 4.2.5, namely the idea that there is little to
save means that many people are not interested in comparing prices.
218. In summary, Telenor’s market share at the retail level measured in the number of
subscriptions fell somewhat, but is stable measured in revenues. There are also indications
that Telenor is strengthening its position in new product areas that are expected to grow
rapidly. NetCom’s market share has shown some fluctuation. Market share measured in
revenues has fallen slightly below the level of the previous analysis, while the market share
measured in the number of subscriptions has fallen to the same level as then.
219. The overall decline for the established network owners measured both in the number
of subscriptions and share of revenues amounts to about 3 percentage points since the first
half of 2005.
220. During the same period Tele2 increased its market share in the retail market based on
subscriptions from 5% to nearly 9%. However, the company has not increased its market
share in the last two years.48 Network Norway’s market share measured by the same
parameter has increased quickly to nearly 7%, mainly due to acquisitions. The growth for the
company seems to have abated and amounts to below one percentage point in 2009.
221. Telenor’s market share at the wholesale level has fallen since the previous analysis. At
the end of first half of 2009 the company’s market share based on traffic was about [Exempt
from public disclosure: XXX] (including the traffic generated by Network Norway’s
customers while they roam Telenor’s network). NetCom’s market share has increased to
around 36%. However, the market share at the wholesale level has been more stable after the
two large provider switches. NPT is furthermore of the opinion that it is improbable that
Telenor’s market share will fall below 50%, regardless of the measure used within the period
this analysis covers.
222. Telenor and NetCom are substantially larger than the third existing network provider.
There are several factors indicating that the ratio between providers will not change
considerably within the perspective of the analysis.
4.2.4 Market concentration
223. The Hirschman-Herfindahl index (HHI) is frequently used to assess structural market
factors. HHI is the total of the square of each provider’s market share. The value of the index
is 1 if there is only one provider in the market. If there are many providers with a small
market share, the index will approach 0.
224. In the previous market analysis the HHI based on call minutes was 0.5849. Today the
index has dropped to 0.4750. When calls from national roaming originated on Telenor’s
48
According to NPT’s ecom statistics for 2009, Tele2 had a 8.5% market share based on the number of
subscriptions. Corresponding figure according to NPT’s ecom statistics for 2007 was 8.8%.
49
Based on first half of 2005 where Telenor had a 71% and NetCom a 29% market share based on call minutes.
(0.71^2+ 0.29^2 = 0.58)
50
Based on full-year figures for 2008 where Telenor, NetCom and Network Norway had 58%, 36% and 6%,
respectively, of the call minutes. (0.58^2+0.36^2+0.06^2 = 0.47)
40
network are included, the HHI is [Exempt from public disclosure: XXX]51. Assuming that the
market share of the three providers had been evenly distributed, HHI would have been 0.33.
225. In Denmark, where the authority concluded that there is effective competition in the
relevant market, the corresponding index was 0.35 in 2005 and 0.33 for the first half of 2007
(four providers).
226. HHI is declining, but still indicates that there is a high market concentration in
Norway.
4.2.5 Costs of switching
227. Different forms of switching costs when changing provider can reduce the competition
at both the retail and wholesale levels.
228. At the retail level the establishment costs associated with changing providers is
generally lower and the procedures for porting numbers are relatively simple. As such, the
switching costs at the retail level can in NPT’s view thus not be said to be particularly high.
229. However, a survey done by SIFO52 in October 2008 shows that 76% of Norwegian
mobile customers cannot imagine switching mobile providers.
Telenor
One
Mobil NetCom Tele2 Chess Call Andre Total
83
67
77
56
73
53
76
Nei
5
10
9
8
6
19
7
Ja, muligens
11
20
15
37
21
25
15
Ja
2
2
0
0
0
3
2
Vet ikke
100
100
100
100
100
100
100
Total
557
172
94
52
48
36
959
Base
Table 5. The percentage of customers that have considered switching from their current provider.
Source: SIFO: Knowledge about mobility in the mobile market, 22 January 2009
230. According to the survey, the two main reasons why customers do not consider
switching are that “There is little to save by switching” and “I want to have the same mobile
operator as the person I call”. The idea that there is little to save could cause many to lose
interest in comparing prices. Furthermore, “family and friends” subscriptions53 appear to
make it most attractive to remain with the largest providers where the benefit of such services
to end users can be expected to be the greatest.
231. Still, around 50,000 customers change providers each month. It is uncertain how large
a share of this group are so-called “multichurners”, i.e. customers who frequently switch
providers, thereby pushing up the total number of provider switchers.
232. There will not necessarily be any connection between changes in market shares at the
retail and wholesale levels. Even though the market shares in the retail market change
between sellers and buyers of access, the market share the seller of access has on the network
level will be constant if the buyer’s and seller’s market shares change just as much. NPT
consequently believes that costs of switching at the wholesale level are of greater importance
for the assessment under the second criterion than costs of switching at the retail level.
233. Costs of switching at the network level are assumed relatively speaking to have a
greater impact on the development of the dynamics of the relevant market. At the wholesale
51
Based on Table 4
SIFO: Knowledge about mobility in the mobile market, 22 January 2009
53
Family and friend products are described in more detail in section 4.2.7
52
41
level there does not seem to be particularly high costs associated with switching host
operators per se. Providers with a national roaming agreement, and in most cases also
MVNOs, will have their own operator codes and their customers will thus not need to switch
SIM cards. By switching host operators, and thus possible change of coverage, some costs of
a more administrative nature will still have to be expected. For example, such costs can be
connected to making end users aware of the change.
234. However, there can be other factors that can impose costs on buyers of access when
switching host operators. Agreement terms representing obligations in the form of long-term
agreements and purchasing obligations are key in this context and could make the threshold
for changing very high and in some cases virtually insurmountable. Reference is made to
section 4.2.9 for further assessments of such obligations.
235. Both Telenor and NetCom offer on-net discounts to purchasers of MVNO access.
Similar discounts are not offered to purchasers of national roaming. The development of the
retail market shows that on-net discounts have become increasingly popular, inter alia
through internal company agreements and family and friends products. Purchasers of access
will consequently expect to achieve an on-net discount in the event of a switch to a different
network provider. The fact that purchasers of national roaming do not achieve on-net
discounts does not reduce such providers’ opportunity to offer wholesale products viewed as
equally attractive as those they are otherwise offered in the relevant market. The opportunity
that MVNOs and service providers will switch from the two established network owners to
the third network will thus probably be limited, thereby contributing to reduced dynamics in
the market. The absence of on-net discounts in national roaming agreements will be
particularly important in a phase where the network is being rolled out and where a relatively
large share of the traffic must be purchased through an access agreement.
236. The end users’ perception of coverage differences is another factor than can increase
switching costs. To the degree that the provider considers that a special form of coverage is a
requirement from its own customers, it appears reasonable to assume that a switch entailing
different coverage than assumed must be accompanied by a form of compensation so that the
switch will not lead to bigger losses of customers. Such expectations of customers’
perceptions of coverage seem to be particularly important for providers that have a large
share of business customers. The host operators can also have different technical profiles due
to different equipment providers that create disadvantages by any switch, and that increase
switching costs.
237. To NPT’s knowledge market support has been paid in connection with the entry into
service provider agreements as early as the period on which NPT’s previous decision was
based in the market for access and origination on mobile networks. Market support can be
related to various parameters but will often be related to how much traffic the buyer of access
contributes to the network. By itself market support could contribute to reducing switching
costs at the wholesale level. With Tele2’s switch of host operator from Telenor to NetCom,
Tele2 received about [Exempt from public disclosure: XXXXXXXXXXXXXX] in market
support. The degree to which market support will actually contribute to reducing costs of
switching at the wholesale level can still not be decided on the basis of market support alone,
but must be seen in connection with other conditions in the relevant agreement. NetCom says
that the agreement with Tele2 had an estimated value of about [Exempt from public
disclosure: XXXXXXXXXXXXXXXX] In light of the total value of the agreement, the
market support appears to have less of an impact on the dynamics of the market.
238. In summary, NPT believes that particularly at the wholesale level factors can be
demonstrated that can point in the direction of considerable costs of switching. Even though
42
there does not seem to be high direct costs associated with switching host operator, there are
many factors that can make a switch not very attractive, including also costly from the
viewpoint of the purchaser. Lock-in periods, volume commitments, discount structures and
perceptions of one’s own customers’ expectations of coverage are very important in this
connection. The existence of switching costs at the wholesale level must be expected to limit
the dynamics in the market within the relevant time perspective.
239. At the retail level NPT believes the costs associated with switching providers are not
particularly high. However, it appears that relatively low price sensitivity can reduce the
potential for dynamics.
4.2.6 Prices and price development
240. The development of prices at both the retail and wholesale levels can give indications
of whether the market tends toward competition. To be able to do a meaningful assessment of
price developments it will be necessary to analyse them. It will consequently not be
necessary to ascertain the direction in which prices have moved. Even if falling prices are
normally connected with competition in a market, such a development will also be consistent
with an opposite conclusion. Any changes in underlying cost structures, demand and
operators’ incentives are factors that could provide useful indications with an assessment of
prices and price developments.
4.2.6.1 Price developments in the retail market
241. The international trend has been falling prices for mobile use at the retail level. Such a
tendency is also evident in Norway.
242. The figure below shows the monthly cost of the cheapest subscriptions in effect at any
time of five different providers, assuming standard consumption. The monthly standard
consumption on which the figure is based is 142 minutes of voice divided into 77 calls and
100 text messages. Furthermore, it is assumed that 21% of voice calls go to the fixed
network, 55% to Telenor Norge and 24% to NetCom.
43
Figure 4. Cost per month for cheapest Telenor, NetCom, Tele2, Chess and OneCall subscription based on
the standard consumption of Telepriser on 1 May 2009.
243. The figure shows that the prices in the retail market fell in the period from 2001 to
2010. The decline seems to have slowed toward the end of the period. Providers such as
Chess, Tele2 and eventually also One Call and Ludo, have been price leaders.
244. A key question is whether this development will continue. As mentioned earlier, it will
be relevant under a modified greenfield approach to take into account regulation in markets
other than what is assessed. In Norway, the markets for termination on mobile networks have
been based on asymmetric price controls. Given the fact that Norway as one of very few
countries in a European context has only two nationwide networks, an important purpose of
asymmetric regulation has been to stimulate the establishment of competing mobile
infrastructure. The degree of asymmetry has thus been relatively high and favoured
alternative providers.
245. The asymmetric regulation has been a key part of the overall income picture for buyers
of MVNO access and national roaming. Telenor’s accounting separation reporting for
MVNOs and corresponding statement of accounts for national roaming54 give indications that
income through asymmetric termination charges has been important so that buyers of such
access overall should be able to achieve a reasonable margin and be able to offer competitive
services in the retail market. It therefore seems reasonable to assume that termination income
has contributed to a considerable degree to making it possible for alternative providers to
offer low prices at the retail level.
246. As shown under the chapter on development of market shares, alternative providers
such as Tele2 and OneCall have been price leaders in recent years in the sense that in many
consumer categories they have ranked at the top of Telepriser’s list of the most favourable
mobile subscriptions.
247. To some degree Telenor and NetCom have followed price developments, without
being price leaders. Other means, such as subsidising handsets and offering “family and
friends” products, seems to have been important for these providers in the battle to attract end
users. In SIFO’s 2009 report “Family and friends” products are mentioned as one of the most
important factors in causing many to not consider switching subscriptions, ref. section 4.2.5.
248. NPT has notified a considerable reduction of termination charges for all providers
including alternative providers from 1 January 2011 and glide paths towards symmetric
prices for all providers during the next period of regulation. The opportunities of alternative
providers to subsidise their own retail business through termination revenues will therefore
be reduced. To enable purchasers of access to maintain their competitiveness, it thus appears
necessary to accompany notified reductions in termination charges by reductions in access
charges.
249. NPT believes on this basis that it is very uncertain if price developments in the retail
market in recent years can be expected to continue in the short to medium term. Changes in
the framework conditions with respect to termination revenues can affect the capacity of
alternative providers to compete on the price parameter. Other facts such as options for
product differentiation for established providers can also be expected to contribute to some
flattening of the price reductions.
54
In connection with the consultative input, Telenor forwarded statements of accounts for providers with a
national roaming agreement based on the principles for MVNO access.
44
250. The development in market shares based on revenues shows as specified above stable
positions for Telenor and NetCom. Both of the two established providers at the network level
have higher market share in the retail market based on revenues than based on the number of
subscriptions, which indicates that the companies have higher revenues per subscription than
other providers.
251. Falling prices for the cheapest subscriptions in the retail market, at the same time as
Telenor has an opportunity to increase its total share of revenues, can say something about
various preconditions for competing on price within various market segments. Telenor seems
to show a stronger ability to attract customers within the more profitable market segments,
for example in the business market. For example Telenor states in connection with
publication of its results for first quarter 2010 that income from subscriptions and calls
increased by 7.7% compared with first quarter 2009.
252. In NPT’s opinion there is consequently no basis for drawing conclusions that price
developments in the retail market should be taken into account for the relevant wholesale
market to tend toward non-transitory effective competition without regulation.
4.2.6.2 Price developments in the wholesale market
The figure below shows the development of prices at the wholesale level since the
previous market analysis. [The figure is exempt from public disclosure]
253.
Figure 5. Price development in access prices for Telenor’s service provider, MVNO and national roaming
agreements in the period January 2006 to may 2010. The figure assumes a fixed monthly consumption
pattern per customer during the entire period. The figure includes voice and SMS, but not data services.
254. The figure assumes corresponding consumption patterns as in the figure above.
Discounts, start-up costs, termination revenues and termination costs are not included in the
calculation of the monthly cost.
255. The figure is limited to giving a picture of price developments at the wholesale level
during the period for the different forms of access. The figures show that the prices in the
period as a whole have fallen some. The price reduction seems to have been largest until the
beginning of 2008. The pace of price changes seems to have slowed since then.
256. The access charges seem to have dropped at about the same pace for MVNO access
and service provider access. The price decline for national roaming can be connected to the
revision of the agreement between Telenor and Network Norway in 2009. [Exempt from
public disclosure:
45
XXXXXXXXXXXXXXXXXXXXXXXXXXXX]
257. As mentioned above, a price drop in a market can be an expression of competition.
The price reductions can thus be an expression that Telenor meets competition from NetCom
to attract and keep customers at the wholesale level. Even though the price reduction seems
to have slowed since 2008, indications of such connections will have to be examined. A
comprehensive assessment must thus be made of many factors that can have a bearing on the
price formation in question.
258. Under a modified greenfield approach it shall be assessed how the market will
function without existing specific obligations. The analysis shall thus be forward-looking. To
be able to undertake a correct evaluation of the indications the price reductions provide, it
will still be relevant and necessary to take into account that the market has been subject to
sector-specific regulation.
259. During the period in question Telenor has been subject to an obligation of nondiscriminatory prices for MVNO access. Telenor has thus been obliged not to take higher
prices from external MVNOs than what they would have taken from their own retail
business, with the exception of any differences that can be justified by objective criteria. The
obligation means in practice that access prices must normally reflect reductions in Telenor’s
retail prices.
260. Reductions in Telenor’s prices for MVNO access have on several occasions taken
place in connection with and after accounting separation reporting. The follow-up of the nondiscrimination and accounting separation obligations thus seems on many occasions to have
put pressure on the access charges and seems in many cases to have had the effect of
prompting Telenor to carry out price reductions on their own initiative. In meetings with
purchasers of access and with Telenor, NPT has received little feedback that access charges
have been reduced as a result of negotiations initiated by purchases of MVNO access.
261. Telenor has said that the company regularly undertakes margin squeeze tests. The
purpose of the margin squeeze tests is to avoid getting into a position where the company is
considered to misuse its dominant position pursuant to the Competition Act.55 This can
indicate that Telenor’s price reductions at the wholesale level do not necessarily need to be
connected to the existence of sector-specific obligations.
262. It will be very difficult, not to mention impossible, for NPT to say anything certain
about whether Telenor in actual fact places the greatest emphasis on complying with
obligations by ex post or ex ante regulation when the company considers its wholesale prices.
However, the argumentation seems to indicate that Telenor to some degree recognises that in
setting access charges the company is affected by factors other than just effective
competition. In NPT’s view, questions can also be asked about how decisive it will be in this
context to draw an absolute dividing line between the two regimes. In any case such an
assessment will not provide an answer to which degree the price reductions were the result of
competitive pressure in the battle to attract buyers of access. The need for complementary
sector-specific regulation will however be a factor that will be assessed under the third
criterion.
263. A key purpose of the obligation to report accounting separation for MVNOs is to
improve the chances of being able to ensure compliance with the obligation of non55
See for example Copenhagen Economics “Market analysis of mobile access and call origination – report
prepared for Telenor Norge 28 January 2010”, page 63
46
discrimination, including ensuring that buyers of such access can achieve margins overall.
The obligation of non-discrimination in combination with accounting separation and margin
squeeze calculations on the basis of ex post regulation will both thus be able to explain that
there has been a reduction in the prices for MVNO access. Overall, NPT believes there is
reason to assume that sector-specific remedies have relatively speaking had a greater impact
on these developments.
264. A comparison of the actual price level for purchasers of access and the price
obligations following from regulation can provide a basis for interpreting price developments
in the market. To the extent it can be ascertained that buyers of access achieve better prices
than regulation requires, this could support a claim that price developments are largely a
result of competition and dynamics in the market rather than sector-specific obligations.
265. A report prepared for Telenor by Copenhagen Economics56states that Telenor offers
access to national roaming at a not insignificantly lower price than the relevant price controls
require. Pursuant to the current decision, pricing of national roaming shall follow a retailminus principle. The price according to this price calculation method has not been specified
in the form of actual prices. However, the decision provides guidelines for the principles that
are to be employed in the retail-minus calculation. In NPT’s view, it is not taken for granted
that Telenor’s calculation of regulated prices is in conformance with these principles. When
the presented calculation is corrected for the key departures, the reporting Telenor has
submitted to NPT does not provide a basis for a claim that the market is performing better
than regulation requires.
266. Telenor’s motivation to regularly calculate the margins of purchasers of access as
referred to above seems to have to build on an assessment that it is unlikely that competition
authorities would find that Telenor was dominant in the relevant market. In addition, it seems
to imply that the competition authorities would be able to conclude that access prices
represented an abuse of the company’s dominant position. NPT finds it difficult to see the
connection between the fact that the market to a not insignificant extent would deliver lower
prices than the sector-specific regulation requires and the dominant operator’s concerns that
the company’s wholesale prices would involve an abuse of dominant market position after
the ex post regime.
267. Telenor’s accounting separation reporting shows that the company believes that the
assessment of margin for MVNOs is relevant to see the market for access and origination on
mobile networks and the market for call termination on mobile networks in context. Telenor
thus believes access prices should reflect the buyer’s income from termination. In light of this
it may be relevant to assess possible correlations between reductions in termination charges
and reductions in access prices.
268. Figure 5 shows that the decline in access prices for service providers and MVNOs
have followed each other in parallel. The MVNOs’ termination charges have been regulated
down at the end of the period covered by the figure. Service providers do not have
termination income and are only familiar with their origination prices. Assuming the same
conditions in terms of retail revenue, one might expect that the access price for MVNOs had
fallen slightly more than for service providers for the overall revenue picture for the two
access methods to have the same development. The parallel development of access prices for
the two access methods may thus indicate that the total income picture for access methods
has changed in favour of the service providers. NPT found in the previous analysis of the
56
Copenhagen Economics “Market analysis of mobile access and call origination – report prepared for Telenor
Norge 28 January 2010”, page 62.
47
market for access and origination on mobile networks that there seems to be greater
competition in the market for service access than other access methods. On this basis, the fact
that prices for MVNOs and service providers have evolved at the same rate indicates that
there is still a higher level of competition at the lowest level of access.
269. There seems to be little doubt that the agreements with the large buyers of access such
as Tele2 and Network Norway have a financial bearing on network owners. Neither Telenor
nor NetCom currently have capacity restrictions on their networks. The two established
network owners will thus expectedly have incentives to attempt to keep traffic from the two
buyers of access to such a large degree and over as long a period as possible, cf. section 4.2.9
on the incentives of network owners. Since the two buyers of access are in the process of
buildings their own networks, it is reasonable to expect that it will be highly important for
them to transfer as much of this traffic as possible to this network.
270. Volume commitments in the access agreements seem to be an effective remedy suited
to realising the motivation for keeping traffic from buyers of access. Reductions of the price
for the purchase of access is another factor that will be suited to realising such an incentive in
that it will affect the profitability of transferring traffic to one’s own network. The assessment
of price reductions must thus also be made in light of these conditions and incentives that
sellers of access have to make strategic price reductions.
271. In NPT’s view both Telenor and NetCom have incentives to reduce access prices for
keeping traffic that could be transferred to Mobile Norway’s network. So long as both
providers have excess capacity in the network, the cost of providing access will be close to
marginal cost. The results of the LRIC model show that the underlying cost of producing
voice, SMS and data on Telenor and NetCom networks is considerably below current access
prices. In isolation, it indicates that the established network owners have significant latitude
in that they are able to reduce access prices down to a price level where the services are, on
average, covering network owner’s marginal costs and the relevant share of overhead costs.
In the limited period during which a third nationwide network is being established, both
Telenor and NetCom thus have the incentive and ability to make strategic reductions in
access prices to the greatest extent possible to keep traffic from buyers of access on their
networks.
272. In NPT’s opinion there are on this basis indications that the price reductions that have
taken place at the wholesale level can be linked to a greater extent to the disciplining effects
of regulatory obligations in the relevant market and changed regulation in adjacent markets,
rather than competition between the established network owners to attract buyers of access.
NPT therefore believes that the price reductions at the wholesale level provide to a small
extent a basis for assuming that the market will tend towards competition without regulation.
273. In summary, the prices at the end-user level were significantly reduced in the period
2002/2003, which in itself may indicate competition in the retail market. However, prices
must be viewed in the context of other factors such as developments in the market measured
by revenue and opportunities for product differentiation. Announced price reductions for
termination including the phasing out of asymmetric pricing is a factor that creates
uncertainty about the competitive situation for the smaller providers in the short to medium
term. Although cost reductions in isolation may indicate competition in the retail market,
NPT believes, taking several aspects into consideration, that it is doubtful whether said prices
in the retail market reflect a trend towards sustainable competition without sector-specific
regulation.
274. For all access methods, access prices declined in the period since the previous
analysis. NPT believes that price reductions are related to existing sector-specific obligations.
48
The competition legislation may also have been a factor that has contributed to price
reductions. The relative effect of the two regimes on prices is uncertain. Specification of such
a relationship will still not answer the question of the extent to which price reductions are a
reflection of dynamism through competition between the two established network operators.
Price regulation with reduced asymmetry in the market for call termination on mobile
networks seems to have been of importance for the reductions in access prices. Overall, NPT
believes the price reductions that have taken place at the wholesale level do not provide
sufficient assurance that the market for access and origination on mobile networks will move
towards sustainable competition without sector-specific regulation.
4.2.7 Product differentiation
275. Product differentiation refers to a strategy that aims to give a provider’s own products
features that distinguish it from the products of competing providers. Product differentiation
can take place both in the wholesale and retail market. A high degree of product
differentiation by a provider may provide a basis for strong customer loyalty and reduce
competition in the market. Strong brands can have similar effects.
276. Both Telenor and NetCom offer voice telephony on mobile networks, SMS and other
data services to end users. These products/services are based on standardised technology.
Both operators offer a wide range of subscription types aimed at different market segments.
A relevant issue is whether the vertically integrated operator offers a range of products at the
wholesale level that enables providers who buy inputs the opportunity to offer products that
can compete with the vertically integrated operator’s products in the retail market.
277. In this section we give examples of products that only network owners purely
commercially, and therefore in reality, can offer in the retail market. NPT believes these
products are likely to engender strong customer loyalty for the established providers and that
they thus can prevent the market from tending towards competition.
278. Telenor’s “Fri Familie” and NetCom’s “Trådløs Familie” (the products are hereinafter
described as “family and friend products”) are examples of such products. Both Telenor and
NetCom launched their respective products after NPT’s decision in the market for access and
origination on mobile networks from 2006. The products have evolved and today up to 657
family members can call each other’s mobile phones and home phone at no charge. The same
applies to SMS and MMS messages, which can be sent between subscriptions covered by the
family and friend agreement. The products have no connection or monthly charge, but
require that one person is the owner of all the mobile numbers covered by the agreement.
279. The services covered by Telenor’s and NetCom’s family and friend products are
standard services in any mobile provider’s product portfolio and are offered by both at the
wholesale level. However, no other providers than Telenor and NetCom offer a family and
friend product at the retail level with equally extensive service ranges as the two network
operators. This can probably be explained by the fact that Telenor and NetCom themselves
produce the services that the family and friend products consist of. Since there are no
capacity restrictions and traffic is kept on their own networks, the costs of producing many
minutes, SMS or MMS are marginal. Providers who purchase access from the two operators
will have to purchase the necessary wholesale inputs according to the relevant access
agreement. It must therefore be assumed that the cost such providers have by offering family
and friend products is considerably higher than for Telenor and NetCom.
57
NetCom offers to link two “wireless families”.
49
280. Telenor and NetCom introduced special prices for calls to own service providers at the
turn of 2006/2007. This meant that the wholesale price of such calls was cut in half and thus
strengthened the service provider’s opportunity to offer family and friend products in the
retail market. The fact that Telenor and NetCom offer lower prices for calls to their own
service providers, cannot in NPT’s opinion compensate for the structural difference inherent
in that the two companies can produce additional traffic on their own networks at marginal
cost. The fact that Telenor and NetCom launched its family and friend products in the retail
market that long before the product was accessible at the wholesale level, is also a factor that
can be assumed to have given the companies a so-called “first mover advantage”.
281. Both Telenor and NetCom offer discounts to MVNOs for calls terminated on the
buyer’s own network. The cost at the wholesale level for a call between two customers of
MVNOs will thus consist of a price for origination and a discounted price for termination. As
mentioned service providers pay half price for the originating portion. Service providers do
not pay any particular price for termination, including for calls that terminate on the host
operator’s network. In spite of the discount on the terminating segment an MVNO thus pays
a far higher price per minute than service providers for calls between their own customers.
MVNOs are thus less equipped to provide family and friends products than both network
operators and service providers.
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX] Since a buyer of
national roaming has its own mobile network, he will be able to achieve advantages when
calls between own customers completely or partly start or end on their own network. If such
advantages are to have any practical significance, the buyer of national roaming must have a
relatively large mobile network. The disadvantage with respect to being able to offer
competitive price plans for calls between own customers will thus be reduced in step with the
expansion of the size of the network. Increased size of mobile networks will similarly be able
to give the buyer of national roaming the opportunity to achieve similar advantages as the
two established network providers.
283. NPT believes Telenor’s and NetCom’s family and friend products are largely based on
companies in the retail market using the advantage the companies have as vertically
integrated providers connected to Norway’s two large mobile networks. Considerable cost
differences between the network owner and buyers of access connected to provision of such
products contribute to asymmetric competitive terms in the retail market. At the same time,
the benefit the end user has by being connected to products that provide discounts for
communication within a network could be expected to correspond with the number of other
users of the same system. Consequently, it can be expected that the attractiveness of such
products will increase with the size of the network. For this reason NPT believes that
Telenor’s and NetCom’s family and friend products are examples of product differentiation
that is contributing to creating customer loyalty and is contributing to preventing the market
from tending towards competition.
284. Mobile broadband has grown sharply in recent years and thus become an increasingly
important product for mobile providers. The price of data traffic on mobile networks has
been relatively high compared with prices on the fixed network. In addition, most provision
of data traffic on mobile networks has been based on estimates of transferred data quantity.
This has given rise to uncertainty among end users who probably have reduced their tendency
to use data services over mobile networks. The fact that in recent years mobile broadband
50
subscriptions have been offered at attractive flat rates, is thus probably an important reason
for growth.
XXXXXX] Tele2 can thus offer flat rate products for mobile data in the retail market.
However, it does not appear that this per se has had the effect that Telenor must offer
corresponding products to keep or attract customers at the wholesale level. NetCom’s
services can thus underpin the perception that there is a low degree of competition between
the two network owners. For this reason NPT believes that it is uncertain whether NetCom’s
provision should be considered a sign of dynamism in the market.
286. Telenor does not offer products with a fixed monthly fee for transferring data traffic at
the wholesale level. In the case of MVNO access and national roaming, Telenor states that
this is due to technical challenges with regard to opportunities and need to control
downloaded data amounts at the retail level by customers of the buyer of access. On the basis
of statements from Telenor, NPT realised that these challenges are of a nature that would be
very difficult to overcome. At the same time there seems to be examples of flat rate
agreements for data traffic for buyers of MVNO access in other countries, including the
purchasers of access from Telenor in Denmark.58 NPT has also learned that Telenor has made
a flat rate offer for data traffic after NPT’s notification of decisions on 21 October 2009.
However, to NPT’s knowledge, agreements based on the offer have not been entered into.
287. Buyers of access from Telenor must therefore purchase data traffic at a given price per
MB (megabytes). However, the wholesale price per MB has been too high to permit the
purchasers of access from Telenor to offer similar flat rate products like Telenor. These
providers have therefore had little opportunity to offer attractive flat rate products in data
traffic, including mobile broadband subscriptions in the retail market.
288. Telenor and NetCom offer three main varieties of flat rate subscriptions for mobile
broadband in the retail market. The features of the three subscription types are largely similar
at both companies. The further discussion is therefore applicable to both providers’
subscribers, but is tied for convenience to Telenor’s mobile broadband subscriptions.
289. The subscription ”Dag & Natt” gives the end user the opportunity for unlimited
transmission of a fixed monthly price and includes access to Telenor’s wireless zones (WLAN) in Norway. Telenor’s “Dag & Natt” summer offer was NOK 299 including VAT out
June 2009.59 At the same time Telenor’s price per MB for MVNOs and buyers of national
roaming was [Exempt from public disclosure: NOK XXX excluding VAT.]. NPT’s statistics
for 2009 shows that that average consumption of data traffic for mobile broadband in the
residential market was 2018 MB per month. With such a consumption pattern the commodity
cost for a provider with a national roaming agreement or MVNO access was far higher than
Telenor’s flat rate offer in the retail market. These providers consequently did not have the
opportunity to offer a similar product with competitive terms. The wholesale price for data
traffic was reduced to [Exempt from public disclosure: NOK XXX per MB from 1 July
2009]. Even with the reduced prices, the cost of the commodity for MVNOs and providers of
national roaming will exceed the price in the retail market.
290. Telenor’s “Av og til” product provides up to 500 MB per month for NOK 99 including
VAT and is designed for end users with lower consumption than the target group for “Dag og
58
See Copenhagen Economics “Market analysis of mobile access and call origination – report prepared for
Telenor Norge 28 January 2010”, page 65.
59
The price of NOK 299 was still in effect at 31 May 2010.
51
Natt”. With the current wholesale price it is not possible for buyers with a national roaming
agreement or MVNO access to offer a product with similar properties that provide a positive
margin.
291. The “Kveld & Helg” product gives the end user the opportunity to download up to 5
GB of data on weekdays between 17.00 and 07.00 and on weekends for a fixed monthly
price. In the retail market Telenor offers the “Kveld & Helg” product for about half the price
of the “Dag & Natt” product. Similar to those described for Telenor’s other flat rate products,
the current wholesale prices do not give buyers of access from Telenor an opportunity to
offer a similar competitive product.
292. The examples above can probably explain why no one who buys access from Telenor
has launched similar flat rate products for data traffic. As with family and friends products
mentioned above NPT sees said subscriptions as an example of product differentiation
Telenor and NetCom have the opportunity to provide by virtue of having their own network,
and which is likely to prevent the market from tending towards effective competition.
293. NPT has to give examples that the two major network operators, Telenor and NetCom,
offer products in the retail market that are not offered at the wholesale level. NPT has also
demonstrated that these products are based on the edge network owners have due in part to
low marginal costs of production of services. Similar products are not offered at the retail
level by providers who have access agreements with Telenor and NetCom. NPT believes on
this basis that there is evidence to suggest that Telenor and NetCom offer a range of products
at the wholesale level that does not fully give providers who purchase their inputs, the ability
to offer products that can compete with the companies’ products in the retail market.
294. There may be several reasons why the product range at the wholesale level does not
reflect the network owners’ products to end users fully. For example, flat rate products are
difficult to offer MVNO providers and providers with a national roaming agreement as long
as national network owners do not know the traffic patterns of their customers and are able to
choke traffic when a given volume ceiling is reached. Furthermore, it can be discussed
whether product differentiation, as shown in this chapter, covers end-user needs and thus the
importance such products play with regard to consumer welfare. However, the key in NPT’s
opinion is that the two established network owners use the opportunity to differentiate their
products at the retail level in a way that greatly reduces the possibility other providers have to
offer competing products. In the long term NPT believes that consumer welfare will increase
through sustainable competition at the wholesale level. PT said product differentiation is a
structural problem that is likely to prevent the market moving towards sustainable
infrastructure-based competition.
295. In summary, NPT believes that the two established network owner use their
advantage as network owners to differentiate their retail products in a manner that is highly
likely to create asymmetric conditions of competition between the two network owners and
buyers of access. From that perspective, product differentiation by the established providers
with nationwide networks is contributing to preventing the market from tending towards
sustainable competition.
4.2.8 Barriers to expansion
296. A market with large growth potential is as a rule more attractive to potential new
operators than markets in which the total units sold and/or the number of customers has
stagnated or is on the way down (so-called “mature” markets). Operators considering entry
into a “mature” market must generally aim to capture customers from the already established
52
operators. This can often be costly. Any capacity limitations by existing network owners will
also function as barriers to expansion.
297. In Norway there is still year-on-year growth in traffic on mobile networks. The figure
below shows mobile-originated traffic based on full-year figures in the period 1999 to 2009.
Figure 7: Calls from mobile phone to fixed networks, mobile phones and abroad.
Source: The Norwegian Electronic Communications Services Market 2009
298. Mobile-originated calls accounted for about 11.4 billion minutes in 2009. The increase
from 2008 to 2009 was slightly below 900 million minutes, while the increase from 2007 to
2008 was slightly over 1.1 billion minutes. The number of text messages sent is to some
extent also increasing. On average, Norwegian mobile customers sent 1,236 text messages in
2009. This is 12 more messages per customer than in 2008.
299. However, there is very high mobile density in the Norwegian mobile market. The total
number of mobile subscriptions (prepaid and post-paid subscriptions) totalled at almost 5.4
million at the end of 2009. If the figure is adjusted for subscribers who have more than one
mobile subscription, the real mobile penetration is approximately 96%, according to NPT’s
statistics for 2009.60 Approximately 438,000 SIM cards were used for communication
between computers, such as alarms, control systems and other applications outside of voice.
300. The figure below shows the growth in the number of subscriptions compared with the
growth in traffic. In recent years, growth in traffic has been far greater than the growth in the
number of subscriptions.
301. Overall growth for subscriptions and prepaid cards was over 20% in 2000. Growth
then fell to around 5% in 2002, but picked up again slightly in 2003 and 2004. In 2005 and
2006 growth in the number of subscriptions was around 5% each year, while it was less than
4% in 200761. In 2009 the growth was 2,8%62, which corresponds to around 148,000
subscriptions. It is conceivable that growth was largely related to the subscriptions with
relatively little traffic, such as peer-to-peer subscriptions or additional subscriptions.
60
NPT: “The Norwegian Electronic Communications Services Market 2009”
Source: NPT’s ecom statistics for 2008
62
NPT: “The Norwegian Electronic Communications Services Market 2009”
61
53
Figure 8. Annual growth in calls and number of subscriptions in the period 2000 to 2009 (both prepaid
cards and post-paid subscriptions are included)
302. Mobile density in the Norwegian market density is therefore high, and growth based
on the number of subscribers is relatively low. Providers in the Norwegian market must
therefore largely rely on bringing in customers from other providers.
303. As stated in section 4.2.5, switching costs are not high at the end-user level. The
evolution of market shares, cf. section 4.2.3, nevertheless seems to show that there are
limited opportunities for organic growth in a market that could be considered fully penetrated
and mature. This may indicate that the cost of winning customers is relatively high. Limited
opportunities to win customers, in turn, could be of importance for the opportunity to achieve
the benefits of traffic growth in the market.
304. Mobile technology is used increasingly in peer-to-peer communications, such as in
automatic data collection, detection/alarm, remote control, etc. Growth can be expected in the
number of subscriptions associated with this use of mobile technology. However, the traffic
associated with such subscriptions will probably be relatively modest.
305. Growth in traffic and sales are expected primarily in data services. Mobile broadband
is for many a supplement to fixed broadband connection. However, it is expected that mobile
broadband will increasingly become an alternative to fixed broadband and take over part of
this market. In 2007 the amount of data transferred for mobile broadband was about 640,000
GB. For 2009 calls increased to more than 6 million GB.63 Sales of mobile broadband have
also increased in line with growth in the number of subscribers, but is still a limited portion
compared to traditional mobile telephony.
63
Source: NPT’s ecom statistics for 2009.
54
Figure 9. Revenues for mobile broadband subscription for 2006 to 2009. Source: The Norwegian
Electronic Communications Services Market 2009
306. Revenues for mobile broadband in 2009 were in excess of NOK 800 million. In
comparison, revenues in 2008 were just under NOK 500 million, while in 2007 they were
just under NOK 300 million.
307. Data traffic related to regular mobile subscriptions is also growing rapidly. The figure
below shows the full-year statistics for volume in 2006 to 2009.
308. Rapid growth in this part of the market can make it more attractive to a new provider
to enter the market. New providers who can contribute to competition in the market for
access and origination on mobile networks, will as shown above largely depend on access to
existing infrastructure. In order to take part in the strong growth in this market segment it will
be of significance that it is possible to obtain attractive terms in the wholesale market
associated with those services. Growth in data traffic can thus also contribute to cementing
the positions of the established network owners.
309. Telenor has highlighted how important it is to meet the end user’s ever-increasing
need for predictability through flat rate products related to data traffic. According to Telenor,
the company has met this need by introducing a per day price cap for mobile surfing.
310. Telenor says in comments in Inside Telecom64 that “the feedback from customers is
that they do not want to learn about MB (megabytes), they want predictability in their use.
The NOK 10 cap is well known among the customers and the fear of using data services on
mobile phones disintegrates with this”. Furthermore, the company said that “we see that the
10 kroner shop is becoming more popular - mobile surfing is growing.” PT said Telenor’s
views are relevant also with regard to whether alternative providers are able to introduce
corresponding price caps on the basis of the conditions in the access agreement. NPT refers
furthermore to the assessment of product differentiation above.
64
Comments of Anders Krokan, information manager at Telenor, 8 January 2010.
55
Figure 10. Data traffic connected to ordinary mobile subscriptions for 2006 to 2009. Source: NPT’s ecom
statistics.
311. Capacity constraints at providers with nationwide networks may also hinder growth.
However, Telenor has informed NPT that there are no capacity constraints because the
company continually expands as required by current demand. According to the company this
applies both to their own customers and providers who want MVNO access or a national
roaming agreement. In its letter of 27 April 2009 NetCom similarly informed NPT that they
have not to date had capacity problems with regard to providing access and nor in the future
would capacity problems be an obstacle to providing access. Both Telenor and NetCom find
that the companies do not have capacity restrictions.
312. Capacity constraints seem therefore not to be an obstacle to growth on Telenor’s and
NetCom’s networks. In isolation, it can give the two network owners incentives to utilise
excess capacity by providing access. However, incentives to provide access may vary for
access on various levels. In section 4.2.9 NPT gives an account of network owners’
incentives for strategic pricing of access to different levels.
313. In summary, there is still growth in traffic from year to year measured in number of
minutes, while growth in the number of subscriptions levels off. However, strong growth in
volume and revenue is expected for mobile data services and mobile broadband. Growth in
these services could make it more attractive to become established as a network operator and
will constitute an area where new suppliers can grow. This may in turn help to increase
competition when it comes to voice telephony. Whether growth in data traffic will have such
an effect will in NPT’s view also depend on the access terms alternative providers achieve
for such services. To the extent the terms reduce the ability to compete in this part of the
retail market, development will thus help to cement the established positions. Growth in data
traffic thus does not provide a clear picture regarding the dynamics of the market going
forward.
314. According to Telenor and NetCom, capacity limitations of their network will not
function as a barrier to expansion for new operators based on MVNO access or a national
roaming agreement. NPT believes for this reason that although growth in the number of
subscriptions is levelling off, barriers to expansion have not been identified in the Norwegian
market which per se prevents the market from tending towards effective competition.
56
4.2.9 Market behaviour and incentives
315. As mentioned by way of introduction the Commission placed emphasis on network
owners entering into access agreements on commercial terms65 when they concluded that the
market for access and origination on mobile networks is not susceptible to ex ante regulation
on a general basis. It does not appear to be clear whether the Commission here puts most
emphasis on network owners entering into access agreements voluntarily or whether it also
involves an assessment of the contents of the terms obtained.
316. Since the previous decision in the market for access and origination on mobile
networks Telenor has entered into an MVNO agreement with Mundio Mobile66 and a
national roaming agreement with Network Norway. NetCom signed an MVNO agreement
with Tele2 in the same period, cf. section 3.1. Telenor has had MVNO agreements with TDC
and Ventelo since 2005. Network owners in Norway thus enter into agreements on access to
their mobile networks. The substantive content of the agreements was reached after
negotiations between the parties and can thus be said to be of a commercial nature. In
isolation, this seems to suggest that similar conditions that the Commission has emphasised
are becoming evident in Norway
317. Special obligations, including access obligations and price controls were imposed on
Telenor in the period used as the basis for the Commission’s review. Consequently, access
agreements in Norway were entered into under a regulated regime. In the vast majority of EU
countries the national regulatory authorities have not found undertakings with significant
market power in market 15, and there has consequently been functioning competition in the
market. The basis for the assessment of the agreements entered into in Norway will thus be
different from the commercial agreements the Commission noted in its justification. In
NPT’s opinion it will therefore be useful under Norwegian conditions to also look at the
actual contents of the agreements entered into.
318. It seems reasonable to assume that there could have been a correlation between the
sector-specific ex ante obligations and conclusion of agreements, and further that the terms of
the agreements to some degree will be characterised by the regime under which they are
signed.
319. However, there is no necessary connection between the existence of the regulatory
duties and entry into the agreements. It will therefore have to be examined whether such a
context can be assumed. The analysis shall have a forward-looking perspective. If there are
grounds for such an assumption about the connections as shown above, it will therefore have
to be considered whether it can be expected that agreements will be entered into without
regulation and what content they may have, and furthermore how the contents of already
signed agreements may be affected. The operators’ incentives and previous market behaviour
could provide indications about the assumptions that should form the basis of such an
assessment.
320. Below, NPT described both factors related to processes around the making of access
agreements and conditions in the actual agreements. Afterwards, NPT discusses the
incentives of the network owners. The purpose of the discussions is to examine the extent to
which the signed access agreements should be regarded as indicators that the market tends
towards competition.
65
Explanatory Note, 13 November 2007, page 44
Mundio Mobile’s MVNO agreement with Telenor was concluded in December 2009. NPT has no knowledge
that the company has entered into a new access agreement.
66
57
4.2.9.1 Tele2’s MVNO agreements
321. Tele2 signed an MVNO agreement with Telenor in 2003. The agreement was mutual
in the sense that Telenor received MVNO access from Tele2 in Sweden at the same time. In
2006 Tele2 wanted to renegotiate the agreement with Telenor in Norway. However, the
negotiations failed, and the agreement was terminated in 2008. During the same period Tele2
signed an MVNO access agreement with NetCom. From 2010 the agreement gives Tele2
[Exempt from public disclosure:
XXXXXXXXXXXXXXXXXXXXX]
322. NetCom has stated that the company demonstrated a high degree of willingness to
negotiate vis-à-vis Tele2. As stated below, this is in contrast to the description given by
Tele2. Since NPT is not directly involved in such negotiations it will not be possible for the
Authority to have a clear idea of how the relevant negotiations proceeded. However, NPT has
knowledge of the contents of the agreement. The contents of the agreement could be suited to
indicating something about the relative strength between the parties and thus could provide a
basis for assumptions about any buyer power.
XXXXXXXXXXXXXXXXXXXX] Tele2 said that for this reason that they experienced
they could not exercise any form of buyer power in the negotiations.
XXXXXXXXXXXXXXXXXXXXXXXXXXXXX]
325. According to Tele2, the company had to accept a large number of compromises,
particularly connected to price terms and conditions for terminating the agreement, before
NetCom was willing to enter into an access agreement with the company. However, the fact
that there is a tough negotiation climate between two profit maximising parties will per se not
say anything about the relative strength between the parties.
XXXX
327. XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
58
XXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX]
329. Tele2’s switch from Telenor to NetCom shows that there has been movement in the
market and that it is possible for a provider of Tele2’s size to switch network provider. In
isolation this can support a view that the market is tending toward competition. In order to
better elucidate whether there is a basis for such a conclusion NPT believes as mentioned
above that it is necessary to do an assessment of the contents of the agreements.
330. Tele2 is in the process of building a third mobile network together with Network
Norway. From such a perspective it will be of great importance for the companies to be able
to move traffic to the new mobile network as soon as possible. For NetCom it will probably
be important to create predictability about revenues from the company’s services in the
wholesale market. As shown above, several clauses in the agreement between Tele2 and
NetCom, including the length of the agreement and volume commitments, are largely
designed to meet the host operator’s need for predictability relating to their own services in
the wholesale market than to promote the interests of an operator in the process of building
mobile networks. In NPT’s view, the clauses in question can thus indicate that Tele2, despite
its relatively large traffic volume, cannot exercise buyer power of significance in negotiations
with some of the network operators. When buyers of access signal rolling out their own
mobile networks and thus an expectation of reduced need to purchase traffic from the two
established network owners, these appear to be factors that do not support a claim of
increased buyer power.
331. NetCom was not designated as a provider with significant market power in the
previous decision in the market for access and origination on mobile networks. The company
is thus not obliged to meet reasonable requests for access to its mobile networks by virtue of
the ecom regulations. As this paragraph shows, the company still entered into an agreement
on MVNO access with Tele2. It appears reasonable to assume that Tele2 switched host
operator because the company considered that it would achieve more attractive terms through
the agreement with NetCom.
332. The fact that Telenor has access obligations and price controls imposed on it, must in
NPT’s opinion still be assumed to have the capacity to exercise influence on the agreements
NetCom is entering into. NetCom is aware of Telenor’s obligations. The obligations imposed
on Telenor will thus be able to affect NetCom’s incentives to offer access. Furthermore, the
special obligations will furthermore constrain the company’s latitude and lay down a
framework for the results a provider can achieve in negotiations with NetCom. [Exempt from
public disclosure:
XXXXXXXXXXXXXXXXXX] can be viewed as an expression of this.
333. On the basis of the discussion above, NPT believes there seems to be an asymmetry in
the relative strength between the negotiating parties that one does not expect to find in a
59
market marked by competition. Furthermore, NPT believes that the discussion provides
indications that Tele2 was unable to demonstrate much buyer power in negotiations on access
agreements. Clauses that entail long tie-up periods support such a view. It also seems
reasonable to assume that obligations on Telenor will be suited to affecting NetCom’s
incentives to enter into access agreements. In NPT’s opinion, these factors will weaken the
entry into an agreement between Tele2 and NetCom as an indicator of that the relevant
market tends toward competition.
334. Even though NetCom is an unregulated operator, based on the above NPT believes
that the circumstances around the access agreement NetCom has signed with Tele2 are
different from the situation the Commission described when it emphasised signing access
agreements on commercial conditions.
4.2.9.2 TDC and Ventelo’s MVNO agreements
335. NPT has allowed new providers additional profits from termination through
asymmetric regulation of termination charges to help such providers gain a foothold in the
market and contribute to competition. For this reason both TDC and Ventelo have been
exempt from obligations for efficient termination charges ever since they became established
as MVNOs.
XXXXXXXXXXXXXXXXXXXXXXX]
XXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX] It
therefore appears as though the companies have been presented with choices where both
alternatives have been unilaterally presented by Telenor. In such a case, asymmetric access to
information will make it difficult for buyers of access to assess whether they actually achieve
the purpose behind the clause. In NPT’s view, these factors reduce the importance of the
price clause as an expression of the dynamics between the parties.
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX] A low degree
of buyer power is an indicator of a lack of competition. NPT therefore believes that the
access agreements between Telenor and TDC and Ventelo are not an indicator that the
market is tending toward competition.
60
4.2.9.3 Network Norway’s agreements on national roaming
340. Network Norway entered into a national roaming agreement with NetCom in 2006.
Access to NetCom’s 3G network was not part of the agreement and does not appear to be
well suited to the market development in question. NPT also believes it is doubtful whether
NetCom would at all have entered into an agreement with Network Norway unless Telenor
had already had an obligation of access imposed on it. Econ Pöyry writes the following in the
report Mobil roaming og investeringsinsentiver (Mobile Roaming and Investment
Incentives)1:
“NetCom has voluntarily entered into a roaming agreement with Network Norway, but
would hardly have done so if the authorities had not already issued a directive to
Telenor.”
341. In the autumn of 2006 Network Norway entered into negotiations on national roaming
with Telenor. However, Network Norway’s request for access to national roaming was
refused. In an e-mail on 16 April 2007 Telenor said that the refusal was commercially based.
On 17 April 2007 Network Norway filed a complaint about Telenor with NPT, demanding
that the company give a reason for the refusal of the request and that NPT should order
Telenor to comply with it. In response Telenor said that it was not obliged to meet Network
Norway’s request because the company already had virtually similar coverage through its
roaming agreement with NetCom.
342. Telenor said that it did not want to sign an agreement with Network Norway as long as
the company also had an agreement with NetCom because in Telenor’s opinion Network
Norway would have then gained better coverage than the network owners had separately.
However, Telenor was aware that Network Norway could not offer subscriptions based on
roaming on both networks with the same SIM card. Network Norway’s customers would
accordingly not benefit from both Telenor’s and NetCom’s coverage with the same SIM card.
343. NPT issued a decision on 20 September 2007 in which Telenor was required to give
Network Norway access to national roaming. In the decision NPT established that Telenor
had refused Network Norway’s request for access in contravention with Section 4-1 of the
Electronic Communications Act and NPT’s decision of 23 January 2006. It was furthermore
emphasised in the decision that Telenor could not demand that the company could not
simultaneously have a national roaming agreement with NetCom.
344. Telenor appealed the decision to the Ministry of Transport and Communications.
While the appeal was being heard, Network Norway cancelled its agreement with NetCom.
Hence, the basis for Telenor’s refusal to enter into an agreement with Network Norway was
no longer present. The company then entered into a national roaming agreement with
Telenor. The Ministry was then of the opinion that the legal basis for instructing Telenor to
comply with the request had lapsed and therefore set aside NPT’s decision without
substantive discussion.
XXXXXXXXXXXXXXXXXXXX]
67
Econ Pöyry: Report 2008-024 Mobil roaming og investeringsinsentiver (Mobile Roaming and Investment
Incentives), page 2
61
346. In NPT’s opinion, the prehistory of the signing of the agreement on national roaming
between Telenor and Network Norway provides clear indications that regulatory pressure
was important for the entry into the agreement.
347. Even though a national roaming agreement was entered into between the parties, there
is reason in NPT’s opinion to emphasise that for a period Telenor actually exercised denial of
access vis-à-vis Network Norway. There is furthermore reason to emphasise that Telenor
maintained the denial of access after NPT in decisions said that it was conflict with the
current decision in market 15. The agreement was signed because Network Norway cancelled
the agreement with NetCom, not that Telenor complied with the Authority’s clear standpoint.
In NPT’s opinion, the agreement on national roaming between Network Norway and Telenor
supports a view of a limited degree of buyer power and strong asymmetry in the relative
strength between the agreement parties.
348. Telenor’s reference offer published on Telenor’s network pages does not permit the
buyer of national roaming to sign up MVNOs, but permits resale to service providers.
XXXXXXXXXXXXXXXXXXXXXX]
349. The limitation in Telenor’s reference offer on national roaming means that an
important part of the market for an MNO is shut off because an MNO with a national
roaming agreement with Telenor cannot offer MVNOs an equal value agreement compared
with MVNO agreements with NetCom or Telenor. [Exempt from public disclosure:
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
XXXXXXXXX
XXX]
352. The agreement between Telenor and Network Norway was revised on 2 September
2009. The revision involves reductions in the price of voice and that [Exempt from public
disclosure:
62
XXXXXXXXXXXXX
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX]
354. NPT believes it is reasonable to see the price reductions in context with the related
purchasing obligations. Furthermore, NPT believes that the purchasing obligations must be
assessed in light of the incentives of network owners to attempt to keep the traffic of the
buyer of access on their networks while the buyer rolls out its own mobile network. NPT’s
assessments on the incentives of network owners are elaborated on below. All in all, NPT
believes that the revised agreement does not provide clear signs of dynamics that indicate that
the market will move towards competition without regulation.
4.2.9.4 Incentives of network owners
355. The access agreements with Network Norway and Tele2 are undoubtedly of great
economic importance for Telenor and NetCom, respectively. Telenor and NetCom will thus
have incentives to keep the traffic that the buyer of access generates on their networks.
356. Since Tele2 and Network Norway are now in the process of rolling out their own
networks, it is reasonable to expect that they will move as much traffic as possible to their
own network. How quickly they will be able to achieve cost advantages from building their
own network, will inter alia depend on the traffic volume they can transfer to the new
network.
357. Telenor and NetCom on the one hand and Network Norway and Tele2 on the other
will thus have conflicting incentives. For Telenor and NetCom, volume commitments can
cover a need for predictability with respect to traffic amounts and thus revenue streams at the
wholesale level. At the same time, such obligations can be effective for limiting the
opportunities to transfer traffic to a third mobile network. As shown above the agreements in
question contain volume commitments. The sellers of access thus have both the incentive and
opportunity to include clauses on purchasing obligations in agreements on national roaming.
Buyers that have undertaken the volume obligations in question have told NPT that the
volume commitments are viewed as burdensome and highly limiting to the companies’
freedom of action. The reasonableness of volume commitments will have to rest on a uniform
assessment of many factors in the agreement. Without taking a position on the question of
reasonableness NPT believes in this context that an emphasis must be placed on that the
volume commitments are likely to limit the dynamics of the market going forward because
they primarily meet the needs of established network owners, and furthermore that these
obligations do not appear to promote the interests of providers who are to build a third mobile
network.
358. Pricing could also be important in such a context. Through pricing Telenor and
NetCom could affect the alternative cost for the operator that buys access. The two
established network owners could thus affect the profitability of competitors by building their
own network and thereby the scope of a third mobile network.
359. Even though the entire traffic volume in the longer term may be carried on an
operator’s own network at a lower cost, a new operator in the build-up phase will assess the
cost of building a large degree of infrastructure against the terms of the access agreements.
The faster Tele2 and Network Norway can transfer traffic to their own networks, the higher
63
the degree of spare capacity there will be in networks in Telenor and NetCom. Both Telenor
and NetCom can therefore have a rationale for reducing access prices in this period to secure
traffic that alternatively could have been transferred to Mobile Norway’s network. As long as
the networks of both providers are already designed so that they also can handle a significant
demand at the wholesale level, the costs to meet this demand are very low.
360. The results of the LRIC model show that the underlying costs of producing voice,
SMS and data on Telenor’s and NetCom’s networks are considerably below today’s access
prices. In isolation, this can indicate that the established network owners have significant
latitude in that they can reduce access prices down to a price level where the services cover
on average the network owner’s marginal costs and the relevant share of overhead costs. The
fact that both Telenor and NetCom have such latitude does not mean that the companies will
be coordinated with regard to pricing.
361. Such latitude provides an opportunity to price some of the services in the access
agreement strategically, including reducing access prices later than would have been the case
in a situation of effective competition. Strategic pricing of this type would be likely to
influence the contenders’ margins in the retail market. NPT believes the established network
owners will have incentives to make such strategic assessments of access prices in
negotiations with buyers of access. Moreover, NPT believes that expectations regarding the
rollout of a third mobile network could bolster the incentives for strategic pricing.
362. Above, NPT said that it is of great economic importance to Telenor and NetCom to
have access agreements with Network Norway and Tele2, respectively. The latitude with
respect to the determination of prices in the access agreements may result in different
treatment of the access methods at different levels. It seems reasonable to assume that
operators at a higher level in the investment ladder are better equipped to exercise
competitive pressure on the established network owners in the retail market. The
Commission68 also seems to emphasise that the incentives of network owners to provide
access may vary depending on the competitive pressure the access buyer can be considered to
represent to the network owner’s own retail business. The established network owners may
thus have incentives to price access at different levels differently. The description of the onnet discounts in section 4.2.7 on product differentiation may, in NPT’s vision be an
expression that such strategic pricing is also possible. Such a form of strategic pricing can
adversely impact competition in the wholesale market in the longer term. Firstly, such pricing
reduces the ability buyers of access have to offer services in the retail market that is
perceived as attractive. Second, such pricing can help to increase price competition in the
retail market in the short term. If the access terms relatively speaking give buyers of access at
higher levels reduced preconditions for meeting the price competition, this will likely weaken
their competitiveness. A short-term increase in the intensity of competition in the retail
market will thus be able to reduce the scope for infrastructure-based competition in the long
term.
363. As mentioned above, the establishment of a third network in Norway is a
telecommunications policy objective. The public processes and constraints related to the
regulation of mobile markets are increasing the established network owners’ insight into the
progression of the degree of coverage and rollout rate of the third network operator. In NPT’s
opinion, the insight could help to strengthen the opportunities for strategic pricing. Telenor
and NetCom would probably have limited incentives to reduce the access prices to secure the
traffic if a new network operator had decided to build a larger network and at a faster pace
68
Cf. Explanatory Note to the Commission’s revised recommendation on relevant markets, page 45.
64
than is the case for Mobile Norway. In such a case the incentives to retain this operator
through an agreement on national roaming would probably be very limited in time.
364. Lock-in period clauses and volume commitments in signed agreements described
above, seem to make it very unlikely that [Exempt from public disclosure:
XXXX]
365. Based on the above NPT believes that Telenor and NetCom may have incentives to
undertake reductions in access charges. In NPT’s view, this should be seen in light of the fact
that the two established network owners have incentives for strategic pricing. The motivation
of price cuts can thus be attributed to factors other competition to attract buyers of access.
Seen in light of network owner incentives, NPT believes it is doubtful to expect price
reductions that contribute to sustainable infrastructure-based competition.
366. The agreement between Telenor and Network Norway extends beyond the period that
is the basis for this analysis. The impact this is likely to have must thus be assessed. As noted
in the analysis of competition issues NPT believes that behaviour that has the same effect as a
denial of access is a key competitive issue in the relevant market. NPT therefore does not
expect that the two network owners will deny access to their networks as such. On the other
hand, competition problems are related to a greater extent to the conditions such access will
be offered. In light of this NPT believes it would not be essential for there to be access
agreements that extend beyond the time horizon of this analysis. NPT furthermore said that
the length of the agreements must be viewed in light of other terms in the agreements. Long
contract periods in combination with volume commitments seem to protect the interests of
the seller more than the buyer. In NPT’s opinion, this is especially applicable to agreements
with buyers that are to build their own mobile network.
4.2.9.5 Summary of market behaviour and incentives
367. Several agreements on access to mobile networks in the Norwegian market have been
signed since NPT’s decision in market 15. In isolation, it may indicate that the market tends
towards competition. In assessing the significance that can be accorded to the agreements as
an indicator that the market is tending towards the competition, it will be relevant to consider
that the access agreements have been entered into under a regime of access obligations on
providers with significant market power.
368. Buyers of access products in the Norwegian mobile market have clearly expressed to
NPT that they do not feel that there is battle between the established network operators to
attract customers at the wholesale level. Conversely, the sellers of the relevant accesses
believe that they have strong incentives to provide access as this will generate traffic and thus
revenues in their networks.
369. In NPT’s opinion several clauses in the access agreements give indications of
asymmetrical relative strength between buyers of access and the established network owners.
NPT believes that this, together with other factors related to the entry into the agreements,
indicates that buyers of access can exercise buying power to a very limited extent. NPT
believes the low level of purchasing power is a situation that weakens the importance of the
signed agreements as an indicator that the market is moving towards effective competition.
370. Network owners have in NPT’s opinion incentives and opportunities for strategic
pricing, particularly given the circumstances surrounding the development of the third mobile
network in Norway. Seen in the context of opportunities for product differentiation through
65
on-net-based products in the retail market, see section 4.2.7 and 4.2.8, this provides the
established network owners the opportunity to position themselves in a manner that is likely
to weaken the competitiveness of buyers of access.
371. In a phase where Mobile Norway rolls out networks, both Telenor and NetCom have
incentives to keep the traffic generated through the access agreements with Network Norway
and Tele2. LRIC modelling has shown that both providers have considerable freedom of
action with regard to strategic pricing. Telenor and NetCom will on this basis for a limited
period have incentives to use the latitude for strategic pricing to keep traffic as long as
possible. The discussion above shows that it is likely that the lock-in periods and volume
commitments will have a restrictive effect on competition for the biggest buyers of access in
the short to medium term. Taking these circumstances into consideration, NPT believes it is
doubtful whether price reductions can be expected as the basis for a development towards
sustainable infrastructure-based competition.
372. On the basis of assessments NPT believes that it is very uncertain whether access
agreements will be signed on sufficiently good terms within the relevant time frame, if
regulation is removed.
4.2.10 Technological development and innovation
373. Technological advantage could pose a competitive advantage for existing operators
and a barrier to entry to new ones, such as through a high degree of product differentiation or
lower production costs. Technological development may, on the other hand, increase
innovation in a market, which in turn may affect potential competition in the market.
Technological development can thus help to weaken the established operators’ position in the
market and reduce entry barriers to new providers. In markets with a high degree of
innovation the opportunity to exercise market power will therefore frequently be more
limited than in markets with little innovation. The European Commission writes in
Explanatory Note69:
”Market dynamics may also be changed by technological developments or by the
convergence of products and markets. Innovation-driven markets characterised by
ongoing technological progress may indeed tend towards effective competition.”
374. Both Telenor’s and NetCom’s mobile network are built on open international
standards. GSM technology can be characterised as mature, while UMTS technology is
relatively young with opportunities for further innovation. Telenor and NetCom completed
upgrading their UMTS base stations to HSDPA, so-called turbo 3G, in the autumn of 2008.
375. In November 2007, NetCom and Telenor allocated frequency resources that are
suitable for development of LTE (Long Term Evolution) networks. When the frequency
bands eventually become technology neutral, LTE networks could be rolled out in other
frequency bands too. Telenor has started to build LTE test networks, and has hinted that the
company will offer commercial services on such a network in 2012. NetCom has already
launched an LTE network covering Oslo, and has signalled that the network will be expanded
slightly in 2010. LTE networks provide better utilisation of frequency resources and enable
data transfer speeds on mobile networks that are at least on a par with today’s DSL speeds,
which means a dramatic increase compared to today. Another advantage of LTE technology
is lower response time.
376. Technological development in the form of the emergence of cheaper and more
efficient mobile technology can provide new operators an opportunity to build less expensive
69
Explanatory Note side 10
66
networks than the existing operators could at the time (all else equal). The trend of falling
prices for radio infrastructure and capacity increases in the networks implies more costeffective production. Technological development can thus help to reduce entry barriers in the
market and facilitate new dynamics.
377. Data traffic on the mobile networks is expected to grow rapidly as the new technology
is adopted. This could provide growth opportunities for more providers than those already
well established in the market, cf. the chapter on barriers to expansion. For a provider like
Hi3G, increased demand for data transmission over mobile networks and falling equipment
prices make it easier to enter the market. On the other hand, rapid growth is also a factor that
can help to cement the existing market structure, cf. the assessments in section 4.2.8.
378. To achieve good coverage of LTE in the most cost-effective manner, it will be
important for providers to use the 900 band for LTE technology. It is expected that the
authorities’ work with reallocation of frequencies will be completed in 2010. As referred to
in section 4.1.2, there are no frequencies available in the 900 band. The ability to offer LTE
in this band will benefit those who already have such frequencies. The capacity to offer LTE
in the 900 band should also be considered in the context of how the capacity of the band is
distributed. Currently the two established network owners have relatively much greater
frequency resources in the 900 band than Mobile Norway, which is building a third mobile
network.
379. The Ministry of Transport and Communications has determined that the digital
dividend should be used for mobile broadband. Such use of these frequencies could lower the
costs associated with mobile broadband significantly. The selection of criteria for the
allocation and how it should take place, have not been decided yet. Thus, it is uncertain what
impact the decision to use the digital dividend for mobile broadband will have on the
competitive situation in the relevant market.
380. To enable the use of the digital dividend to reduce the barriers to entry, it must be
possible to provide services to end users of those frequencies. The distribution of terminals
that support the new technology will likely be limited for a period ahead, and can thus help to
reduce the market dynamics that would otherwise be a result of new entrants.
381. Base stations based on LTE will largely be placed on the same sites as already existing
base stations. Established providers will therefore have the advantage of already established
sites.
382. In summary, the mobile market is characterised by rapid technological development.
NPT believes that the rapid development to some extent will reduce the impact of any
technological advantage Telenor and NetCom have. Rapid development provides a need for
an ongoing rollout of new infrastructure, and prices for new infrastructure are falling. At the
same time, there has been an increasing demand for transmission of data traffic on mobile
networks at the end user level. These factors suggest that the entry barriers may be lower.
383. On the other hand, existing providers have an advantage in that they have already
established the locations and associated infrastructure. Nor are resources available in the 900
band, and most of the resources in this band are used by the two established network owners.
On this basis, existing providers who already possess these frequencies will have an
advantage by rolling out new technologies such as LTE. Providers who establish themselves
with the use of new technology will probably also depend on an agreement on national
roaming in the development phase. In NPT’s view, this is a matter that could reduce the
importance of such an establishment for market dynamics.
67
384. It is on this basis uncertain how the technological developments, including the rollout
of LTE networks, will eventually affect the market dynamics. All in all, NPT nevertheless
believes that within the period this analysis covers it is unlikely that technological
developments will help to decrease the entry barriers and increase market dynamics
significantly.
4.2.11 Potential competition
385. Potential competition relates to whether the operators not in the current market can
help to create market dynamics within the forthcoming regulatory period. Potential
competition will inter alia be able to discipline pricing in the retail market, because high
prices make entering the market more attractive.
386. On the basis of factors such as control over infrastructure, sunk costs and economies
of scale, NPT concluded in section 4.1.3 that there are high structural barriers to entry in the
market for access and origination on mobile networks. Regulatory issues were considered to
constitute entry barriers to a lesser degree.
387. Below, NPT considers to what extent specific operators who are not already
established in the market for access and origination on mobile networks can help to create
market dynamics and thereby whether potential competition makes the market tend towards
effective competition without regulation.
388. Today, Tele2 is an MVNO with NetCom, while the company is building as previously
mentioned a mobile network together with Network Norway. [Exempt from public
disclosure:
XXXX] Tele2 can thus be viewed as a new network owner, but will depend on national
roaming during the entire period. During the entire period Tele2 will thus depend on being
able to achieve access price and agreement terms that are such that they can compete with the
other providers.
389. On 2 September 2003 Hi3G received permission to build UMTS networks in Norway.
The company has not yet started the rollout, but has received an extension until March 2012
from the Ministry of Transport and Communications to meet rollout requirements. At the
same time the Ministry of Transport and Communications upped the coverage requirements
from 30% to 40% of the population. Hi3G will also depend on national roaming during the
rollout phase. The company has also stressed that wholesale prices for data traffic will be
particularly important.
390. NPT believes that Hi3G will establish itself as a network owner in Norway even
though it has been quite a long time since the company was awarded a 3G license without the
company starting to build its own network. The fact that Hi3G has paid the licence-related
fees the entire time, plus the company’s own statements, supports such an assumption.
Through various media, the company has also stated that it now believes it is in a position to
meet the rollout requirements. NPT has however no knowledge that this has materialised into
concrete business plans.
391. Provided that Hi3G becomes established in Norway, it seems still uncertain whether
the establishment will constitute any major potential threat to the operators on the supply side
of the market for access and origination on mobile networks. NPT refers to the fact that the
network the company is to build to comply with the requirements of the license is relatively
68
modest, and the company’s statements that during the entire period covered by this market
analysis they will depend on buying access from one of the established network owners. NPT
furthermore believes that the limitations on the agreement between Telenor and Network
Norway with reference [Exempt from public disclosure: XXXXXXXXXXXXXXXX] is a
factor that indicates that such establishment will probably not constitute any major threat in
the wholesale market for the established network owners. The company’s establishment can
still have an impact on the competitive situation in this market in that a new buyer of access
can arise. However, this effect is very uncertain and will in any case not be relevant during
the assessment of potential competition.
392. Ice.net offers only data traffic on mobile networks. A buyer of access in the relevant
market will not be able to offer data services from Ice.net and services from other network
owners on the same SIM card. Whether the company can help create market dynamics within
the time frame of the analysis will largely depend on whether handsets compatible with
GSM/UMTS networks will be offered. If so, their products could be real substitutes to the
products offered by Telenor and NetCom in the wholesale market. NPT does not have
information that suggests that this will take place during the time horizon of the analysis.
393. NPT does not have information about, nor sees it as likely, that operators other than
the above are likely to establish themselves in the market for access and origination of calls
on mobile networks within the time horizon of the analysis.
394. Potential competition may also come from new competing technology such as mobile
broadband telephony, see section 2.2.3. However, NPT cannot see that other technologies
will pose significant competitive pressures within the time horizon of the analysis.
395. Provided that Tele2 and Hi3G establish themselves as providers on the network level,
they will both depend on national roaming within the time horizon of the analysis. A key
question is therefore whether it is likely that they would obtain access terms that could create
sufficient dynamism in the market. As shown in section 4.2.9, NPT believes there are several
factors that suggest that the companies will be able to achieve such terms without ex ante
regulation.
396. In summary, NPT believes that it is uncertain whether other potential newcomers
than Tele2 will establish themselves in the relevant market within the time horizon of the
analysis. Hi3G is required to build a UMTS network with 40% coverage by March 2012, but
has not started the rollout according to NPT’s knowledge. In NPT’s assessment, all potential
providers depend on access from existing MNOs with nationwide networks to establish a real
competitive offer at the wholesale level. NPT believes that this dependence could reduce the
disciplining effect of the establishment on existing operators. For this reason NPT believes
that a high degree of uncertainty is connected to whether potential competition can create
sufficient market dynamics within the time horizon of the analysis. There is thus not
sufficient evidence that potential competition provides a basis for concluding that the market
will move towards effective competition without regulation.
4.2.12 Conclusion on the second criterion
397. Under the second criterion NPT examined whether the market has characteristics that
do not make it tend towards effective competition. In the assessment NPT analysed factors in
the period since the previous market analysis and market dynamics in the period, and the
indications that provides for the market going forward.
398. The Norwegian mobile market differs from markets in most other European countries
in that we still have only two providers with nationwide networks. Other providers will
69
depend on national roaming or other access methods in the period in which the analysis is
based.
399. Network Norway’s establishment in 2007 as a provider with a national roaming
agreement constitutes the largest structural change in the market for access and origination on
mobile networks since the previous analysis. Because of Network Norway’s growth in
market shares and development of infrastructure along with Tele2, NPT believes that in the
longer term Network Norway can contribute to creating sustainable competition in the
relevant market. The company is still far smaller for the two established providers, measured
in number of customers, calls and revenues. In a mature market like Norway’s, it is both
resource and time-consuming to win customers. NPT expects for this reason no dramatic
changes in market shares in the period that has been assessed.
400. In addition, since the previous analysis, two new MVNO agreements70 have been
entered into. However, the agreement between Mundio Mobile and Telenor ended in
December 2009 and has to NPT’s knowledge not been replaced by any new agreement.
401. PT believes the agreements reached cannot be taken as evidence that the market is
tending towards competition. In NPT’s view, there are several factors, including the terms of
the agreements, indicating a small degree of buyer power and competition at the wholesale
level. The agreements were also concluded in a market that was regulated and where Telenor
was required to provide access. NPT believes there are indications that regulation has been of
importance to the entry into the agreements.
402. A characteristic feature of the Norwegian market is that there are large differences in
the relative strengths of the established providers with nationwide networks and other
providers. This is reflected in asymmetrical access to information, opportunities for product
differentiation at the retail and wholesale levels and the various prerequisites for positioning
oneself in parts of the market that are growing. As stated above the two existing networks
have no constraints on capacity. This factor along with transparency with regard to the rollout
of the third network permits strategic pricing of access to the two established mobile
networks. Dependency on access to the established providers’ infrastructure is a factor that
reduces the disciplinary effect the newly established providers could have had in the market.
The dynamics of the market going forward will largely depend on the access terms of the two
established network owners.
403. NPT furthermore believes that the sector-specific regulation imposed on Telenor and
the threat of regulatory intervention seems to have had a disciplining effect on Telenor and to
some extent NetCom when it comes to prices and terms for access.
404. For this reason NPT believes that there are no clear signs of dynamism within the
timeframe of the analysis, indicating that effective competition will eventually be achieved.
Sufficient dynamics consequently do not exist behind the entry barriers. Assuming that the
sector-specific pre-regulation is removed the market is not tending toward effective
competition. The second criterion has therefore been met.
4.3
Third criterion: General competition law is insufficient
4.3.1 General comments on the third criterion
405. The third and final criterion that must be considered is whether general competition
law alone is sufficient for remedying market failures in the market for access and origination
70
Tele2 switched its host operator for MVNO access from Telenor to NetCom in 2008.
70
on mobile networks. The assessment is based on existing and potential competition problems.
Sector-specific regulation can only be applied when general competition law alone is not
sufficient for averting competition problems in the market71. An assessment must thus be
made of the relative effectiveness between the two regimes, respectively sector-specific ex
ante regulation pursuant to the Electronic Communications Act and monitoring of violations
of the provisions of the competition legislation in the wake of any violation.
406. The Recommendation’s Explanatory Note72 elaborates on relevant factors when
considering whether general competition law is sufficient for averting the market failure in
question. Reference is made to two different situations where the competition legislation
would not be sufficient. One situation is when there is a need for market obligations for
which there is no authority to impose pursuant to the competition legislation. The second is
when competition legislation has available means, but the instruments are not considered to
be sufficiently effective.
407. The assessment of whether available instruments pursuant to the competition
legislation are sufficiently effective, should, according to the Recommendation and
Explanatory Note, be based on an appropriateness assessment. Relevant factors that suggest
that the competition legislation will not be sufficiently effective include:
there is a need for comprehensive/detailed regulation,
there is a need for frequent or rapid regulatory intervention,
it is particularly important to create regulatory predictability in the
market.
408. The fact that application of ex ante regulation is less resource-intensive than
intervention pursuant to the competition legislation, is in itself not a relevant factor.73
4.3.2 Sector-specific regulation and competition law
409. The sector-specific regulation is based on any findings of a provider or providers with
significant market power in the relevant market. The assessments of significant market power
are based on competition law methodology and the competition law concept of “dominant
position”. The authority to intervene vis-à-vis dominant operators under the competition
legislation is found in Section 11 of the Competition Act74. This provision could be
appropriate for remedying competition problems related to abuse of dominance in the market
for access and origination on mobile networks.
410. Section 11 of the Competition Act prohibits one or more undertakings from unduly
exploiting their dominant position. Consequently, a basic condition for applying the
provision is that the undertaking has a dominant position. Dominant position is used
synonymously with significant market power75 and implies that the firm can act
independently of its competitors, customers and end users in the relevant market.
411. The two main categories of improper conduct affected by the ban are exploitative or
exclusionary behaviour. In this discussion it is most appropriate to look to the prohibition of
71
Cf. Recommendation no. 2 (c).
P. 10
73
Cf. The Recommendation’s Explanatory Note, p. 11
74
Section 11 of the Competition Act is patterned on Article 82 of the EC Treaty and Article 54 of the EEA
Agreement. It follows from the preparatory works of the Competition Act that EU/EEA practice connected with
these provisions will weigh heavily for the interpretation and further determination of the contents of Section 11
of the Competition Act.
75
See Chapter 5 on assessing undertakings with significant market power
72
71
exclusionary behaviour in the form of refusing to deal. A dominant operator’s refusal to grant
competitors access to their own mobile network is behaviour that in some cases can be
covered by Section 11 of the Competition Act. Unreasonable prices or unreasonable
conditions relating to access can also be regarded as a denial of access and a refusal to deal
covered by Section 11. In its guidance paper76 the Commission stated that margin squeeze
can be a form of denial of access.
412. In accordance with the practice of the European Court of Justice and Commission77
three criteria must be met for denial of access to be considered abuse.78 First, it is required
that the refusal to supply relates to a product or service that is absolutely necessary to be able
to compete in the retail market. Secondly, it is a requirement that refusal to supply leads to
elimination of effective competition in the retail market. Third, the refusal to supply must
harm consumer welfare.
413. As mentioned the Commission has stated that the margin squeeze can be a form of
denial of access.79 Margin squeeze normally includes cases where an undertaking sells raw
materials or services in an upstream market and also is active in the downstream market for
any follow-up products or services. Abuse could consist of the dominant operator pricing
access to its network high, while the price of mobile telephony in the retail market is priced
low, so the margin between the two prices is negative or too low to operate in the
downstream market.
414. The Competition Authority may order an undertaking to cease behaviour in violation
of Section 11, see Section 12 of the Competition Act. Under the same provision the
Norwegian Competition Authority can impose any measures necessary to bring the
infringement to an end.
415. The Recommendation’s Explanatory Note80 states that sector-specific ex ante
regulation and general competition legislation are complementary tools for achieving the goal
of sustainable competition in the relevant market.
416. Intervention pursuant to the competition legislation presupposes the existence of abuse
of a dominant position. Directives pursuant to the competition legislation are thus contingent
on the occurrence of behaviour in violation of Section 11 in the market. The sector-specific
regulation makes no requirement that the undertaking has demonstrated such behaviour in
advance of the imposition of orders/bans. On this basis, the competition legislation cannot be
used in advance to impose obligations or rules of action to remedy potential competition
problems. In contrast, sector-specific regulation provides opportunities to impose ex ante
regulation designed to also mitigate potential competition problems. Sector-specific
regulation will thus increasingly be suitable for facilitating the achievement of competition in
a market with competition problems of a structural nature.
417. Sector-specific regulation is based on pre-defined markets with the possibility of
defining different markets on a national basis. The prohibitory provisions of the competition
legislation will apply in the ecom sector as such and may be applicable in all electronic
communications markets. In assessing the need for ex ante regulation it will not be sufficient
76
See “Guidance on the Commission’s Enforcement Priorities in Applying Article 82 EC Treaty to Abusive
Exclusionary Conduct by Dominant Undertakings”, paragraph 79.
77
See the Commission’s “Guidance on the Commission’s Enforcement Priorities in Applying Article 82 EC
Treaty to Abusive Exclusionary Conduct by Dominant Undertakings”, paragraph 80.
78
Abuse in violation of the prohibition in Article 82 of the EC Treaty.
79
See “Guidance on the Commission’s Enforcement Priorities in Applying Article 82 EC Treaty to Abusive
Exclusionary Conduct by Dominant Undertakings”, paragraph 79.
80
p. 7
72
that the competition legislation may avert one or more specific competition problems in the
market. The crucial consideration for the assessment is whether the competition legislation is
likely to remedy the competition issues that may arise in the relevant market to the extent that
the objective of sector-specific regulation is achieved.
4.3.3 Assessment of whether general competition law is sufficiently effective
418. The objective of regulation in the market for access and call origination on mobile
networks is to achieve sustainable competition. The discussion under the first two criteria in
sections 4.1 and 4.2 shows in NPT’s opinion that the objective will not be achieved within
the present time horizon of the analysis. The question discussed in this section is whether the
objective of sustainable competition in the market for access and origination on mobile
networks can be achieved through competition law alone, or if there is a need for
complementary sector-specific regulation.
419. Only two operators have mobile networks with national coverage in the Norwegian
mobile market. In most countries in the EEA, there are three or more providers with their
own mobile network with sufficient coverage.
420. In its appeal decision of 19 May 200981 in connection with the regulation of former
market 16, the Ministry of Transport and Communications states that a third operator is
necessary to achieve sustainable competition in the market for access and origination on
mobile networks:
“The Ministry of Transport and Communications‟ decision is necessary to achieve
the telecommunications policy objective of sustainable competition through the
establishment of a third competitive mobile network.”
421. In connection with the revision of the recommendation the Commission82 stated that
network owners will have incentives to provide access on a commercial basis when the
market structure is characterised by several network owners and available capacity. The
number of participants will thus be able to affect the incentives of the established operators.
The more network operators there are with spare capacity, the stronger the incentives will be
to provide access to infrastructure in competition with other operators. Conversely, a market
structure with only two network owners could relatively speaking provide greater incentive to
deny access to infrastructure or act in a way that has the same effect.
422. The analysis of the first and second criteria shows that there are structural problems in
the market for access and origination on mobile networks. As a general point, the competition
legislation will be less suited than sector-specific regulation to achieve competition in
markets that are characterised by structural problems because the obligations referred to can
only be imposed ex post.
423. In NPT’s opinion, the structural problems in the market could potentially cause in the
absence of ex ante regulation problems related to the terms offered for access to necessary
infrastructure. The Authority therefore believes that denial of access and behaviour that has
the same effect as denial of access are key competition problems in the market for access and
origination on mobile networks.
81
Cf. point 3.12.4 in the Ministry of Transport and Communications’ decision of 19 May 2009 subsequent to
Tele2’s appeal against NPT’s 17 November 2008 decision in market 16.
82
In connection with the three-criteria test in the market for access and origination on mobile networks, see
Explanatory Note p. 45
73
424. Denial of access and behaviour with similar effect may be covered by Section 11 of
the Competition Act. In assessing whether there is a need for complementary sector-specific
regulation of the relevant market, it will be relevant whether comprehensive and detailed
regulation is necessary, whether there is a great need for rapid intervention and whether
predictability is of great importance.
425. In NPT’s opinion, the dominant operator’s performance in the market, see section
4.2.9 on market behaviour and incentives, shows that there is a need for ex ante imposition of
detailed obligations. NPT therefore believes the opportunity for special adaptation of
obligation means that sector-specific regulation is better suited and necessary to achieve the
desired result of sustainable competition.
426. Even though general competition law authorises a relevant directive, it will be
necessary to assess whether the competition legislation can adequately and effectively
address the potential or actual competition problem. The need for comprehensive regulation
in the form of for example detailed rules for cost accounting, cost reviews and audits
including technical parameters, can in this perspective lead to the need for ex ante regulation.
427. In the market for access and origination on mobile networks it has been considered
necessary to impose accounting separation to ensure compliance with non-discriminatory
prices. Similar obligations may be imposed under the competition legislation. However, NPT
believes the prerequisites for follow-up of, and thus that the obligation should be effective, is
much greater under an ex ante regime. NPT’s experience with such an obligation is that it
will take time to establish best practices for what should be reported and how reporting
should take place. It is therefore of great importance to have established procedures and
systems in advance of a specific case, such as is possible under ex ante regulation. The
imposition of accounting separation under ex ante regulation will also make it possible to
follow developments and analyse trends over a longer period because one is not required to
obtain reporting when a specific case arises. NPT thus believes accounting separation is an
example of a relevant comprehensive and detailed obligation that functions better under
sector-specific regulation.
428. The mobile markets are also relatively complicated and complex markets characterised
by rapid technological development. Follow-up of such markets is made more efficient with
in-depth knowledge with respect to technology and market trends. NPT believes that market
conditions in the relevant market sector suggest that specialist skills may be needed to
adequately and effectively protect the considerations behind regulation.
429. Before the competition authorities can establish abuse of dominant position, they must
as mentioned define the relevant market and ascertain whether there is a provider with a
dominant position. An assessment of whether a particular behaviour is actually abuse of
dominant position, will thus be extensive and time-consuming. Under the sector-specific
regulation, the market is defined and any designation of an undertaking with significant
market power is done in advance. The prerequisites for rapid and therefore effective
intervention are thus far greater in pursuance of ecom legislation rather than competition
legislation.
430. Section 12 fourth paragraph of the Competition Act authorises making temporary
decisions to bring the infringement of Section 11 of the Act to an end. The provision has a
narrow scope and is rarely used in Community law and in Norway. The opportunity of the
competition authorities to make a temporary decision in pursuance of the provision does not
change NPT’s assessment that the preconditions for rapid and effective intervention are better
under the Electronic Communications Act than under the Competition Act.
74
431. The assessment of whether general competition law will be sufficient to avert the
consequences of denial of access must in NPT’s opinion be considered in light of the damage
potential of such behaviour. In NPT’s opinion, denial of access in the relevant market will be
likely to damage the ability to achieve sustainable infrastructure-based competition in the
market for access and origination on mobile networks. Among other things, the development
of a third mobile network, in NPT’s assessment, is now in a vulnerable and critical phase.
Developments in mobile broadband also show that there is a risk that this part of the market
will be cemented if the two major network operators achieve very significant benefits as socalled “first movers”. The large damage potential is a relationship that increases the
importance of being able to intervene quickly and effectively.
432. Ex ante regulation pursuant to the Electronic Communications Act will also facilitate
greater predictability for market participants. Since the duties and rights are specified in
advance, operators will gain a better position to make rational decisions on market entry,
adaptation and investment.
433. For new network operators it will be very important to have predictable access to
national roaming. In NPT’s view, predictability is essential for market entry to take place and
in an early phase of rollout. If access to national roaming is prevented or unavailable, such
operators will incur losses in the form of increased costs and lost customers. In light of the
fact that effective competition will not exist in the relevant market in the period in the
analysis covers, NPT believes it is imperative that market participants, especially new
network operators, are given the regulatory predictability that is made possible through ex
ante regulation. In NPT’s view, this particular need for predictability is not covered by
general competition law alone.
4.3.4 Conclusion on the third criterion
434. Access terms that the established network operators give to competitors who do not
have, or to a limited extent have their own infrastructure, will be crucial for developments in
the market for access and origination on mobile networks. To ensure that the market has the
necessary dynamic that eventually will create sustainable competition, NPT believes there is
a need for such extensive and detailed regulation, as well as the opportunity for rapid
intervention and especially predictability, which are created by ex ante regulation.
435. PT believes on this basis that competition law alone will not be sufficient to ensure
achievement of the objectives behind the sector-specific regulation of the relevant market.
NPT therefore concludes that there is a need for complementary sector-specific regulation in
the market for access and origination on mobile networks. The third and last criteria for
continued ex ante regulation of this market is therefore considered to be met.
4.4
Conclusion on the three-criteria test
436. In Chapter 4 NPT demonstrated that high and non-transitory barriers exist in the
relevant market, that the market is not tending towards sustained competition without
regulation and that general competition law is insufficient. The three criteria for ex ante
regulation are therefore met.
75
5
Analysis of the market – single dominance
5.1 Introduction
437. In the analysis of 23 January 2006, NPT concluded that Telenor had significant market
power in the relevant market. NPT believed that Telenor alone had economic strength in the
relevant market which could enable the company, to largely act independently of NetCom and
other competitors, customers and consumers. A very high and relatively stable market share at
the network and retail levels, considerable entry barriers at the network level and the Telenor
group’s strong position in most markets for electronic communication in Norway were
particularly weighty factors in this assessment.
438. In this market analysis, NPT is carrying out a new assessment of whether there is an
undertaking with significant market power in the relevant market. As in the previous analysis,
the assessment of significant market power is based on the criteria given in the Guidelines and
NPT’s methodology document. A number of the criteria for assessing single dominance
correspond to the criteria applied in the three-criteria test in chapter 4. Criteria that are also
applied in the three-criteria test are considered in this chapter with a view to ascertaining
whether any undertaking has significant market power.
439. Section 19 of the ESA Guidelines:
“In respect of each of these relevant markets, NRAs will assess whether the
competition is effective. A finding that effective competition exists on a relevant
market is equivalent to a finding that no operator enjoys a single or joint dominant
position on that market…. When NRAs conclude that a relevant market is not
effectively competitive, they will designate undertakings with SMP on that
market….”
440. The preparatory work on the Electronic Communications Act also states:
“Sustainable competition is defined as a situation where no operator has significant
market power, and/or is able to exploit its position to the detriment of competition.”
441. Thus, according to the regulatory framework, there will be a necessary correlation
between the absence of effective competition in a relevant market and the existence of
significant market power.
442. Market share will be a relevant basis for assessing whether any provider has
significant market power. Even if there is a presumption of significant market power when a
company has a market share of more than 50%, a conclusion of significant market power
would have to be based on an overall discretionary assessment of numerous criteria. That the
assessment of significant market power must be made following an overall discretionary
assessment is a condition is precisely what is emphasised in the Ministry of Transport and
Communications’ decision on Telenor’s appeal against NPT’s decision of 23 January 2006 in
market 15.
443. Since Telenor was designated as an undertaking with significant market power in the
relevant market after NPT’s previous market analysis, and the company’s market share entails
a presumption that the company has significant market power, it is natural to base the
assessment of the various factors on Telenor’s position. In addition, NPT will assess whether
there is reason to believe that undertakings other than Telenor may have significant market
power.
76
444. The relevant market is a wholesale market (an “upstream market”), cf. the market
definition in chapter 2. Since all undertakings in the relevant market are vertically integrated,
competition at the retail level will, to a significant extent, reflect competition at the wholesale
level/network level. For example, increased traffic that is sold at the retail level through
internal sales will lead to increased traffic at the wholesale level/network level. The analysis
therefore includes conditions in the retail market (the “downstream market”) for mobile
services where they have a particular bearing on the assessment of whether an undertaking
has significant market power in the relevant market.
445. In the following, NPT will assess the non-cumulative criteria based on the following
structure:
1. Market share
2. Profitability
3. Entry barriers
a. Size of undertaking
b. Access to sales channels
4. Provider behaviour
a. Vertical integration
b. Horizontal integration
c. Product differentiation
d. Prices and price developments
5. Factors on the demand side
a. Customers’ access to information, switching costs and lock-in effects
b. Market power/countervailing buying power
5.2 Market share
446. High and stable market share over time may indicate significant market power. Section
76 of the ESA’s Guidelines notes that the European Commission assumes that single
dominance may normally exist among providers with more than a 40% share of the market.
ESA further states:
“According to established case-law, very large market shares - in excess of 50% are in themselves, save in exceptional circumstances, evidence of the existence of a
dominant position. An undertaking with a large market share may be presumed to
have SMP, that is, to be in a dominant position, if its market share has remained
stable over time. The fact that an undertaking with a significant position on the
market is gradually losing market share may well indicate that the market is
becoming more competitive, but it does not preclude a finding of significant market
power.”
447. Figure 10 below shows the trend in Telenor’s market share at the retail level (based on
number of subscriptions) in the past 11 years. The company’s market share has fallen during
the period, but appears to have stabilised from around 2006.
77
Figure 10: Telenor’s market share measured in number of subscriptions in the past 11 years. Source:
NPT’s ecom statistics.
448. At the end of 2009, Telenor’s market share in the retail market was approximately
53% measured in number of subscriptions, cf. section 4.2.3. During the period covered by the
current decision in market 15, Telenor’s market share had fallen by around 1 percentage
point. In the same period NetCom’s market share fell from 31% to 27% (see also Figure 2
above). Telenor’s market share has thus remained more stable than NetCom’s market share.
449. Telenor has a higher market share based on revenues than on number of subscriptions.
At the end of 2009, Telenor’s market share was almost 55% based on revenues. As can be
seen in Figure 11 below, Telenor’s market share at the retail level based on revenues has
remained virtually unchanged since 2003.
Figure 11: Telenor’s market share at the retail level in the mobile market, measured by revenues.
Source: NPT’s ecom statistics.
450. At the network level, Telenor has a [Exempt from public disclosure: XXX] market
share based on originating traffic, (including traffic originating from Network Norway’s
customers) cf. section 4.2.3. Table 4 above shows that NetCom had a 36% market share at the
wholesale level at the end of 2009, while Network Norway only had [Exempt from public
disclosure: XXX] (share of traffic originating on Network Norway’s own network). Telenor is
therefore the undertaking with the decidedly largest market share at the network level.
78
451. As previously described and justified, Telenor’s market share at the network level is
hardly expected to fall below the level for the presumption of significant market power during
the time horizon of the analysis. Despite Telenor’s market share falling somewhat, NPT
believes, in view of this, that Telenor’s market share has been persistently high. At the
wholesale level, Telenor has only one real challenger in the short to medium term, in the form
of NetCom. NPT believes that Telenor’s market share must also be viewed in light of this
circumstance, which indicates that competition may, in principle, be impaired.
452. Nor, as section 4.2.3 makes clear, does NPT believe there is reason to assume that
Telenor’s market shares in the retail market will fall below this threshold in the relevant
period, regardless of whether number of customers or share of revenues is used as a basis.
453. In summary, Telenor’s market share measured in revenues at the retail level has been
stable since the previous analysis. However, its market share has fallen somewhat in terms of
number of subscriptions at the retail level and in traffic at the network level. Nevertheless, in
both cases, the company’s market share exceed the threshold for presuming significant market
power, cf. section 76 of the Guidelines.
454. NPT believes that throughout the period covered by the analysis there will be a
presumption that Telenor has significant market power in the relevant market. The analysis of
market share thus provides a clear indication that there is no effective competition in the
relevant market and that Telenor has significant market power.
455. However, as mentioned above, a conclusion of significant market power cannot
normally be based on market share alone, but must be viewed together with other relevant
factors. In the further analysis, NPT will therefore examine whether other circumstances can
indicate that Telenor does not have significant market power in the relevant market after all.
456. The assessment of market share does not provide sufficient evidence for claiming that
undertakings other than Telenor have significant market power in the relevant market. In view
of this, the main focus in the further analysis of single dominance will be on Telenor’s
position in the relevant market.
5.3 Profitability
457. If an operator operates with prices that are significantly higher than the underlying
costs, or is able to raise prices without losing sales revenue, this is an indication that the
operator is able to act independently of competitors and customers, and thus have significant
market power. Profitability that persistently and to a large degree exceeds capital costs may
also be an indication that the operator’s prices are higher than they would be in a market with
effective competition.
458. However, high profitability can also be related to factors other than the absence of
effective competition, e.g. efficiency gains or innovation. High profitability can therefore be
linked to factors other than significant market power. Similarly, low profitability will not
preclude a provider from having significant market power.
459. Table 6 provides an overview of earnings before interest, taxes, depreciation and
amortisation (EBITDA) and the EBITDA margin for Telenor, NetCom, Tele2 and Network
Norway from 2003 to 2009. The figures are taken from the companies’ annual reports.
79
Telenor
NetCom
Tele2
NwN
EBITDA
EBITDA margin
EBITDA
EBITDA margin
EBITDA
EBITDA margin
2003
4,262
39.1%
1,966
41.1%
2004
4,305
36.7%
1,697
32.7%
2005
4,471
36.5%
2,154
34.9%
2006
5,494
42.1%
2,742
37.3%
2007
4,703
35.8%
2529
34.1%
109
5.0%
2008
4,582
35.6%
2743
35.3%
118
5.6%
(59)
(336)
EBITDA
EBITDA margin
2009
5,200
38.1%
2,604
35.2%
148
6.9%
Table 6: Earnings before interest, taxes, depreciation and amortisation (EBITDA) NOK 1,000,000 and the
EBITDA margin for mobile operations. The figures for NetCom include Chess from 2006. Figures for
Network Norway are not available as at 1 June 2010.
460. Telenor’s earnings before interest, taxes, depreciation and amortisation (EBITDA)
measured in nominal values rose every year between 2003 and 2006, but fell somewhat in
2007 and 2008 before increasing again from 2008 to 2009. EBITDA in 2008 totalled NOK
5,200 million. At no point has the company’s EBITDA margin been lower than 35% since
2003, increasing to more than 38% in 2009.
461. NetCom’s EBITDA in 2009 was NOK 2,604 million, which is a fall of more than 5%
from 2008. The major increase in EBITDA from 2005 to 2006 was mainly due to Telia
Sonera’s acquisition of Chess.
462. Telenor has had a considerably higher EBITDA than NetCom throughout the period.
This mainly appears to be due to Telenor’s having far more customers in the retail market
than NetCom. The difference in earnings therefore largely reflects the differences in market
share.
463. The figures in Table 6 include earnings from international roaming and voice call
termination. Telenor and NetCom’s termination revenues from 2003 to 2009 fell significantly
due to lower termination charges. The charges for mobile telephone use when visiting Europe
have also fallen in recent years due to international regulation. EBITDA in Telenor and
NetCom has, nevertheless, remained high.
464. Tele2 Norway’s earnings in 2007 and 2008 were in excess of NOK 100 million, with
the corresponding figure for 2009 just short of NOK 150 million. The EBITDA margin in this
period was 5% in 2007, just below 6% in 2008, and almost 7% in 2009. The figures show that
although Tele2 has improved its profitability, the company still has very low profitability
compared with Telenor and NetCom.
465. The Network Norway Group posted a loss in both 2007 and 2008.
466. In summary, the analysis of profitability shows that Telenor has significantly higher
earnings than other operators in the market. Both Telenor and NetCom have considerably
better profitability than Tele2 and Network Norway. Telenor’s operating margin has generally
been somewhat higher than NetCom’s, and was substantially higher in 2009. In view of this,
NPT believes that the assessments of profitability may indicate that there is no effective
competition in the relevant market and that Telenor has significant market power.
5.4 Entry barriers
467. In a market with considerable entry barriers, established operators will largely be
protected from potential competition. Consequently, the disciplining effect that the threat of
80
competition could otherwise have will be dramatically reduced or disappear. The existence of
entry barriers in the market will thus be essential for establishing the existence of operators
with significant market power in a forward-looking perspective.
468. In the assessment of the first criteria in the three-criteria test, NPT concluded that
extremely high structural entry barriers exist and that regulatory barriers also exist to some
extent. With regard to such entry barriers, NPT refers to the assessments carried out in section
4.1.3.
469. NPT considers below the entry barriers that the Authority believes are of particular
importance in the assessment of significant market power in the relevant market.
5.4.1 Size of undertaking
470. If an undertaking, or the group which the undertaking is part of, is significantly larger
than its competitors, this could constitute a competitive advantage through economies of scale
and scope, financial strength and access to capital, distribution and marketing.
471. Economies of scale for network owners in the mobile market are discussed under the
first criterion in the three-criteria test. Economies of scale are largely found in the access
network, and NPT believes that this constitutes a major entry barrier. Figure 1 shows that an
undertaking needs to have a 20-30% market share to benefit from economies of scale.
However, there is not necessarily a direct correlation between unit costs and market share, at
least not for undertakings that have achieved a certain volume. NPT’s LRIC model has shown
that Telenor and NetCom exploit economies of scale to about the same extent.
472. Section 5.5.2 considers horizontal integration and economies of scope. The assessment
shows that NPT believes Telenor benefits from the fact that infrastructure and administrative
systems can be used in the production of a broad range of services, which none of their
competitors have.
473. With regard to access to financial resources, both Telenor and NetCom must be
regarded as having good access through their respective corporate groups. This enables them
to defend their market shares vis-à-vis existing competitors and any new competitors that
want to enter the market.
474. Tele2 Norway is also part of a relatively large international group of companies with
operations in 11 countries. By comparison, Network Norway is a relatively new company
with a small customer base, but with solid owners (e.g. Orkla and Hafslund) behind it. NPT
therefore believes that Tele2 and Network Norway also have relatively good access to
financial resources through their owners.
475. In summary, NPT believes that the review of the undertaking’s size does not provide
grounds for claiming that Telenor has more access to financial resources than NetCom, Tele2
or Network Norway to a degree that can indicate significant market power. However,
economies of scale constitute an important competitive advantage. Providers with
approximately a 20-30% market share appear to be able to exploit economies of scale in the
mobile market in Norway, cf. Figure 1. Thus, it is only Telenor and NetCom that can benefit
fully from economies of scale.
476. NPT believes that Telenor’s size is not in itself an indication that Telenor has
significant market power in the relevant market. However, Telenor’s size is a factor that
should also be considered in view of the significance of the company being horizontally and
vertically integrated, and in view of the company’s profitability.
81
5.4.2 Access to sales channels
477. NPT concluded in section 4.1.1.5 that access to physical sales outlets is expensive and
difficult to achieve, and therefore constitutes an entry barrier. Lack of access to distribution
and sales channels will primarily be a competition problem in the retail market. However,
such competition problems could help vertically integrated undertakings with ample access to
sales channels to maintain and increase their market share at the wholesale level.
478. As many subscriptions are sold together with subsidised handsets in physical sales
outlets,83 a presence in the major sales outlets appears to be an important competitive
advantage. As to PTs knowledge only subscriptions from Telenor, NetCom84 and Tele2 are
sold in physical sales outlets. However, these three undertakings’ representation in such sales
channels varies widely. Telenor is the leading operator in the sense that it is represented at the
most sales outlets, followed by NetCom. Tele2 is represented far less than the other two
operators. NPT has clear indications that only a few of the relevant shops sell mobile
subscriptions without offering Telenor subscriptions.
479. At the end of 2009, the Consumer Council of Norway conducted a survey of
purchasing85 in the major chain stores that sell mobile handsets and mobile subscriptions. The
survey was in the form of a mystery shopper survey, and was partly aimed at ascertaining the
degree to which consumers received adequate guidance when buying mobile handsets and
subscriptions. The survey concluded that the subscriptions that were most favourable with
regard to consumers’ use pattern were not the ones generally recommended to them. Another
key finding was that subscriptions with Telenor were recommended in 86 of 100 cases. There
is no indication in the survey why the number of recommendations for Telenor was so high. It
could, for instance, be due to the sellers’ own preferences or be related to the profitability for
the seller of recommending specific types of subscriptions. NPT believes that the sellers’
recommendations of Telenor’s subscriptions without considering the basis of the
recommendation, may indicate that Telenor has a dominant position in this sales channel.
480. Online sales of mobile handsets are increasing. An investigation of several web
shops86 gives clear indications that Telenor to a larger extent than other operators is
represented in this sales channel. With the exception of other undertakings’ websites and one
other web shop,87 Telenor subscriptions are available in all the online stores examined. In
large web shops such as Komplett.no and MPX, subsidised handsets are sold exclusively with
Telenor subscriptions. The number of types of subscriptions that are sold in these online
stores might also indicate the relative strength between the operators. Telenor seems to be the
leading operator also in such a perspective as far more subscriptions from Telenor are offered
than subscriptions from other operators88
481. Far more undertakings offer the sale of subsidised handsets and subscriptions on their
websites. How effective such channels will be will partly depend on how familiar the end user
is with the relevant undertakings. Since Telenor has such a dominant role, not only in the
retail market for mobile telephony but also in most retail markets for electronic
communication services, NPT believes that the companies’ own websites as a distribution
83
Cf. section 4.1.1.5 above.
Subscriptions from Chess, which like NetCom is owned by TeliaSonera, are sold at a physical sales outlet.
85
http://forbrukerportalen.no/Tester/2009/darlige_rad_om_mobiltelefon
86
Data is fetched from Elkjop.no, Lefdal.com, Elprice.no, Euronics.no, SIBA.no, Spaceworld.no, Komplett.no,
MPX.no, Telekiosken.no, Telehuset.no, Ventelo.no, NetCom.no, Tele2.no, djuice.no, Telenor.no, Chess.no
between September and November 2009.
87
Only Tele2 is represented at www.siba.no
88
65 % of all subscriptions offered through the web shops that where investigated was from Telenor, NetCom
which in this respect was the second largest had a share of 17%.
84
82
channel do little to limit the significance of Telenor’s dominance in physical sales outlets and
web shops.
482. In summary, NPT believes that different access to sales channels is of significance to
the undertakings’ position in the retail market. Telenor, NetCom and Tele2 are all represented
in the major chains’ physical sales outlets. However, Telenor is more prominently represented
than the other two. Telenor also appears to have an advantage with regard to online sales in
that its presence in this channel far outweighs that of their competitors. Large web shops such
as mpx.no and Komplett.no sell only Telenor subscriptions. In view of this, NPT believes that
ample access to sales channels is a factor that strengthens the presumption of significant
market power for Telenor.
5.5 Provider behaviour
5.5.1 Vertical integration
483. A vertically integrated undertaking is characterized by having several production
levels that are usually controlled by different undertakings gathered in its activities. For
example, through its position in various markets for input factors or in the retail market, a
vertically integrated undertaking can keep competitors out or behave in a anti-competitivr
way towards existing competitors, and in this way strengthen its market power in the relevant
market.
484. Market power can be transferred both from the wholesale market to the retail market
and vice versa. In the analysis of single dominance at wholesale level, the question is whether,
and to what extent, undertakings can derive specific advantages from being vertically
integrated that can strengthen their market power in the relevant wholesale market.
485. All three network operators in the Norwegian market are vertically integrated
undertakings. This means that, through internal sales, the companies’ vertically integrated
wholesale businesses provide wholesale services to their own retail businesses, which in turn
provides services in the retail market. However, Network Norway differs from the established
network owners in that its infrastructure has been spun off to a separate network company,
Mobile Norway, which is jointly owned with Tele2. Opportunities to benefit from being
vertically integrated may differ, however. As mentioned already, Network Norway will be
dependent on buying access from one of the established network owners throughout the
relevant period; a factor that could limit the significance of being vertically integrated.
Furthermore, the significance of vertical integration will also partly depend on whether the
company is horizontally integrated and any market power it might have in such markets.
486. Telenor owns a large part of the networks that are used for leased lines in Norway, and
has been designated as an undertaking with significant market power in both of the markets
for leased lines (former markets 13 and 14, cf. ESA’s Recommendation of 200489). Leased
lines are a necessary input factor in the production of mobile services. In principle, Telenor
could have incentives to discriminate between its own mobile operation and other network
operators in the sale of transmission capacity in the wholesale market. However, obligations
have been imposed on Telenor, including cost orientation (market 13) and non-discrimination
89
In the ESA Recommendation of 2004, market 13 is defined as terminating segments of leased lines, while
market 14 is defined as trunk segments of leased lines. However, the Norwegian Post and Telecommunications
Authority has found it more practical to define these markets as leased lines up to and including 8 Mbit/s and
leased lines above 8 Mbit/s, respectively.
83
and accounting separation (both markets 13 and 14), a factor that restricts its opportunities for
vertical leveraging.
487. Norkring, which is owned by Telenor, provides installation of antennas and equipment
in its transmitter stations. Norkring’s infrastructure could therefore be an input factor for the
production of mobile services in Norway.90 Telenor’s ownership of Norkring and this
company’s infrastructure thus provide a better basis for benefiting from vertical integration.
488. In the retail market, factors such as product differentiation, different lock-in
mechanisms, access to sales channels etc. can be crucial to winning and retaining customers.
For an undertaking that is vertically integrated, this will affect its market share at the
wholesale level. Vertical integration must therefore be viewed together with provider
behaviour and conditions on the demand side, which are covered in the following sections.
Distribution has proven to be essential, particularly due to the ordinary link between terminals
and subscriptions. See section 5.4.2 for the significance of sales and distribution networks,
which is a separate criterion in the assessment of significant market power.
489. In summary, NPT believes that Telenor’s ownership and control of underlying input
factors (infrastructure for leased lines, location sites etc.) give the company advantages in the
relevant wholesale market which other vertically integrated providers do not have, and which
thereby support the presumption of significant market power.
490. Furthermore, vertical integration is a factor that must be viewed together with other
anti-competitive behaviour, also in the retail market. Telenor therefore has a major advantage
from being the market leader in the retail market.
5.5.2 Horizontal integration
491. An undertaking is horizontally integrated when, through ownership, it has control over
various parallel infrastructures that can be used to supply competing products to the end user.
By offering numerous different products or services at the same level in the value chain, an
undertaking that is horizontally integrated can realise economies of scope that may constitute
a competitive advantage.
492. Economies of scope entail a reduction in production costs per unit since more than one
service is produced using shared means of production, e.g. infrastructure or administrative
systems. Cost savings by utilising the telephone network for the production of different
telecom services to end users is one example of economies of scope.
493. Cost modelling aimed at identifying exact termination costs in the wholesale market
for termination in the mobile network (market 7) have shown, for example, that there are
disparities between Telenor and NetCom with regard to business overheads. Telenor’s
overheads91 are considerably lower than NetCom’s. The findings indicate that Telenor enjoys
economies of scope, because common systems, administration and labour can be used for the
production of more than one service.
90
From Norkring’s website: “Norkring owns 2,450 transmitter stations for terrestrial broadcasting spread
throughout Norway. Norkring provides installation of antennas and equipment from broadcasters, mobile
operators, broadband customers etc. at these stations. […] Customer references are mainly broadcasters,
telecoms operators and broadband providers, including: NetCom, ICE (Nordic mobile telephony), the Norwegian
National Rail Administration, the police, Digitalt Nødnett (the public health service, fire service and police),
Telenor Nordic and Telenor Norge.” (http://www.norkring.no/templates/Page.aspx?id=297)
91
Business overhead
84
494. Telenor is the market leader in most of the other infrastructure markets for electronic
communication, including the markets for fixed networks, broadband, cable and satellite
television (through ownership of Canal Digital Kabel and Canal Digital), terrestrial
broadcasting (Norkring) and digital broadcasting (Telenor owns a third of Norsk Televisjon).
495. In addition to being the market leader at the infrastructure level in most of the
electronic communication markets, as a result of its position as a vertically integrated
undertaking, Telenor is also a market leader in most of the associated retail markets. As a
market leader in many of the retail markets for electronic communication, Telenor will be
well positioned for differentiating products, for example, by being able to offer different
combinations of product/price packages and solutions tailored to different customer segments’
needs and willingness to pay.
496. Telenor’s broad product portfolio is a factor that distinguishes Telenor from its
competitors in the relevant market and that can help to maintain Telenor’s market power. No
other operator will be able to offer a similarly wide range of products within the time horizon
of the analysis.
497. In summary, NPT believes that the broad range of services provided by Telenor
distinguishes it from other undertakings in the relevant market and gives rise to economies of
scope. The position as market leader in many of the retail markets for electronic
communication is also a factor that broadens Telenor’s basis for effective product
differentiation. In view of this, NPT believes that horizontal integration is an element that
strengthens the presumption of significant market power for Telenor.
5.5.3 Product differentiation
498. If an undertaking has a high degree of product differentiation, or heterogeneous
products, this can enhance customer loyalty, making it more difficult for competitors to
capture market share or to enter the market. Product differentiation therefore affords the
opportunity to maintain or increase market share at both the retail and wholesale levels.
Strong brands can have a similar effect.
499. The basic products and services that are offered at the wholesale level by the three
network operators are essentially identical and are based on the same technology, cf. section
4.2.7. Thus, the undertakings’ basic product range at the wholesale level as such is a meagre
source of market power for Telenor. As section 4.2.7 makes clear, however, the established
network owners; Telenor and NetCom, are in a unique position with regard to being able to
offer attractive on-net products.
500. Coverage can be a competition parameter. In Norway, Telenor in particular has played
up its good coverage in its marketing. The company used to advertise that it had the “best
coverage”. However, the Consumer Ombudsman prohibited the use of the term “best
coverage”, partly because it could not be documented that Telenor had the best coverage in all
cases. Telenor therefore changed its marketing. However, it seems clear that Telenor’s
marketing uses coverage as a competitive advantage. The difference in coverage between
Telenor and NetCom’s mobile network is minimal when measured in populated areas, but
greater when the coverage area is viewed in relation to the total landmass. The difference is
also greater in favour of Telenor for 3G coverage than for 2G coverage. [Exempt from public
disclosure:
85
XXXXXXXXX] Coverage can therefore be a parameter that makes Telenor better able to act
independently in the wholesale market.
501. At the retail level, what are called family and friend products92 have become
increasingly popular in recent years. By pricing family and friend services at much lower rates
than other similar traffic, products of this type will be financially beneficial for the end user,
at least in isolation. In a survey93 conducted by the National Institute for Consumer Research
(SIFO), 52% of the respondents reported having a family or friend service tied to their mobile
subscription. The survey further shows that there is a correlation between having a family and
friend product and the inclination to switch provider. End users with such products are less
likely to consider switching provider than end users that do not have such products. In
addition, it was noted that 55% of respondents wholly or partly agreed with the statement “I
want to have the same mobile operator as the person I am calling”, and that this is the second
most important reason for not switching mobile provider, after the statement “there is little to
gain by switching”. As described in section 4.2.7, Telenor and NetCom’s products “Fri
Familie” and “Trådløs familie” occupy a unique position among the family and friend
products. No other operator has a product that covers all elements of Telenor and NetCom’s
products. The end users’ expectations to benefit from such services can be linked to the end
users’ perceptions of the provider’s market power, while the utility of family and friend
products will largely depend on how many persons can be reached at discounted rates.
Telenor therefore has a major advantage since not only does it have the decidedly largest
market share at the retail level but it must also be regarded as having end users that are highly
knowledgeable about its products.
502. Bundling is another variant of product differentiation that can help market power in
one market to create competitive advantages in another market. An operator with market
power in one market can bundle services or products in the one market with services or
products in another market, enabling the operator to offer a package of services/products that
are distinct from those offered by competitors and that competitors can copy only to a limited
extent.
503. Telenor is one of several operators in the Norwegian retail market that offers
subsidised handsets. NPT has seen no indication that Telenor subsidises handsets to a greater
degree than other operators. Therefore, in NPT’s opinion, offering subsidised handsets is not
in itself a factor that indicates that Telenor has significant market power. How the sale of
subsidised handsets affects the assessment must, however, also be viewed together with
access to sales channels, cf. section 5.4.2.
504. It is important for many business customers in the retail market that the
communication services provider is able to offer a total solution for all of their business’s
communication services needs. Better and more effective cost controls, for example through
“everything on one invoice”, are often used as a selling point for such total solutions. The
bundling of fixed line and mobile telephony, Internet, data communication and/or user
equipment is therefore often used in the struggle for business customers. The provision of the
input factors needed to provide bundled solutions for communication is regulated at the
wholesale level. NPT believes, therefore, that demand for such bundled solutions is a meagre
source of market power for Telenor.
505. Fixed and mobile telephony are becoming increasingly integrated. Full convergence
between these services at the network level is beyond the time horizon of this analysis.
92
See section 4.2.7 for more information on family and friend products.
SIFO report “Knowledge and attitudes towards mobility in the market for mobile telephone services” from
2008.
93
86
However, there are a number of examples of integrated solutions. On 4 June 2010, Telenor
announced in a press release that it would open its mobile network to third party integration
and launch the service “Mobilt bedriftsnett” (mobile business network). The service, which is
aimed at the business market, will give the users a virtual PBX on the network, where the
main number, switchboard, welcome message and menu, group functions and absentee
information can be included. Telenor believes that a solution of this type has major market
potential, and the company wants more than half of all mobile customers to change over to
this solution. The press release goes on to say:
“By opening an interface in “Mobilt Bedriftsnett”, Telenor would like to demonstrate
that we will work in a new way to create greater innovation closer to where our
customers are. This is a concrete expression of our desire to place ourselves closer to
our partners. This will create new business models for both Telenor and our partners,
which in turn will add value for our shared customers. In addition, Telenor also wants
to be involved in earnings potential that is outside our core business,‟ says Abraham
Foss.”
506. Another example of integrated solutions is what is called “Unified Communications”.
On 9 October 200994 Telenor announced that it was the first mobile operator to launch such a
solution in the Norwegian market. The announcement described unified communications as a
“user-adapted service in which the voice, data, text, video and conference solutions are both
functionally and technically integrated” and added that “a key element of such a solution is
that the end user only has a single telephone number for its PC client, fixed telephone and
mobile telephone, so that the same number is displayed regardless of whether the user is
calling from the PC client, fixed telephone or mobile telephone.” Telenor also stated that it
expect such a service “to account for substantial customer affinity in the total annual
revenues for voice in the business market.”
507. An article in the online telecom publication Telecom Revy95from May 2010 reports
that Microsoft has certified Telenor as a provider of IP telephony in Norway, and that
Microsoft will only recommend Telenor as a provider of such services. The certification
means that Telenor’s mobile services can be integrated with Microsoft’s services such as
Office and Communicator. Telenor is the second operator in Europe to achieve such
certification. Telenor has said the following regarding the significance of the certification:
“The endorsement from Microsoft is of course extremely important to Telenor and
means that businesses will be able to call external telephone numbers directly from
Microsoft Communicator over an IP connection (SIP trunk). Telenor is marketing this
service integrated with mobile telephony as „Unified Communications from Telenor‟.”
508. In NPT’s view, the certification may be an indication that Telenor has advantages
from being a dominant operator. This type of service may further be regarded as an indication
of product differentiation, which can contribute to increased market power for Telenor.
509. The examples above are an indication of innovation, which in itself must be regarded
as beneficial to society. On the other hand, the examples can also be regarded as indications
that Telenor is seeking to differentiate its products in a way liable to strengthen the
presumption that the company has significant market power.
510. In summary, NPT believes that the basic product range that is offered at the network
level is a meagre source of market power for Telenor. Nevertheless, the fact that Telenor’s
94
95
http://presse.telenor.no/PR/200910/1346591_1_1.html
http://www.telecomrevy.no/nyheter/microsoft-ja-til-telenor-ip-telefoni/?articleNavi=4110%7C9
87
mobile network has extremely good coverage in Norway helps to maintain the company’s
market power in the relevant market.
511. At the retail level, however, Telenor’s substantial market share gives the company an
advantage in offering attractive on-net products. NPT further believes that Telenor has an
advantage over other undertakings from being able to offer both mobile and fixed network
products at the wholesale and retail levels. NPT is of the opinion that the overall effect of
these factors supports the conclusion that Telenor has significant market power in the relevant
market.
5.5.4 Prices and price developments
512. Price developments at the retail and wholesale levels may indicate whether there is
effective competition. If an undertaking is able to maintain higher prices than its competitors,
or increase its prices, without losing large numbers of customers, this can be an indication of
significant market power. This section considers price developments at the retail and
wholesale levels in the light of the presumption that Telenor has significant market power.
513. Figure 4 above shows that the least expensive subscription with Telenor and NetCom,
respectively, entails higher costs for the end user than their competitors’ offerings. Ever since
Telepriser.no was launched in 2002, undertakings other than Telenor and NetCom have led
the market in offering the most reasonably priced subscriptions. With a decline of 1 and 4
percentage points, respectively, in the number of subscriptions , both Telenor and NetCom
have reduced their market share in the retail market since the previous market analysis.
However, Telenor has maintained its market share to a greater degree than NetCom. Even
though other undertakings have been able to offer less expensive, and at times relatively
substantially less expensive, products to the end users, this has not largely resulted in the
customers choosing the operators with the least expensive offerings.
514. Section 4.2.6 notes that the access charges for all forms of access are lower than the
level in the previous market analysis. Figure 5 above illustrates that the greatest price
reductions took place up to the start of 2008, after which the fall in prices appears to have
slowed. The decline in access charges appears to have taken place at about the same rate for
both MVNO access and service provider access. The decline national roaming charges can be
linked to the revision of the agreement between Telenor and Network Norway in 2009.
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX]
515. Termination charges for MVNOs and buyers of national roaming have been reduced
as a consequence of NPT’s decision of 17 November 2008. Buyers of such access have
indicated that the reduced termination charges have put pressure on their overall margins, and
in view of this have sought lower prices for access. Figure 5 appears to show that it has been
next to impossible to achieve such price reductions from Telenor.
516. Telenor has stated that the company regularly performs margin squeeze tests. The
purpose of the margin squeeze tests is to avoid ending up in a situation where the company is
considered to be abusing its dominance in violation of the Competition Act.96 This may
indicate that Telenor’s price reductions at the wholesale level need not necessarily be related
to the existence of sector-specific obligations. However, as NPT’s discussion in section 4.2.6
96
See for example Copenhagen Economics “Market analysis of mobile access and call origination – report
prepared for Telenor Norge 28 January 2010”, page 63.
88
makes clear, there is reason to assume that the price reductions are more a consequence of
existing sector-specific obligations than of the threat of intervention pursuant to the general
competition legislation.
517. Tele2’s move to NetCom also shows that Telenor is not entirely free to set charges for
MVNO access. Tele2 has stated that the company achieved favourable prices in its agreement
with NetCom, which is why the company chose to switch host operator. However, Tele2’s
switch of host operator appears to have had little or no disciplining effect on the rates in other
access agreements with Telenor. Telenor adjusted its MVNO charges somewhat in
February/March 2009. In view of the foregoing assessments, the downward adjustment
appears to be largely related to possible margin squeezes on MVNOs if their access charges
were not reduced when their termination charges were adjusted downwards97.
518. In summary, NPT believes that the assessment of prices and price developments at
the retail level does not give a clear picture of the operators’ market power and whether any
undertakings have significant market power. However, it seems clear that, over time, Telenor
has had a relatively stable market share in a market where there has been an increasing supply
of lower-priced products.
519. With regard to price developments at the wholesale level, there are few signs that
Telenor is facing competition that disciplines its pricing. Telenor has reduced its charges for
all forms of access since the previous decision. However, this appears to be due more to the
threat of regulatory intervention than to competition at the network level, cf. the deliberations
in section 4.2.9.
520. In view of this, NPT believes that the assessment of prices and price developments at
the wholesale level strengthens the presumption that there is no effective competition in the
market for access and call origination on public mobile telephone networks and that Telenor
has significant market power.
5.6 Conditions on the demand side
5.6.1 Customers’ access to information, switching costs and lock-in
mechanisms
521. Restrictions on or costs at the retail or wholesale levels for switching provider can act
as entry barriers and help undertakings with significant market power to retain that power. In
section 4.2.5, NPT considered whether costs of switching could be regarded as an obstacle to
the relevant market tending towards competition. With regard to the retail level, NPT
concluded by saying that there might be relatively low price sensitivity, which could reduce
the potential for dynamism.
522. In this section, NPT considers the factors relating to the customers’ access to
information and switching costs/lock-in effects with a view to ascertaining whether any
undertakings have significant market power in the relevant market.
523. To make effective choices between undertakings in a market, customers need to have
access to information that enables comparisons between the different offerings. Complicated
price structures and various bonus and discount schemes can restrict the opportunities for
effective end user choice and may help to strengthen an already dominant operator’s position
in the market.
97
In its decision of 17 November 2008 NPT ordered all MVNOs to reduce their termination charges from the
prevailing rate of NOK 1.15 to NOK 1 per minute from 1 February 2009.
89
5.6.1.1Access to information
524. The end users in the mobile market are nowadays faced with a large number of
different operators and products. At the start of June 2010, there were 17 mobile telephone
service providers on Telepriser.no and 94 different mobile subscriptions.
525. For the end user in the mobile market, the large variety of price structures makes
comparing different offerings and prices a challenge. The extensive use of subsidising
handsets combined with lock-in periods, and “family and friend” products further complicate
the picture. In a report by Teleplan,98 around 50% of respondents stated that the diversity of
mobile operators and subscriptions makes it difficult to obtain an overview of the offerings in
the mobile market.
526. Telepriser.no is NPT’s tool for helping consumers to make informed choices. There
are also numerous other websites that compare rates for mobile telephony. Telepriser.no has
approximately 50,000 visitors per month. In Teleplan’s survey, 12% of respondents had heard
of Telepriser.no (unprompted recall) and around 13% knew about the price comparison
service on the consumer information website DinSide. At the same time, 8% of respondents
reported using Telenor’s website as a service to compare prices, while somewhat fewer
mentioned NetCom’s website.
527. The survey indicates that almost just as many end users use the established providers’
website for price comparisons as objective price comparison services. This can help to reduce
movement and strengthen the established undertakings’ position in the retail market.
528. The picture at the wholesale level is rather different. At the network level, Telenor,
NetCom and Network Norway offer service provider access, while MVNO access and
national roaming is offered only by Telenor and NetCom. In accordance with NPT’s decision
of 23 January 2006, Telenor has an obligation to publish reference offers for MVNO access
and national roaming. The obligation to publish does not extend to rate information. However,
this must be made available to undertakings that make requests to Telenor. NetCom does not
publish reference offers. In view of this, the wholesale market must be said to be relatively
intransparent.
5.6.1.2 Switching costs/lock-in effects
529. Direct switching costs in the retail market in the form of set-up fees and any porting
fees must be regarded as low. At the start of June 2010, almost 80% of the mobile
subscriptions at Telepriser.no had no set-up fees. The set-up fees (including any porting fee)
for the remaining products were between NOK 24 and NOK 200. The lock-in effect of direct
switching costs can therefore be regarded as minimal.
530. Lock-in periods in connection with the purchase of subsidised handsets probably have
a stronger lock-in effect. As described in section 4.2.5, around 50% of respondents in SIFO’s
survey reported having a lock-in period and/or operator lock. According to the survey,
Telenor and NetCom had the largest share of customers with a lock-in period, with 39% and
49%, respectively.
531. At the wholesale level, set-up fees and demands for compensation (exit fee/exit ticket)
upon termination of the agreement and volume obligations will all form part of switching
costs when changing host operator. As section 4.2.9 makes clear, such clauses are used to a
significant extent in access agreements in the relevant market. Irrespective of the specific
98
Teleplan: Kampen om mobilkunden (in Norwegian only – The struggle for the mobile customer), 9 June 2008.
Figures 3-7
90
reasonableness of these obligations, NPT believes that they must be assumed as having a
certain lock-in effect and thus may help to make competition less effective.
532. In summary, NPT believes that the end users’ relative unfamiliarity with price
comparison tools and lock-in in the form of lock-in periods can lead to less effective
competition since they limit customers’ options, thereby helping to strengthen wellestablished undertakings’ position in the retail market.
533. At the wholesale level, there is relatively little transparency with regard to prices.
534. The conditions mentioned are likely to help to make competition in the market less
effective than it would otherwise be. However, NPT does not believe that access to
information, switching costs and lock-in mechanisms are factors that strengthen Telenor’s
market power.
5.6.2 Market power/countervailing buying power
535. Countervailing buying power is a factor that can limit an undertaking’s ability to act
independently in the market. Buying power may be said to exist when a defined buyer or
group of buyers of a product or service is so important to the seller as to be able to influence
the price the seller charges for the product or service.
536. Buying power is not an absolute concept, but refers to the relative power that a buyer
has in bargaining with a seller for a given product or service. The degree of buying power will
therefore vary according to different constellations of buyers and sellers. The question in this
context is whether Telenor is subjected to buying power to a degree that enables the buyers of
access to sufficiently influence the price and other terms for access.
537. The buyers of access and call origination on public mobile telephone networks are
described in section 3.2 as operators on the demand side. Network Norway is currently the
only buyer of national roaming, while Tele2, TDC and Ventelo are buyers of MVNO access.
In section 4.2.9 on market behaviour and incentives, NPT describes a number of specific
conditions in connection with concluded access agreements, which NPT believes demonstrate
that the buyers have been able to exercise little in the way of buying power vis-à-vis Telenor.
The key aspect of this analysis will therefore be whether relevant buyers in the short to
medium term will be able to exercise enough buying power to dilute Telenor’s presumed
significant market power.
538. Network Norway and Tele2, with market shares of almost 9% and 7%, respectively
(based on number of subscriptions at the end of 2009), are the largest buyers of access in the
relevant market. The two companies are jointly building a separate mobile network through
the company Mobile Norway. Although the two companies are working together via Mobile
Norway, they conclude their access agreements individually. Network Norway currently has a
national roaming agreement with Telenor, while Tele2 has an MVNO agreement with
NetCom. Pursuant to the agreement, Tele2 can phase its traffic over to using national roaming
[Exempt from public disclosure: XXXXXXXXXXXXXX]. In view of this, NPT believes that
the buying power of the two companies must be assessed for each company separately.
539. Since other buyers in the relevant market (including service providers) have
considerably less volume than Tele2 and Network Norway, they must be assumed to have
fewer opportunities to exercise buying power. NPT has seen no evidence of groupings on the
buyer side to justify assessing the buyer side as larger or smaller constellations. The
assessment is therefore based on whether the two companies mentioned have been and will be
able to exercise buying power vis-à-vis Telenor since there is a presumption that that
company has significant market power.
91
540. In 2008, Tele2 terminated its agreement on MVNO access with Telenor and moved its
customer base to the same platform as NetCom. As described in section 4.2.9, it can appear
that Telenor [Exempt from public disclosure:
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX] and that, in view of this, the
company’s ability to exercise buying power vis-à-vis Telenor was limited.
541. The fact that Tele2’s switching of host operator was carried through may mean that, in
future, Telenor will regard losing buyers of MVNO access as being more likely than before,
for which reason it may be more accommodating in order to retain or attract MVNOs.
However, NPT does not believe that price developments for this form of access point in that
direction. Nor does NPT believe there are other indications that other buyers of MVNO access
have experienced such an effect. [Exempt from public disclosure:
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX] In view
of this, NPT does not believe there are any indications that Tele2’s switching of host operator
has helped to strengthen the MVNOs’ buying power vis-à-vis Telenor.
542. The next question is whether Tele2’s move to NetCom can enable Tele2 to exercise
effective buying power vis-à-vis Telenor. It seems reasonable to assume that the switching of
host operator to Netcom will possibly strengthen Tele2’s bargaining position vis-à-vis
Telenor. However, Tele2 will be tied to NetCom at least until [Exempt from public
disclosure:
XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX]
543. NPT believes it must also be stressed that Tele2’s negotiations on MVNO access with
NetCom took place under a regulated regime in which Telenor had an obligation to provide
access. It is assumed that the certainty of Telenor’s obligations was of some significance for
NetCom’s commercial evaluations of its agreement with Tele2. As described in section 4.2.9,
NPT believes that the agreement between Tele2 and NetCom does not provide sufficient
grounds for assuming that buying power will enable buyers of access to effectively influence
the price of access products if the relevant market is not regulated.
544. In 2008, Network Norway terminated its national roaming agreement with NetCom
and entered into an agreement with Telenor. As described in section 4.2.9.3, Telenor did not
want to offer Network Norway a national roaming agreement if the company did not
terminate its agreement with NetCom. NPT believes that Telenor’s refusal to provide access
indicates that Network Norway could exercise very little in the way of buying power vis-à-vis
Telenor. When in this situation the company did not enter into an agreement to renew its
contracts with NetCom, this may indicate that the company’s buying power was not
particularly strong in this area either.
545. A threat by a buyer to reduce its purchases may also be a strong bargaining chip in
negotiations. The agreement between Telenor and Network Norway includes a clause stating
that Network Norway [Exempt from public disclosure:
XXXXX]. The agreement also includes a clause imposing not insubstantial buying
obligations. In view of this, NPT believes that threats to limit buying do not constitute real
92
threats that yield more buying power in the period covered by this analysis. In addition, the
use of discount scales, which are applicable to all forms of access, will be a factor that makes
it less attractive to distribute traffic among several sellers of access.
546. Buying power can also be exercised when the buyer has something to offer the seller
in areas other than those directly covered in negotiations. However, an operator requiring
access to a mobile network normally has little to offer a seller that can be used to exercise
buyer power. Co-location of masts and cabins could be an example. However, this does not
matter much, since Telenor already has excellent coverage. Moreover, Telenor’s position as
both a vertically and horizontally integrated operator will be a factor that contributes to strong
asymmetry in relative strength vis-à-vis potential buyers of access. NPT believes that this
imbalance in relative strength will go far in limiting the significance of what buyers of access
may be able to offer in other areas.
547. In summary, NPT believes that the buyers of access in the market for access and call
origination on public mobile telephone networks can only exercise limited buying power visà-vis Telenor. Network Norway and Tele2’s switching of network provider shows that
switching actually happens and can therefore facilitate the exercising of buying power.
However, NPT cannot see that this has had any noticeable positive effect on the buying power
of buyers of access from Telenor. Additionally, NPT believes that buyers of access have no
other bargaining chips that can strengthen their buying power in negotiations. Asymmetric
access to information is another factor that reduces the possibility of exercising buying power
vis-à-vis Telenor.
548. In view of this, NPT believes that there is not sufficient countervailing buying power
for regarding Telenor as not having significant market power in the market for access and call
origination on public mobile telephone networks after all.
5.7 Conclusion on significant market power and designation
of undertaking with significant market power
549. Telenor’s market share at the wholesale level at the end of 2009 was approximately
[Exempt from public disclosure: XXX], well above the level that the Commission has
indicated as a threshold for the presumption of significant market power. However, Telenor’s
market share has fallen since the previous analysis. The decline was sharpest in the first part
of the period. Based on the trend for Telenor’s market share at the wholesale level, NPT
believes it highly unlikely that the market share will fall below 50% within the time horizon
of the analysis. Thus, NPT believes that a presumption does exist for Telenor having
significant market power in the relevant market within the time perspective of the analysis.
550. Telenor also has the biggest market share in the Norwegian retail market for mobile
telephony, with 53% of all subscriptions at the end of 2009. The company’s market share
based on revenues in the retail market is higher, at almost 55%, and has been stable since
2002.
551. The analysis of profitability shows that Telenor has a substantially higher operating
profit than other operators in the market. Telenor’s operating margin has generally been
somewhat higher than NetCom’s and was considerably higher in 2009. The assessments of
profitability may indicate that there is no effective competition in the relevant market and that
Telenor has significant market power.
552. In a market with considerable entry barriers, established operators will largely be
protected from potential competition. The disciplining effect that the threat of competition
93
could otherwise have will consequently be dramatically reduced or disappear. The existence
of entry barriers in the market will thus be a fundamental requirement for being able to
demonstrate that operators with significant market power do exist in a forward-looking
perspective.
553. In the assessment of the first criterion in the three-criteria test, NPT concluded that
there are high and persistent entry barriers in the relevant market. The entry barriers are
primarily of a structural nature. Control over infrastructure that is difficult to duplicate, high
irrevocable costs and economies of scale were key factors in this assessment. NPT further
established the existence of some degree of regulatory entry barriers.
554. NPT has considered the entry barriers that the Authority believes are particularly
relevant to the assessment of significant market power in the relevant market. In view of this,
NPT believes that the company’s size is not an indication that Telenor has significant market
power in the relevant market. On the other hand, unequal access to sales channels is a factor
that contributes to market power for Telenor.
555. With regard to assessing provider behaviour, NPT believes that Telenor’s ownership
and control over underlying input factors (infrastructure for leased lines, location sites etc.),
affords the company advantages in the relevant wholesale market that other vertically
integrated undertakings do not have, and which thereby support the presumption of significant
market power. Further, NPT believes that the broad range of services offered by Telenor
distinguishes it from other undertakings in the relevant market and gives rise to economies of
scope. Telenor’s position as market leader in many of the retail markets for electronic
communication is also a factor that enables it to differentiate its products effectively.
556. The basic range of products that is offered at the network level does little to create
market power for Telenor. The fact that Telenor has a mobile network with excellent coverage
in Norway nevertheless helps to maintain the company’s market power in the relevant market.
At the retail level, Telenor’s considerable market share gives the company an advantage in
offering attractive on-net products. Furthermore, Telenor has an advantage over other
undertakings in that it can offer both mobile and fixed network products at the wholesale and
retail levels.
557. Prices and price developments at the retail level do not give a clear picture of the
operators’ market power or whether there are undertakings with significant market power.
However, it seems clear that, over time, Telenor has had a relatively stable market share in a
market where the supply of products with lower prices has been increasing.
558. With regard to price developments at the wholesale level, the analysis shows that there
are few signs that Telenor is facing competition that disciplines its pricing. Telenor has
reduced its prices since the previous decision. However, this seems to be more due to the
threat of regulatory intervention than competition at the network level, cf. the discussion in
section 4.2.9. In view of this, NPT has concluded that the price developments at the wholesale
level strengthen the presumption that there is no effective competition in the market for access
and call origination on public mobile telephone networks and that Telenor has significant
market power.
559. NPT believes that relative unfamiliarity with price comparison tools and lock-in in the
form of lock-in periods can lead to less effective competition in the retail market. NPT further
believes that there is relatively little transparency with regard to prices at the wholesale level.
These factors are likely to contribute to the competition in the relevant market being less
effective than it would otherwise be. Furthermore, NPT believes that access to information,
94
switching costs and lock-in mechanisms are not elements that strengthen Telenor’s market
power.
560. With regard to market power/countervailing buying power, NPT believes that the
buyers of access in the market for access and call origination on public mobile telephone
networks can exercise buying power vis-à-vis Telenor only to a limited extent. Network
Norway and Tele2’s switching of network provider shows that switching does actually
happen and can therefore facilitate the exercising of buying power. However, NPT does not
believe that this has had any noticeable positive effect on the buying power of buyers of
access from Telenor. Asymmetric access to information is another factor that reduces the
ability to exercise buying power vis-à-vis Telenor.
561. In its assessment of the second criterion, NPT concludes that the market will not tend
towards effective competition within the relevant timeframe. As pointed out the introduction
of the market analysis, according to the regulatory framework, the absence of effective
competition in a relevant market is due to one or more undertakings having significant market
power.
562. Based on Telenor’s sustained high market share in the relevant market, NPT has
considered whether other factors can indicate that despite the presumption, Telenor can
nevertheless be regarded as not having significant market power. However, NPT has not
found that the assessment of such factors, either independently or jointly, indicates that
Telenor does not have significant market power after all. Based on an overall assessment,
NPT has thus concluded that Telenor can largely act independently of NetCom, Network
Norway and other competitors, customers and consumers in the period covered by the
analysis.
563. In view of this, Telenor has significant market power in the market for access and call
origination on public mobile telephone networks.
564. The existence of single dominance precludes the possibility of ascertaining collective
dominance.
95

Analysis of the market

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