Assessment of significant market power in Swedish electronic communications market

16 February 2005

Henrik Nilsson

This article considers the approach by the Swedish national regulatory authority (“NRA”), the PTS, in the implementation of the EC Framework Directive (Directive 2002/21) which obliges it to carry out market reviews in order to identify whether any operators hold significant market power (“SMP”) in a particular market and if necessary to impose conditions on their operation. The PTS has published final decisions and determined obligations for SMP operators on seven different markets, and is well advanced in the consultation process on other markets. The PTS’s approach to the market review process is largely in accordance with the Commission’s recommendations in this area.

Implementation by the PTS in Sweden

The PTS has published guidelines for market analysis in accordance with the 2003 Electronic Communications Act which implemented the EC Framework Directive. The guidelines detail the PTS’ approach to market definitions and assessments of significant market power. In defining markets, the PTS has relied closely on the 18 separate market delineations made in the Commission Recommendation on Relevant Product and Service Markets within the Electronic Communications Sector, dated 11 February 2003 (the “EC Recommendation”). In assessing significant market power, the PTS, like all other NRAs, must have regard to the definition of SMP set out in Article 14(2) of the Framework Directive which states that:

an undertaking shall be deemed to have significant market power if, either individually or jointly with others it enjoys a position equivalent to dominance, that is to say a position of economic strength affording it the power to behave to an appreciable extent independently of competitors, customers and ultimately consumers”.

Guidance as to how to interpret this provision in a uniform manner was set out in the Commission Guidelines on Market Analysis and the Assessment of Significant Market Power published on 9 July 2002 under Article 15(2) of the Framework Directive. SMP conditions can be imposed by the PTS under the Universal Services Directive 2002/22 or under the Access and Interconnection Directive 2002/19.

The PTS is at a relatively advanced stage in the market review procedure having published final decisions on seven different markets (markets 7-12 and 16) and having notified draft decisions on two others (markets 1 and 2). Preliminary assessments have been carried out in all other markets (markets 3-6, 13-15, and 18) except for market 17 where preliminary assessment is to commence in the spring of 2005. Final decisions in the remaining markets are expected in the summer of 2005 according to the PTS. Considering that consultations have yet to commence regarding market 17, the PTS’ goal is ambitious.

It is possible to appeal against final decisions at the general administrative court and the PTS’ decisions regarding call termination on mobile networks in particular have been the subject of a number of appeals.

Assessment of individual markets in Sweden

Markets 1 to 6 in the EC Recommendation: access to the fixed public telephone network for residential and non-residential customers (markets 1 and 2), publicly available telephone services provided at a fixed location for residential and non-residential customers (markets 3 and 5) and publicly available international telephone services provided at a fixed location for residential and non-residential customers (markets 4 and 6)

The PTS is expected to publish its decisions on these markets within the near future. The consultation with the Commission and other NRAs regarding markets 1 and 2 ended in the middle of December 2004; EU consultation regarding markets 3–6 is on-going. In its preliminary decisions, the PTS identified TeliaSonera as SMP operator in all the markets 1 to 6.

In markets 1 and 2, the proposed obligations include wholesale line rental access, cost-orientated pricing, non-discrimination, accounting separation, publication of reference offers and to provide broadband access independent of subscriptions.

Markets 3 to 6 for telephony services provided at a fixed location have been grouped together by the PTS for the purposes of the SMP process. TeliaSonera is again identified as having SMP. The PTS has treated international services as part of the same market as national fixed retail services, reasoning that a provider of national services could readily extend its services to include international services and that a provider of residential services could likewise do so as regards non-residential services.

Markets 8 and 10 in the EC Recommendation: call origination and transit services

For both these markets the PTS published its final decisions on 6 July 2004. TeliaSonera was designated as having SMP. Obligations imposed include requirements to provide interconnection and network access on reasonable request, to publish reference offers and not to unduly discriminate. TeliaSonera must also perform accounting separation and adhere to obligations concerning pricing and cost-accounting procedures.

Market 9 in the EC Recommendation: call termination

The SMP undertakings identified in the final PTS decision of 6 July 2004 are all the network operators in the call termination market as each individual network is considered to be a relevant market. TeliaSonera alone is required to publish a reference offer and must follow cost-orientation long-run incremental costs (“LRIC”) pricing requirements, whilst all other SMP operators must offer fair and reasonable prices. Along with TeliaSonera, Tele2 and Telenor were also singled out and obliged to provide network access on reasonable request. The PTS has also imposed transparency requirements and obligations not to discriminate.

Market 16 in the EC Recommendation: wholesale mobile voice call termination

The PTS’ decision of 6 July 2004 identified TeliaSonera, Tele2 Sverige, Vodafone Sverige, Hi3G Access and Telenor Mobile Sverige as having SMP. Varying obligations for the above undertakings were identified, although all are required to provide network access on reasonable request, to maintain transparency, not to unduly discriminate and to implement accounting separation. Requirements to publish a reference offer were imposed only on TeliaSonera, Tele2 and Vodafone. TeliaSonera, Tele2 and Vodafone are subject to price controls, to achieve cost orientation on LRIC principles, and Telenor and Hi3G are required to maintain fair and reasonable prices. All of these mobile operators have appealed their respective decisions.

Market 15 in the EC Recommendation: mobile access and call origination on public mobile telephone networks

The corresponding investigation and consultation is completed with proposals for obligations expected in the spring of 2005. TeliaSonera is designated as having SMP. The PTS’ forecast for a final decision is the summer of 2005.

Market 12 in the EC Recommendation: wholesale broadband access markets

In the Swedish market assessment of wholesale broadband (“bit-stream”) access, the PTS identified TeliaSonera in its decision dated 24 November 2004 as having SMP and imposed the following requirements: to provide bit-stream access on reasonable request; cost-orientated prices based on a retail minus model; to publish a reference offer; not to unduly discriminate and accounting separation.

Markets 7, 13 and 14 in the EC Recommendation: leased lines markets

The relevant markets for leased lines specified in the EC Recommendation are market 7 at retail level and markets 13 and 14 at wholesale level (terminating and transit segments respectively). For Sweden, as regards the provision of leased lines to end users, the PTS published a decision on 6 July 2004. It requires TeliaSonera: to provide the minimum set of leased lines; to adopt cost-orientated prices based on a “Fully Distributed Cost” model and accounting separation; to publish reference offers, delivery conditions and technical information and not to discriminate.

On the wholesale leased lines markets, the PTS has, in a draft decision dated 20 December 2004, identified TeliaSonera as having SMP on the wholesale terminating segments of leased lines (market 13). Proposed obligations include to: provide wholesale terminating segments of leased lines and interconnection through so-called operator access in an exchange node, both on reasonable request; separate tariffs sufficiently to enable client companies to avoid being billed for access to non-essential services and network elements; not discriminate; show transparency; publish terms and conditions regarding the provided service; report on quality of wholesale terminating segments of leased lines and publish information on technical qualities; adopt cost-orientated prices; supply leased lines with pricing based on actual and historic costs with FDC as accounting principle and adopt accounting separation to distinguish accounts of the wholesale market from those of the retail markets.

Regarding wholesale trunk segments of leased lines (market 14), the PTS on the above date in a draft decision suggested that this market lacked the characteristic features necessary to justify the introduction of obligations under the Electronic Communications Act.

Market 11 in the EC Recommendation: wholesale access market to local loops

In the PTS’ decision dated 24 November 2004, TeliaSonera was identified as having SMP in the market for wholesale unbundled access to the local loop including shared access. Obligations were proposed requiring TeliaSonera to provide wholesale unbundled access on reasonable request, to charge cost-orientated prices based on the LRIC-model, to publish reference offers, not to unduly discriminate and an accounting separation obligation.

Conclusion

The PTS has, so far, not seen cause to depart from the EC Recommendation on Relevant Product and Service Markets. Market operators have participated actively in the PTS’ consultation process, though usually with predictable responses. The PTS appears to have been successful, so far, in imposing understandable obligations on the incumbent operator, TeliaSonera, without resorting to negative discrimination.

The Swedish Competition Authority has on the whole shown a refreshing independence in its consultation responses. It has, notably, expressed concern regarding the PTS’s findings that all mobile network operators shall be deemed to hold SMP in the markets for call termination in mobile networks (market 16). This concern has naturally been extensively reiterated during the targeted operators’ court challenges against these decisions. Due attention to these concerns should be shown by the European Commission in carrying out it reviews.