Brussels, 26 March 2007
Case No: 59834
Event No: 414592
Póst og fjarskiptastofnun
Suðurlandsbraut 4 2.h.
108 Reykjavík
Iceland
Att: Mr. Hrafnkell V. Gíslason, Director
Fax.: +354 5101509
Dear Mr. Gíslason,
Subject:
I
The retail market for the minimum set of leased lines and the wholesale
markets for terminating and trunk segments of leased lines in Iceland –
Comments pursuant to Article 7(3) of Directive 2002/21/EC
PROCEDURE
On 23 February 2007, the EFTA Surveillance Authority (“the Authority”) registered a
notification pursuant to Article 7(3) of Directive 2002/21/EC1 from the Icelandic national
regulatory authority, Póst- og fjarskiptastofnun (“PTA”), relating to:
(1)
(2)
(3)
The retail market for the minimum set of leased lines (Market 7);
The wholesale market for terminating segments of leased lines (Market 13);
The wholesale market for trunk segments of leased lines (Market 14).
The notification consists of the following documents:




Summary notification forms for Markets 7, 13 and 14;
Draft decision on SMP and remedies in Markets 7, 13 and 14;
Market analysis (Annex A);
Summary of the results of the national consultation (Annex B – Public and
confidential versions);
 Market share figures for Markets 7, 13 and 14 (Annex C – Public and
confidential versions).
PTA carried out the national consultation, in compliance with the requirements of Article
6 of the Framework Directive, between 15 June and 1 September 2006.
1
Directive 2002/21/EC of the European Parliament and of the Council on a common regulatory framework
for electronic communication networks and services (Framework Directive), as referred to at point 5cl of
Annex XI to the EEA Agreement and as adapted to the Agreement by Protocol 1 thereto and by the sectoral
adaptations contained in Annex XI to that Agreement.
________________________________________________________________________
Rue Belliard 35, B-1040 Brussels, tel: (+32)(0)2 286 18 11, fax: (+32)(0)2 286 18 00, www.eftasurv.int
Page 2
PTA received a total of four responses to the national consultation, including a response
from the national competition authority. PTA has summarized the results of the
consultation and its responses in an Annex B to the draft decision notified.
Pursuant to Article 7(3) of the Framework Directive, national regulatory authorities
(“NRAs”) in the EEA and the Authority may make comments on notified draft national
measures to the NRA concerned.
The EEA consultation period under Article 7 of the Framework Directive expires on 26
March 2007.
II
DESCRIPTION OF THE DRAFT MEASURE
II.1
Product/services market definition
The notification under scrutiny is a combined notification relating to the following three
Icelandic markets:
1) The minimum set of leased lines comprising leased lines up to and including 2
Mb/s (Market 7);
2) The wholesale market for terminating segments of leased lines (Market 13);
3) The wholesale market for trunk segments of leased lines (Market 14).
All three markets, as defined, correspond to the respective markets listed in the
Authority’s Recommendation on relevant markets2. PTA does not consider it necessary to
define leased lines markets other than those listed in the Recommendation on grounds of
national market specificities.
PTA defines leased lines as follows: “Leased lines shall mean the telecommunications
facilities that provide for transparent transmission capacity between network termination
points and that do not include on-demand switching”. According to PTA, this includes
cross-connections between exchanges/nodes.
According to PTA, the definition of leased lines is technologically neutral – this means it
is independent of the underlying technology and includes various types of protocols and
transmission media (copper and fibre-optic cables, microwave connections and channels
in multi-channel systems). In the product market definition of the wholesale markets 13
and 14, PTA has included dark fibre, i.e. fibre optic cables that have already been
deployed, but without transmission equipment.
The Icelandic Competition Authority has been consulted on PTA’s product market
definitions and has not objected to the conclusions reached.
2
EFTA Surveillance Authority Recommendation (No 194/04/COL) of 14 July 2004 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 communication networks and services (the “Recommendation on relevant
markets”), OJ L113/18 of 27.4.2006.
Page 3
II.1.1 The minimum set of leased lines (Market 7)
PTA defines this relevant product market as consisting of leased lines with capacities up
to 2 Mb/s provided to end users. It includes both analogue and digital lines.
This definition is consistent with the definition of the retail market for the minimum set of
leased lines listed in the Authority’s Recommendation on relevant market and corresponds
to Article 18 of the Universal Service Directive 2002/22/EC3 in conjunction with the
Recommendation 2003/548/EC on the minimum set of leased lines4.
II.1.2 Terminating segments of leased lines (Market 13)
According to PTA, conventional leased lines together with transmission on channels in
multi-channel transmission system, irrespective of transmission media and protocol
employed, fall within the relevant wholesale market. All bit rates (bandwidths) of leased
lines are included.
PTA notes that terminating segments are often copper cables, usually less than 5km long,
that connect a user’s location to a node/telephone exchange, where the trunk line system
takes over.
What constitutes a terminating segment will depend on the network topology specific to a
particular EEA State and will be decided upon by the relevant NRA. PTA considers that
the distinction between trunk segments and terminating segments of leased lines generally
lies in the telephone exchange that is closest to the relevant network connection points.
II.1.2 Trunk segments of leased lines (Market 14)
PTA defines trunk segments of leased lines as transmission capacity sold to electronic
communications undertakings in order to connect their networks and distribution
locations. These trunk lines run between network nodes/exchanges and normally use fibreoptical cables, although sometimes radio connections are used as well.
II.2
Geographic market definition
The relevant geographic market is the area in which a product or service is traded under
sufficiently homogenous competitive conditions.
II.2.1 Market 7
PTA defines the geographic dimension of the retail market for the minimum set of leased
lines as the entire territory of Iceland.
3
Directive 2002/22/EC of the European Parliament and of the Council of 7 March 2002 on universal service
and users' rights relating to electronic communications networks and services (Universal Service Directive),
as referred to at point 5cm of Annex XI to the EEA Agreement and as adapted to the Agreement by Protocol
1 thereto and by the sectoral adaptations contained in Annex XI to that Agreement.
4
Commission Decision 2003/548/EC of 24 July 2003 on the minimum set of leased lines with harmonised
characteristics and associated standards referred to in Article 18 of the Universal Service Directive, as
referred to at point 5cn of Annex XI to the EEA Agreement.
Page 4
II.2.2 Market 13
PTA defines the geographic dimension of the wholesale market for terminating segments
of leased lines as the entire territory of Iceland.
II.2.3 Market 14
PTA segments the geographic market for wholesale trunk segments of leased lines into the
following markets:
 The Reykjavík capital area;
 The rural areas of Iceland (rest of country).
PTA believes that there are grounds to define a separate geographic market comprising the
Reykjavík capital area due to the fact that in the Reykjavík area, as compared to the rest of
the country, Orkurveita Reykjavíkur possesses a significant fibre-optic cable network.
Two thirds of the Icelandic population reside in the Reykjavík area and nearly all of the
revenues generated in the market at hand in the year 2005 were generated in this
geographic area. The Reykjavík area consists of Reykjavík, Hafnarfjörður, Garðabær,
Kópavogur, Álftanes, Seltjarnarnes and Mosfellsbær. The countryside comprises the rest
of Iceland
PTA argues that in the Reykjavík area there exists a choice of supplier for trunk segments
of leased lines, as evidenced by the purchasing pattern of Vodafone, unlike in the rest of
Iceland. Therefore, PTA submits that the competitive conditions in this area are
appreciably different from those in the rest of the country. PTA, therefore, concludes that
a market differentiation of the geographic market for the Reykjavík area and the rest of the
country is warranted in Market 14.
PTA excludes undersea cables (CANTAT-3 and FARICE-1) from the market analysis,
because they have connection points outside the territory of Iceland.
The Icelandic Competition Authority has been consulted on PTA’s geographic market
definitions and has not objected to the conclusions reached.
II.3
Assessment of significant market power (“SMP”)
II.3.1 State of competition in Market 7
PTA designates Síminn as individually having significant market power in the retail
market for the minimum set of leased lines.
The criteria relied upon by PTA in its assessment are, inter alia, market shares, potential
competition (entry barriers: control over infrastructure not easily duplicated, sunk costs,
economies of scale and scope) and countervailing buying power.
Iceland Telecom’s (hereinafter “Síminn”) competitors in this market are Og fjarskipti
(hereinafter “Vodafone”), Tengir and Fjarski.
Page 5
Síminn has a market share of [..%]5 based on revenues in 2005. The competitor’s market
shares were [..%] for Vodafone and below [..%] for Tengir and Fjarski.
According to PTA, there was little change in the relative market shares since liberalisation
in 1996.
Síminn’s retail prices remained stable for the five year period between 2000 and 2005.
However, given the cost orientation obligation imposed on Síminn during this time, price
trends give – in the view of PTA – little indication of the competitive pressure in the
market.
The Icelandic Competition Authority has been consulted on PTA’s designation of Síminn
as an undertaking with significant market power in this market and has not objected to the
conclusion reached.
III.3.2 State of competition in Market 13
PTA designates Síminn as individually having significant market power in the wholesale
market for terminating segments of leased lines.
The criteria relied upon by PTA in its assessment are, inter alia, market shares, price
trends, potential competition (entry barriers: control over infrastructure not easily
duplicated, sunk costs, economies of scale and scope) and countervailing buying power.
Síminn’s competitors in this market are Orkurveita Reykjavíkur, Tengir and Fjarski.
Síminn has a market share of [..%] based on revenues in 2005. The competitor’s market
shares were [..%] for Orkurveita Reykjavíkur, [..%] for Tengir and [..%] for Fjarski.
PTA includes internal sales in the market share calculations. PTA does not dispose of
market share figures and respective trends before 2005, assumes however, that, with the
exception of dark fibre, market shares have remained largely unchanged.
Despite the fact that Síminn’s wholesale prices for terminating segments have risen since
2000, PTA considers price trends not to be a good measure for Síminn’s market power,
based on the argument that the latter’s prices have been under a cost-orientation obligation
during the same period.
The Icelandic Competition Authority has been consulted on PTA’s designation of Síminn
as an undertaking with significant market power in this market and has not objected to the
conclusion reached.
III.3.3 State of competition in Market 14
The criteria relied upon by PTA in its assessment are, inter alia, market shares, price
trends, potential competition (entry barriers: control over infrastructure not easily
duplicated, sunk costs, economies of scale and scope) and countervailing buying power.
Síminn’s competitors in this market are Orkurveita Reykjavíkur and Fjarski.
5
For reasons of confidentiality, all market share figures have been omitted.
Page 6
Síminn has a market share of [..%] based on revenues in 2005 according to a nationwide
demarcation of the relevant geographic market. The competitor’s market shares were [..%]
for Orkurveita Reykjavíkur and [..%] for Fjarski.
However, PTA has chosen to divide Market 14 into two separate geographic markets:
Market shares in the Reykjavík area:
Síminn has a market share of [..%] based on revenues in 2005. The competitor’s market
shares were [..%] for Orkurveita Reykjavíkur and below [..%] for Fjarski.
Market shares in the rest of Iceland:
Síminn has a market share of [..%] based on revenues in 2005. The competitor’s market
shares were [..%] for Orkurveita Reykjavíkur and [..%] for Fjarski.
PTA designates Síminn as individually having significant market power in both
geographic markets, the Reykjavík capital area on one hand and the rest of the country on
the other, of the wholesale market for trunk segments of leased lines.
The Icelandic Competition Authority has been consulted on PTA’s designation of Síminn
as an undertaking with significant market power in these two markets and has not objected
to the conclusions reached.
II.4
Regulatory remedies
II.4.1 Remedies in Market 7
PTA intends to impose the following regulatory obligations on Síminn:





Retail access to the minimum set of leased lines;
Price control and cost accounting obligations;
Non-discrimination;
Transparency;
Accounting separation.
Síminn is required to offer the minimum set of leased lines all over Iceland on equal
terms.
PTA directs Síminn to prepare a cost model for the calculation of the retail prices based on
historical costs within one year from the date of the decision. Síminn is required to
demonstrate that its retail prices are cost based.
The obligations imposed in the retail market for the minimum set of leased lines follow
from Article 18 and Annex VII to the Universal Service Directive 2002/22/EC and from
Commission Decision 2003/548/EC on the minimum set of leased lines.
Page 7
II.4.2 Remedies in Market 13
PTA identified the following actual and/or potential competition concerns in market 13:
excessive pricing, price squeeze, cross-subsidisation, denial of access, discrimination and
lack of transparency regarding prices and product information.
PTA intends to impose the following regulatory obligations on Síminn in order to address
these competition concerns:





Access to leased lines on reasonable request;
Price control and cost accounting obligations;
Non-discrimination;
Transparency (publication of reference offer);
Accounting separation.
Síminn is required to provide all reasonable access to terminating segments of leased lines.
PTA imposes an obligation to provide wholesale access to terminating segments of leased
lines according to the same level that Síminn provides to its own departments.
Furthermore, all potential forms of access, grating access of which must be considered fair
and serves to promote competition, must be provided.
The access obligation imposed includes an obligation to comply with appropriate and
reasonable requests for joint utilisation or co-location, resale access, open access to
technical interfaces, protocols and other technologies, as well as interconnection. Access
shall be granted without unnecessary delays.
PTA directs Síminn to prepare a cost model for the calculation of the wholesale prices of
terminating segments of leased lines based on historical costs within one year from the
date of the decision. Síminn is required to demonstrate that its wholesale prices are cost
based.
III.4.3 Remedies in Market 14
PTA has identified the following actual and/or potential competition concerns in market
14: excessive pricing, price squeeze, cross-subsidisation, denial of access, discrimination,
and lack of transparency regarding prices and product information.
PTA intends to impose the same regulatory obligations on Síminn in both geographic
markets of market 14 in order to address these competition concerns:





Access to leased lines on reasonable request;
Price control and cost accounting obligations;
Non-discrimination;
Transparency (publication of reference offer);
Accounting separation.
Síminn is required to provide all reasonable access to trunk segments of leased lines. PTA
imposes an obligation to provide wholesale access to trunk segments of leased lines
according to the same level that Síminn provides to its own departments. Furthermore, all
potential forms of access, grating access of which must be considered fair and serves to
promote competition, must be provided.
Page 8
The access obligation imposed includes an obligation to comply with appropriate and
reasonable requests for joint utilisation or co-location, resale access, open access to
technical interfaces, protocols and other technologies, as well as interconnection. Access
shall be granted without unnecessary delays.
PTA directs Síminn to prepare a cost model for the calculation of the wholesale prices of
trunk segments of leased lines based on historical costs within one year from the date of
the decision. Síminn is required to demonstrate that its wholesale prices are cost based.
III
COMMENTS
The Authority has examined the notification and has the following comment pursuant to
Article 7(3) of the Framework Directive:
Geographic market segmentation of Market 14
PTA believes that there are grounds to define a separate geographic market
comprising the Reykjavík capital area, due to the fact that in the Reykjavík area, as
compared to the rest of the country, Orkurveita Reykjavíkur possesses a significant
fibre-optic cable network. PTA therefore submits that the conditions of
competition in this area differ from the conditions of competition in the rest of the
country. On this basis, PTA has defined two separate relevant geographic markets
for wholesale trunk segments of leased lines in Iceland. However, PTA has not
provided any data that would show actual differences in the conditions for the
competitive provision of those services. In particular, no pricing data or other tariff
information has been provided by PTA that would support a geographic
segmentation for comparable trunk leased lines in the Reykjavík area and the rest
of the country.
The Authority draws PTA’s attention at the need to support any geographic market
segmentation of Market 14 by relevant market data. However, in the Authority’s
view, whether or not the geographic market is segmented into two separate
markets, as proposed by PTA, does not appear to change the finding that Síminn
has SMP: PTA intends to designate Síminn as having SMP in both geographic
markets. Furthermore, in both markets, PTA intends to impose identical regulatory
obligations on Síminn.
As a result, the Authority considers that the regulatory outcome regarding any
measures to be imposed on the SMP operator Síminn would be unchanged
regardless of the geographic definition of the market at hand.
PTA is, however, invited to collect and analyse relevant market data regarding
Market 14 in order to support its findings regarding the geographic scope of the
relevant market in its final measure.
Page 9
IV
CONCLUDING COMMENTS
Pursuant to Article 7(5) of the Framework Directive, NPT shall take the utmost account of
comments of other NRAs and the Authority and may adopt the resulting draft measure
and, upon doing so, shall communicate it to the Authority.
The Authority’s position on this particular notification is without prejudice to any position
the Authority may take vis-à-vis other notified draft national measures.
Pursuant to point 12 of the Authority’s Article 7 Recommendation6, the Authority will
publish this document on its eCOM Online Notification Registry. The Authority does not
consider the information contained herein to be confidential. You are invited to inform the
Authority within three working days following receipt of this letter whether you consider
that, in accordance with EEA and national rules on confidentiality, this document contains
confidential information which you request to be deleted prior to such publication. You
should give reasons for any such request. The request should be submitted through the
eCOM Registry or by facsimile to +32 22 86 18 00, for the attention of the eCOM Task
Force.
Yours sincerely,
Hallgrímur Ásgeirsson
Director
Internal Market Affairs Directorate
Amund Utne
Director
Competition and State Aid Directorate
Signed version
6
EFTA Surveillance Authority Recommendation (No 193/04/COL) of 14 July 2004 on notifications, time
limits and consultations provided for in Article 7 of Directive 2001/21/EC of the European Parliament and
of the Council on a common regulatory framework for electronic communications networks and services
(the “Article 7 Recommendation”), OJ L113/10 of 27.4.2006.