STRICTLY CONFIDENTIAL – to Vodafone and Polish Regulatory Authorities
Views on joint dominance in
European wholesale mobile access
markets
Paul Ryan
March 2006
Issues to be discussed
• Background
• Public policy reasons not to intervene
• the case is not proven
– Recommendation on relevant markets
– Experience in other EU markets
– Data required
– Consumer interest
2
March 2006 Vodafone
Public Policy…..facilitate competition, not competitors
• Polish mobile market continues to attract substantial investment
• Poland will soon have four networks, but infrastructure investment is
likely to be punished by regulated access obligations
• Wholesale access services
– are offered in competitive markets where they add value for consumers
– enable greater distribution, no evidence that Poland has a distribution issue
• No obvious pent-up demand from access seekers
• Wholesale access regulation facilitates particular competitors not
competition
• Is Polish telecoms policy moving away from infrastructure competition?
• If NRA believes the current market is not competitive it needs to outline
what it expects to see and why.
3
March 2006 Vodafone
Regulation…..requires market failure before intervention
• No proof of mobile market failure
– 1. No insurmountable entry barriers. Netia entry proves this. Similarly Hutchinson
entering in other markets
– Given the dynamic character of electronic communications markets, possibilities for the market
to tend towards a competitive outcome, in spite of high and non-transitory barriers to entry, need
to be taken into account.
– 2. EU mobile markets tend over time towards effective competition.
– Most EU mobile access markets are competitive (see 11th implementation report) , Forward
looking analysis required, failure in the wholesale market is not proven.
– 3. Competition law by itself is sufficient
– No evidence to inadequacy, obligation to prove this. Why is Poland different?
• No pent-up demand from MVNO’s or service providers
• Regulation for “more” or “better” competition is not permitted nor legitimate
4
March 2006 Vodafone
Continued Mobile market growth in Poland: Development
index in subs 2000-2005
Index market growth in subs
Ireland
index
Finland
UK
600
550
500
450
400
350
300
250
200
150
100
Austria
Slovakia
Slovenia
Hungary
Sw eden
Netherlands
Italy
Denmark
France
Spain
2000
2001
2002
2003
2004
Source: Mobile Communications
5
March 2006 Vodafone
2005
Poland
Portugal
Polish mobile market is not an extreme case
Hirfindahl Hirschman Index in subs 2005
Hirfindahl Hirschman in subs 2005
Ne
UK
th
er
la
nd
Au s
st
ria
Ita
ly
Po
la
De nd
nm
a
Hu rk
ng
ar
y
Sp
a
S w in
ed
e
Po n
rtu
ga
Fr l
an
ce
Ire
la
n
Fi d
nl
an
d
Sl
ov
ak
S l ia
ov
en
ia
7000
6000
5000
4000
3000
2000
1000
0
No SMP
Source: Mobile Communication
6
March 2006 Vodafone
SMP
Pending
Other EU markets
• Access market reviews
–
–
–
–
–
Ireland (unique case, NRA withdrew SMP finding)
France (3 firm market, effectively SMP effectively vetoed by EU)
Malta (2 firm market, no decision but no pent up demand)
Spain (3 firm SMP alleged pent up demand, appeals likely)
Portugal & others (threatened but not followed through, consolidation underway)
–
–
–
–
–
–
UK (competitive 5 firms, some deals)
Hungary (competitive 3 firms, no deals, compare to Poland )
Italy (competitive 4 firms, no deals, weak 4th player, compare to Poland)
Finland ( competitive, deals)
Sweden (competitive, deals, “3” few customers)
Netherlands (competitive 4 players, deals, largest firm has 50%+)
• Given its importance to the European economy and its dynamic nature the EU is very
reluctant to see unwarranted access regulation in mobile markets. Need to show
exceptional and clear market failure, such as alleged in Slovenia and Cyprus.
7
March 2006 Vodafone
Data Required to show market failure
• Joint Dominance is a very difficult concept to establish
• Error costs are very large for firms and consumers
• Focal point and retaliation mechanisms required
– In Poland no explanation of focal point by NRA or NCA, hence analysis fails
– NCA appears to agree that retaliation at both retail and wholesale level is not possible, hence
analysis fails
– in many industries which are deemed effectively competitive, firms do not invariably participate in
merchant markets. (see Professor Janusz Ordover)
• Regulator must either show 4th firm
– will not impact on competition; or
– that existing 3 firms are within the alleged equilibrium and can retaliate against each other
– Must demonstrate the market failure and show what a competitive market would produce
• Forward looking analysis required. Recent dynamism with low cost brands and Impact of
Netia are ignored
• Current pricing is unlikely to change from positive to adverse (next slides show pricing is
“normal”)
8
March 2006 Vodafone
Low OECD usage basket Teligen 2004
€ 300
€ 250
€ 200
€ 150
€ 100
€ 50
Sl
UK
€0
ov
De a kia
nm
Sl ark
ov
en
Fi ia
nl
a
Sw nd
ed
en
Sp
a
P o in
l
Hu and
ng
a
Au r y
st
Po ria
rtu
ga
l
Ne
I
th ta ly
er
la
nd
Fr s
an
c
Ire e
la
nd
annual costs in euros
€ 350
Source: 10th Implementation report EC
9
March 2006 Vodafone
No SMP
SMP
Pending
Medium OECD usage basket Teligen 2004
annual costs in euros
€ 700
€ 600
€ 500
€ 400
€ 300
€ 200
€ 100
Source: 10th Implementation report EC
10
March 2006 Vodafone
Ire ly
la
nd
Ita
Hu
ng
Sl ar y
ov
De a kia
nm
Sl ark
ov
en
Fi ia
nl
Po and
rtu
Sw ga l
ed
en
P
Ne ol
th and
er
la
nd
Au s
st
ria
Fr
an
ce
Sp
ai
n
UK
€0
No SMP
SMP
Pending
High OECD usage basket Teligen 2004
€ 1,000
€ 800
€ 600
€ 400
€ 200
€0
Hu
ng
Sl ar y
ov
De e ni
nm a
Sl ark
ov
ak
Fi ia
nl
Po and
rtu
Sw ga l
ed
en
A
Ne us
th tria
er
la
nd
s
Ita
Po ly
la
Fr nd
an
ce
Sp
ai
n
U
Ire K
la
nd
annual costs in euros
€ 1,200
No SMP
Source: 10th Implementation report EC
11
March 2006 Vodafone
SMP
Pending
Conclusion
• Clear regulatory reasons why the case is not proven
– Recommendation on relevant markets, is no guide
– Experience in other EU markets goes against SMP finding
– 11th implementation report finds mobile access largely competitive
– Data required is onerous
– Economics is very difficult
– Consultation process is only beginning
• The interests of consumers are best served by promoting
competition and NOT by promoting types of competition or
promoting particular competitors
12
March 2006 Vodafone