The Romanian Competition Authority Accepts Commitments Closing Mobile Operators’ Price Investigation (Orange Romania)

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Published in e-Competitions | N° 75871, www.concurrences.com

The Romanian Competition Authority’s investigation started in 2011, in the context in which the four large mobile operators in Romania – Orange Romania, Vodafone Romania, Romania Telekom Mobile Communications and RCS & RDS – were charging different tariffs for the service of call termination at mobile points of the networks they operated, depending on the call origin.

Thus, the tariffs for the termination of on-net calls (initiated and terminated in the same network) were lower than the ones for the termination of off-net calls (initiated in a network and terminated in another network).

The road up to closing the investigation by commitments in 2015 began with the authority’s concerns (I), having the relevant regulatory context as background (II), and ended with the commitments offered by the investigated companies and accepted by the competition authority (III), following rejection of the first set of commitments.

I. Competition concerns at the basis of the investigation

The competition authority was concerned of potential anticompetitive effects determined by charging competitors a high tariff in the wholesale market for the call termination service, correlated with the self-supply of this service at reduced costs.

Such effects were anticipated at the level of both telecom operators and clients.

At the level of the telecom operators, one could consider maximization of revenues of an operator without detriment to its competitiveness on the retail markets, increasing the costs of competitors in the retail markets while creating advantages for its own activity on the retail market, and further limiting the possibility of development of smaller competing networks.

At the level of clients, the difference in tariffs for termination of calls between end users of the same electronic communications network and respectively of calls between end-users of different electronic communications networks could result in an operator blocking its own end users in its network and prejudicing the end users of competing networks, who would pay higher tariffs for off-net calls.

In the authority’s view, such differences indicated that the margin between the tariffs of the two call termination services (between the service supplied on the wholesale market and the one self-supplied) was sufficiently large to allow an anti-competitive conduct.

Such conduct would consist in favoring one’s own activities on the downstream market (retail mobile telephony services) by cross-subsidization of its own offers for on-net call services on the retail market from the revenues obtained on the wholesale market (affecting competition on the retail market), or by margin squeeze.

Also, low tariffs charged for calls within the same network were deemed able to lead to predatory pricing, by offering tariffs on the retail market for on-net calls at a level that would not provide a sufficient margin over the termination tariff charged at the wholesale market level, so that an as efficient operator paying this termination tariff on the wholesale market could not compete without incurring losses on the retail market with the operator in whose network it terminates the call.

Such a policy pursued by any of the operators was thus deemed to be able to determine a decrease of the competitiveness of the other suppliers (while due to lower tariffs at the level of the wholesale market, the respective operator is in a position to offer lower retail prices, the rest of the operators are forced to pay higher termination tariffs, not having the possibility to reduce retail tariffs to a level at which they would be competitive).

The potential result at the level of end users would be a migration of subscribers of the other operators to the respective operator’s services, since tariffs paid on the retail market represent an important criterion in choosing the provider of telephony services.

Thus, even where the mobile termination rate level (MTR) (an important cost element for competing operators, largely determining the level of the tariff charged to end-users at the level of the retail market) decreased following the regulatory authority’s intervention (ANCOM), the significant differences between the call termination service tariff provided on the wholesale market and the one corresponding to the self-supplied service for call termination were deemed likely to affect competition in the retail market for mobile services.

Which takes us to the regulatory background and to the interplay between the regulatory authority and the competition authority’s intervention.

II. Relevant regulatory context

The regulatory authority (ANCOM) imposed ex-ante an external non discrimination obligation and an obligation of control of MTR.

There are two types of discriminatory behavior that ANCOM has sought to prevent, namely: discrimination between operators and discrimination between services supplied to entities in one’s one group and to other operators with which one competes in the market retail.

In the first case, ANCOM considered that such a situation does not have economic justification and determines competition issues, the cost of call termination in a provider’s network being the same, irrespective of the individual traffic volume terminated in that network.

In the second case, it was considered that low tariffs charged for calls made within the same network can lead to “predatory pricing” by offering retail tariffs for calls within the network at a level that does not provide a sufficient margin over the rate of termination at wholesale market, so that an equally efficient operator paying the termination tariff on the wholesale market cannot without incurring losses compete on the retail market with the operator in whose network the call is terminated.

The non-discrimination obligation imposed by ANCOM addressed the first type of discriminatory behavior (on the wholesale market), its efficiency depending on the maximum MTR regulated level.

As to the second type of discriminatory behavior (internal discrimination), ANCOM has not imposed a requirement similar to the one on the wholesale market, intending to apply an effective mechanism of control of termination rates based on avoided incremental costs associated with providing termination services at mobile locations by an efficient hypothetical operator (pure LRIC, not in place when the investigation was initiated), eliminating the risk of tariff discrimination in favor of one’s own activities in the retail market.

In this context, the competition authority’s intervention was meant to be complementary to the regulatory authority’s actions, accepting the commitment of internal non discrimination.

III. Commitments offered by the investigated companies made binding by the competition authority

Each of the investigated companies undertook the obligation of internal non-discrimination, for a period of 2 years (which can be either reduced or increased, depending on the market evolution).

The obligation of internal non-discrimination implies an undertaking not to differentiate between (i) the level of the tariff for the service of call termination at the mobile points of the network operated by each respective operator supplied to other operators at the level of the wholesale market and (ii) the level of the tariff for service of the call termination at mobile points of the network operated by each respective operator, self-supplied (the service of call termination supplied to its own business for the purpose of making on-net calls on the retail market).

Undertaking the obligation of internal non-discrimination ultimately implies that the tariff corresponding to the service of call termination at mobile points of the network operated by each respective operator charged on the wholesale market (in the relationship with the other suppliers of electronic communication services) is to be found in the content of all retail tariffs for on-net calls in the current or future portfolio of offers of the respective operator, including in all all-net type offers.

Returning to where it all began – to the competition concerns -, the commitments offered and accepted were deemed to address the competition concerns since the obligation of internal non-discrimination removes the possibility of margin squeeze or of cross subsidization of tariffs for on-net calls from the revenues obtained on the wholesale market of the service of call termination and at the same time, predatory pricing can be avoided in this way.

This case showed once more the interplay between the dynamics of the regulatory regime and the competition law enforcement in electronic communications sector. As to the competition authority’s finding that the commitments offered would eliminate the competition concerns which were at the basis of its investigation, this conclusion now faces the true market test. The results of the test? At the end of the monitoring period, in the context of market evolutions, time will tell.

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