TKK completes analysis of market for mobile termination: All 5 mobile operators have significant market power

Special structural characteristics of the Austrian mobile termination market - Potential competition problems on mobile termination markets - Measures taken by TKK and consequences for mobile network operators - TKK decision supported by European comparisons - Consultation planned for topic of cost accounting models - Additional market analysis procedures completed by TKK

Press release dated 29 October 2004

In its session on October 27, 2004, the Telekom-Control Commission (TKK) completed the market analysis procedure for mobile termination and issued the official decision that all five mobile network operators have significant market power on their individual wholesale markets for mobile termination. In order to eliminate the accompanying deficits in competition, the regulatory authority will have to take the appropriate measures. In these procedures, the regulatory authority examined the following market power indicators in particular: monopolist market structure, barriers to market entry, demand-side countervailing power and market share.

Special structural characteristics of the Austrian termination market

The reason for this monopolist position can be found in two special characteristics of termination services:

The service of termination to a certain terminal mobile device (mobile subscriber) is a monopolist service which can not be provided by any other operator than the one to which the SIM card is assigned.

The overall costs of a call to a mobile subscriber are paid by the calling party. No costs are incurred for the subscriber receiving the call, although that subscriber determines the network through which the call is routed to him/her.

As a result, competition mechanisms do not function (or only function insufficiently).

Potential competition problems on mobile termination markets

These two special structural characteristics are the reason for a number of (potential) competition problems which would arise if termination services in each mobile network were not regulated:

From an economic standpoint, the most significant competition problem is the excessively high termination charges for calls from fixed-link networks to mobile networks. As these fees have a direct impact on the variable costs incurred to fixed-link network operators, this leads to excessively high (end-consumer) prices for calls from fixed-link networks to mobile networks. However, market distortions due to excessively high termination fees can also arise in the case of calls between mobile networks. In this context, it is also worth mentioning price discrimination between on-net and off-net calls. Established operators can substantially encumber the market entry and market activities of smaller mobile operators by refusing interconnection, setting excessively high termination fees, using discriminatory prices or by means of other non-price-related tactics.

Measures taken by TKK and consequences for mobile network operators

In order to remedy the competition deficits mentioned above, the TKK has imposed certain obligations on all mobile network operators. All operators are subject to a non-discrimination requirement with regard to the quality and price of termination services in their mobile networks. Moreover, all five of the companies will be required to publish a standard offer for termination within two months after the TKK's official decision goes into effect. The fee for mobile network termination should be based on the long-term average additional costs incurred to an efficient network operator.

TKK decision supported by European comparisons

The TKK's decision that mobile network operators have significant market power on their own termination markets is also supported by comparisons with regulatory decisions elsewhere in Europe: Other regulatory authorities also regard operational mobile network operators as SMP operators on their own termination markets. In the course of the relevant coordination procedure, the European Commission did not raise any objections to these conclusions. The TKK sees this as a confirmation of its own assessment. The official decisions delivered to the operators do not deviate in terms of content from the draft measures published under the Austrian Telecommunications Act of 2003.