Analysis of the market for access and call origination on public mobile telephone networks

Transcription

1 Annex 1 Analysis of the market for access and call origination on public mobile telephone networks Revised and updated 13 December 2005

2 Table of Contents: Summary Background and legal framework for the market analysis Background Legal framework for the market analysis General Market Definition Description and definition of the relevant product market Market definition in the Recommendation Market for access and call origination on mobile networks in Norway overview and history Introduction Overview Retail market Supply-side operators in the relevant market Demand-side operators and products at the wholesale level in the Norwegian mobile market Definition of the product market - details Access and call origination Definition of access and origination on the fixed line network VoB Differentiation between business and residential customers Pre-paid cards/subscriptions and post-paid subscriptions SMS (Short Messaging Service) Voice telephony on the 3G network Other data services International roaming Conclusion Definition of the relevant geographic market Analysis of the market - single dominance Introduction Market share, profitability and structural indicators Market share Profitability Overall size of the undertakings and experience in the field of mobile communication Entry barriers Control of infrastructure not easily duplicated Sunk costs Economies of scale Economies of scope Access to financial resources Technological superiority Barriers to expansion Access to distribution and sales channels Vertical integration Customers freedom of choice, access to information and possible costs of switching/lock-in effects Product differentiation/bundling of products Regulatory entry barriers Frequency resources

3 Summary the most important entry barriers Other criteria and indicators Access at the wholesale level Prices and price developments Subsidisation of handsets/other market activity Lack of potential competition Market power/countervailing buying power Analysis of the market - collective dominance General - Collective Dominance Criteria for collective dominance Market concentration Similar market shares Mature market Lack of technical innovation/mature technology Absence of excess capacity Transparency Homogeneous products Lack of countervailing buying power Retaliatory mechanisms High barriers to entry Lack of potential competition Lack or reduced scope of price competition Assessment of significant market power and designation of provider(s) with significant market power General - Significant Market Power Assessment of single dominance Assessment of collective dominance Conclusion Glossary

4 Summary This document contains the market analysis that the Norwegian Post and Telecommunications Authority (NPT) has carried out on what is considered to be the relevant market for access and call origination on public mobile telephone networks. The market analyses provide the basis for applying sector-specific measures in the various markets in which an operator/operators with significant market power are identified. Chapter 1 contains a description of the background and legal framework for the market analyses. Chapter 2 contains a description of the market for access and call origination on public mobile telephone networks, at both the retail and wholesale levels. Furthermore, the chapter contains an assessment and definition of the relevant product market recommended by ESA. In NPT s assessment, the market includes the following: access and call origination (outgoing voice telephony) on public GSM networks and 3G networks at the wholesale level access by pre-paid card/subscription and post-paid subscription access for residential customers/households and business customers originated SMS messages In NPT s assessment, the market does not include the following: access and call origination on fixed networks mobile VoB international roaming In calculating market share, NPT has elected to exclude data services other than SMS. NPT is of the opinion that this does not affect the result of the actual market analysis. In Chapter 3 the relevant geographic market is defined as Norway. The actual analysis of the relevant market, which concludes with an assessment and designation of operators with significant market power, is contained in Chapters 4, 5 and 6. As a general rule, a provider is considered to have significant market power if its market share is over %. Current providers in this market are Telenor Mobil AS and NetCom AS. NetCom has a market share at the wholesale level of just over 30 %. In principle, this is too low to indicate significant market power, particularly when there is another operator in the market with a substantially higher market share. NetCom has indeed increased its market share over time, but in NPT s opinion it is nonetheless improbable that through competition over the next few years the market share will rise to a level indicating significant market power. NPT is also of the opinion that application of the relevant criteria in Chapter 4 fails to show other factors which can particularly indicate that NetCom alone has significant market power. NPT therefore finds that NetCom cannot be deemed to have sole significant market power in this market. 4

5 Telenor Mobil s market share in the retail market is just under 60 %, while its market share as network operator (in the upstream market ) is close to 70 %. Telenor Mobil s market share is thus well above the level normally indicating significant market power. Telenor Mobil s market shares have been trending downward for several years, but its reduction in market share as network operator must nevertheless be characterised as moderate. NPT places considerable emphasis on Telenor Mobil s high market share in its assessment of the undertaking s market power. Because of the high and relatively stable market share there is also a legal presumption that Telenor has significant market power. A high market share alone is not sufficient for concluding that an operator has significant market power. NPT has therefore looked at several other criteria that are relevant for assessing an operator s position in the market. The analysis concludes with an overall assessment of all the criteria. It would be very expensive to duplicate the networks of Telenor Mobil or NetCom, and therefore achieve comparable coverage without network access such as colocation, national roaming and/or other sharing of infrastructure. The fact that Telenor Mobil has mobile networks with very good coverage in Norway, indicates that the company has market power in the relevant market. The market has relatively large entry barriers at the network level. The sunk costs of rolling out a mobile network of a certain size would be high, particularly so for building infrastructure in less densely populated areas. NPT finds that there are economies of scale inherent in network operations in Norway. Significant fixed costs for rolling out mobile networks in Norway together with a relatively small demand due to low population density and few inhabitants are likely to make these economies of scale substantial. NPT furthermore finds that Telenor Mobil has larger economies of scale than NetCom. Telenor Mobil also has larger economies of scope related to parts of the Group s other operations. Telenor is a main supplier of input factors to NetCom through its position as provider of leased lines. This is also likely to be the case for new network operators. Mobile density is high in Norway, and it will therefore be considerably more difficult for new operators to acquire new customers than it was for Telenor and NetCom in the 1990s. There is still growth in terms of revenue, though the rate of this growth is now falling. However, growth in revenue through new services is expected, even though it is still uncertain how the new sources of income will affect the overall picture. Furthermore there is still considerable income potential for increased voice telephony from the fixed network, but in this case such growth in income is likely to be counteracted by reduced prices. Frequency resources are currently available in Norway for both GSM and 3G. The limited interest shown at the last auctions of GSM and UMTS frequencies, along with the fact that two of the four UMTS licences that were offered in 2000 have been returned, may also indicate that substantial entry barriers exist at the network level in the mobile communications market. Price levels and price developments alone do not provide any clear and certain picture of the competitive situation in the Norwegian market and the market power of the operators. However, price developments do provide some indication that there have been periods of relatively high intensity of competition between the existing operators in the retail market. However, neither Telenor nor NetCom have been price leaders in 5

6 the retail market in recent years. Resellers and Tele2 have been leaders in pushing retail prices down. Other market activities, particularly increasing marketing and subsidising of handsets, indicate relatively strong competition at the retail level. However, in the last couple of years Telenor has managed to hold its position in the retail market with respect to market share. In any case, one cannot conclude on the basis of the competitive situation in the retail market that there is effective competition at the network level. A main reason for the competition observed in the retail market is that there are relatively many operators with access to Telenor s and NetCom s mobile networks that offer services in the retail market. There are just under 20 resellers competing for end users. Furthermore, Tele2 has been a pro-active operator based on its MVNO agreement with Telenor. With respect to access for resellers, this has been regulated under the old rules, inter alia by an obligation of cost-oriented prices. However, in recent years there seems to have been some competition at the network level between Telenor and NetCom to attract resellers. Based on the MVNO access and national roaming agreements that Telenor has signed, it can hardly be concluded that there is effective competition in the relevant market. With respect to the national roaming agreement that Teletopia has and the MVNO agreements that have been signed more recently, Telenor has been obliged to provide access. Telenor Mobil s very high market share on the network level and strong position in the retail market, the relatively high entry barriers at the network level and lack of competition for forms of access other than resale, indicate to a considerable degree that there is no effective competition between the existing providers in the market and that Telenor has significant market power. In NPT s opinion, Telenor can largely act independently of NetCom, other competitors and end users. Telenor has managed to maintain a very high market share at the network level, despite increased intensity of competition in the retail market and movement in the customer base. Because there are relatively high entry barriers on the network level in the Norwegian mobile market, NPT believes that potential competition will be limited, even though it exists. 3 has obtained a licence and will possibly build networks in Norway. Nordisk Mobiltelefon is currently expanding its CDMA450 network, which is particularly aimed at users where the GSM/UMTS networks have no coverage. However, there is little to indicate that these providers represent any considerable potential competition and weaken the market power of the existing network operators. Potential competition is also affected by the degree of access to existing mobile networks and infrastructure through, for example, co-location and national roaming. NPT does not expect the above factors to change significantly in the near future. On the basis of the assessment of market shares alone, NPT is of the opinion that there is a presumption that Telenor alone has significant market power in the relevant market. Furthermore, this overall assessment of the criteria for single dominance clearly indicates that Telenor Mobil alone has the economic strength in the relevant market enabling it to act largely independently of NetCom and other competitors, customers and consumers. On the basis of, inter alia, the responses to the consultation in the national consultation on the market analysis, NPT has seen it necessary to undertake an assessment on whether Telenor Mobil and NetCom together have collective dominance in this market. The assessment is contained in Chapters 5 and 6. Certain structural conditions in the market make it possible for the operators to participate in tacit collusion. 6

7 On the other hand, there are considerable imbalances in market share, the mobile market is innovation-driven and both Telenor Mobil and NetCom provide access at the wholesale level to external providers. Telenor Mobil and NetCom probably have greater incentive to compete against each other on price and position themselves in the market than to engage in tacit collusion. This is true of both the retail and wholesale levels. In NPT s opinion, TeliaSonera s purchase of Chess/Sense is furthermore also an indication that there is no tacit collusion in the market. On the basis of the above assessments compared with guidance from European law and the Guidelines for market analyses, NPT has not been able to find specific facts for claiming that tacit collusion is taking place between Telenor Mobil and NetCom, neither at the retail nor at the wholesale level. Based on this analysis NPT has reached the conclusion that Telenor ASA alone has significant market power in the market for access and call origination on public mobile telephone networks. 7

8 1 Background and legal framework for the market analysis 1. This document contains the market analysis that the Norwegian Post and Telecommunications Authority (NPT) has carried out on what is considered to be the relevant wholesale market for access and call origination on public mobile telephone networks in accordance with applicable regulations for electronic communications. Both the product market and the geographical market are defined, and the relevant market analysed. The market analyses will provide the basis for applying sectorspecific measures in the various markets in which an operator/operators with significant market power is/are identified. 2. The document has been circulated for comment, and the analysis expresses NPT s assessment of the situation in the relevant market. 3. NPT has taken as a basis the 18 markets defined by the EFTA Surveillance Authority (hereinafter referred to as ESA) as relevant for sector-specific regulation. 4. However, the market and its analysis are not fixed once and for all, but will be subject to regular reassessments. In markets with frequent and comprehensive changes such reassessments will of course have to be carried out relatively frequently. This analysis has a time horizon of two to three years. The market analysis is therefore limited in the extent to which it is forward-looking, cf. the Guidelines, paragraph Background 5. In March 2002 the European Union (EU) adopted four new directives that are to provide the regulatory framework for electronic communication networks and electronic communication services in future. A fifth directive was also adopted in October The directives, which are relevant to the EEA, came into force with effect for Norway from 1 November 2004, from which date they were incorporated into the EEA Agreement and made applicable to the EEA. The five directives are: The Framework Directive - Directive 2002/21/EC on a common regulatory framework for electronic communications networks and services; The Access Directive - Directive 2002/19/EC on access to, and interconnection of, electronic communications networks and associated facilities; The Authorisation Directive - Directive 2002/20/EC on the authorisation of electronic communications networks and services; The Universal Service Directive - Directive 2002/22/EC on universal service and users rights relating to electronic communications networks and services; and The Privacy and Electronic Communications Directive - Directive 2002/58/EC concerning the processing of personal data and the protection of privacy in the electronic communications sector.

9 6. The new regulatory framework is to lay the foundations for harmonisation of regulations in the EU/EEA, limit entry barriers and create conditions for sustainable competition for the benefit of users. 7. As described in the document Methodology for market analysis 1 (the Method Document), the work on market analysis may be divided naturally into three phases: 1. Define relevant markets by defining relevant product markets and defining geographic markets. 2. Carry out market analyses of each of the relevant markets, with a view to revealing the extent to which any provider has significant market power, as well as reaching a decision on whether there are or are not providers with significant market power in each of the relevant markets. 3. Impose obligations on those providers identified as having significant market power. 8. This document contains NPT s assessments in Phases 1) and 2). The document was first circulated for consultation on 9 December 2003, and NPT then received comments from the Norwegian Competition Authority, NetCom AS, Sense Communications International AS, Telenor ASA, Tele2 Norge AS and Ventelo Norge AS. These comments entailed certain changes in the analysis. In particular, the replies have caused NPT to undertake a more thorough analysis of whether a situation of collective dominance can be said to exist in markets. 9. In the period 24 May 2005 to 29 June 2005, a new national consultation was conducted on the market analysis along with the notification of decisions for the market. Relevant comments on the market analysis have accordingly been incorporated and the analysis has been updated (see Annex 2 for a summary of the aforementioned consultation). 1.2 Legal framework for the market analysis 10. In the context inter alia of the EU s five directives mentioned above, the Norwegian Storting (parliament) has passed the Electronic Communications Act 2, which came into force on 25 July The Act s definition of significant market power is, in accordance with section 3-1, as follows: A provider has significant market power when the provider individually or jointly with others has economic strength in a relevant market affording the provider the power to behave to an appreciable extent independently of competitors, customers and consumers. Significant market power in one market may result in a provider having significant market power in a closely related market. 11. The term significant market power in the Act on Electronic Communications is very close to the competition law standard dominance. It follows from Norway s obligations under the EEA Agreement that identification of providers with significant market power is to be 1 Metode for markedsanalyse (Methodology for Market Analysis), 6 January 2005, NPT. 2 The Act on Electronic Communications (Ekomloven) is available at html. 9

10 carried out in accordance with the guidelines and recommendations prepared by ESA under the new framework directive for electronic communication services: Guidelines on market analysis and the assessment of significant market power (hereinafter referred to as the Guidelines ) 3 Recommendation on relevant markets (hereinafter referred to as the Recommendation ) The documents are available on NPT s website under the menu selection SMP. 13. In accordance with the Guidelines a market analysis is to provide the basis for the assessment of relevant markets and of significant market power and the assessment is to accord with competition law methodology. The Guidelines and the Recommendation, together with the provisions of the Electronic Communications Act, particularly 3-1 to 3-3, will therefore form the legal framework for the market analysis. However, the Guidelines are not exhaustive and therefore in its methodology document NPT has elaborated on the criteria for the market analysis on certain points. If the Guidelines and the Recommendation are amended, NPT will amend this document accordingly. It is the current version of the methodology document that provides the basis for the market analyses that NPT undertakes In accordance with the Act on Electronic Communications, ex ante regulation of providers with significant market power is only to be used where this is necessary in order to achieve sustainable competition in the relevant or adjacent markets. In the Norwegian market regulatory obligations may only be imposed on operators with significant market power in those markets in which ESA or NPT has decided that sector-specific regulation is necessary. In each of these relevant markets NPT must assess the extent to which sustainable competition exists. Sustainable competition in this context means that there is no operator in the relevant market who, individually or jointly with others, has significant market power. See more about this under General Market Definition, section The document Methodology for market analysis prepared by NPT (the methodology document) is not legally binding, but expresses NPT s understanding of the guidelines to which NPT is obliged to adhere. The market analyses will therefore be carried out in accordance with the viewpoints and assessments that are expressed in the methodology document. Should there prove to be discrepancies between the methodology document and the Guidelines or the Recommendation, the methodology document will yield. 16. The document Methodology for market analysis in no sense regulates the Norwegian Competition Authority s assessments in accordance with the Competition Act. Even if NPT s assessments in accordance with the methodology document will largely be based on competition law methodology, and will thus be closely aligned with ordinary competition law, NPT s assessments will be motivated by the requirement for general ex ante regulation, whilst the competition authorities assessments are as a rule ex post in connection with actual cases. The Competition 3 EFTA Surveillance Authority Guidelines 14 July EFTA Surveillance Authority Recommendation 14 July 2004 with the Commission s Explanatory Memorandum 2003/311/EC. 5 The updated version of NPT s methodology document can be found at 10

11 Authority s and NPT s assessments in accordance with the two sets of rules may therefore differ even within the same or overlapping markets. 1.3 General Market Definition 17. As stated above, in regard to the market analyses, NPT must assess whether the markets defined by ESA suit Norwegian circumstances. A description/definition of the product market is to be given and the geographic market defined. Subsequently an assessment has to be made as to whether the market conditions are of such a nature that there is a need for sector-specific regulation. The product market 18. The Recommendation states that the description/definition of the product market shall be based on an assessment of demand and supply-side substitution. A relevant product market is made up of products or services that are sufficiently substitutable for users. 19. Demand-side substitutability exists when two or more products in the market are, in the perception of the end user, mutually exchangeable or substitutable on the basis of characteristics, price and area of utilisation. 20. Supply-side substitutability exists when providers of other (non-substitutable) products, as a response to a marginal price change in the short term, can change their production or distribution and offer substitutable products without incurring significant additional costs or substantial risk. 21. An acknowledged method of analysing substitutability is the so-called hypothetical monopolist test (SSNIP), where one endeavours to find the bestdefined market in which a hypothetical monopolist can exercise market power 6. The test is done on the basis of a small but significant (in practice 5-10 %) and nontransitory price increase for the relevant product, based on the assumed price level in a market with effective competition. All other prices are assumed to be unchanged. Then one assesses the effect of the price increase in the relevant market and assesses the total effect on the producer s revenue as a result of the price increase. It is very important to determine how profitable such a price increase is for the producer. 22. The Recommendation does not make use of the SSNIP test an absolute requirement in market definition for the market analyses. In any case, such a test by itself would not be decisive. The description of the SSNIP test in the Recommendation should be understood as a description of a procedure and a set of criteria for assessing market definition. In the individual analyses it will be natural and practical to base a definition on the terms and the procedure that the SSNIP test describes even though the method cannot be used in its formal numerical form. 23. A further assessment criterion used in market definition is whether there are joint pricing constraints between products. In such cases it can be expected that both providers and those demanding the products largely view pricing of the products as one, and that it is therefore the total price that is significant for demand. Such joint pricing constraints can indicate that the products are in the same market, even though in principle neither demand nor supply-side substitution indicates this. 6 Small but Significant Non-transitory Increase in Price. See the Guidelines, paragraph

12 The geographic market 24. Once the relevant product markets are determined, the geographic market is defined. The outer geographic borders for the relevant product market will as a rule be determined by the extent of the network and the jurisdiction of the legal regulation of the market. The extent to which a more detailed geographic definition of the market has to be carried out will rest on an assessment of the substitutability of the relevant products and services on the supply and the demand side, with a small but significant non-transitory price increase as described above. 25. The relevant geographic market is that area in which the relevant products and services are provided on sufficiently similar or homogeneous competitive terms. In assessment of substitutability on the demand side one should take account of preferences and geographic purchase patterns, if such information is available. With this as the basis the markets can be defined regionally within the national frontiers, nationally or trans-nationally. NPT can only define regional or national markets. 26. Assessment of the relevant geographic market will be somewhat different depending on whether the assessment is made ex post or ex ante. A definition of geographic markets ex ante must inevitably have a wider basis and a more general approach than is taken with a definition ex post. An ex post definition is based on an actual event the extent of the effects of which one can chart, whilst the forwardlooking assessment must be based to some extent on different circumstances. This will therefore also characterise the scope of the assessment of the relevant geographic market. 27. In accordance with the Electronic Communications Act, 1-3, cf. Regulation of 4 July 2003 No. 882, the Electronic Communications Act applies to Svalbard, Jan Mayen, the dependencies and Antarctica. However in regard to Svalbard, exceptions have been made for Chapter 3 (significant market power), Chapter 4 (access) and 9-3 (consultation procedure). However, electronic communications on Jan Mayen, the dependencies and Antarctica are assumed to have very little significance for the market analyses NPT carries out in accordance with the Electronic Communications Act. Definition of divergent relevant product markets/additional criteria 28. It may become relevant to define markets that diverge from those markets that have previously been defined in the Recommendation. In that case the consultation procedure under section 9-3 of the Electronic Communications Act is to be followed. When the relevant product market is defined, the following additional criteria, in accordance with section 3.3 of the Recommendation are to be present for the market to qualify for sector-specific ex ante regulation in the electronic communications area: 1. There are structural or regulatory entry barriers in the relevant product market. 2. The market has characteristics such that it will not sufficiently tend towards sustainable competition 7. 7 Here the Recommendation uses the term effective competition, which may best be translated into Norwegian as virksom konkurranse. The Guidelines define this as a market in which operators with significant market power are absent, cf. paragraph 19. This cannot be interpreted in an antithetical manner, i.e. the presence of a provider with significant market power will prevent the market from 12

13 3. Ordinary competition law does not sufficiently address the objectives behind sector-specific regulation. 2 Description and definition of the relevant product market 2.1 Market definition in the Recommendation 29. In its definition of the relevant market, NPT s starting point is the description of the relevant market in the Recommendation and the Explanatory Memorandum. After a brief review of the relevant market in Norway, NPT undertakes, inter alia, assessments of demand-side substitution possibilities at the retail level. The market is therefore defined first at the retail level, in accordance with the Explanatory Memorandum. 8 Thereafter, the effects of these conclusions on the definition of the relevant market at the wholesale level are reviewed. NPT also considers whether factors particular to Norway may require a market definition different from the one in the Recommendation. 30. The relevant product market corresponds to Market 15 in the Recommendation: Access and call origination on public mobile telephone networks. 9 The following contains a brief summary of the market definition for this market, cf. the Recommendation and Explanatory Memorandum. 31. The Explanatory Memorandum discusses the retail and wholesale markets in the mobile area. Several separate mobile markets can be defined at the retail level, including markets for connecting to the mobile network and outgoing and incoming calls. 32. It also mentions that any market segments for access, origination and termination in the retail market should be analysed as one, inter alia because customers normally want access to mobile networks not only to make and receive calls (voice) but also to send and receive text messages and use other mobile services. According to the Recommendation it is uncertain whether residential customers and businesses are in the same market at the retail level. However, substitutability on both the demand and supply sides is deemed to be relatively high. Connection to mobile networks in the form of pre-paid card or subscription and post paid subscription is regarded as being sufficiently substitutable on both the demand and supply sides to be in the same market, cf. also the Explanatory Memorandum. Retail customers also demand mobile services when they are abroad. Access abroad is provided through becoming more competitive. Proposition No. 58 to the Odelsting ( ) p. 99 states: If none of the providers has significant market power then there is assumed to be sustainable competition in the market. While the meaning of the two terms is not exactly the same, NPT therefore assumes that the terms will coincide for this purpose. 8 In accordance with the Explanatory Memorandum, the starting point for the definition and identification of markets is a characterisation of retail markets over a given time horizon, after which it is appropriate to identity relevant wholesale markets (cf. section 3.1 of the Recommendation s Explanatory Memorandum). 9 The relevant market from the Recommendation: Access and call origination on public mobile telephone networks, referred to (separately) in Annex I (2) of the Framework Directive in respect of Directives 97/33/EC and 98/10/EC. 13

14 international roaming. From a demand perspective, international roaming must be regarded as constituting a separate retail market. Nevertheless there will be supplyside substitution, which according to the Recommendation indicates that it would be appropriate to define a broader outgoing calls market at the retail level that includes national, international and roaming calls. 33. It follows further from the Recommendation that providers of mobile phone calls at the retail level also require access to the mobile network and the capacity to offer outgoing and incoming phone calls to retail customers. Thus a retail customer s demand for subscription/access and outgoing calls corresponds at the wholesale level to access and call origination on the mobile network. Consequently, a major input factor for mobile telephony and other mobile services is mobile networks. In principle, access to mobile networks and outgoing calls (call origination) are non-substitutable services on the demand or supply sides. Using existing technology, they are, however, offered collectively by the network operator under the same pricing constraints. 10 The Recommendation therefore concludes that access and call origination are in the same market at the wholesale level. 34. The Recommendation sets up three different wholesale markets in the mobile area: The market for access and call origination on public mobile telephone networks (Market 15), voice call termination on individual mobile networks (Market 16) and the wholesale national market for international roaming on public mobile networks (Market 17). The Recommendation has no relevant retail markets in the mobile area. 35. No separate relevant markets for SMS and/or data services are laid out in the Recommendation. 36. The Explanatory Memorandum states that the market for access and call origination on public mobile telephone networks is unlikely to be included in future revisions of the Recommendation. 11 However, it should be pointed out that NPT will continue to undertake specific assessments of the competitive situation in Norway before the Recommendation is either followed or departed from. 2.2 Market for access and call origination on mobile networks in Norway overview and history Introduction 37. In this chapter, NPT provides a short overview of the Norwegian mobile market, giving special attention to the wholesale market for access and call origination on mobile networks. Among other things, it provides an overview of the major operators in the market on both the supply and demand sides. 38. The relevant market is a market at the wholesale/network level. A more precise definition of the market is given in section The Explanatory Memorandum (p. 7) states that the starting point for the identification and definition of markets is a characterisation of retail markets over a given time horizon. When the markets involving supply to and demand from end users have been identified, these will form the background for identification of the 10 Both operators and those demanding services increasingly view the pricing of individual elements as one; it is this total price that is significant for demand of the package. 11 See Explanatory Memorandum, section 4.3.1, Access and Call Origination. 14

15 wholesale markets, which are markets involving the demand for and supply of products offered by third parties in the retail markets. This means that, in the analyses of the wholesale markets, NPT has taken into account the associated retail markets Overview 40. In the early 1980s, Televerket (now Telenor ASA, hereinafter referred to as Telenor ) established the NMT 450 network and then later also NMT 900. At the end of 1991 Telenor and NetCom AS (hereinafter referred to as NetCom 12 ) were granted licences to construct, own and manage the GSM 900 mobile network. In the autumn of 1993 the first commercial GSM services were launched. NetCom and Telenor were granted licences for DCS 1800 in In December 2000, Telenor and NetCom were granted licences for UMTS mobile networks. 41. The first agreement governing access to mobile networks (a resale agreement, also referred to as a service provider agreement) was entered into at the end of The two parties to the agreement were Telenor Mobil and Sense. Today, just under 20 companies offer mobile telephony to the residential and business market through resale agreements with Telenor Mobil, NetCom or both From 2000 until December 2003, Tele2 Norge AS (Tele2) offered mobile services based on a service provider agreement with Telenor Mobil. In September 2002 Tele2 signed an MVNO agreement with Telenor Mobil. The agreement gives Tele2 access to Telenor Mobil s 2G and 3G networks in Norway while simultaneously providing Telenor access to Tele2 s mobile network in Sweden. Since December 2003 Tele2 has offered mobile services based on the MVNO agreement. In the autumn of 2005, TDC Song and Ventelo entered into an agreement on MVNO access to Telenor s mobile network. 43. In January 2002 Teletopia Mobile Communications AS (Teletopia) was granted a licence to construct, own and manage a public telephone network using frequencies in the 1800 MHz band. At the same time BaneTele was issued a licence for frequencies in the 900 MHz band. This licence was later transferred to Harald A. Møller AS (MøllerGruppen). 44. Furthermore, in September 2003, Hi3G Access Norway ( 3 ) was given permission to use frequencies set aside for a third-generation mobile communications system (3G) in Norway. 45. In December 2004, Nordisk Mobiltelefon AS was granted permission to use frequencies in the 450 MHz band, and has begun to build mobile networks based on CDMA technology Retail market 46. Service providers offer end users in the residential and business market access to mobile networks and services through pre-paid cards/subscriptions and post-paid subscriptions. The price components normally found consist of a registration charge, a monthly charge, starting price and minute price per call as well as a unit price per SMS/MMS message and a price per megabyte for data transmission. In the case of 12 NetCom as is now a wholly owned subsidiary of TeliaSonera AB (TeliaSonera). Because this market analysis covers the mobile market in Norway, references hereinafter will be to NetCom. 13 An overview of providers of mobile services can be found at under the menu selection SMP. 15

16 pre-paid cards/subscriptions no subscription charge applies, but in return the minute price is often somewhat higher. For both forms of access it is common practice to operate with a registration charge of NOK End users can access mobile services such as voice telephony, SMS, MMS and other data services. These services are generally offered through the same subscription, i.e. bundled. Mobile data services, such as so-called mobile Internet, as well as a range of various content services have also become available in recent years. In addition, the end user has access to international roaming, which means that the individual user can use their mobile telephone to make and receive calls as well as use certain data services while staying outside the country in which they have established a subscription. 48. At the end of June 2005, there were just over 4.8 million mobile customers in Norway, equivalent to a mobile density of about 104 %. Even so, it must be emphasised that the actual number of end users is somewhat lower because some end users have more than one subscription and/or pre-paid card. There has been rapid growth in mobile telephone density in Norway, from approximately 47 % in 1998 to 75 % in 2000, 102 % in 2004 and 104 % at the end of the first half of Growth has slowed somewhat in recent years. Increased use of machine-to machine subscriptions (used for example to preheat holiday cabins and for point-of-sale terminals) has served to push mobile telephone density to over 100 %. Turnover 2004 Revenue originated traffic Revenue terminating traffic Revenue SMS Subscriptions and registration Other revenues International roaming Figure 1: Total revenue in the mobile market in 2004 including international roaming and termination. Figures given in NOK million. (Source: The Norwegian Telecom Market 2004, NPT) 49. As shown in Figure 1, total revenue in the mobile market in 2004 was about NOK 16.7 billion including international roaming and termination, excluding VAT. 14 A comprehensive summary of retail prices in the residential market can be found at 16

17 2.2.4 Supply-side operators in the relevant market Existing suppliers in the GSM market 50. The supply side of the wholesale/network level in the mobile network is currently made up of Telenor Mobil AS (hereinafter Telenor Mobil 15 or just Telenor) and NetCom.Both Telenor Mobil and NetCom have virtually nationwide GSM networks (GSM 900/1800). Both of these companies operate as network operators, service providers and content providers, and must therefore be regarded as vertically integrated companies. Both companies are currently obliged to allow access to their GSM networks. This is due to the fact that the companies have been deemed to have significant market power in the GSM market, cf. Telecommunications Act 2-1 first paragraph, cf. Public Telecommunications Network and Services Regulations Chapter 4 and the Electronic Communications Act Telenor Mobil is a wholly owned subsidiary of Telenor ASA (Telenor). Telenor owns most of the infrastructure for electronic communication in Norway, including the fixed access network, transmission capacity etc. 17 Telenor has interests in 12 mobile companies in Europe and Asia, owning, among others, Sonofon in Denmark and Telenor Mobil Sverige AB in Sweden. Telenor also recently purchased Vodafone s mobile operations in Sweden. 52. NetCom was established at the end of the 1980s and in November 1991 became the first private telephone operator to be granted a GSM licence. NetCom is owned by TeliaSonera AB. TeliaSonera, which is the largest telephone group in the Nordic countries, also has mobile enterprises in Sweden (Telia), Finland (Sonera) and Denmark (Telia). TeliaSonera s operations cover the majority of areas in the electronic communication sector. 18 UMTS 53. At the present time there are three companies holding UMTS permits/licences in Norway: Telenor Mobil, NetCom and 3. Telenor Mobil, NetCom and In December 2000 Telenor Mobil and NetCom were granted licences to construct, own and manage a public UMTS telephone network together with Broadband Mobile ASA and Tele Due to Broadband Mobile s bankruptcy in the autumn of 2001 and the subsequent withdrawal of its licence by Ministry of Transport and Communications, and Tele2 s return of its licence for the construction and management of a thirdgeneration mobile network in November 2002, the two available 3G licences were auctioned in the summer of In accordance with Report no. 18 ( ) to the Storting (parliament), supplementary report to Report no. 32 ( ) to the Storting on the situation in the Norwegian mobile market, cf. Recommendation No. 192 ( ) to the Storting, the minimum requirements for coverage area and speed of construction were reduced in relation to the first round of licences. New 15 Telenor Mobil is a wholly owned subsidiary of Telenor ASA. Because this market analysis covers the mobile market in Norway, references hereinafter will usually be to Telenor Mobil. 16 NetCom as is a wholly owned subsidiary of TeliaSonera AB (TeliaSonera). Because this market analysis covers the mobile market in Norway, references hereinafter will be to NetCom. 17 A description of Telenor can be found, inter alia, at 18 A description of TeliaSonera can be found at ,00.html 17

18 holders of 3G licences are now obliged to give 3G coverage to 30 % of the population within six years of the granting of a licence. 19 In addition, the requirement to pay a minimum price of NOK 200 million per concession/licence has been withdrawn. 56. Only 3 submitted a bid (NOK 62 million), and on 20 September 2003 was granted permission to use frequencies reserved for 3G in Norway. 57. UMTS expansion has been delayed in many parts of Europe. The main reasons for this are the general economic downturn in the period following the granting of licences in Europe and delays in the process of developing a common UMTS standard. This in turn has caused delays on the equipment side, both in terms of network equipment and also handsets. 58. In conjunction with the hearing of Report no. 32 ( ) to the Storting and Report no. 18 ( ) to the Storting, Telenor Mobil and NetCom were therefore given an extension of 15 months for the construction of the UMTS network without having to pay compensation charges to the State. 59. Telenor started commercial operation of its UMTS network on 1 December NetCom opened its UMTS network in February 2005, initially only for data traffic already has a strong presence in the Nordic countries through operations in both Sweden and Denmark. The company has around 9 million customers (as of August 2005) in Australia, Austria, Italy, Sweden, the UK, Denmark, Ireland and Hong Kong. The company reported in August 2005 that it had just over customers in Scandinavia MHz band 61. As a result of the auction in June 2004, the frequency band that until 31 December 2004 was used for NMT 450, has been assigned to the Nordisk Mobiltelefon AS (Nordisk Mobiltelefon). The frequency assignment contains certain requirements for geographic coverage. Coverage is to be offered mainly in areas that currently lack or have poor quality GSM coverage. The network is also required to support services corresponding to the services usually associated with mobile telephony. The rollout according to the minimum requirements was to be completed by 15 September 2005, and access to the public mobile telephone network shall be offered. 62. Nordisk Mobiltelefon aims to establish a third-generation mobile network based on the CDMA450 standard. 63. In addition to basic voice services, CDMA450 supports data services, including all typical supplementary services such as SMS, MMS, , wap/webbrowsing etc. The standard is available in several versions. CDMA450 1X is often described as a 2.5G technology and is being compared to GSM/EDGE. CDMA450 EV-DO (Data Only) is being established in parallel with 1X and provides a data transfer capacity that is 1.5 to 2 times higher than UMTS. CDMA450 networks have 19 In the previous offering the minimum coverage requirement was set at 12 specific densely-populated areas. Paragraph 4.2 of the offer document states that 90 per cent of the population in each of the 12 densely-populated areas shall be covered within five years of the granting of the licence. 20 Updated information on the companies coverage areas for their UMTS networks can be found on Telenor s and NetCom s websites. 21 See 18

19 been established in 20 countries, and regulatory authorities in a number of other countries, including Brazil and India, are considering the establishment of 3G networks in the 450 MHz band. 64. The current limited size of the market is considered to be one of the largest obstacles to the spread of the standard. Handset prices are relatively high and the selection is limited. The advantage of the standard is that it makes it possible to establish 3G networks with far lower capital and operating costs than UMTS. 65. Despite all the attention the standard has received, NPT deems it unlikely that Nordisk Mobiltelefon will, to an appreciable degree, compete with existing GSM/UMTS providers for ordinary end users within the time horizon of this analysis. As of 1 November 2005, 55 base stations have been completed in Norway and the network is operative. Nevertheless, the company has not launched any services commercially. Moreover, Nordisk Mobiltelefon s initial goal is to sell data traffic in rural areas and deliver telephony to niche users such as hunters and fishermen. 23 To begin with, the handsets will therefore not be compatible with the GSM and UMTS networks, ruling out roaming, among other things. End users will need two mobile telephones if they want national coverage and/or use the telephone in Europe. In NPT s view, this will probably lead to ordinary end users not viewing the voice telephony service as a substitute for GSM/UMTS over the lifetime of this analysis Demand-side operators and products at the wholesale level in the Norwegian mobile market 66. Operators on the demand side can basically be divided into two groups: operators with their own mobile network (including radio network) and operators without their own mobile network. In principle, the products network owners Telenor and NetCom offer these operators can be divided into four groups: co-location agreements, agreements on national roaming, agreements on Mobile Virtual Network Operator (MVNO) access and service provider agreements. There is no sharp divide between the three latter forms of access. Operators with their own network infrastructure/radio infrastructure 67. Newer operators that have or may get their own radio infrastructure include the network operators Teletopia and MøllerGruppen on GSM, 3 on UMTS and Nordisk Mobiltelefon on CDMA 450 technology. In the long term these operators could also become providers in the wholesale market, but are regarded for the time being as demand-side operators. 68. Teletopia has rolled out a GSM 1800 network in Oslo and states that the network provides coverage for 180,000 people in the Oslo area. The other operators currently do not offer services in the retail market. 69. These operators can demand access to the existing GSM and 3G networks, inter alia in the form of national roaming, co-location and/or other infrastructure sharing. 22 See 23 See, inter alia, information on the company s website, 19