Case AT/2009/0970: Wholesale broadband access (WBA) in Austria

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1 EUROPEAN COMMISSION Brussels, C(2009)10006 SG-Greffe (2009) D/10967 Rundfunk und Telekom Regulierungs-GmbH (RTR) Mariahilferstraße A-1060 Wien Austria For the attention of: Mr Georg Serentschy and Mr Wolfgang Beran Fax: Dear Mr Beran, dear Mr Serentschy, Subject: Case AT/2009/0970: Wholesale broadband access (WBA) in Austria Withdrawal of serious doubts and comments pursuant to Article 7(3) of Directive 2002/21/EC 1 I. PROCEDURE On 3 September 2009 the Commission registered a notification from the Austrian National Regulatory Authority, Rundfunk und Telekom Regulierungs GmbH (RTR) concerning the market definition for the third review of the market for wholesale broadband access in Austria. On 11 September 2009 a request for information was sent to RTR. The response was received on 16 September On 5 October 2009 the Commission, pursuant to Article 7(4) of the Framework Directive, informed RTR that it had serious doubts as to the compatibility of the draft measure with Community law (the serious doubts letter). On 8 October 2009 RTR provided additional information as well as a modified version of the draft measure which was subsequently discussed with RTR in a conference call held on 15 October Directive 2002/21/EC of the European Parliament and of the Council of 7 March 2002 on a common regulatory framework for electronic communications networks and services (the Framework Directive), OJ L 108, , p. 33. Commission européenne, B-1049 Bruxelles / Europese Commissie, B-1049 Brussel - Belgium. Telephone: (32-2)

2 On 16 October 2009 the Commission posted a notice on its website inviting third parties to submit observations on the Commission s serious doubts letter within five working days. On 27 October 2009, a new request for information was sent to RTR. The response was received on 30 October On 11 and 26 November the Commission held additional conference calls with RTR. On 27 November 2009 RTR submitted the revised version of its draft measure. II. DESCRIPTION OF THE DRAFT MEASURES II.1. The draft measure originally notified The notified draft measure covers the market definition for the third review of the market for wholesale broadband access (WBA) in Austria 2. In order to define the wholesale broadband access market, RTR started its analysis by examining the corresponding retail market. In this regard, RTR proposed that, due to profound variations in prices and differences in product characteristics and service levels, retail DSL products for business customers on the one hand and for residential customers on the other hand do not belong to the same market. RTR consequently defined separate retail broadband access markets for residential customers and for business customers. As regards the residential customers retail broadband access market, in order to identify the access technologies to be included, RTR carried out a SSNIP test (small but significant non-transitory increase in prices), as a result of which mobile broadband 3 connections and cable TV (CATV) were indicated as adequate substitutes of DSL connections 4. RTR defined therefore the relevant product market as including DSL connections as well as mobile and CATV connections. The relevant geographic market is defined as national. As regards the business customers' retail broadband access market, RTR, on the basis of a SSNIP test, included only xdsl connections. It found that internet connections over CATV networks or mobile connections are not included. The relevant geographic market is defined as national Corresponding to market 5 of the Commission Recommendation 2007/879/EC of 17 December 2007 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, OJ L 344, , p. 65, (the Recommendation). RTR's analysis takes only into account those mobile broadband connections which are offered with a volume of at least 250 MB under the monthly basic charges, or at least 750 MB per quarter. As regards fixed and mobile broadband substitution, in its reply to the Request for Information (RFI) received by the Commission on 16 September 2009, RTR provided further details of retail mobile broadband offers in terms of (i) monthly fee ( 9-15); (ii) maximum download speed ( Mbit/s or even 21 Mbit/s), although RTR points out that the very high speeds are rarely achieved in practice; (iii) download volume 3-15 GB. In comparison, TA's duo-play offer (voice + internet) with 8Mbit/s download speed costs For the SSNIP test ~ 3000 consumers were questioned about their reactions in case prices of DSL connections were to increase by 10%. 2

3 Subsequently, RTR carried out the three criteria test 5 with regard to both retail broadband access markets. In both cases RTR concluded that the three criteria test is not met and the retail broadband access markets are hence not susceptible to ex ante regulation. As regards the residential customers' retail broadband access market, RTR considered that a trend towards effective competition can be identified mainly due to infrastructure-based competitive pressure exercised by mobile network operators 6. As regards the retail broadband access market for business customers RTR came to the conclusion that the three criteria test is not met only because of the existence of regulatory obligations at the wholesale level. In the light of these considerations, RTR's starting point is that only the wholesale broadband access market based on bitstream connections for the subsequent use of business customers may warrant ex ante regulation. All external and self-provided DSLbitstream connections for the subsequent use of business customers are thus included in the relevant wholesale market. Furthermore, RTR considered that, as regards external or self-provided connections through alternative infrastructures, such as CATV or mobile connections, no sufficient indirect constraint exists at the retail level, due to the fact that the business customers retail broadband access market only includes xdsl broadband connections, and concluded therefore that connections provided to business customers through alternative infrastructures are not to be included in the relevant wholesale market. Similarly, RTR did not consider self-provided DSL-bitstream connections for the subsequent use of residential customers as an adequate substitute to the bitstream access product for the subsequent use of business customers, as no sufficient indirect constraint at the retail level would exist. According to RTR, such connections do, as a consequence, not form part of the relevant market. On the contrary, as regards external DSL bitstream connections for the subsequent use of residential customers, RTR argued that, from a technical viewpoint, such connections do not differ from the external DSL-bitstream connections for the subsequent use of business customers. RTR claimed that the technical input is identical at the wholesale level, and most ISPs do not differentiate at all between residential or business customers 7. Therefore RTR proposed initially that, due to supply-side substitutability, these connections were to be included in the relevant market. Moreover, as regards Fibre to the Home (FTTH), of which only 3,500 lines have been RTR assessed whether (i) the market is characterized by high, non-transitory barriers to entry, (ii) the market lacks a tendency to effective competition, (iii) competition law alone is insufficient to address the market failure identified. TA's market share based on the number of connections sold amounts to ca. 35% (43% including the market share of its subsidiary Mobilkom). However, according to RTR, neither TA nor Mobilkom would be able to behave independently of their competitors on the market, mainly due to competitive constraints from the alternative mobile broadband operators. Prices have been decreasing considerably from April TA is therefore facing strong and increasing competitive pressure from alternative mobile operators, as well as competition from CATV and LLU operators. RTR also adds that a trend towards effective competition would be identified even in absence of wholesale bitstream regulation, as the market share of bitstream connections is only 2% and declining. In its reply to the RFI sent on 16 September 2009, RTR confirmed its view that wholesale bitstream products are technically so similar that there is no need for differentiation on the basis of product characteristics. RTR noted, however, that TA differentiates between residential and business wholesale product profiles by overbooking ratio (1:5 and 1:30 ratio respectively). RTR further noted that both Telekom Austria and the ISPs offer broadband connections to business customers under both their "Business" and "Residential" wholesale service profiles. RTR did not provide prices for wholesale products. 3

4 rolled out by alternative operators at this stage (Telekom Austria has only announced trials during the course of 2010), RTR informed that the products provided via FTTH have so far no sufficiently disciplining impact on the products included in the relevant market. FTTH was consequently excluded from the relevant market, whereas Fibre to the Curb (FTTC), Fibre to the Building (FTTB) as well as VDSL2 from the MDF form part of the relevant market. 8 The relevant geographic market is defined as national. RTR carried out the three criteria test for the wholesale broadband access market for bitstream connections for the subsequent use of business customers, as delineated above, and concluded that the three criteria are fulfilled and the wholesale broadband access market for the subsequent use of business customers is thus susceptible to ex ante regulation. II.2. The Commission's letter of serious doubts In its serious doubts letter, the Commission considered that RTR had not provided sufficient evidence as to: (i) The inclusion of mobile broadband access in the residential customers retail broadband access market: the Commission considered that RTR had not provided sufficient evidence to support its finding that mobile broadband access is an adequate substitute of fixed broadband access and should consequently be included in the relevant market for residential customers retail broadband access. In particular, the Commission stated that, in accordance with the Commission's Guidelines on Market Analysis 9, in order to correctly define the substitutability of two different products a proper assessment of the functionality and end use of the relevant products is necessary. The Commission noted that RTR should have analysed whether all fixed and mobile broadband connections can be used for specific applications such as the download of music or films and whether they provide sufficiently secure connections allowing customers to use any of the connections for internet banking and other applications requiring a protected connection, as many residential broadband users use such functionalities of their broadband connection. The Commission also referred to the role that double, triple or quadruple play offers already have in the retail market for residential customers, as such offers are usually considered a key source of nonsubstitutability between fixed and mobile broadband services in other European markets. (ii) The market definition at the wholesale level: the Commission noted that RTR defined the relevant wholesale product market on the sole basis of the products offered at the retail level, without carrying out a detailed substitutability analysis of the wholesale products available. Furthermore, the Commission pointed out that the planned exclusion of self-supplied bitstream connections for the subsequent use of residential customers from the relevant market could lead to a 8 9 As specified by RTR in its reply to the RFI of 16 September 2009, currently FTTH is offered only by small alternative operators, reaching altogether around 3500 lines. As of mid-2010 TA plans to launch fibre pilot projects, mainly FTTC and FTTB. RTR expects a larger FTTH roll-out by TA not earlier than 2011 when RTR would be obliged by law to review the market. Commission Guidelines on market analysis and the assessment of significant market power under the Community regulatory framework for electronic communications and services, (2002/C/165/03), OJ C 165, , p.6. 4

5 too narrow market definition, carrying the risk of under-regulation. On the other hand, including externally supplied bitstream connections for the subsequent use of residential customers into the relevant product market could lead to a too wide market definition and at the later stage to an incorrect market share calculation and SMP assessment, carrying the risk of over-regulation. II.3. The revised draft measure RTR notified a modified draft measure replacing the original notification and submitted additional information 10 in order to address the serious doubts raised by the Commission. The key features of the amended notification and additional information submitted by RTR are summarised below. II.3.1. Retail market definition: inclusion of mobile broadband in the residential customers' broadband access market Firstly, RTR provides additional information concerning overall growth rates of DSL, CATV and mobile broadband connections between 2003 and Q , as well as the share of mobile broadband connections in total connections in the residential market in the years Further, RTR adds that a price analysis based on price regressions shows that prices of fixed and mobile broadband connections moved closely together and that fixed broadband providers directly react to price reductions introduced by mobile broadband operators. RTR also specifies that the four mobile HSDPA networks already cover between 70% and 94% of the population, and that around 98% of the population are covered by at least one mobile network. 13. In turn, with regard to spectrum availability, RTR adds that it is planning to make additional spectrum available in the course of Moreover, based on the customers' survey, RTR stresses that residential mobile broadband customers use their connection mainly on a stand-alone basis (76%), rather than coupled with a fixed connection (24%). RTR also notes that most mobile broadband connections are used at a fixed location e.g. at the customer's home. Residential customers view therefore mobile broadband as a substitute rather than a complement to fixed broadband, and the observed elasticity according to the customers' survey is higher On 8 October 2009 RTR submitted a first revised version of the draft measure, complemented by a paper titled "Further information about fixed-mobile broadband substitution in Austria" submitted on the same day. Moreover, additional information on fixed/mobile broadband substitution as well as on the wholesale market definition was submitted by RTR in the response to the second Request for Information received by the Commission on 30 October. Finally, a new revised version of the draft measure was submitted by RTR on 27 November Average growth rates : DSL 10.6%; CATV 4.7%; Mobile 34.8%. Average growth rates Q1/2007-Q1/2009: DSL 3.4%; CATV 0.7%; Mobile 19.6%. Total average growth amounts to 8.8% for the period , 6.3% for the period Q1/2007- Q1/2009. The shares of technology used by residential customers in Q were as follows: Mobile ~ 35%; DSL ~ 40%; CATV ~ 22%. The share of mobile broadband connections has increased strongly in the last two years; it also counted for ~ 70% of new broadband access lines in Q1/2009. According to RTR, Hutchinson 3G's HSDPA network already reaches 94% of the population. Mobilkom is planning to achieve 90% in the course of 2009, whilst Orange covers 70%. No precise information is available as regards T-Mobile, although RTR estimates that it should amount to approximately 75-80%. At the occasion of a conference call held on 26 November 2009, RTR informed the Commission that consultations have already been launched as regards the allocation of the 2.6 GHz band. 5

6 than the critical elasticity 15. Past switching behaviour would also indicate that there is a significant change from fixed to mobile access technology. RTR also shows that from the customers' perspective no significant differences exist in terms of product functionalities, concerning low-level bandwidth (i.e. web surfing, ing) and higher level bandwidth (i.e. large volume downloads) applications or applications requiring a secure connection (i.e. online banking) and that the overall usage by end customers of fixed and mobile connections does not differ to such an extent that it would indicate that both access products are to be considered complements rather than substitutes from a demand-side perspective. Furthermore, RTR highlights that for TV services about 55% of residential customers in Austria use satellite antennas and terrestrial antennas, whereas only between 5.8% to 13% obtain TV services from their DSL access provider 16. RTR points also to the fact that IPTV has not prevented fixed broadband access customers from switching to mobile broadband access. It further adds that based on its consumer survey results ~ 94% of residential customers use either mobile or fixed broadband exclusively to access the internet 17. RTR also points out that mobile network operators currently offer wholesale services which would allow ISPs to offer fixed and mobile bundled services at the retail level 18. RTR concludes therefore that bundled offers will not prevent a sufficiently large number of customers from switching from fixed to mobile broadband access in order to argue against the substitutability of the two products. Finally, with specific regard to product characteristics, RTR argues that the existing difference in terms of bandwidth 19 or volumes 20 are not significant enough to conclude that a hypothetical monopolist on the fixed access market could profitably impose a small but significant non-transitional price increase of 5 to 10% without being The critical elasticity of demand indicates the maximum value of the price elasticity of demand which would allow a hypothetical monopolist to profitably increase the price by at least 5-10%. If the actual elasticity exceeds this value, such a price increase will be unprofitable, and the relevant market definition will have to be broader. RTR further adds that TV services based on streaming and DVB-H technology are currently offered by Mobile Network Operators (Hutchinson 3G, Mobilkom, T-Mobile and Orange), although such services are to be considered as a complement rather than substitute to fixed TV services, due to their technical characteristics. However, RTR considers this element negligible with the regards to the substitutability analysis as TV services bundled with fixed broadband access are only purchased by 36.2% of customers. RTR considers that fixed/mobile bundled products will not be offered on a significant basis in the residential market, as residential customers are usually not willing to pay a mark-up for both fixed and mobile access. Such wholesale offers are provided by Mobilkom and T-Mobile. RTR states that the average actual bandwidth of mobile broadband connections (around 1Mbit/s at the end of 2008) is likely to be lower than the average bandwidth of fixed broadband connections. According to RTR, individual fixed lines may, however, only deliver 1 MBit/s or less depending on the length of the lines, shared capacity or other reasons. Therefore RTR does not conclude that mobile broadband performs in general worse than fixed broadband with regard to bandwidth. RTR specifies that even low price packages already include rather high volumes: 15GB for 15 per month are offered by two mobile operators, whereas Mobilkom offers 19GB for 19 per month. Furthermore, in some offers the speed is reduced once the volume limit is reached, with no additional costs for exceeding the volumes. Finally, pre- and post-paid tariffs are offered whereby customers pay per GB used ( 4 per GB offered by two operators). For further information see footnote 2 above and footnote 22 below. 6

7 constrained by the mobile offers in the market. II.3.2. Wholesale market definition In order to address the Commission's serious doubts, in the amended version of the draft measure RTR excludes external bitstream connections for the subsequent use of residential customers from the wholesale market definition. RTR defines the wholesale broadband access market as only including all external and self-provided DSL-bitstream connections for the subsequent use of business customers. On the contrary, both external and self-supplied bitstream connections for the subsequent use of residential customers do not form part of the relevant market. RTR provides further analysis on whether self-supplied DSL-bitstream connections for the subsequent use of residential customers could be supply-side substitutes to bitstream connections for the subsequent use of business customers. RTR takes the view that, although from a technical viewpoint such connections do not differ from the external DSL-bitstream connections for the subsequent use of business customers, the external offer of bitstream connections provided by Telekom Austria (TA) 21 only exists as a result of regulatory pressure, and consequently cannot be used as evidence for supply-side substitution. Furthermore, RTR adds that only ~500 DSL bitstream lines 22 are provided externally in Q1/2009 by alternative operators that also supply externally and internally to residential customers, with a sharply decreasing trend 23, and concludes that supply substitution by internally provided DSL connections for the subsequent use of residential customers could not take place in sufficient volumes and in the necessarily prompt manner. Moreover, RTR adds that the inclusion of external supplied DSL-bitstream connections for the subsequent use of residential customers into the product market definition would entail the ex ante regulation of all external supplied DSL-bitstream connections irrespective whether in the retail market it is used to supply residential customers or business customers. As, however, competition problems only exists as regards the retail broadband access market for business customers, such a scenario would risk to over-regulate DSL-bitstream connections for the subsequent use of residential customers. RTR concludes therefore that, in order to avoid the risk of over-regulation, externally provided bitstream for the subsequent use of residential customers should also be excluded from the relevant market. III. ASSESSMENT Having indicated its serious doubts pursuant to Article 7(4) of the Framework Directive, RTR clarifies in its reply to the RFI received on 30 October that the lines provided externally by TA for the subsequent use of residential customers amount to 48,600. TA operates 906,200 lines in total, which includes 745,300 lines provided internally for the subsequent use of residential customers; 95,600 provided internally for the subsequent use of business customers; 16,700 provided externally for the subsequent use of business customers. Moreover, RTR expects Telekom Austria to continue to provide external bitstream lines for the subsequent use of residential customers as TA has publicly announced this in the past and stated this several times in consultation inputs. In its response to the Commission's request for information dated 27 October, RTR specifies that around 90% of these ~500 bitstream DSL-lines are destined for the subsequent use of business customers. RTR also indicates that the number of self-provided lines by alternative operators based on unbundling amounts to around 257,000 lines (~ 51,000 to business customers and 206,000 to residential customers). 7

8 the Commission may then consider, on the basis of further information, developments or analysis arising during the second phase of the notification procedure, that these doubts are no longer founded. The Commission may make comments to the NRA concerned at that stage. The Commission has examined the amended notification as well as the additional information submitted by RTR on 8 October and 27 November 2009 and no longer has serious doubts concerning the notified draft measure in its modified form. This conclusion is based on the following reasons: (i) Retail market definition: The Commission stresses that fixed and mobile retail broadband services are normally not belonging to the same market. However, on the basis of the following circumstances closely related to the specificity of the Austrian market, the Commission accepts the inclusion of mobile and broadband connections into the retail residential market for the purposes of the present notification. The Commission recalls that, in order to correctly assess the substitutability of two different products and with particular regard to fixed-to-mobile substitutability, utmost account should be taken of the different product functionalities used by the end customers, as well as other key factors such as, inter alia, download throughput, upload throughput, latency, network oversubscription, packet loss, service continuity, etc. The speed and quality of mobile broadband access is normally less predictable and reliable and largely dependent on variable elements such as the distance to the nearest network base station or atmospheric conditions. Customers can consequently be more often exposed to disconnections due to weak signals from a base station, jamming, network overloading, etc. Furthermore, taking into account the rapid pace of mobile broadband take up in Austria, mobile operators may face increased network congestion, which could limit their ability to offer a competitive range of products in the near future. With regard to the potential upgrade of fixed networks and particularly a potential roll-out of high speed NGA networks the above technical differences as to the available bandwidth capacity could increase in the future, especially as the bandwidth for mobile broadband, even in case of the implementation of HSPA+ and LTE technology, may, where the network is shared amongst several users, not reach the same speed levels as upgraded fixed and especially FTTx and DOCSIS 3.0 connections and/or be made available only at higher prices if compared to the fixed network. Apart from the thorough assessment of the above technical features further characteristics must be taken into account when analysing substitutability of fixed and mobile broadband products. This involves in particular the analysis of whether the two product types lie within a comparable price range so that a consumer could switch from a fixed broadband connection to a mobile broadband connection if a hypothetical monopolist were to increase the price of the fixed broadband connection by a small but significant amount, e.g. by 10 %. Furthermore, widespread geographical availability should enable potential switching between the two products on a sufficiently large scale. Finally, when assessing demand-side substitutability robust evidence must be presented concerning the actual patterns of use of the two types of connections. In this respect, the Commission notes that, according to the evidence submitted by RTR, product characteristic differences as detailed above do not currently have a considerable impact on demand-side substitutability in Austria, as they are 8

9 not preventing residential customers from using applications needing secure connections, such as online banking. Moreover, RTR also provides evidence that the data transfer limits imposed by mobile operators would not prevent subscribers from using advanced multimedia services, such as streaming media or downloading large files, as even low price packages currently offered already include rather high volumes 24, and attractive pre- and post-paid tariffs exist. Finally, the particularly high HSDPA network coverage in Austria should also be taken into account in this respect 25. In light of the above information regarding the similar use and pricing 26 of fixed and mobile broadband products in Austria, the Commission considers that, despite the different product characteristics, the information provided by RTR adequately supports the conclusion that, on the basis of specific national circumstances relating to demand-side substitutability in the Austrian market, mobile broadband connections can be considered as an adequate substitute to fixed broadband connections within the current review period. Thus, mobile broadband connections can be included in the residential customers' retail broadband access market. For those reasons the Commission considers that RTR has provided sufficient evidence supporting its conclusion that fixed and mobile broadband connections can be considered as substitutes in the residential customers' retail broadband access market in Austria. (ii) Wholesale market definition: the Commission takes note of the additional arguments put forward by RTR with regard to the non-inclusion of self-supplied bitstream connections for the subsequent use of residential customers in the relevant market. The Commission also notes that, on the basis of the amended reasoning provided by RTR, the external offer of bitstream connections for the subsequent use of residential customers provided by TA only exists as a result of regulatory pressure, and consequently should not be used as evidence for supplyside substitution coming from the residential bitstream market. With regard to the external bitstream offer of alternative operators for the subsequent use of residential customers, the Commission notes that this offer only has a marginal impact on the relevant market and consequently on the regulatory outcome. Furthermore, the Commission takes note of RTR's intention to avoid the risk of over-regulating DSL-bitstream connections for the subsequent use of residential customers while competition problems only exists as regards the retail broadband access market for business customers. The Commission acknowledges therefore the exclusion of external bitstream connections for the subsequent use of residential customers from the wholesale market definition In its reply to the second RFI RTR provides additional data showing that a significant percentage of mobile broadband users are satisfied with a volume of <1GB at an average price of 4 or with a volume of <3GB at an average price of 9. Also, a real flat rate (no volume limits, no speed reduction) for has recently been launched by Hutchison 3G. RTR therefore does not consider volume limits as a relevant barrier to switching from fixed to mobile broadband connections. See footnote 13 above for further details. Moreover, RTR adds that MNOs are also planning to invest in higher bandwidths: Mobilkom has HSDPA+ test operations in Vienna in March 2009, whereas Hutchinson 3G has announced that it intends to ramp to HSDPA+ by the end of LTS is also being tested by Mobilkom and T-Mobile and could become available from 2010/2011. See footnote 20. 9

10 Moreover, the Commission has the following comments: Inclusion of mobile broadband connections in the residential customers retail broadband access market definition The Commission invites RTR to closely monitor future market developments, with particular regard to constraints of further mobile broadband take up in comparison to the evolution of fixed broadband networks and to the impact that the planned roll out of an NGA access network in Austria could have on the substitutability of mobile broadband products with fixed line access products. The Commission also invites RTR to swiftly change the market definition in case its forecasts on the continued substitutability of fixed and mobile broadband products and NGA roll-out prove to be incorrect. Impact of the inclusion of mobile broadband connections in the market definition at the wholesale level and potentially changing broadband market structures over time The objective of any ex ante regulatory intervention is ultimately to produce benefits for end-users by making retail markets competitive on a sustainable basis. The Commission notes that the inclusion of mobile broadband connections in the residential retail broadband access market affects the market definition at the wholesale level. Infrastructure-based competitive pressure exercised mainly by mobile network operators resulted in effective competition in the residential retail broadband access market which appears sustainable during the review period even in the absence of regulated wholesale inputs. This leads to the conclusion that there is no need to identify a wholesale broadband access market for bitstream connections for the subsequent use of residential customers for the purposes of ex ante regulation. Against this background the Commission underlines that a potential exclusion of mobile broadband connections from the relevant retail market due to reassessment of the substitutability of fixed and mobile broadband accesses would make it necessary for RTR to also analyse in detail whether the wholesale broadband access market for the subsequent use of residential customers warrants ex ante regulation. In such a scenario RTR would also have to consider the inclusion of external and self-supplied bitstream access lines for the subsequent use of residential customers into the market definition. Furthermore, irrespective of the roll out of the NGA other factors - such as an upgrade of fixed networks, constraints of further mobile broadband take up, a significant increase of the share of broadband access customers that switch from stand alone fixed or mobile broadband access to (i) bundled offers including fixed broadband services which are not replicable to mobile broadband providers or to (ii) bundled offers of fixed and mobile broadband services - may as well trigger a change of the market structures at the retail and consequently the wholesale level. To this end, the Commission invites RTR to closely monitor developments potentially leading to changes in the market structure and re-examine and adapt its market definition as soon as such a modification of the market structure could be observed. Exclusion of FTTH from the relevant market With regard to the exclusion of FTTH from the relevant market, RTR considers that the products provided via FTTH have at the moment no sufficiently 10

11 disciplining impact on the products included in the relevant market and that only ~ 3500 lines were provided by alternative operators in Q RTR committed to review the market definition as soon as TA deploys FTTH broadband access lines, since these could constitute a substitute for ISPs in the wholesale markets. Furthermore, RTR indicates that if unbundling in Telecom Austria's NGA network was no longer possible and no other adequate access alternative (e.g. access to ducts and dark fibre, backhauling, virtual unbundling) was available, then the conclusions regarding the end-user markets (and, accordingly, the wholesale market) would also be reviewed. In this respect, the Commission invites RTR to closely monitor the fibre roll out in Austria and to review the market by carrying out a detailed substitutability test in respect of products based on FTTH networks as soon as TA plans the launch of a commercial product based on this technology. The Commission also underlines that, at the level of the market definition, the substitutability of products should be assessed on a forward looking basis. The Commission is currently working on a Recommendation on remedies for Next Generation Access networks, in order to ensure legal certainty for investors and to prevent undesirable divergences of regulatory approaches in the internal market. In the light of this, the Commission invites RTR to revise its analysis along the lines of this Recommendation once adopted. Market delineation at the time of market analysis The European telecommunications markets are undergoing fast technological and economic changes. The notification of the market definition including the three criteria test in advance of the full market analysis and the proposed remedies therefore harbours the risk that the subsequent SMP analysis is based on a market, which is no longer correctly delineated, or is no longer susceptible to exante regulation. In particular, possible changes to the structure of the relevant market as mentioned above may require the adjustment of the market definition even before RTR's notification of the SMP analysis. For this reason and with particular regard to the case at hand, the Commission considers the approach to notify the market definition, the market analysis and the proposed remedies separately as an inadequate means to identify and address competition problems on the telecommunications markets and above all on the wholesale broadband access market as currently notified, where the market definition of the previous review round was altered due to an analysis of the market dynamics which is not formally subject of the present notification. The Commission therefore points out to RTR that any notification of a draft SMP analysis has to be based upon the effective delineation of the relevant market concerned at the time of that notification. In turn, the Commission urges RTR to adapt its market definition as soon as market developments suggest different market boundaries. In the light of the above considerations, the Commission should reserve its rights, when assessing the subsequent notified draft market analysis, to examine whether the market definition used in such a notification still reflects the market reality prevailing when the relevant market is actually reviewed by the Austrian Regulator. Pursuant to Article 7(5) of the Framework Directive, RTR shall take utmost account of comments of other NRAs and the Commission and may adopt the resulting draft 11

12 measures and, where it does so, shall communicate them to the Commission. The Commission s position on this particular notification is without prejudice to any position it may take vis-à-vis other notified draft measures. Pursuant to Point 15 of Recommendation 2008/850/EC 27, the Commission will publish this document on its website. The Commission does not consider the information contained herein to be confidential. You are invited to inform the Commission 28 within three working days following receipt whether you consider that, in accordance with Community and national rules on business confidentiality, this document contains confidential information which you wish to have deleted prior to such publication 29. You should give reasons for any such request. Yours faithfully, For the Commission, Neelie Kroes Member of the Commission Commission Recommendation 2008/850/EC of 15 October 2008 on notifications, time limits and consultations provided for in Article 7 of Directive 2002/21/EC, OJ L 301, , p. 23. Your request should be sent either by INFSO-COMP-ARTICLE7@ec.europa.eu or by fax: The Commission may inform the public of the result of its assessment before the end of this three-day period. 12