NOTIFICATION OF DRAFT MEASURES PURSUANT TO ARTICLE 7(3) OF DIRECTIVE 2002/21/EC For the markets for

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1 NOTIFICATION OF DRAFT MEASURES PURSUANT TO ARTICLE 7(3) OF DIRECTIVE 2002/21/EC For the markets for Retail leased lines, Wholesale terminating segments of leased lines, irrespective of the technology used to provide leased or dedicated capacity and Wholesale trunk segments of leased lines. Under the obligation stipulated in Art.16 of Directive 2002/21/EC, as amended by Directive 2009/140/EC of the European Parliament and of the Council (the Framework Directive), the Communications Regulation Commission (CRC) has conducted analyses of the markets for Retail leased lines, Wholesale terminating segments of leased lines, irrespective of the technology used to provide leased or dedicated capacity, and Wholesale trunk segments of leased lines. On July 19, 2012 CRC has reached its preliminary conclusions on the relevant markets definition, the fulfilment of the three criteria on markets that are not included in the Recommendation on relevant markets, the state of competition on these markets, the designation of undertakings having significant market power and the regulatory obligations to be imposed. CRC hereby notifies the European Commission, the Body of European Regulators for Electronic Communications (BEREC) and the National Regulatory Authorities (NRAs) in other Member States of its proposed regulatory measures in accordance with Art.7(3) of the revised Framework Directive. The draft measures are specified in the Summary notification form and elaborated in detail in the attached hereto draft analyses document. Under Art.6 of the revised Framework Directive and according to the national procedures, CRC has carried out two public consultations on national level. The first public consultation started on February 21, 2012 and ended on March 22, 2012 and the second public consultation ran from June 5, 2012 till July 6, CRC has also requested the opinion of the National Competition Authority, the Commission on Protection of Competition, on the analyses. The draft measures have taken into account the comments of the interested parties received in the course of the public consultations, and the opinions of the Commission on Protection of Competition. 1

2 STANDARD NOTIFICATIONS OF DRAFT MEASURES PURSUANT TO ARTICLE 7 OF DIRECTIVE 2002/21/EC Please state where applicable: Section 1 Market definition 1.1. The relevant product/service market. CRC defines leased lines (in Section III, item 1 of the draft analyses document) as the telecommunications facilities which provide for transparent transmission capacity between network termination points and which do not include on-demand switching (switching functions which the user can control as part of the leased line provision). CRC has used this definition, and namely the functional characteristics of leased lines stipulated thereunder 1, as a milestone for defining the relevant product markets for retail leased lines and wholesale terminating and trunk segments of leased lines. The defined functional characteristics have been used as the objective characteristics taken in consideration in the assessment of the demand and supply substitutability of the products/services, together with their intended use and prices, as well as in terms of the conditions of competition. Retail market Market for retail leased lines Based on the demand and supply substitutability analysis, CRC has defined (in Section IV of the draft analyses document) the market for retail leased lines as comprising all services provided downstream to end users, which imply the defined functional characteristics of a leased line, irrespective of the capacity and of the technology used to provide the leased or dedicated capacity. Wholesale markets: As leased lines may be required also by undertakings which in turn provide electronic communication services downstream to end users, CRC has defined two wholesale markets, i.e. the market for wholesale terminating segments of leased lines and the market for wholesale trunk segments of leased lines, as broadly parallel to the defined retail market. For the purpose of properly defining these two wholesale markets, in Section V of the draft analyses document, CRC has determined the delineation point between them taking into account the network topologies of the Bulgarian undertakings, including of undertakings providing electronic communication services other than leased lines, for the purpose of assessing the potential competition as a competitive constraint. As far as dedicated trunk connections may be assumed as an alternative to long-distance (transit) call conveyance, CRC has investigated the coverage achieved by the core networks of the Bulgarian undertakings. Dedicated connections may be assumed also as an alternative to local loops, so CRC has 1 CRC has defined the following functional characteristics pertinent to leased lines irrespective of the technology used for the provision of the service: a point-to-point link between 2 network termination points, named by the customer, implying leased or dedicated symmetric and transparent capacity whereas on-demand switching is not provided, which the customer can control as part of the service 2

3 investigated the deployment of the national local access networks. Both investigations have been carried out in order to determine the locations where concentration of traffic occurs at national level. The implemented analysis revealed that the concentration of traffic occurs at the lowest points of interconnection between national networks, including with the network of the incumbent the Bulgarian Telecommunications Company AD (BTC), whereas these points are located within the 27 biggest cities of the country, which happen to be also the centres of the state administrative districts. Consequently, CRC has defined the delineation point between the market for wholesale terminating segments of leased lines and the market for wholesale trunk segments of leased lines to be located within the 27 administrative district centres of Bulgaria, which CRC has named explicitly in the market analyses document. In view of this definition, all wholesale leased lines, the 2 end points of which are located within any 2 different administrative district centres of Bulgaria, shall be considered as wholesale trunk segments of leased lines. All other wholesale leased lines provided within an administrative district shall be considered as wholesale terminating segments of leased lines. Market for wholesale terminating segments of leased lines, irrespective of the technology used to provide leased or dedicated capacity The market for wholesale terminating segments of leased lines comprises all wholesale leased lines, as follows (see Section VI, item 1 of the draft analyses document): - Wholesale leased lines, irrespective of the technology used, the 2 end points of which are located within only one settlement situated on the territory of a certain district (the so called local leased lines); - Wholesale leased lines, irrespective of the technology used, one of the 2 end points of which is located within the administrative centre of a certain district and the other is located within any different settlements situated on the territory of this very district; - Wholesale leased lines, irrespective of the technology used, the 2 end points of which are located within any 2 different settlements, other than the administrative centre of a district, which are situated on the territory of that district As a result of the substantiated existence of different competitive conditions, CRC has defined two submarkets for wholesale terminating segments of leased lines (see Section VI, item 1 of the draft analyses document): Submarket for wholesale terminating segments of leased lines with speeds of up to and including 8 Mbit/s, irrespective of the technology used to provide the leased or dedicated capacity, and Submarket for wholesale terminating segments of leased lines with speeds of above 8 Mbit/s, irrespective of the technology used to provide the leased or dedicated capacity. Market for wholesale trunk segments of leased lines The market for wholesale trunk segments of leased lines comprises all leased lines provided upstream to other undertakings, irrespective of their capacity and of the technology used to provide the leased or dedicated capacity, the 2 end points of which are located within any 2 different administrative district centres of Bulgaria (see Section VII, item 1 of the draft analyses document) Is this market mentioned in the Recommendation on relevant markets? Market for retail leased lines The market for retail leased lines is not mentioned in the 2007 Recommendation on relevant markets (Recommendation 2007/879/EC). 3

4 It is not mentioned also in the 2003 Recommendation on relevant markets (Recommendation 2003/311/EC, repealed) Market for wholesale terminating segments of leased lines, irrespective of the technology used to provide leased or dedicated capacity The market for wholesale terminating segments of leased lines, irrespective of the technology used to provide leased or dedicated capacity, corresponds to market 6 as listed in the Annex to the 2007 Recommendation on relevant markets Market for wholesale trunk segments of leased lines The market for wholesale trunk segments of leased lines is not mentioned in the 2007 Recommendation on relevant markets It is comprised in the Annex to the 2003 Recommendation on relevant markets as market The relevant geographic market. On the basis of the conclusions reached in the analysis of the presence of sufficiently homogeneous conditions of competition throughout the territory of Bulgaria, CRC has defined the geographic scope of the envisaged markets as follows: Market for retail leased lines The market is national in scope (see Section IV, item 3 of the draft analyses document). Market for wholesale terminating segments of leased lines, irrespective of the technology used to provide leased or dedicated capacity The market is national in scope. (see Section VI, item 2 of the draft analysis document) Market for wholesale trunk segments of leased lines The market is national in scope. (see Section VII, item 2 of the draft analysis document) 1.3. A brief summary of the opinion of the national competition authority, where provided. According to the opinion of the National Competition Authority, the Commission on Protection of Competition, CRC has defined the markets in compliance with the criteria and principles of competition law. (See Section II, the comments at the end of items 1 and 2) 1.4. A brief overview of the results of the public consultation to date on the proposed market definition (e.g. how many comments were received, which respondents agreed with the proposed market definition, which respondents disagreed with it). CRC has carried out two public consultations on national level. The first public consultation started on February 21, 2012 and ended on March 22, 2012 (see Section II, item 1 comments of the interested parties during the first public consultation) and the second public consultation ran from June 5, 2012 till July 6, 2012 (see Section II, item 2 comments of the interested parties during the second public consultation). Opinions of the Commission on Protection of Competition have also been received within both public consultations. In the course of the public consultation procedures positions on the proposed draft measures have been submitted by three interested parties: BTC, Mobiltel EAD and the Society for electronic communications (SEC). The following main statements have been included in the positions of the interested parties in relation to the definition of the product markets concerned: 4

5 BTC reveals the opinion that the services MAN City and MAN Intercity provided over its packet switched IP/MPLS core and metropolitan area networks should be excluded from the scope of the product markets concerned, because the OSI layer 2 Ethernet-based services do not comply to the definition of leased line mainly due to the point-to-multipoint basic architecture of the Ethernet networks and to the unguaranteed dedicated capacity provided over the shared segments of the network. According to SEC, the service provision of dark fibre should be comprised within the product markets concerned as far as its intended use is similar to that of unlimited analogue leased line - a service provided by BTC until 2004 in the form of bare copper pair. Mobiltel EAD has suggested that the submarket for wholesale terminating segments of leased lines with speeds of up to and including 8 Mbit/s shall further be segmented into 3 submarkets for wholesale terminating segments of leased lines with speeds of up to 2 Mbit/s, up to 4 Mbit/s and up to and including 8 Mbit/s. The suggestion is based on the proposed price control obligations (see Section VIII, item of the draft analysis document) to be imposed on BTC on the relevant market and, specifically, on the ratio of 1,35 and 1,97 to be applied to the price ceiling of 2Mbit/s leased line where calculating the price ceilings of 4 Mbit/s and 8 Mbit/s wholesale terminating segments of leased lines. Adequately stating the reasons thereto, CRC has not accepted the viewpoints of the interested parties. The proposed product market definitions remain unchanged after the two public consultations Where the relevant market is different from those listed in the Recommendation on relevant markets, a summary of the main reasons justifying the proposed market definition by reference to Section 2 of the Commission guidelines on market analysis and the assessment of significant market power under the Community regulatory framework for electronic communications and services2, and the three main criteria mentioned in recitals 5 to 13 of the Recommendation on relevant markets and Section 2.2 of the accompanying Explanatory Note.3 Not applicable. 2 OJ C 165, , p Explanatory Note accompanying the Commission Recommendation of 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, C (2007)5406 published at 83_2.pdf 5

6 Please state where applicable: Section 2 Designation of undertakings with significant market power 2.1. The name of the undertakings designated as having, individually or jointly, significant market power Market identified as susceptible to ex-ante regulation (see Section VI, item 4.1 of the draft analyses document): Submarket for wholesale terminating segments of leased lines with speeds of up to and including 8 Mbit/s, irrespective of the technology used to provide the leased or dedicated capacity, identified as susceptible to ex ante regulation The Bulgarian Telecommunications Company AD (BTC) is the undertaking designated as having individually significant market power (SMP) on the relevant market (see Section VI, item 5.3 of the draft analyses document) Markets identified as not susceptible to ex-ante regulation: Pursuant to art.152, par.5 of the Law on Electronic Communications (LEC), CRC is obliged to apply the three criteria in order to determine whether a market not included in the Recommendation on relevant markets, or otherwise defined with respect to those included in the Recommendation, is susceptible to ex-ante regulation. Accordingly, CRC has assessed the cumulative presence of the three main criteria mentioned in recitals 5 to 13 of the 2007 Recommendation for the markets, as follows: Market for retail leased lines (see Section IV, item 5 of the draft analyses document) Market for wholesale trunk segments of leased lines (see Section VII, item 4 of the draft analyses document) Submarket for wholesale terminating segments of leased lines with speeds of above 8 Mbit/s, irrespective of the technology used to provide leased or dedicated capacity (see Section VI, item 4.2 of the draft analyses document) Following the application of the three criteria test, CRC has concluded that the aforementioned markets are not susceptible to ex-ante regulation as they do not fulfil cumulatively the three criteria. Pursuant to art.152, par.6 of LEC, CRC may not implement further analysis of markets for which it has found that the three criteria are not cumulatively fulfilled. Consequently, CRC has not concluded market analysis for the aforementioned markets. As a result of the application of the three criteria test and the outcomes there from, CRC has not designated undertakings as having, individually or jointly, significant market power on the markets for retail leased lines, for wholesale trunk segments of leased lines and for wholesale terminating segments of leased lines with speeds of above 8 Mbit/s, irrespective of the technology used to provide leased or dedicated capacity, as defined in the draft analyses document. Where applicable, the name of the undertakings considered no longer to have significant market power. At present, BTC is designated (under CRC Decision No 1315 of June 20, 2006) as an operator having SMP on the market for the minimum set of leased lines (irrespective whether provided downstream to end users or upstream to other undertakings, which in turn provide electronic communication services to end users). Nevertheless that the former definition of the market 6

7 for the minimum set of leased lines does not correspond to the definitions of the respective markets under the draft market analyses document, it can broadly be assumed that BTC may be considered to have no longer SMP on the markets for retail leased lines and for wholesale trunk segments of leased lines The criteria used to designate an undertaking as having significant market power, individually or jointly, or not. Submarket for wholesale terminating segments of leased lines with speeds of up to and including 8 Mbit/s, irrespective of the technology used to provide leased or dedicated capacity Taking into consideration that a high market share alone is not sufficient to establish whether BTC has SMP on the relevant market, based on the characteristics of that market CRC has decided to use the following criteria, further to the market share of BTC, as adequate to measure the power of the incumbent to behave to an appreciable extent independently of its competitors (see Section VI, item 5.2 of the draft analyses document): Barriers to entry and market expansion on the relevant market whereas the following barriers have been considered in detail: - control of infrastructure not easily duplicated; - sunk costs; - economy of scale and scope; and - vertical integration Absence of or low countervailing buying power; Lack of potential competition 2.3. The name of the main undertakings (competitors) active in the relevant market. The main competitors of BTC (the undertaking designated as having individually SMP), which operate on the submarket for wholesale terminating segments of leased lines with speeds of up to and including 8 Mbit/s, irrespective of the technology used to provide leased or dedicated capacity, which hold individually a market share of above 5% in terms of number of lines in 2011 are: Sofia Communications EAD ( СОФИЯ КОМЮНИКЕЙШЪНС ЕАД), Netera EOOD ( НЕТЕРА ЕООД) and Racom AD ( РАКОМ АД). (see Section VI, item of the draft analyses document) 2.4. The market shares of the undertakings mentioned above and the basis for calculation of market share (e.g. turnover, number of subscribers). In the process of gathering of information for the present market analyses, the undertakings operating on the upstream markets have declared that for them the distribution of revenues from leased lines provided upstream to other operators into revenues generated from wholesale terminating segments and from wholesale trunk segments shall be a very demanding exercise. For that reason, CRC has decided to estimate the market shares of the undertakings operating on the upstream markets in terms of number of lines, instead of making artificial separation of the information on revenues with a risk to distort the conclusions of the analyses. The undertakings operating on the relevant submarket for wholesale terminating segments of leased lines with speeds of up to and including 8 Mbit/s, irrespective of the technology used to 7

8 provide leased or dedicated capacity, have market shares (in terms of number of lines) in 2011 as follows (see Section VI, item of the draft market analyses document): BTC (the undertaking designated as having SMP) 53,6% Sofia Communications EAD 26,2% Netera EOOD 8,2% Racom AD 6,1% The other undertakings operating on the relevant market have in 2011 a cumulative market share of 5,9%. In order to assess the possibility for the SMP undertaking BTC to transfer its market power from the relevant market to the vertically related market for retail leased lines, CRC has made additional assessment of its market share taking into account not only the volume of the merchant market but also the self-provision of wholesale inputs (self-supply) on the retail market. This assessment has revealed a market share (in terms of number of lines) of BTC of 84,7% in 2011 on the submarket for wholesale terminating segments of leased lines with speeds of up to and including 8 Mbit/s, irrespective of the technology used to provide leased or dedicated capacity The opinion of the national competition, authority where provided. The National Competition Authority, the Commission on Protection of Competition, has not commented on the SMP designation on the submarket for wholesale terminating segments of leased lines with speeds of up to and including 8 Mbit/s, irrespective of the technology used to provide leased or dedicated capacity. The statement of the Commission is attached to this notification The results of the public consultation to date on the proposed designation(s) as undertakings having significant market power (e.g. total number of comments received, numbers agreeing/disagreeing). One respondent agreed with the conclusions made by CRC regarding the lack of need of regulatory interventions on the market for retail leased lines, on the submarket for wholesale terminating segments of leased lines with speeds of above 8 Mbit/s and on the market for wholesale trunk segments of leased lines. The other respondents have not expressed an opinion. BTC, the undertaking designated to have SMP on the submarket for wholesale terminating segments of leased lines with speeds of up to and including 8 Mbit/s, states that there s no need of regulatory intervention on that submarket because of the established (according to the undertaking) on it effective competition. BTC s conclusion is based mainly on the presumption made by the incumbent that the pricing behaviour of the alternative undertakings is not influenced by the designated SMP operator but is driven by market demand. The comment of BTC has not been accepted (see Secion II, items 1 and 2 of the draft analyses document). The proposed SMP designations remain unchanged after the consultations. 8

9 Please state where applicable: Section 3 Regulatory obligations 3.1. The legal basis for the obligations to be imposed, maintained, amended or withdrawn (Articles 9 to 13 of Directive 2002/19/EC). Submarket for wholesale terminating segments of leased lines with speeds of up to and including 8 Mbit/s, irrespective of the technology used to provide leased or dedicated capacity (see Section VIII, item 5.2 of the draft analyses document): Specific obligation Legal basis EU Regulatory Framework Bulgarian Legislation Obligations of access to, and use of, specific network facilities Art. 12 of Directive 2002/19/EC LEC: art. 173; art. 174, par. 1, items 1, 2 and 3 art. 174, par. 2 Obligation of transparency Art. 9 of Directive 2002/19/EC LEC: art. 167, par. 1 Obligation of non-discrimination Art. 10 of Directive 2002/19/EC LEC: art. 168 Price control Art. 13 of Directive 2002/19/EC LEC: art. 166, par. 2, item 5 The price control obligation entails the limiting of price increase to a predetermined price ceiling which was defined under the retail minus pricing methodology. CRC has determined the price ceiling which provides for a margin of 18% between the prices on the vertically linked retail market and the relevant wholesale market. Retail traditional leased lines between 2 Mbit/s and 8 Mbit/s (included) are not provided by the incumbent, therefore the price ceiling of 18% is applied to a retail price calculated using the ratios as follows: Leased lines Ratio to the price of 2 Mbit/s 2 Mbit/s 1 4 Mbit/s 1,35 8 Mbit/s 1,97 Ratios were calculated using average monthly fees of traditional leased lines with respective speeds provided by alternative operators. ІІІ. Withdrawal of imposed obligations All current specific obligations of BTC which are not accordingly amended or prolonged as specific obligations imposed on the SMP undertaking on the market for wholesale terminating segments of leased lines with speeds of up to and including 8 Mbit/s, irrespective of the technology used to provide leased or dedicated capacity are withdrawn. 9

10 More specifically obligations which have been imposed on BTC on markets on which the undertaking may be considered already to have no SMP (i.e. on the markets for retail leased lines and the wholesale trunk segments of leased lines) are withdrawn The reasons for which the imposition, maintenance or amendment of obligations on undertakings is considered proportional and justified in the light of the objectives laid down in Article 8 of Directive 2002/21/EC. Alternatively, indicate the paragraphs, sections or pages of the draft measure where such information is to be found. See Section VIII, item 5 of the draft analyses document Where the remedies proposed are other than those set out in Articles 9 to 13 of Directive 2002/19/EC, please indicate what "exceptional circumstances" within the meaning of Article 8 (3) of that directive justify the imposition of such remedies. Alternatively, indicate the paragraphs, sections or pages of the draft measure where such information is to be found. Not applicable. Section 4 Compliance with international obligations In relation to the third intend of the first subparagraph of Article 8(3) of Directive 2002/19/EC, please state where applicable: 4.1. Whether the proposed draft measure intends to impose, amend or withdraw obligations on market players as provided for in Article 8(5) of Directive 2002/19/EC. Not applicable The name of the undertakings concerned. Not applicable What international commitments entered into by the Community and the Member States are to be met. Not applicable. 10