Case CZ/2021/2351: Wholesale access and call origination on public mobile telephone networks in the Czech Republic

Our association would like to submit observations regarding the
Commission's serious doubts letter - Case CZ/2021/2351: Wholesale
access and call   origination on public mobile telephone networks in
the Czech Republic.

Preface:
VNICTP is a one of the largest associations of small and medium
telecom operators in the Czech Republic. For the purpose of this
submission the opinions raised don't express opinion of our member -
Vodafone Czech Republic a. s.

Czech Republic has long history of Telecom regulatory failures in the
both fixed and mobile markets. Just for your information I include at
the end the excerpt of the market overview presented at the ECTA
conference in 2015 and shared with Commission (with no reaction).
Generally working wholesale offer by incumbent was nonexistent (both
fixed and mobile) as only formal offers not allowing for long term
competition existed. 2G and 3G mobile offers were nonexistent, 4G
offers were published but only in the way no serious competition could
existed. As a representative of the negotiating team with the mobile
operators I can testify to that.
Czech telecom office for a long time showed no willingness to address
the issue of the obvious anti competitive tactics, only in the last
few years we see slight improvement to tackle the issues. At the same
time we don't see any support from other national and supranational
bodies as Czech Competition office admitted flatly it can't and
doesn't know how to prove margin squeeze (ADSL case), at the same time
Commission refuses to address the issues as well when asked (DG Compet
- ADSL, mobile).
Local operators (because of the history and perceived favouritism of
the Czech Telecom Office towards the mobile operators) generally don't
trust regulatory bodies to resolve the issues, therefore there is a
lack of willingness to file formal complaints as such is regarded as
waste of time and money and they simply avoid those markets
altogether. Only in the last months the situation got so brazzen from
the side of mobile operators that few newer smaller entrants tried the
formal proceedings with the CTO with mixed results.  As a
representative and vice president of the association I can testify to
the number of operators being unable to profitably operate on the
mobile market via the wholesale offers.

To conclude: with this submission our association would like to
support the Czech Telecom effort to regulate mobile wholesale access.
We don't see at the present any other way to preserve market
competition on his particular market. In the light of the
unprecedented overwhelming positive public response to the local
public consultation on this issue we see the negative and very
formalistic reply of the Commission as rather tone deaf. We would
welcome more open minded Commission's approach including more thorough
insight and understanding of the local situation. Our association is
open to any future consultations on this matter.

Below please find the nonexhaustive brief comments to the published
document - Commission Decision in Case CZ/2021/2351: Wholesale access
and call origination on public mobile telephone networks in the Czech
Republic Opening of Phase II investigation pursuant to Article 32 of
Directive (EU) 2018/1972 from 15.12.2021.

1. In particular, the Commission questioned whether the first and
second criteria were met as there were many MVNOs in the market and
CTU expected in long run even more entry. Moreover, there were both a
regulated access offer and commercial access agreements available for
all technologies and the commercial access conditions were more
advantageous to MVNOs. There had been very few disputes and formal
complaints regarding access conditions. Moreover, retail prices,
although remaining on higher end in the EU, had decreased over the
preceding years in all segments of the retail market.

- number of MVNO does not equal existing functioning market. In the
past we criticized CTO lazy approach in such an analysis, in the
latest analysis the methodology improved a bit including the insight
into the margin profitability etc. Most of the MVNOS will comment the
margin squeeze is severe especially with the so called business offers
which are in order of magnitude lower than the wholesale prices.
- existence of the offers does not prove they are viable and non
breaking competition laws (just superficial observation by the
Commission)
- low number of disputes explained above, generally seen as waste of
money given the past experiences
- price decrease, prices decreased from very high positions, still
high, still margins squeeze (again just formal and superficial
observation by the Commission)

2. 3. ASSESSMENT
The Commission has examined the notification and the additional
information provided by the CTU and considers that the notified draft
measure/s would affect trade between Member States

- it's very interesting that this issue falls under the "would affect
trade between Member States" and our complaint that CTO and
Competition office don't know how to enforce non margin squeeze on the
fix market doesn't.

3. As regards high barriers to entry into the market (first
criterion), based on the information provided by CTU, there is clear
evidence of MVNOs’ presence in the market and the fact that entry is
still possible and happening, even though there might be a limited
potential for growth.

- again very superficial analysis by the Commission. Pure numbers of
companies don't mean anything without analysis of the long term
viability of doing business on this market. "Clear evidence of the
MVNO presence" was created by the 3 mobile operators to deflect
arguments of anti competitive behaviour. Feedback from the many
operators we represent is that such WS offers are unprofitable and
uncompetitive

4. Furthermore, the obligation to provide access to O2’s spectrum
based on cost oriented terms is valid until 2029, so the Commission
considers that in the interest of access seekers is to enter the
market as quickly as possible and benefit from this regulation which
should allow the replicability of current mobile offers.

- we don't see any evidence of any possible entry to influence the market

5. The fact that the leading MVNOs are fully or partly owned by the
MNOs is not uncommon in other national markets and is not, in itself,
a sign of a dysfunctional market, as it shows that MNOs have to react
with diversified strategies to customer demand for alternative offers.

- this can be interpreted exactly opposite way and Commission should
state any opposition when really understanding the phenomenon

6. In addition, most retail and wholesale prices have decreased over
the last years21 and the consumption of data per SIM card increased
drastically (for households - from 7.14 GB in 2017 to 37.7 GB in
2020)22, which further shows that the market has become increasingly
competitive.
Finally, already in 2016, CTU concluded that the market was tending
towards effective competition based among other factors on a
continuously growing number of MVNOs in the market and observed
decrease of retail prices.

- superficial observation, operators for a long time in collusion
artificially depressed the data volumes to limit the need to invest in
to the networks, the trend just was unbearable, data limits are below
developed countries
- we don't support 2016 CTU analysis which severely lacked and used
same simplistic views as present Commission analysis (pure number of
MVNO...)

7. Airtours criteria

- we believe the criteria are clearly met based on the market long
term behaviour

8.  At wholesale level, price evolution does not follow the same
pattern as retail prices, which may suggest that the latter are not a
good focal point for monitoring the behaviour in the wholesale market.
In addition, wholesale prices appear to differ among the three players
and fluctuate without any coordination pattern:

- based on the provided graphs the wholesale pricing situation cannot
be correctly assessed }many one time prices, additional fees, minimum
volumes etc.). Especially with the graph WS price per MB you can see
clear convergence

9. Moreover, the fact that O2 faces not only competitive market
pressure but it must also follow regulatory obligations creates
additional asymmetry in the market as the players in the oligopolistic
market are not anymore in the same position to act independently of
their competitors.

- we don't see any asymmetry, regulatory obligations are extraordinary weak

10. The same applies to the obligation imposed on all the holders of
5G spectrum to grant MVNO access for the purpose of providing mobile
data services. This obligation should be fulfilled by the MNOs by
mid-2022.

- we don't see any chance for improvement based on those obligations
as they are basically same as the obligations in the 4G tender which
didn't open the market at all. We commented as association and as
individual companies in all auctions raising these issues of non
working WS offer obligations, none of our comments were included.

---------------------------------------
Market overview excerpt:

Czech Republic Telecommunications Market

Regulatory Failure

1. Institutions

1.A. Non independent Czech Telecom Office (CTO is a local regulator)
- heavy control exercised by Ministry of Commerce (MoC nominates 5
person board of the CTO) utilizing relative passivity of the
government on the Telecom issues, large potential for nontransparent
lobby by the selected companies with ties to certain political party
- long tradition to nominate onto the CTO board passive, political
party loyal bureaucrats resulting in decrease of the market
competition and innovation
-- formalistic regulation with no attention to the reality of the
market. For example Mobile market analysis separately conducted for
voice and data neglecting the service expected by the end
user/customer

1.B. Inactive Ministry of Commerce
- certain tasks and formulation of the certain strategies/policies
removed from the CTO and taken over unilaterally by MoC raising the
fear of non transparent policy definition (no public discussion
process as opposed to the CTO where public opinions are heard and
considered)
- despite the above mentioned transfer of competencies MoC remains to
lack any real competence and expertise in Telecom field potentially
resulting in inefficient allocation of the EU funds and distortion of
market regulation and competition

1.C. Inactive Anti monopoly office
- heavily understaffed, rules only on minor infringements, possibly
influenced by incumbent
- major case of the possible Margin Squeeze on the xDSL unbundling by
Telefónica/O2 under investigation since 2008 with no result. This
results in need for affected parties to fight this case at the court
and bear full burden of proof without the powers of Anti monopoly
office to have access to the incumbents accounting and data. Similar
cases were investigated by the Commission as local regulators
frequently face Regulatory Capture issues (Spain, Poland, Germany, and
Slovakia etc.)

2. Mobile Telecom market

2.A. Failure of the previous leadership of CTO to allocate efficiently
3G frequencies
- frequencies sold directly to 3 existing operators (Telefónica/O2,
T-Mobile, Vodafone) with almost no development requirements resulting
in lowest 3G coverage in Europe, lowest network investment, highest
prices for consumers and highest profitability for the operators (over
40% EBITBA), no wholesale offers, no virtual operators
- no mandated wholesale offers, therefore fixed operators under
competition threat from mobile operators but not vice versa
- to avoid regulation mobile operators finally introducing/allowing
virtual operators in 2013 but around 80% of those - market share wise
- are mostly directly owned or controlled by mobile operators.
Wholesale offers often more expensive than the standard retail prices,
only mobile voice calling available, no mobile data offers (or above
market prices)

2.B. Failure of the previous leadership of CTO to allocate efficiently
4G frequencies
- 1st bidding round in 2012 ended in spectacular failure. 4 bidders (3
mobile incumbents + PPF private equity group already signaling
interest to buy O2 from Telefónica), active long bidding war reaching
combined potential revenue of 20mldCZK but deficiencies in the
bidding process led to unilateral auction halt by the past head of CTO
Pavel Dvorak with no outside consultation resulting in public outcry
and criminal suit
- 2nd bidding round in 2013 lasting only 9 days, 3 incumbent bidders,
final revenue for government 8,5mldCZK. Shortly afterwards Telefónica
sold the Czech operations to the PPF Group.
- low development requirements, 3G services allowed to be counted into
the coverage, low minimal speed requirements.
- wholesale offer mandated but only T-Mobile and Vodafone published WS
offer, O2 so far didn’t fully complied – challenged at the CTO and
anti-monopoly office. Existing WS offers unattractive, more expensive
by order of magnitude than existing retail prices.
- possibility of a future duopoly on the Czech mobile market as
project for network sharing between O2 and T-Mobile is ongoing with
limited participation from Vodafone

3. Fixed Telecom Market

3.A. No long-term broadband strategy
- government sanctioned Digital Cesko 2.0 offers only vague guidelines
not allowing for long term investment
- very complicated and costly processes to build new fiber networks
(access and backbone). No development in the government strategy to
simplify this as per Directive 2014/61/EU from 15th of May 2014
- no agreement on the definition of NGA, no agreement on the NGA
investment strategy (access or backhaul). Non forward looking services
not allowing for real WS offer and competition are being proposed as
potential NGA - vectored xDSL, point to multipoint fiber. No reliable
map/database of the existing broadband/NGA infrastructure. 2013 NGA
infrastructure data collection ignored by many market subjects leaving
data incomplete to determine white, grey and black areas
- turf war between Ministry of Interior (developing many IT government
systems and controlling Czech Post) and Ministry of Commerce
(oversight body over the Czech telecom Office) over the NGA
- recent public statement by Minister of Commerce that MoC will take
over the definition of the NGA strategy and Spectrum strategy from CTO
even though MoC doesn’t have any competence and expertise in those
fields (therefore they are fully dependent on the respective lobby
groups). NGA definition now being written by mobile oligopoly (ICT
Union)
- recent minor “scandal” concerning the Long Term Spectrum Strategy.
CTO prepared the Strategy using the transparent process and submitted
this to the MoC to be presented to the government (as per the
government mandate). Few months later MoC suddenly proposed sweeping
changes mirroring lobby material of the incumbent O2. After the public
outcry MoC backed off but the document of the Strategy is still not
being presented to the cabinet. Proposed changes were aimed at
lowering the fees for the mobile operators and at the same time
imposing new fees on the unregulated free frequencies used by
incumbent’s competitors for Wi-Fi and backhaul connections,
effectively liquidating hundreds of Telco companies

3.B. Failure of the previous leadership of CTO to regulate wholesale
offers by incumbent
- since 2001 Telefónica/O2 implements xDSL services. Initially fined
by Antimonopoly Office for not providing the wholesale offer. Later WS
offer provided for simple resale, bitstream or unbundling refused for
many years
- due to high WS pricing and low investment by Telefónica many
regional players started to use Wi-Fi connections and later directly
offered fiber connections avoiding the uncompetitive incumbent’s xDSL
offer
- by 2011 all LLU providers exited the market by bankruptcy filing or
being sold reason being the uncompetitive nature of the WS LLU offer.
This offer was always sanctioned, checked and revised by Czech Telecom
Office. Only small fraction of the non O2 LLU now operates.
- O2 is now being sued by Volny, Czech Radiocommunications and
potentially Vodafone for Margin Squeeze on the xDSL LLU market
- since the 2002 O2 market share on the copper line broadband stays around 90%
- as we are not aware of any history of the efficient WS price
regulation by the CTO on the Czech market which would promote
competition and innovation we are very careful regarding the NGA
strategies and investment fund allocation depending mostly on the WS
or unbundling offers
- rollout of the newly build NGA by O2 (based on xDSL) paradoxically
expected to result in an expensive wholesale offer due to fully
allocated cost of the new installation using the EU funds

--
Mgr. Martin Dvořák
viceprezident