Notice pursuant to Article 19(3) of Council Regulation No 17

Case COMP/C1/N.38.370 - BT Cellnet & BT3G/One2One Personal Communications (United Kingdom Agreement)

(2002/C 214/08)

(Text with EEA relevance)

1. INTRODUCTION

1. On 6 February 2002, BT-Cellnet Limited ("BT Cellnet") and BT3G Limited ("BT3G") (now renamed O2 UK Limited) and One2One Personal Communications Limited ("One2One") (now renamed T-Mobile (UK) Limited) notified to the Commission an agreement of 20 September 2001 concerning infrastructure sharing and national roaming on the United Kingdom market for the third generation of GSM mobile telecommunications ("3G"). In their notification BT Cellnet, BT3G and One2One ("The Parties") have requested either negative clearance under Article 81(1) or an exemption under Article 81(3) of the EC Treaty(1).

2. In February 2002 the Commission published a first notice summarising the notified agreement and inviting third party comments(2). The Commission has now finished its examination of the notified agreement and has come to a preliminary position. The present notice is published pursuant to Article 19(3) of Regulation 17/62 in order to enable third parties to provide their comments on the Commission's proposed approach. Third parties may submit their comments to the Commission within a deadline of one month from publication of this notice in the Official Journal of the European Communities.

2. THE PARTIES

3. BT Cellnet is a licensed mobile telecommunications operator of a 2G network and BT3G is licensed to operate a 3G network(3) in the United Kingdom and both are wholly owned subsidiaries of mmO2 plc, the mobile telecommunications business previously controlled by British Telecommunications plc. mmO2 operates, through its subsidiaries, networks in the United Kingdom (BT Cellnet - renamed O2 UK Limited and BT3G), Germany (VIAG - renamed O2 Germany), the Netherlands (Telfort - renamed O2 Netherlands), the Republic of Ireland (Digifone - renamed O2 Ireland) and the Isle of Man (Manx Telecom). In the financial year ending 31 March 2002, mmO2 group had a turnover of GBP 4.3 billion (about EUR 6,7 billion).

4. One2One is a licensed mobile telecommunications operator of 2G and 3G networks in the United Kingdom and is a wholly owned subsidiary of Deutsche Telekom Mobile Holdings Limited, a wholly owned subsidiary of T-Mobile International AG. T-Mobile International AG owns interests in mobile telecommunications operators in the United Kingdom (One2One - rebranded as T-Mobile (UK) Limited, T-Motion, Virgin Mobile), Austria (max.mobil.), the Czech Republic (Radiomobil) and the United States of America (VoiceStream). T-Mobile International AG also has subsidiaries active in the Netherlands (BEN, CMobil), Russia (MTS) and Poland (PTC). In the 2001 financial year, DTAG had a worldwide turnover of EUR 48,3 billion and T-Mobile International AG had a worldwide turnover of EUR 14,6 billion.

3. PRODUCTS/SERVICES

5. 3G services are mobile communications systems capable of supporting in particular innovative multimedia services, beyond the capability of second generation systems such as GSM, and capable of combining the use of terrestrial and satellite components. These services are characterised by their: (i) multimedia capabilities, full mobility and low mobility applications in different geographical environments beyond 2G capabilities; (ii) efficient access to Internet, Intranets and other Internet protocol based services; (iii) high quality speech transmission commensurate with that of fixed networks; (v) service portability across 3G environments; (v) operation in one seamless environment including full roaming with GSM as well as between the terrestrial and satellite components of UMTS networks. With this agreement, the Parties aim to enter the United Kingdom national market or markets for 3G infrastructure and wholesale roaming services. Although the agreement promotes their individual entry into the market or markets for 3G retail services the agreement does not directly relate to retail markets.

6. The products/services that are directly concerned by this notification are (a) access to and use of 2G, 2,5 G and 3G infrastructure, and (b) wholesale access to 3G national roaming. Actual or potential competitors in these markets are the other three licencees for 3G networks and services in the United Kingdom, and potential competitors may be third parties reselling access to and wholesale roaming services on the network of these other operators or on the Parties' networks. As 3G networks and services have not yet been rolled out no conclusive estimate of market shares or assessment of the substitutability between 2G and 3G services can at present be provided.

4. LEGAL AND FACTUAL BACKGROUND

4.1. The development of third generation mobile communications in the EU

7. So far digital mobile communications networks and services in the EU have been based on the GSM family of standards. European telecommunication companies are at present developing and rolling out mobile communication networks and services using the third generation ("3G") of the GSM family of standards(4) 3G will combine wireless mobile technology with high data transmission capacities and facilitate consumer access to Internet services through their mobile handsets. Its development in the EU is based on a common technological platform - Universal Mobile Telecommunications System ("UMTS"), on the harmonisation of the radio spectrum and on the definition of a harmonised regulatory environment.

8. To meet these harmonisation objectives, the European Parliament and the Council have in 1997 adopted a directive on a common framework for general authorisations and individual licences in the field of telecommunications services(5). This was followed at the end of 1998 by a decision on the coordinated introduction of a third-generation mobile and wireless communication system (UMTS) in the Community(6). It required Member States to enable the introduction of UMTS services on their territory by 1 January 2002 and emphasised the role of technical bodies such as the European Conference of Postal and Telecommunications Administrations ("CEPT") and Europe Telecommunications Standard Institute ("ETSI") in harmonising frequency use and promoting a common and open standard for the provision of compatible UMTS services throughout Europe.

9. Finally, in March 2001 the Commission published a Communication setting out the state of play and the way forward for the introduction of third generation mobile communications in the EU(7). This Communication takes note of the combination of the difficult financial situation of telecommunications operators throughout the EU and of the high infrastructure investment costs involved that lead operators to engage in infrastructure sharing arrangements. It concludes that economically beneficial sharing of network infrastructure should in principle be encouraged, provided the competition rules and other relevant Community law are respected(8). In its recent follow up Communication(9), the Commission emphasised that it would continue to work with national administrations towards establishing a best practice approach for network sharing.

4.2. Network sharing

10. The basic distinction that is relevant in the context of the Parties' network sharing agreement is that between the Radio Access Network ("RAN") and the core or backbone network.

11. RAN: this includes mast/antenna sites, site support cabinets ("SSC") and power supply, as well as antennas, combiners and transmission links, Nodes B, i.e. the base stations that receive and send data across frequencies and control a particular network cell, and the radio network controllers ("RNCs") that each control a number of such nodes B and that are linked to the core network.

12. Core netwerk: this is the intelligent part of the network that consists of mobile switching centres ("MSCs"), various support nodes, services platforms, client home location registers and operation and maintenance centres. It is linked to the fixed ISDN (integrated services digital network) and Internet networks.

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13. 3G Network sharing can take place at a number of different levels and involve varying degrees of cooperation. The degree of independence retained by an operator depends on which network elements are being shared and their remaining ability to install separate elements (planning freedom). Ranked by the increasing degree to which the network is shared it is possible to distinguish between shared use of:

- sites, which range from sharing individual mast sites(10) up to grid sharing (requiring a uniform layout of networks), and may include site support infrastructure, such as site support cabinets (SSC),

- base stations (Nodes B) and antennas,

- radio network controllers ("RNCs"),

- core networks, including mobile switching centres ("MSCs") and various databases,

- frequencies.

National roaming concerns a situation where the operators concerned do not share any network elements as such but simply use each other's network to provide services to their own customers.

14. In their notification the Parties use the term "site sharing" for shared use of infrastructure up to the level of, but not including, Nodes B and RNCs (i.e. the first point above). The Parties do not envisage sharing their core networks, but their agreement does cover national roaming.

4.3. The National Regulatory Framework

15. Subject to the principle of the primacy of Community law, the applicable national licensing and regulatory requirements must be taken into account in the context of network infrastructure sharing(11). Both the general national regulatory framework in the United Kingdom and the terms of the Parties' 3G licences set out parameters for network sharing. These include:

- network roll-out requirements in terms of effective coverage related to a specific timetable, notably a requirement to cover 80 % of the population by the end of 2007,

- general obligations as regards e.g. site and antenna sharing relating to planning restrictions and environmental concerns,

- the possibility to impose facility sharing, including network sharing, on a case by case basis,

- limitations as regards the extent of network sharing allowed related to e.g. sharing network intelligence and sensitive customer data.

16. Oftel is the national telecommunications regulatory authority ("NRA") in the United Kingdom that is responsible for the notified agreement. In May 2001 Oftel published general guidance in which it encouraged infrastructure sharing subject to a case by case assessment of individual proposals(12).

17. The national regulatory framework and the EU competition rules are of parallel and cumulative application. National rules may neither conflict with the EU competition rules nor can compatibility with national rules and regulations prejudice the outcome of an assessment under the competition rules. Hence a full assessment of the notified Agreement under the competition rules is required.

5. THE AGREEMENT

18. BT Cellnet and BT3G and One2One entered into an agreement ("the Agreement") on 20 September 2001 to cooperate by way of 3G site sharing and national roaming. It also covers certain 2G and 2,5G infrastructure. The Parties will maintain separate networks and service provision. The Agreement also includes specific provisions to ensure that no more information than strictly necessary is exchanged. The Parties differentiate in the Agreement between three areas: (i) the initial build area ("IBA"); (ii) the divided area ("DA"); and (iii) the remaining area.

5.1. Site sharing and national roaming in the initial build area ("IBA")

19. The IBA represents an area covering around [20 to 50 %] of the United Kingdom population and more than [50 to 80 %] of United Kingdom businesses (i.e. the main urban areas). In this area the Parties' cooperation will focus on site sharing rather than national roaming, although the latter is not excluded. Within this area, the Parties agree to:

(i) pursuant to clause 2.3 of the Agreement, cooperate in the planning, acquiring (not on the basis of joint ownership), building and deploying and sharing of 2G, 2,5G and 3G sites. This site sharing involves shared housing, i.e. structures including mast, materials and equipment (power supply, racking and cooling) for 3G, 2,5G and/or 2G equipment, i.e. transceivers and base station racks or Node B base station cabinets but not transmission and antennae;

(ii) disclose and if practical revise respective radio plans to make best use of possible common locations for individual cell sites (clauses 6.2.1-6.2.4 and 6.7 of the Agreement);

(iii) grant the other Party an option over sites identified as suitable for site sharing exercisable for (an option period of between one and three years) (Agreed Document 8),

(iv) grant the other Party first refusal in the event that a third party wishes to share the same site (Agreed Document 8),

(v) offer the other Party roaming within the IBA for such time as it does not have 3G radio coverage in a particular part of the IBA (Agreed Document 1).

The degree of site-sharing that is envisaged by the Parties does not involve the entire RAN (notably Nodes B and RNCs are not included), nor does it involve sharing of frequencies or the core network.

5.2. Site sharing and national roaming in the divided area ("DA")

20. In the DA (an area covering about a further [40-70 %] of the population), the Parties adopt a common radio and roll-out plan for 3G that is based on the principle of a separate territory for each Party. Each Party has been allocated a "designated (separate geographical) area" of the DA to build and operate its 3G network in accordance with the unitary radio and roll-out plans. Within the respective designated area, each Party will provide roaming services to the other Party on a "retail minus minus" price formula (clause 22.1), and cannot enter into similar agreements with third parties in order to provide this service to the other Party (clause 2.5). The agreement in its clause 9.2 also provides that a Party shall not deploy 3G in the designated area of the other Party, although this is subject to a number of exceptions without requiring prior consent of the other Party, set out in clause 11 (e.g. for special events, to meet market demand and/or for special needs of important customers).

21. The Parties also agree that all new sites in the DA will be built with sufficient accommodation and mast space to fit a minimum of two operators, with space reserved by the designated Party for later occupation by the other Party. The Parties have an option to share, exercisable for (an option period of between four and six years), followed by a right of first refusal of indefinite duration (Agreed Document 8). However, after the expiry of the option right, if one Party operating a site receives an offer from a third party at an equal or higher site sharing fee(13), the "site operating party" shall notify the other Party of such a request. The other Party then has 14 days to confirm its entering into a site sharing agreement with the site share operator.

22. Pursuant to clause 14.7, each Party is able to conclude 3G national roaming agreements with third party national 3G operators (for its own built and operated network), but the third party operator would not have access to the network of the other Party to the Agreement unless it gave its approval. However, nothing in the agreement prevents either Party from reselling its 3G telecommunications wholesale services to non-operator third parties (for example service providers and/or MVNOs), whether carried on its own network equipment or via roaming in the other Party's designated area. Clause 14.7 does not affect arrangements concerning international roaming.

5.3. Site sharing and national roaming in the remaining area ("RA")

23. In the remaining area, which covers the least densely populated areas of the United Kingdom, the Parties agree, when market conditions permit, to extend their respective 3G networks into the remaining area, using the same principles applied in the DA.

5.4. Duration

24. The agreement is for an unlimited duration but can be terminated after 31 December 2007 by either Party giving two years notice.

6. ARGUMENTS OF THE PARTIES

25. The Parties justify the agreement in terms of the financial difficulties experienced by 3G operators, the regulatory timeframe (the United Kingdom requirement of 80 % population coverage by the end of 2007) and the need to meet environmental concerns.

26. Article 81(1): The Parties argue that the agreement does not have the object of effect of appreciably restricting competition within the common market contrary to Article 81(1) as they claim the agreement will increase competition rather than reduce it. This claim is based on the fact that the parties will compete with each other at network level in the IBA, whereas cooperation in the DA will enable the Parties to compete at services level with other 3G operators nationwide at an earlier stage than if they did not cooperate.

27. Article 81(3): If the agreement is considered to restrict competition, the Parties argue in the alternative, that it is exemptable under Article 81(3). They argue the agreement will speed up the provision of 3G services by enabling the Parties to reduce 3G network deployment costs, making 3G services available earlier to end users. The Parties argue that consumers will benefit through the delivery of faster, more innovative 3G services at lower prices. Finally, the parties will as a result of their cooperation not produce standardised services to end users but will continue to compete directly on content applications, retail pricing, wholesale pricing, terms and conditions of service, channel to market and customer care services and marketing. Hence they conclude that as a result of the Agreement competition will not merely be preserved but will be increased in the United Kingdom markets for 3G networks and services.

7. CONCLUSION

28. The Commission intends to take a favourable view in respect of the notified agreement. Before doing so, the Commission invites third parties to submit their comments within one month of the publication of this notice, to the address or fax number given below, quoting the reference Case COMP/N.38.370 - BT Cellnet & BT3G and One2One (Network sharing UK). European Commission Directorate-General for Competition

Directorate C

B - 1049 Brussels Fax (32-2) 296 70 81 e-mail: wolf.sauter@cec.eu.int

29. If a Party submitting comments considers that these contain business secrets, it must indicate the passages which, in its opinion, ought not to be disclosed on the grounds that they contain business secrets or other confidential material, and state the reasons. If the Commission does not receive a request with reasons, it will assume that the comments do not contain any confidential information.

(1) The Commission has also received a related notification from T-Mobile Deutschland GmbH and VIAG Interkom GmbH dated 1 February 2002 relating to a 3G Network Deployment and 3G Bilateral Roaming Agreement in Germany. This agreement is being dealt with separately (Case COMP/N.38.369 - Rahmenvertrag).

(2) OJ C 53, 28.2.2002, p. 18.

(3) In May 2000, the United Kingdom Government awarded five 3G licences following a frequency auction procedure worth EUR 38,5 billion. The companies awarded the licences were Orange, BT3G, Vodafone, One2One and H3G.

(4) The first generation was GSM 900, the second generation DCS 1800 (now referred to as GSM 1800), GPRS is often regarded as an intermediate step (or "2,5 G") between 2G and 3G.

(5) Directive 97/13/EC of the European Parliament and of the Council of 10 April 1997 (OJ L 117, 7.5.1997, p. 15). This directive sets out the procedures associated with the granting of authorisations for the purpose of providing telecommunications services and the conditions attached to such authorisations.

(6) Decision No 128/1999/EC of the European Parliament and of the Council of 14 December 1998 (OJ L 17, 22.1.1999, p. 1).

(7) The introduction of third generation mobile communications in the European Union: state of play and the way forward, COM(2001) 141 final, 20.3.2001.

(8) Ibid. paragraph 4.3.

(9) "Towards the full roll-out of third generation mobile communications" COM(2002) 301 final, 11.6.2002.

(10) It should be noted that in the United Kingdom independent companies exist that specialise in the acquisition, operation and management of mast/antenna sites, who provide their services to network operators and promote site sharing.

(11) A number of national regulatory authorities (NRAs) in the EU issued guidance on the conditions on which infrastructure sharing would be consistent with national licensing and regulatory requirements. In the United Kingdom Oftel published a position in May 2001, available at http://www.oftel.gov.uk/publications/mobile/infrashare0501.htm. In Germany, RegTP issued its Interpretation of the UMTS Award Conditions in light of more recent technological advance, RegTP (6 June 2001), available at www.regtp.de. The Dutch and French NRAs have published similar documents, available at http://www.opta.nl/download/concept_notitie_nma_vw_opta_umts_netwerken_190701.pdf and at http://www.art-telecom.fr/dossiers/umts/partage-infras.htm

(12) See footnote 11.

(13) The fee (i.e. a price list) for owned sites or sites under the control has been agreed and commercially negotiated between the Parties based on fair market rates.