Commission Recommendation of 11 February 2003 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 (Text with EEA relevance) (notified under document number C(2003) 497)
Date: 2003-02-11
Institutions: European Commission
Subjects: electronic mail, market, regulation of telecommunications, service, telecommunications, transmission network

8.5.2003

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Official Journal of the European Union

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COMMISSION RECOMMENDATION

of 11 February 2003

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

(notified under document number C(2003) 497)

(Text with EEA relevance)

(2003/311/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

Having regard to the Treaty establishing the European
Community,

Having regard to Directive 2002/21/EC of the European Parlia-
ment and of the Council on a common regulatory framework
for electronic communication networks and services (1), and in
particular Article 15 thereof,

Whereas:

(1)

(2)

Directive 2002/21/EC (hereinafter the Framework Direc-
tive), establishes a new legislative framework for the
electronic communications sector that seeks to respond
to convergence trends by covering all electronic commu-
nications networks and services within its scope The aim
is to reduce ex ante sector-specific rules progressively as
competition in the market develops.

The purpose of this Recommendation is to identify those
product and service markets in which ex ante regulation
may be warranted. However, this first Recommendation
has to be consistent with the transition from the 1998
regulatory framework to the new regulatory framework.
Directive 2002/19/EC of the European Parliament and of
the Council on access to, and interconnection of, elec-
tronic communications networks and associated facil-
ities (2), hereinafter the Access Directive, and Directive
2002/22/EC of
the
Council on universal service and users' rights relating to
electronic communications networks and services (3)
hereinafter the Universal service Directive already iden-
tify specific market areas which need to be analysed by
national regulatory authorities in addition to the markets
listed in this Recommendation. In accordance with the
Framework Directive, it is for national regulatory autho-
rities to define relevant geographic markets within their
territory.

the European Parliament and of

(3)

Under the 1998 regulatory framework, several areas in
the telecommunications sector are subject
to ex ante
regulation. These areas have been delineated in the

(1) OJ L 108, 24.4.2002, p. 33.
(2) OJ L 108, 24.4.2002, p. 7.
(3) OJ L 108, 24.4.2002, p. 51.

applicable directives, but are not always ‘markets’ within
the meaning of competition law and practice. Annex I of
the Framework Directive provides a list of such market
areas to be included in the initial version of the Recom-
mendation.

(4)

(5)

(6)

(7)

As the title of Annex I of the Framework Directive
makes clear, all the market areas listed therein need to
be included in the initial version of the Recommendation
in order that NRAs can carry out a review of existing
obligations imposed under the 1998 regulatory frame-
work.

Article 15(1) of the Framework Directive requires the
Commission to define markets in accordance with the
principles of competition law. The Commission has
therefore defined markets (corresponding to the market
areas listed in Annex I of the Framework Directive) in
accordance with competition law principles.

There are in the electronic communications sector at
least two main types of relevant markets to consider:
markets for services or products provided to end users
(retail markets), and markets for the inputs which are
necessary for operators to provide services and products
to end users (wholesale markets). Within these two types
of markets, further market distinctions may be made
depending on demand and supply side characteristics.

The starting point for the definition and identification of
markets is a characterisation of retail markets over a
given time horizon, taking into account demand-side
and supply-side substitutability. Having characterised
and defined retail markets which are markets involving
the supply and demand of end users, it is then appro-
priate to identify relevant wholesale markets which are
markets involving the demand of products of, and
supply of products to, a third party wishing to supply
end users.

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Defining markets in accordance with the principles of
competition law means that some of the market areas in
Annex I of the Framework Directive comprise a number
of separate individual markets on the basis of demand
side characteristics. This is the case of products for retail
access to the public telephone network at a fixed loca-
tion and for telephone services provided at a fixed loca-
tion. The market area in Annex I referring to wholesale
leased lines is defined as separate markets for wholesale
terminating segments and wholesale trunk segments on
the basis of both demand side and supply side character-
istics.

In identifying markets in accordance with competition
law principles, recourse should be had to the following
three criteria. The first criterion is the presence of high
and non-transitory entry barriers whether of structural,
legal or regulatory nature. However, given the dynamic
character and functioning of electronic communications
markets, possibilities to overcome barriers within a rele-
vant time horizon have also to be taken into considera-
tion when carrying out a prospective analysis to identify
the relevant markets for possible ex ante regulation.
Therefore the second criterion admits only those markets
the structure of which does not tend towards effective
competition within the relevant time horizon. The appli-
cation of this criterion involves examining the state of
competition behind the barriers of entry. The third
criterion is that application of competition law alone
would not adequately address
failure(s)
concerned.

the market

legal or

spectrum for the provision of underlying services. Other
examples of
regulatory barriers are price
controls or other price related measures imposed on
undertakings, which affect not only entry but also the
positioning of undertakings on the market.

(13)

(14)

Entry barriers may also become less relevant with regard
to innovation-driven markets characterised by ongoing
technological progress.
In such markets, competitive
constraints often come from innovative threats from
potential competitors that are not currently in the
market. In such innovation-driven markets, dynamic or
longer term competition can take place among firms
that are not necessarily competitors in an existing ‘static’
market. This Recommendation does not identify markets
where entry barriers are not expected to persist over a
foreseeable period.

Even when a market is characterised by high barriers to
entry, other structural factors in that market may mean
that the market tends towards an effectively competitive
outcome within the relevant time horizon. This may for
instance be the case in markets with a limited, but suffi-
cient, number of undertakings having diverging cost
structures and facing price-elastic market demand. There
may also be excess capacity in a market that would
allow rival
firms to expand output very rapidly in
response to any price increase. In such markets, market
shares may change over time and/or falling prices may
be observed.

In particular, as far as entry barriers are concerned, two
types of entry barriers are relevant for the purpose of
this Recommendation: structural barriers and legal or
regulatory barriers.

(15)

(8)

(9)

(10)

(11)

Structural barriers to entry result from original cost or
demand conditions that create asymmetric conditions
between incumbents and new entrants impeding or
preventing market entry of the latter. For instance, high
structural barriers may be found to exist when the
market is characterised by substantial economies of scale
and/or economies of scope and high sunk cost. To date,
such barriers can still be identified with respect to the
widespread deployment and/or provision of local access
networks to fixed locations. A related structural barrier
can also exist where the provision of service requires a
network component that cannot be technically dupli-
cated or only duplicated at a cost that makes it uneco-
nomic for competitors.

(12)

Legal or regulatory barriers are not based on economic
conditions, but result from legislative, administrative or
other state measures that have a direct effect on the
conditions of entry and/or the positioning of operators
on the relevant market. Examples are legal or regulatory
barriers preventing entry into a market where there is a
limit on the number of undertakings that have access to

The decision to identify a market as justifying possible ex
ante regulation should also depend on an assessment of
the sufficiency of competition law in reducing or
removing such barriers or in restoring effective competi-
tion. Furthermore, new and emerging markets, in which
market power may be found to exist because of ‘first-
mover’ advantages, should not in principle be subject to
ex-ante regulation.

(16)

In undertaking periodic reviews of the markets identified
in this Recommendation, the three criteria should be
used. These criteria should be applied cumulatively, so
that failing any one of them means that the market
should not be identified in subsequent recommenda-
tions. Thus, whether an electronic communications
market continues to be identified by subsequent versions
of the Recommendation as justifying possible ex ante
regulation would depend on the persistence of high
entry barriers, on the second criterion measuring the
dynamic state of competitiveness and thirdly on the
sufficiency of competition law (absent ex ante regulation)
to address persistent market failures. A market could
also be removed from a recommendation once there is
evidence of sustainable and effective competition on that
market within the Community, provided that
the
removal of existing regulation obligations would not
reduce competition on that market.

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(17)

(18)

(19)

The Annex to this Recommendation indicates how each
market in the Recommendation is linked to the market
areas in Annex I to the Framework Directive. When
reviewing
the
existing obligations
imposed under
previous regulatory framework,
in order to determine
whether to maintain, amend or withdraw them, NRAs
should undertake the analysis on the basis of the markets
identified in this Recommendation,
in order to give
effect to the requirement that market definition for the
purposes of ex ante regulation should be based on
competition law principles. Pending the first market
analysis by NRAs under the new regulatory framework,
existing obligations remain in force.

The identification of markets in this Recommendation is
without prejudice to markets that may be defined in
specific cases under competition law.

the identification of any market

the Recommendation, provided they act

The range of different network topologies and technolo-
gies deployed across the Community means that in some
cases national regulatory authorities must decide the
precise boundaries between, or elements within, parti-
cular markets identified in the Recommendation, while
adhering to competition law principles. National regula-
tory authorities may identify markets that differ from
those of
in
accordance with Article 7 of the Framework Directive.
Since the imposition of ex ante regulation on a market
could affect trade between Member States as described in
recital 38 of the Framework Directive, the Commission
considers that
that
differs from those of the Recommendation are likely to
be subject to the appropriate procedure in Article 7 of
the Framework Directive. Failure to notify a market
which affects trade between Member States may result in
infringement proceedings being taken. Any market iden-
tified by national regulatory authorities should be based
on the competition principles developed in the Commis-
sion Notice on the definition of relevant market for the
purposes of Community competition law (1), and be
consistent with the Commission Guidelines on market
analysis and the assessment of significant market power
and satisfy the three criteria set out above. Should an
NRA consider that demand and supply patterns may
justify an alternative market definition of a market listed

it should then follow the
in this Recommendation,
appropriate procedures set out in Article 6 and 7 of the
Framework Directive.

that

The fact
this Recommendation identifies those
product and service markets in which ex ante regulation
may be warranted does not mean that regulation is
always warranted or that these markets will be subject to
the imposition of regulatory obligations set out in the
specific Directives. Regulation will not be warranted if
there is effective competition on these markets. In parti-
cular, regulatory obligations must be appropriate and be
based on the nature of the problem identified, propor-
tionate and justified in the light of the objectives laid
down in the Framework Directive,
in particular maxi-
mising benefits for users, ensuring no distortion or
restriction of competition, encouraging efficient invest-
ment in infrastructure and promoting innovation, and
encouraging efficient use and management of radio
frequencies and numbering resources.

The Commission will review the need for any update of
this Recommendation no later than 30 June 2004 on
the basis of market developments.

to a public
This Recommendation has been subject
consultation and to consultation with national regulatory
authorities and national competition authorities.

(20)

(21)

(22)

HAS ADOPTED THIS RECOMMENDATION:

1. In defining relevant markets in accordance with Article
15(3) of Directive 2002/21/EC, national regulatory authori-
ties are recommended to analyse the product and service
markets identified in the Annex.

2. This Recommendation is addressed to the Member States.

Done at Brussels, 11 February 2003.

For the Commission

Erkki LIIKANEN

Member of the Commission

(1) OJ C 372, 9.12.1997, p. 5.

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ANNEX

Retail level

1. Access to the public telephone network at a fixed location for residential customers.

2. Access to the public telephone network at a fixed location for non-residential customers.

3. Publicly available local and/or national telephone services provided at a fixed location for residential customers.

4. Publicly available international telephone services provided at a fixed location for residential customers.

5. Publicly available local and/or national telephone services provided at a fixed location for non-residential customers.

6. Publicly available international telephone services provided at a fixed location for non-residential customers.

These six markets are identified for the purpose of analysis in respect of Article 17 of the Universal Service Directive.

Together, markets 1 through 6 correspond to ‘the provision of connection to and use of the public telephone
network at fixed locations’, referred to in Annex I(1) of the Framework Directive. This combined market is also
referred to in Article 19 of the Universal Service Directive (for possible imposition of carrier call-by-call selection or
carrier selection).

7. The minimum set of leased lines (which comprises the specified types of leased lines up to and including 2Mb/sec as

referenced in Article 18 and Annex VII of the Universal Service Directive).

This market is referred to in Annex I(1) of the Framework Directive in respect of Article 16 of the Universal Service
Directive (the provision of leased lines to end users).

A market analysis must be undertaken for the purposes of Article 18 of the Universal Service Directive which covers
regulatory controls on the provision of the minimum set of leased lines.

Wholesale level

8. Call origination on the public telephone network provided at a fixed location. For the purposes of this Recommen-
dation, call origination is taken to include local call conveyance and delineated in such a way as to be consistent
with the delineated boundaries for the markets for call transit and for call termination on the public telephone
network provided at a fixed location.

This market corresponds to that referred to in Annex I(2) of the Framework Directive in respect of Directive 97/33/
EC (call origination in the fixed public telephone network).

9. Call termination on individual public telephone networks provided at a fixed location.

For the purposes of this Recommendation, call termination is taken to include local call conveyance and delineated
in such a way as to be consistent with the delineated boundaries for the markets for call origination and for call
transit on the public telephone network provided at a fixed location.

This market corresponds to the one referred to in Annex I(2) of the Framework Directive in respect of Directive 97/
33/EC (call termination in the fixed public telephone network).

10. Transit services in the fixed public telephone network.

For the purposes of this Recommendation, transit services are taken as being delineated in such a way as to be
consistent with the delineated boundaries for the markets for call origination and for call termination on the public
telephone network provided at a fixed location.

This market corresponds to the one referred to in Annex I(2) of the Framework Directive in respect of Directive 97/
33/EC (transit services in the fixed public telephone network).

11. Wholesale unbundled access (including shared access) to metallic loops and sub-loops for the purpose of providing

broadband and voice services.

This market corresponds to that referred to in Annex I(2) of the Framework Directive inrespect of Directive 97/33/
EC and Directive 98/10/EC (access to the fixed public telephone network, including unbundled access to the local
loop) and to that referred to in Annex I (3) of the Framework Directive in respect of Regulation No 2887/2000.

12. Wholesale broadband access.

This market covers ‘bit-stream’ access that permit the transmission of broadband data in both directions and other
wholesale access provided over other infrastructures, if and when they offer facilities equivalent to bit-stream access.
It includes ‘Network access and special network access’ referred to in Annex I(2) of the Framework Directive, but
does not cover the market in point 11 above, nor the market in point 18.

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13. Wholesale terminating segments of leased lines.

14. Wholesale trunk segments of leased lines.

Together, the wholesale markets 13 and 14 correspond to those referred to in Annex I(2) of the Framework Direc-
tive in respect of Directive 97/33/EC and Directive 98/10/EC (leased line interconnection) and to those referred to
in Annex I(2) of the Framework Directive in respect of Directive 92/44/EEC (wholesale provision of leased line capa-
city to other suppliers of electronic communications networks or services).

15. Access and call origination on public mobile telephone networks, referred to (separately) in Annex I(2) of the Frame-

work Directive in respect of Directives 97/33/EC and 98/10/EC.

16. Voice call termination on individual mobile networks.

This market corresponds to the one referred to in Annex I(2) of the Framework Directive in respect of Directive 97/
33/EC (call termination on public mobile telephone networks).

17. The wholesale national market for international roaming on public mobile networks.

This market corresponds to the one referred to in Annex I(4) of the Framework Directive.

18. Broadcasting transmission services, to deliver broadcast content to end users.

Note

National regulatory authorities have discretion with respect to the analysis of the market for ‘Conditional access systems to digital televi-
sion and radio services broadcast’ in accordance with Article 6(3) of the Access Directive. Article 6(3) of the Access Directive provides
that Member States may permit their NRAs to review the market for conditional access system to digital television and radio services
broadcast, irrespective of the means of transmission.