2003/570/EC: Commission Decision of 30 April 2003 relating to a proceeding under Article 81 of the EC Treaty and Article 53 of the EEA Agreement – Case COMP/ 38.370 — O2 UK Limited / T-Mobile UK Limited ("UK Network Sharing Agreement") (notified under document number C(2003) 1384) (Text with EEA relevance.)
Date: 2003-04-30
Institutions: European Commission
Subjects: application of EU law, competition law, inter-company agreement, market-sharing agreement, mobile phone, restrictive trade practice

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Official Journal of the European Union

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COMMISSION DECISION

of 30 April 2003

relating to a proceeding under Article 81 of the EC Treaty and Article 53 of the EEA Agreement

Case COMP/ 38.370 — O2 UK Limited / T-Mobile UK Limited (‘UK Network Sharing Agreement’)

(notified under document number C(2003) 1384)

(Only the English text is authentic)

(Text with EEA relevance)

(2003/570/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

Whereas:

Having regard to the Treaty establishing the European Com-
munity,

Having regard to the Agreement on the European Economic
Area,

Having regard to Council Regulation No 17 of 6 February
1962, First Regulation implementing Articles 81 and 82 of
the Treaty (1), as last amended by Regulation (EC) No 1/
2003 (2), and in particular Articles 2, 6 and 8 thereof,

Having regard to the application for negative clearance pursu-
ant to Article 2 of Regulation No 17 and the notification with
a view to an exemption pursuant to Article 4 of Regulation
No 17 submitted by O2 UK Limited and T-Mobile UK Limited
on 6 February 2002,

Having regard to the summary of the application and notifi-
cation published pursuant to Article 19(3) of Regulation No 17
and to Article 3 of Protocol 21 of the EEA Agreement (3),

After consulting the Advisory Committee for Restrictive
Practices and Dominant Positions,

Having regard to the final report of the Hearing Officer in this
case (4),

( 1) OJ 13, 21.1.1962, p. 204/62.
( 2) OJ L 1, 4.1.2003, p. 1.
( 3) OJ C 214, 10.9.2002, p. 17.
( 4) OJ C 187, 7.8.2003.

1. THE FACTS

1.1.

INTRODUCTION

(1)

(2)

On 6 February 2002, O2 UK Limited (‘O2 UK’) (formerly
BT-Cellnet Limited and BT3G Limited) and T-Mobile UK
Limited (‘T-Mobile UK’) (formerly One2One Personal
Communications Limited) notified the Commission of
an Agreement dated 20 September 2001 concerning
infrastructure sharing and national roaming on the UK
market for the third generation of mobile telecommuni-
cations networks (‘3G’) (‘the Agreement’). In their notifi-
cation O2 UK and T-Mobile UK (‘the Parties’) requested
either negative clearance under Article 81(1) of the
Treaty/Article 53(1) of the EEA Agreement or, alterna-
tively, an exemption under Article 81(3) of the Treaty/
Article 53(3) of the EEA Agreement (5).

In February 2002 the Commission published a first
notice summarising the notified Agreement and inviting
observations from third parties (6). This was followed in
September 2002 by a notice pursuant to Article 19(3)
of Regulation No 17 which set out the Commission’s
preliminary view and gave third parties an opportunity
to comment on the proposed favourable approach (7).
This Decision represents the final step in the Com-
mission’s decision-making procedure.

(5) The Commission is also dealing with a related notification from
T-Mobile Deutschland GmbH and O2 Germany (formerly VIAG
Interkom GmbH) dated 1 February 2002 which concerns a 3G
Network Deployment and 3G Bilateral Roaming Agreement in
Germany (Case COMP/38.369 — ‘Rahmenvertrag’).

(6) OJ C 53, 28.2.2002, p. 18.
(7) Case COMP/C1/N.38.370 — BT Cellnet & BT3G/One2One Per-
sonal Communications (United Kingdom Agreement), OJ C 214,
10.9.2002, p. 17.

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1.2. THE PARTIES

(3)

(4)

O2 UK is an operator of digital mobile telecommuni-
cations networks and services in the United Kingdom
using the GSM (‘global system for mobile communi-
cations’) family of standards. It is building and will
operate a new 3G network (8) in the United Kingdom.
O2 UK is a wholly owned subsidiary of mmO2 plc, the
mobile telecommunications business previously con-
trolled by British Telecommunications plc. Through its
subsidiaries, mmO2 operates networks in the United
Kingdom (O2 UK), Germany (VIAG — renamed O2
Germany), The Netherlands (Telfort — renamed O2
Netherlands), Ireland (Digifone — renamed O2 Ireland)
and the Isle of Man (Manx Telecom). In the financial
year ending 31 March 2002, the mmO2 group had a
turnover of GBP 4,3 billion (about EUR 6,7 billion).

T-Mobile UK is a mobile telecommunications operator
of GSM networks in the United Kingdom and is a wholly
owned subsidiary of Deutsche Telekom Mobile Holdings
Limited, a wholly owned subsidiary of T-Mobile Inter-
national AG. The parent company of T-Mobile Inter-
national
is the incumbent fixed network operator in
Germany, Deutsche Telekom AG (‘DTAG’). T-Mobile
International AG owns interests in mobile telecommuni-
cations operators in the United Kingdom (T-Mobile (UK)
Limited, T-Motion, Virgin Mobile), Austria (max.mobil.),
the Czech Republic (RADIOMOBIL) and the USA (Voice-
Stream). T-Mobile International AG also has subsidiaries
active in the Netherlands (BEN, CMobil), Russia (MTS)
and Poland (PTC). In the 2001 financial year, T-Mobile
International AG had a worldwide turnover of EUR
14,6 billion.

1.3.

LEGAL AND FACTUAL BACKGROUND

1.3.1. THE DEVELOPMENT OF 3G MOBILE COMMUNI-

CATIONS IN THE COMMUNITY

(5)

In Europe, the first generation (‘1G’) of mobile communi-
cation systems was based on analogue technology. This
was followed at the beginning of the 1990s by the
second generation (‘2G’) systems which introduced digi-
tal technology, namely GSM 900 (the European Global
System for Mobile Communications) and DCS 1800 (so-

( 8) In May 2000, the UK Government awarded five 3G licences
following a frequency auction procedure worth EUR 38,5 billion.
The companies awarded the licences were Orange, BT3G, Vod-
afone, One2One Personal Communications Limited and H3G.
BT3G has now been rebranded O2 Third Generation Holdings
Ltd and still holds a 3G licence, but this will be operated by O2
UK. One2One has now been renamed T-Mobile (UK) Limited. The
3G licence will be operated by T-Mobile (UK) Limited.

called Personal Communications Networks PCN ser-
vices). Both GSM 900 and DCS 1800 services are now
commonly referred to as GSM services. Standard GSM
communications are ‘circuit-switched’, which means that
for any call a physical path is set up for and dedicated to
a single connection between the two communicating
end points in the network for the duration of the
connection. Transmission rates for GSM are 9,6 kB/s
(kilo bits per second) to 11,4 kB/s, or with compression
14 kB/s, which allows the delivery of basic voice
telephony, short messaging service (SMS) and e-mail,
and circuit-switched data.

(6)

Enhanced ‘2,5G’ mobile technologies that use more
efficient packet-switched communications to send data
in packets to their destinations, via different routes,
without requiring the reservation of a dedicated trans-
mission channel
(using radio resources only when
users are actually sending or receiving data) are being
developed to provide a greater range of services includ-
ing mobile e-mail, visual communications, multimedia
messaging and location-based services. General Packet
Radio Service (‘GPRS’)
is one of the principal 2,5G
technology platforms that offers ‘always-on’ connection,
higher capacity and packet-based data services. GPRS
data transmission rates are between 30 kB/s and 40
kB/s and with EDGE technology 80 kB/s to 130 kB/s,
depending on the specific usage situation (9).

(7) Work is now underway to bring about a third generation
(‘3G’) of mobile technology, applications and services to
the market (10). 3G builds on 2,5G technology, integrat-
ing packet- and circuit-switched data transmission. It is
technically capable of reaching a speed of 144 kB/s and
will eventually allow transmission rates that are expected
to have a practical maximum rate of 384 kB/s outdoors
and up to 2Mb/s indoors (11). 3G services are mobile
communications systems capable of supporting in par-
ticular innovative multimedia services, beyond the capa-
bility of second generation systems such as GSM, and
capable of combining the use of terrestrial and satellite
components.

(8)

Annex I to Decision No 128/1999/EC of the European
Parliament and of the Council of 14 December 1998 on
the coordinated introduction of a third-generation

(9) Other less widespread technologies include WAP (Wireless Appli-
cation Protocol), HSCSD technology (High-speed circuit switched
data) and EDGE (Enhanced Data GSM Environment).

(10) UMTS (Universal Mobile Telecommunications System) is one of
the major new ‘third generation’ (3G) mobile communications
systems being developed within the framework defined by
the International Telecommunications Union (ITU) collectively
known as IMT-2000.

(11) The exact transmission rate depends on parameters like the time
and location of the call, the number of users within a cell and
the applications used as the available speed will be divided
between the different users and applications.

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mobile and wireless communications system (UMTS) in
the Community (12)
(‘the UMTS Decision’) sets out
the characteristics which UMTS must be capable of
supporting. These include multimedia capabilities, full
mobility and low mobility applications in different
geographical environments beyond 2G capabilities,
efficient access to Internet, Intranets and other Internet-
protocol-based services, high quality speech trans-
mission commensurate with that of fixed networks,
service portability across 3G environments and oper-
ation in one seamless environment including full roam-
ing with GSM as well as between the terrestrial and
satellite components of UMTS networks. Given that 3G
networks and services are not yet available it is not
possible to provide a reliable catalogue. However,
examples of anticipated services include mobile video-
conferencing, mobile video phone/mail, advanced car
navigation, digital catalogue shopping and various busi-
ness to business (B2B) applications (13).

(9)

The development of 3G in the Community is based on
the common UMTS technological platform, on the
harmonisation of the radio spectrum and on the defi-
nition of a harmonised regulatory environment. The first
step towards achieving these harmonisation objectives
was the adoption of Directive 97/13/EC of the European
Parliament and of the Council of 10 April 1997 on a
common framework for general authorisations and
individual licences in the field of telecommunications
services (14). This was followed, at the end of 1998, by
the UMTS Decision, which 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
Telecommunications Administrations
(‘CEPT’) and the 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.

and

(10)

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 European Union (15). In
that Communication, the Commission took note of

( 12) OJ L 17, 22.1.1999, p. 1.
( 13) For further information and examples, see http://www.umts-

forum.org.

( 14) 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.
‘The introduction of Third Generation Mobile Communications
in the European Union: State of Play and the Way Forward’
(Introduction of 3G in the EU), COM(2001) 141 Final
(20.3.2001).

( 15)

the difficult financial situation of telecommunications
operators throughout the European Union and of the
high infrastructure investment costs involved that led
operators to engage in infrastructure-sharing arrange-
ments. It concluded that economically beneficial sharing
of network infrastructure should in principle be encour-
aged, provided the competition rules and other relevant
Community law are respected (16).
In its follow-up
Communication of 11 June 2002 entitled ‘Towards the
Full Roll-Out of Third Generation Mobile Communi-
cations’ (17), the Commission emphasised that it would
continue to work with national administrations towards
establishing a best-practice approach for network
sharing.

1.3.2. NETWORK SHARING

(11) 3G network sharing can take place at a number of
different levels and involve varying degrees of cooper-
ation. The degree of
independence retained by an
operator depends on which network elements are being
shared and its remaining ability to install separate
elements (planning freedom). 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.

1.3.2.1. RAN

(12) The RAN includes mast/antenna sites, site support
cabinets (‘SSCs’) and power supply, as well as antennae,
combiners and transmission links, Nodes B, that is to
say, 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.

1.3.2.2. Core network

(13) The core network is the intelligent part of the network
that consists of mobile switching centres (‘MSCs’), vari-
ous support nodes, services platforms, client home
location registers and operation and maintenance centr-
es. It is linked to the fixed ISDN (integrated services
digital network) and Internet networks.

(16) Introduction of 3G in the EU, paragraph 4.3.
(17) COM(2002) 301 Final.

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(14) Ranked by the increasing degree to which the network
is shared it is possible to distinguish between shared use
of:

(a)

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

(b)

base stations (Nodes B) and antennae;

(c)

radio network controllers (‘RNCs’);

requirements must be taken into account in the context
of network infrastructure sharing (18). 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:

(a)

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;

(d)

core networks, including mobile switching centres
(‘MSCs’) and various databases;

(b)

general obligations as regards, for example, site and
antenna sharing relating to planning restrictions
and environmental concerns;

(e)

frequencies.

(15)

Finally, 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.

(16)

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 (point (a) in recital 14).
The Parties may consider RAN sharing (point (b) in
recital 14) for specific point solutions, although this is
not currently planned. The Parties do not envisage
sharing their core networks, but their Agreement does
cover national roaming.

1.3.3. NATIONAL REGULATORY FRAMEWORK

(17)

Subject to the principle of the primacy of Community
licensing and regulatory
law, the applicable national

(c)

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

(d)

limitations as regards the extent of network sharing
allowed in relation to, for example, sharing network
intelligence and sensitive customer data.

(18) A number of national regulatory authorities (NRAs)

in the
Community have issued guidance on the conditions under which
infrastructure sharing would be consistent with national licensing
and regulatory requirements. In the UK Oftel published a position
in May 2001,
‘3G Mobile Infrastructure Sharing. Note for
information’, available at http://www.oftel.gov.uk/publications/
In Germany, RegTP issued its
mobile/infrashare0501.htm.
Interpretation of the UMTS Award Conditions in the 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–netwerk-
en–190701.pdf and at http://www.art-telecom.fr/dossiers/umts/
partage-infras.htm.

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(18) Oftel

is the national

telecommunications regulatory
authority (‘NRA’) in the United Kingdom that is respon-
sible for the notified Agreement. In May 2001, Oftel
published general guidance in which it encouraged
infrastructure sharing subject to a case-by-case assess-
ment of individual proposals (19).

(19) The national regulatory framework and the Community
competition rules are of parallel and cumulative appli-
cation. National rules may not conflict with the Com-
munity competition rules nor can compatibility with
national rules and regulations prejudice the outcome of
an assessment under the Community competition rules.
Hence a full assessment of the notified Agreement under
the Community competition rules is required.

1.4. THE AGREEMENT

(20) O2 UK and T-Mobile UK entered into an Agreement
(‘the Agreement’) on 20 September 2001 to cooperate
by way of 3G site sharing and national roaming. The
Agreement also covers certain 2G and 2,5G infrastruc-
ture. 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 as notified between three areas: (i) the
Initial Build Area (‘IBA’); (ii) the Divided Area (‘DA’); and
(iii) the Remaining Area. At meetings on 6 and 7 March
2003 the Parties informed the Commission that they
had agreed to further subdivide the IBA into two parts.
On 12 March 2003 they provided the Commission with
a statement setting out what they had agreed and how
the Agreement would be amended accordingly. The
subdivision of the IBA was to be as follows:

(a)

a ‘core area’ of the IBA consisting of the top 10 cities
in the United Kingdom covering approximately [32
to 38 %] (*) (20) of the population where both
parties would separately roll out their networks (21);

(b)

a ‘residual area’ of the IBA consisting of a further
13 cities covering [less than 10 %] (*) of the UK
population where each Party has been allocated a
number of cities in which to roll out its network (22).

1.4.1.

SITE SHARING AND NATIONAL ROAMING IN THE
INITIAL BUILD AREA

(21) The IBA as a whole represents an area covering around
[30 to 50 %] (*) of the UK population and more than
[50 to 80 %] (*) of UK businesses (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:

(a)

(b)

(c)

(d)

(e)

the Agreement,

to Clause 2.3 of

pursuant
to
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, that is to say,
structures including mast, materials and equipment
(power supply, racking and cooling) for 3G, 2,5G
and/or 2G equipment, in particular transceivers
and base station racks or Node B base station
cabinets, but not transmission and antennae;

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

to grant
the other Party an option over sites
identified as suitable for site sharing exercisable for
two years and thirty days after 31 December 2001
(Agreed Document 8 of the Agreement);

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

in the ‘residual area’ of the IBA, to roll out a
network in the set of cities allocated to the Party
concerned and provide roaming services to the
other Party until the latter has achieved its own
network coverage in this area (in the ‘core area’ of
the IBA, the Parties will both build out
their
networks separately from the outset and there will
be no reliance on roaming).

( 19) 3G Mobile Infrastructure Sharing. Note for Information.
( 20) Parts of this text have been edited to ensure that confidential
information is not disclosed; those parts are enclosed in square
brackets and marked with an asterisk.

( 21) Greater London, Birmingham, Manchester, Glasgow, Leeds, Edin-

burgh, Liverpool, Nottingham, Newcastle and Bristol.

(22) 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.

(22) [Sheffield, Leicester, Brighton, Northampton, Cambridge, South-
ampton, Cardiff, Belfast, Coventry, York , Preston, Stoke-on-
Trent and Oxford] (*).

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(23) The Agreement also provides for information to be
exchanged regularly in order to allow site sharing and
roaming. Information to be exchanged includes technical
information about present and future sites such as the
location and antenna height of the site, the nature and
extent of the space available and any specific rights or
restrictions and the site configuration parameters to
allow seamless roaming. Specific confidentiality pro-
visions are included as a safeguard.

1.4.2.

SITE SHARING AND NATIONAL ROAMING IN THE
DIVIDED AREA

(24)

In the DA (an area covering about a further [40 to
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 Area’ (separate
geographic 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
In limited cases, RAN sharing may be
(Clause 2.5).
considered for specific point solutions but this is not
currently planned. Clause 9.2 of the Agreement also
provides that a Party shall not deploy 3G infrastructure
in the Designated Area of the other Party, although this
is subject to a number of exceptions which do not
require prior consent of the other Party, set out in
Clause 11 (for example, for special events, to meet
market demand and/or for special needs of important
customers).

(25) 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 Party to which the Designated Area has been
allocated for later occupation by the other Party. The
Parties have an option to share, exercisable after 31 May
2002 for two years and 30 days or for five years and
30 days followed by a right of first refusal of indefinite
duration (Agreed Document 8). After the expiry of the
Option, if one Party operating a site receives an offer
from a third party at a site-sharing fee which is equal to
or higher than the fee (price list) agreed and commer-
cially negotiated between the parties and based on fair
market prices for sites owned by or under the control of
the parties, the ‘Site Operator’ shall notify the other Party

of such a request. The other Party then has 14 days to
confirm that it will enter into a site-sharing Agreement
with the Site Operator (the Party controlling the site).

(26)

Pursuant to Clause 14.7, each Party is able to conclude
roaming Agreements with third-party
3G national
national 3G operators (for the network it has built and
operates itself), but the third-party operator would not
have access to the network of the other Party to the
Agreement unless the latter 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 pro-
viders
and/or Mobile Virtual Network Operators
(MVNOs), whether carried on its own network equip-
ment or via roaming in the other Party’s Designated Area.
Clause 14.7 does not affect arrangements concerning
international roaming.

(27) As is the case in the IBA, the Parties will exchange
technical information to allow site sharing and roaming,
but the adoption of a common radio plan will require
them to also exchange further information, including
coverage targets and coverage roll-out plans, Quality of
Service (QoS) targets, expected traffic requirements for
UMTS services and Node B radio design parameters.
Confidentiality provisions are also included as a safe-
guard.

1.4.3.

SITE SHARING AND NATIONAL ROAMING IN THE
REMAINING AREA

(28) The Parties agree, when market conditions permit, to
extend their respective 3G networks into the Remaining
Area, which covers the least densely populated areas of
the United Kingdom, using the same principles applied
in the DA.

1.4.4. DURATION

(29) The Agreement is for an unlimited duration but can be
terminated after 31 December 2007 by either Party
giving two years’ notice.

1.5. ARGUMENTS OF THE PARTIES

(30) The Parties justify the Agreement

the
financial difficulties experienced by 3G operators, the
regulatory timeframe (the UK requirement of 80 %
population coverage by the end of 2007) and the need
to address environmental concerns.

in terms of

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1.5.1. ARTICLE 81(1) OF THE TREATY/ARTICLE 51(1) OF

1.6.1. COMMENTS BY THE UK AUTHORITIES

THE EEA AGREEMENT

(31) The Parties argue that the Agreement does not have the
object or effect of appreciably restricting competition
within the common market contrary to Article 81(1) of
the Treaty/Article 51(1) of the EEA Agreement as they
claim the Agreement will increase competition rather
than reduce it. This claim is based on the argument 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.

1.5.2. ARTICLE 81(3) OF THE TREATY/ARTICLE 51(3) OF

THE EEA AGREEMENT

(32)

If the Agreement is considered to restrict competition,
the Parties argue in the alternative,
that it may be
exempted under Article 81(3) of the Treaty/Article 53(3)
of the EEA Agreement. They argue that 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, as a result of their cooperation, the Parties
will not produce standardised services to end-users but
will continue to compete directly on content appli-
cations, 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 UK markets for
3G networks and services.

1.6. COMMENTS FROM THIRD PARTIES

(33) The initial administrative notice and the subsequent
notice pursuant to Article 19(3) of Regulation No 17 led
to input from the United Kingdom national competition
authorities (‘the UK authorities’), two mobile network
operators and a specialised equipment manufacturer. All
respondents indicated that that they were in principle in
favour of network sharing but the UK authorities and
one mobile operator made detailed comments which
were critical of the Agreement in its current form.

(34) The UK authorities submitted detailed comments which
focused in particular on the possible competition con-
cerns arising from the cooperation in the IBA as
originally notified (23). The UK authorities considered
that the Agreement appeared to limit network compe-
tition in so far as it limited competition on coverage and
quality between the two Parties. They were particularly
concerned about clauses in the Agreement which
appeared to have the effect of limiting network compe-
tition in the IBA. Moreover, they were of the view that
the Agreement might facilitate tacit collusion between
the two Parties and there might be spill-over effects
which could weaken competition at the retail
level.
However as regards site foreclosure, the UK authorities
did have concerns but considered that the market for
sites was sufficiently competitive for any problem to be
relatively minor. Difficulties for another operator gaining
access to sites was likely to be limited to particular
circumstances in isolated areas of the United Kingdom.

(35)

In light of these concerns, the UK authorities rec-
ommended that the following conditions should be
imposed:

(a)

(b)

the exemption should lapse within a relatively short
time period to allow review of actual benefits to
consumers;

the Parties should amend the Agreement so as
to prohibit
in the IBA the reciprocal roaming
arrangements as well as the use of the Joint Radio
Plan (so as to optimise the use of common
locations);

(c)

the exemption should be conditional on the man-
agement and control of the Parties remaining the
same, and there should be an obligation to notify
the Commission of any change in ownership;

(d)

it might be desirable to have independent auditing
of the confidentiality arrangements, to be subject
to periodic reports to the Commission.

(23) A public version of the UK authorities’ response of 10 October
2002 was published on OFTEL’s website and can be found at
http://www.oftel.gov.uk/publications/oftel–response/.

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1.6.2. COMMENTS FROM MARKET PARTIES

(36) One third party stated that it was in favour of network-
sharing agreements provided they were open to third
parties. As regards this Agreement, it was concerned
that the option to site-share and the right of first refusal
amounted to de facto exclusivity and could foreclose
other operators from the market. It was also concerned
that the Agreement gave the Parties an unfair advantage
in the market as a result of the cost savings brought
about by the Agreement. It concluded that the Agree-
ment would lead to less competition and provide fewer
cost savings and consumer benefits compared to an
open agreement.

networks or network elements and of network services
to operators of networks and services. Retail markets
consist of the provision of communications services to
end-users (24). Within these broad categories, narrower
markets can be defined not only on the basis of the
characteristics of the service concerned and the degree
to which it can be substituted by other services based on
price, usage and consumer preference, but by an analysis
of competitive conditions and the structure of demand
and supply (25). It is evident given the advantages of
mobility and the premium paid for it
that mobile
services are in general not substitutable by fixed services.
Mobile and fixed voice services are therefore part of
different services markets, as has been determined in a
number of Commission decisions (26).

(37) Another third party expressed concerns that the Com-
mission appeared to be excluding antenna-sharing sol-
utions as a technical solution, notwithstanding the
operational, environmental and financial benefits.

(41) The network access and services markets that are

primarily concerned by the Agreement are:

(38) All

received were

third-party comments

carefully
reviewed and to the extent that the comments reflected
genuine competition concerns, they were duly con-
sidered. The Commission’s reasoning on the concerns
raised is presented in the Legal Assessment in Part 2 of
this Decision.

(a)

the market for sites and site infrastructure for
digital mobile radiocommunications equipment;

(b)

the market for wholesale access to national roaming
for 3G communications services.

2. LEGAL ASSESSMENT

(39) As the Agreement is mainly technical in nature and does
not have as its object the restriction of competition, the
effect of the Agreement must be analysed. Whether
the Agreement is likely to have negative effects on
competition depends not only on the nature of the
Agreement but also on its economic context, such as the
market power of the Parties and other factors relating to
market structure. This analysis requires a definition of
the two relevant wholesale markets that are directly
affected by the Agreement, and an identification of a
number of other wholesale and retail markets where
effects may be felt.

2.1. RELEVANT MARKET

2.1.1.

INTRODUCTION

(40) Markets can generally be divided into wholesale and
retail markets. In telecommunications, wholesale mar-
the provision of access to
kets typically consist of

(42)

In addition, the markets for wholesale access to 3G
services, as well as the downstream retail markets for 3G
services are affected indirectly.

(24) Notice on the application of the competition rules to access
agreements in the telecommunications sector — framework,
relevant markets and principles (Access Notice), OJ C 265,
22.8.1998, p. 2, paragraph 45; Commission Guidelines on
market analysis and the assessment of significant market power
under the Community regulatory framework for electronic
communications networks and services (SMP Guidelines), OJ
C 165, 11.7.2002, p. 6, paragraph 64.

(25) Commission Notice on the definition of relevant market for the
purposes of Community competition law, OJ C 372, 9.12.1997,
p. 5; Guidelines on the application of EEC competition rules in
the telecommunications sector, OJ C 233, 6.9.1991, p. 2.
(26) SMP Guidelines, paragraph 66. Cf. Commission Decision 98/
2001/EC in Case COMP/M.1439 — Telia/Telenor (OJ L 40,
9.2.2001, p. 1); Commission Decision of 12 April 2000 in Case
COMP/M.1795 — Vodafone Airtouch/Mannesmann (OJ C 141,
19.5.2000, p. 19); Commission Decision of 20 September 2001
in Case COMP/M.2574 — Pirelli/Edizone/Olivetti/Telecom Italia
(OJ C 325, 21.11.2001, p. 12); Commission Decision of 10 July
2002 in Case COMP/M.2803 — Telia/Sonera (OJ C 201,
24.8.2002, p. 19).

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2.1.2. WHOLESALE MOBILE NETWORK ACCESS MAR-

KETS

(43) Access to physical

facilities, such as sites, and site
infrastructure, that is to say masts and antennae, as well
as ducts, leased lines and rights of way, that serve as part
of a mobile telecommunications network infrastructure,
may constitute access to particular mobile network
markets. In addition, there are wholesale network access
and services markets for the provision of digital mobile
communications services to other operators. These can
be divided broadly into two categories:

(a) wholesale network services related to intercon-
nection that allow communication to take place
between the users of different networks;

(b) wholesale access services that relate to the use of a
host or visited network by customers of other
operators.

(44) The wholesale network services related to intercon-
nection include call termination (the wholesale service
of completing a call to an end user), call origination (the
wholesale service of enabling a call to be originated by
an end user), as well as direct interconnection services
(the provision of a direct physical link between terminat-
ing and originating networks) and transit services (the
provision of an indirect link between terminating and
originating networks by means of transit across one or
more third networks). Access services that relate to the
use of a ‘host’ or ‘visited’ network by customers of other
operators include the wholesale provision of national
and international roaming, and the wholesale provision
of airtime.

2.1.3. MARKETS DIRECTLY AFFECTED BY THE AGREE-

MENT

2.1.3.1. The market for sites and site infrastructure
radiocommunications

for digital mobile
equipment

Product/infrastructure market

(45) Both 2G and 3G mobile telecommunications networks
rely on a cellular network architecture based around
antennae that are distributed across the coverage area,
allowing radio signals to be received from and trans-
mitted to end users within a certain cell radius (27). The
operators of 2G and 3G mobile telecommunications

networks require sites for the location of these antennae
and the related site infrastructure such as masts, site
support cabinets, power supply, combiners and trans-
mission links.

(46) Acquiring (either purchasing or, more commonly, leas-
ing) such sites requires agreement with the site owners
and planning permission from local authorities, and in
some cases approval from regulatory authorities to limit
the risk of radio frequency interference. Although the
number of properties that can be converted into sites
for digital mobile communications equipment
is in
theory unlimited,
in practice the number of suitable
sites is limited due to planning regulations, health or
environmental considerations or space constraints in
‘hot spots’ (for example, in city centres or airport and
railway terminals). To be considered a site, a particular
property must
therefore be usable as such from a
technical point of view, must be made available in
accordance with regulatory constraints, and must fit into
the planned network architecture spaced across the
coverage territory according to capacity needs.

(47)

From a demand perspective, sites are at present required
primarily by the five operators that hold 3G licences in
the United Kingdom and are planning 3G network roll-
out, four of which also operate 2G networks (28). In
principle 2G and 3G sites are interchangeable, although
due to the nature of the different frequencies used and
the added capacity desired for 3G services, the density
of a 3G network is greater, and requires up to twice as
many sites as a 2G network. Only a limited part of the
demand for 3G sites can therefore be met by using
existing 2G sites. Finally, unlike 2G networks, which are
already fully rolled out, the roll-out of 3G networks in
in its initial stage. Given
the United Kingdom is still
regulatory roll-out requirements of 80 % population
coverage by the end of 2007, the initial demand for sites
is highest in urban and other densely populated areas.
Although there is some room for substitution between
different types of sites (for example, between rooftop
sites and mast sites, or between multiple sites serving
smaller cells, such as micro or pico cells and single sites
serving larger macro cells) there are no other products
that can substitute for 2G and 3G sites and site
infrastructure.

(48)

From a supply perspective, access to 2G and 3G sites
and site infrastructure can firstly be provided by 2G and
3G network operators that have located, acquired and
developed sites for the purposes of operating their own
networks. This is because in principle sites can be shared

( 27) Because 2,5G is based on an overlay of existing 2G networks this

is not analysed separately.

(28) Sites are also required by, for example, digital broadcasters and
to a more limited extent by providers of TETRA (Terrestrial
Trunked Radio).

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between multiple operators, although there are technical
limits on the number of operators that can share a
particular site, in most cases up to three, depending on
the lay-out of the specific site. There appear to be
economies of scope involved at the supply side, because
network operators are likely to prefer dealing with
parties that can provide them with the largest possible
number of sites across the largest possible number of
locations in order to minimise search costs and to
minimise transaction costs. Operators may prefer site
sharing with other operators so as to allow the sharing
of more elements of site infrastructure, thereby further
reducing their costs. Finally, it is possible that in hot
spots such as city centres many of the most favourable
sites have already been developed and are therefore not
always available to market entrants.

In general, broadcast

(49) There is limited scope for supply by operators of
trans-
broadcasting networks.
mission equipment is located on sites affording a much
higher level of geographical coverage when compared
to the coverage requirements of cellular systems. Conse-
quently, broadcast sites tend to be tall structures in
elevated locations that transmit at high powers (tens
of kilowatts) in order to achieve optimal population
coverage using a limited number of sites.
In view
of capacity considerations, mobile radio networks are
cellular in nature, each site providing sufficient but
limited coverage, reducing inter-cell
interference and
allowing the frequency allocations to be reused in other
areas. The size of each cell may range from a few
hundred metres to several kilometres, the actual range
determined by the level of network capacity required.
Site height and transmitted power are the main factors
in controlling cell size with typical powers of tens of
watts and antenna heights between 10 and 20 meters.
There is a tendency for mobile operators to utilise
broadcast structures where they are suitable for the local
requirements of the service.

(50) There has been market entry by independent companies
that specialise in the location, acquisition and provision
of sites for use by third parties. Other parties that control
sites, such as public authorities or utilities, can likewise
enter the market and have already done so in the United
Kingdom. Moreover operators have historically also
acquired and leased individual sites on a commercial
basis directly from the site owners, and continue to
do so. Apart from the general planning permission
constraints, health rules and requirements to minimise
electromagnetic interference, there are no serious legal,

statutory or other regulatory requirements that could
defeat a time-efficient entry into the market and as a
result discourage supply-side substitution. No significant
investments or scarce technical expertise are required
to enter the market. Market entry therefore remains
possible.

(51) Based on the above analysis of supply and demand it
should be concluded that there is a market for sites and
site infrastructure for digital mobile radiocommunica-
tions equipment.

Geographic market

(52) Based on the structure of demand, which is by nationally
licensed operators, the market is likely to be national,
namely the United Kingdom, although stricter planning
rules for sites hosting mobile radiocommunications
equipment in Scotland may mean that there is a separate
market in Scotland.

2.1.3.2. Wholesale market for access to national

roaming for 3G communications services

Product/service market

(53) Mobile roaming occurs when customers use their mobile
telephone handset, or more specifically the SIM (Sub-
scriber Identification Module) card which identifies the
subscriber, on a different mobile network (host or visited
network) from that to which they subscribe and which
issued their SIM card (home network). Roaming can be
either national or international. In both cases it is based
on agreements between the home network operator
and the visited network operator for the provision of
wholesale roaming access to the visited network which
is then passed on as a retail service by the home network
to its subscribers. However, the market for national
roaming is distinct from international roaming, inter alia
because it does not involve agreements between foreign
operators, it is not based on the standard arrangements
developed within the GSM Association (29), and the
prices are significantly different.

(54) Notwithstanding a possible initial overlap between 2G,
2,5G and 3G retail services, from a demand perspective,
wholesale access to national roaming for 3G communi-
cations services will be distinct
from 2G or 2,5G
roaming, because the range of both voice and data
services that can be provided based on 3G roaming is
broader and different, given that significantly higher

(29) The GSM Association consists of over 690 different 2 and 3G
mobile network operators, manufacturers and suppliers who
collectively develop technical platforms to make wireless services
work seamlessly, with a focus on roaming and inter-operability.
Cf. http://www.gsmworld.com.

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transmission speeds will be available (in practice from
144 up to 384 kB/s for 3G versus between 20 and
60 kB/s for 2,5G and between 9 and 14 kB/s for 2G). A
more complete discussion of the relevant voice and data
services is provided in section 2.1.4.2.

(55)

From a supply perspective, only operators of 3G net-
works or other parties able to provide the relevant type
of access to the 3G networks of such operators will be
able to supply wholesale access to national roaming for
3G services. Given licensing requirements, the barriers
to entry, apart from secondary entry based on access
rights to an existing 3G network, are absolute. Wholesale
access to national roaming for 3G communications
services therefore constitutes a distinct product/service
market.

Geographic market

(56)

Since licensing of 3G networks takes place at national
level, and given pricing differences between national and
international roaming, the relevant market is national,
namely the United Kingdom.

2.1.4. OTHER POTENTIALLY AFFECTED WHOLESALE

AND RETAIL MARKETS

difference between the two forms of access is that an
operator relying on national roaming can itself deter-
mine the range of services available to its subscribers,
and can provide services that are not available to
customers of the host network. A service provider,
however, can only provide simple resale of the range of
services offered by the network operator that is provid-
ing it with wholesale airtime.

(58) Another possible wholesale market is the market for call
origination services where providers of carrier selection
services purchase the right to obtain access to mobile
networks in order to originate calls that they terminate
under their own responsibility. It is possible that, in
addition, new forms of wholesale access to 3G networks
and services may develop and come to constitute
separate relevant markets.

(59) Wholesale 3G network services and network access are
likely to be distinct from network services and access for
2G or 2,5G services, because the range of services that
can be provided based on 3G networks is broader and
different, given the availability of significantly higher
transmission speeds. However given the degree of devel-
opment of 3G wholesale markets, which are still emerg-
ing, it is too early to describe in detail the demand side
for network services and access on commercial terms in
such markets, with the exception of demand from
service providers for access to wholesale airtime. From a
supply side these markets are logically limited to 3G
network operators and to any other parties that may
obtain a right to provide the relevant degree of access to
3G networks.

2.1.4.1. Potentially affected wholesale markets for

3G network services and access

Geographic market

Product/service markets

(57) There are a number of other possible wholesale markets
for 3G network services and network access that may be
affected by the Agreement, such as the market for
the provision of wholesale airtime access to service
providers, which has existed in the United Kingdom on
the basis of regulatory obligations. Wholesale airtime
access is similar to national roaming in that it also
concerns the wholesale provision of network access and
minutes (airtime) by a host network. It has been supplied
to service providers by licensed mobile operators in the
United Kingdom as a condition of their licences (30). The

(60) Given national licensing and pricing patterns, the geo-
graphic scope of such wholesale markets is likely to be
national (31). For the purposes of the present Decision it
is not necessary to define those markets more closely.
Their definition will therefore be left open.

2.1.4.2. Potentially affected retail markets

(61) Whereas the cooperation covered by the Agreement is
limited to site sharing and national
roaming at
wholesale network level, the effects of this cooperation
could be felt in the downstream retail services markets

( 30) Vodafone and O2 UK were held to hold market influence and
required to supply wholesale airtime.OFTEL decided to make
determinations to remove the MI determinations (5 April 2002),
http://www.oftel.gov.uk/publications/mobile/2002/
mide0402.htm

(31) However cf. Commission Decision of 4 October 2001 in Case
COMP/M.2598 — TDC/CMG/MIGway JV (OJ C 16, 19.1.2002,
p. 16), which identifies EU-wide markets for connectivity to the
international signalling network and for wholesale access (SMS)
to mobile telephony infrastructure.

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where the Parties are active independently of each
other. Within the area of mobile retail services, voice
and data services have so far been offered in a bundled
manner, suggesting that they may be part of the same
market. The 3G network operators are likely to offer
‘seamless’ 2G and 3G voice and data services by
providing both types of services on a single SIM card.
However, the balance between voice and data services
is expected to shift fundamentally: whereas 2G data
services are largely limited to fax and SMS, and voice
services typically account for over 90 % of 2G mobile
for 3G networks, with services
operators’ revenues,
like teleshopping, video telephony and video conferen-
cing, it is expected that eventually between 50 % and
two thirds of revenue may be generated by data
services. It is therefore useful to analyse digital mobile
voice telephony services and digital mobile data
services separately. At
initially this distinction
least
largely corresponds with that between circuit-switched
and packet-switched services.

Digital mobile voice services

(62) Concerning mobile voice telephony markets

the
Commission has so far generally not distinguished
between different technologies. Most decisions have
determined that both analogue and digital GSM
900 and 1800 are part of the same mobile voice
testing narrower market
telephony market, while
definitions to ensure that no dominant positions arose
on any market definition (32). However, as analogue
mobile telephony has been phased out by the operators
in the United Kingdom, the services concerned by the

( 32) Cf. Commission Decision of 21 May 1999 in Case IV/M.1430
— Vodafone/Airtouch (OJ C 295, 15.10.1999, p. 2); Commission
Decision of 21 May 1999 in Case COMP/JV.17 — Mannesmann/
Bell Atlantic/Omnitel (OJ C 11, 14.1.2000, p. 4); Commission
Decision 98/2001/EC in Case COMP/M.1439 — Telia/Telenor
(OJ L 40, 9.2.2001, p. 1); Commission Decision of 20 December
1999 in Case COMP/M.1760 — Mannesmann/Orange (OJ C 139,
18.5.2000, p. 15); Commission Decision of 12 April 2000 in
Case COMP/M.1795 — Vodafone Airtouch/Mannesmann (OJ
C 141, 19.5.2000, p. 19); Commission Decision of 4 August
2000 in Case COMP/M.2053 — Telenor/BellSouth/Sonofon (OJ
C 295, 18.10.2000, p. 11); Commission Decision of 11 August
2000 in Case COMP/M.2016 — France Telecom/Orange (OJ
C 261, 12.9.2000, p. 6); Commission Decision of 25 September
2000 in Case COMP/M.2130 — Belgacom/Tele Danmark/
T-Mobile International/Ben Nederland Holding (OJ C 362,
18.12.2001, p. 6).

Agreement are digital mobile voice telephony. So far
the Commission has not defined different markets for
2G, 2,5G and 3G retail services (33).

(63) Over time, however,

industry sources anticipate that
‘rich voice over 3G networks’ services may develop
that consist of voice services integrated with data
services such as consumer videophones and multimedia
conferencing that go beyond the capacity of 2G and
2,5G networks. Hence it is possible that a distinct
retail market for 3G voice services will develop or,
indeed, that 3G voice and data services will merge
into a single market. Developments in the quality and
the scope of the voice services concerned brought
about by 3G technology are likely to enable 3G voice
services to command a price premium. Moreover, they
are likely to lead to one-way substitution between 2G
services on the one hand, and 3G services on the
other hand (that is to say, users will substitute 3G
services for 2G services, but not vice versa), which
would be evidence of the existence of separate markets.
For the purposes of the present Decision, however, it
is not necessary to conclude on whether 2G and 3G
voice services should be considered separate product
markets. The relevant product market definition is
therefore left open.

Digital mobile data services

is

is

that

(64) A fundamental difference between 2G data services,
on the one hand, and 2,5 and 3G data services, on
circuit-switched,
the former
the other,
whereas the latter are packet-switched, that is to say,
based on a different technology with different and
increased technical capabilities. Because services and
content available over 3G networks are expected to be
considerably improved in relation to 2G both as
regards data speeds and the range of services that is
consequently enabled, any substitutability between 2G
and 3G is likely to be one way. This leads to the
conclusion that 2G and 3G services are likely to be
separate markets. Although it appears clear that there
will be some overlap between 2,5G and 3G services
as 2,5G allows, for example, mobile e-mail, multi-
media messaging and continuous Internet access,
it
does not have sufficient data transmission rates to
provide the high end of data services that are expected

(33) Commission Decision of 12 April 2000 in Case COMP/M.1795
— Vodafone Airtouch/Mannesmann (OJ C 141, 19.5.2000,
p. 19); Commission Decision of 31 July 2000 in Case COMP/
M.1954 — ACS/Sonera Vivendi/Xfera (OJ C 234, 18.8.2000,
p. 6); Commission Decision of 25 September 2000 in Case
COMP/M.2130 — Belgacom/Tele Danmark/T-Mobile Inter-
national/Ben Nederland Holding (OJ C 362, 18.12.2001, p. 6).

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to emerge on 3G networks. It therefore appears that
there may be an emerging market for the provision of
3G mobile data services.

(65) Based on the distinguishing factor of mobility, the
Commission has so far considered that mobile and
fixed data services are in separate markets (34). However
the highest bandwidth 3G data services are likely to
be deliverable only under conditions of optimal
coverage with very low or no mobility. At the same
time wireless local area network services (WLAN)
are developing that provide data communications,
including broadband Internet access, allowing limited
mobility within a circumscribed area (such as within
buildings or at public locations). It is possible that a
similar measure of
in future,
become the norm for all or most high bandwidth data
services. Consequently, it is an open question whether
services like WLAN will be a complement to or a
substitute for 3G services and whether, as a result, the
distinction between fixed and mobile data services will
break down and a market for broadband wireless data
communications may emerge.

limited mobility will,

(66) Because 2,5G services are still emerging, and 3G
services are presently only at the planning stages, it is
not possible to determine accurately whether they are
in the same market or in different markets, whether
digital mobile voice and data services are in the same
market or whether certain 3G services are in the same
market as broadband data services such as WLAN.
However, for the purposes of the present Decision, it
is not necessary to conclude on whether 2G, 2,5G and
3G data services and/or voice services should be
considered separate product markets. The relevant
product market definition is therefore left open.

Geographic markets

(67) Given the fact that retail pricing and services offers of
digital mobile telephony are currently national, markets
in scope, with the exception of the
remain national
seamless
the provision of
emerging market
pan-European mobile telecommunications services to
internationally mobile customers that the Commission
Vodafone/Mannesmann
the
first

identified

for

in

( 34)

In relation to dial-up access to Internet via mobile handsets and
via fixed means. Cf. Commission Decision of 20 July 2000 in Case
COMP/JV 48 — Vodafone/Vivendi/Canal+, http://europa.eu.int/
comm/competition/mergers/cases/.

international

roaming (36).

Decision (35). International roaming services are not a
substitute given the high prices and limited func-
In addition,
tionality of
network operators have generally refused to allow
permanent roaming based on international roaming
access, that is to say, to allow a customer of a foreign
network to roam permanently on their own network.
Consequently the market or markets identified above
are national.

2.2. MARKET STRUCTURE

2.2.1. THE MARKET FOR SITES AND SITE INFRASTRUC-
TURE FOR DIGITAL MOBILE RADIOCOMMUNICA-
TIONS EQUIPMENT IN THE UNITED KINGDOM

(68) According to the UK Radiocommunications Agency,
there are approximately 35 000 externally sited base
stations for cellular transmitters. In order to provide
3G services,
the
operators will need approximately a further 30 000 to
50 000 sites, although it is difficult to determine the
number required with any accuracy as the final figure
depends on a number of factors, including the success
of 3G.

the Agency has estimated that

(69)

Information provided by mobile operators confirms
that there are approximately 35 000 sites used for 2G
transmission (over 95 % population coverage) (37). The
Commission has
the
operators’ replies that a minimum of 40 000 sites will
be required to provide 3G covering 80 % of the UK
population. A greater number of sites will be required
to cover the whole of the UK population.

estimated on the basis of

(70) All the mobile operators control a significant number
of sites and, in most cases, lease them from corporate
entities such as public utilities, commercial property
owners as well as from private landlords. There are
also specialist companies (‘tower companies’) that lease
antenna space on wireless and broadcast towers that
can accommodate multiple
and wireless
networks.

tenants

(35) Cf. Commission Decision of 12 April 2000 in Case COMP/
M.1795 — Vodafone Airtouch/Mannesmann (OJ C 141,
19.5.2000, p. 19); Commission Decision of 11 August 2000 in
Case COMP/M.2016 — France Telecom/Orange,
(OJ C 261,
12.9.2000, p. 6).

(36) Cf. Commission Decision of 22 June 1998 in Case IV/JV.2 —
ENEL/FT/DT (OJ C 178, 23.6.1999, p. 15); Commission Decision
of 21 May 1999 in Case IV/M.1430 — Vodafone/Airtouch (OJ
C 295, 15.10.1999, p. 2); Commission Decision 98/2001/EC in
Case COMP/M.1439 — Telia/Telenor (OJ L 40, 9.2.2001, p. 1).
information see Mobile Operators Association

(37) For general

www.mobilemastinfo.com/information/masts.htm.

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(71) O2 UK has about 7 600 2G sites and owns or controls
about 6 000 2G sites. T-Mobile UK has
[about
8 600] (*) sites of which around 2 000 are managed
by Crown Castle International.

certain cases, they may even own network infrastruc-
ture elements. However, they are ultimately dependent
on a mobile operator’s network for the use of the
radio spectrum.

(72) As regards the other operators, Vodafone has about
8 000 sites and Orange has about 9 500 sites.
Hutchison, as a new entrant,
is still building up its
portfolio of 3G sites and has about 4 000 sites, to
provide approximately 50 % population coverage. It is
expected to add a further [...] (*) sites.

(73) All operators are seeking to acquire further sites in
the United
to provide 3G services across

order
Kingdom.

(76) Currently 3G national

roaming is

foreseen only
between O2 UK and T-Mobile UK pursuant to the
notified Agreement. However, it is possible that further
roaming agreements may be entered into between
operators, especially to cover remote parts of
the
United Kingdom.

(77) The supply of wholesale airtime in 3G is likely to be
more significant given the scope for new services and
SPs and MVNOs operating in niche markets. In 2G, all
wholesale airtime has been provided by BT Cellnet
and Vodafone (39), with the exception of the ESP deal
between T-Mobile UK and Virgin Mobile.

2.2.2. WHOLESALE ACCESS TO NATIONAL ROAMING

FOR 3G COMMUNICATIONS SERVICES

2.2.3. 3G RETAIL LEVEL

(74) Apart from the Parties, three other mobile operators
were allocated 3G mobile licences under the Wireless
Telegraphy Act 1949 by means of an auction in April
2000: Vodafone, Orange and Hutchison 3G UK (a
new entrant). Although there are plans by the UK
to introduce spectrum trading (38), the
Government
if not absolute given the
barriers to entry are high,
cost of rolling out a 3G network and the difficulty of
obtaining sufficient appropriate spectrum. New entry
via spectrum trading is unlikely for the forseeable
future, if at all.

(75)

In addition to the operators, service providers (SPs)
and, possibly, MVNOs will operate in the 3G wholesale
market. SPs — either Tied (TSPs) or Independent (ISPs)
— resell minutes purchased (wholesale airtime) from a
network partner operator and have their own billing
relationship with subscribers, primarily business sub-
scribers. Enhanced SPs (ESPs) represent the next tier of
service providers and offer their own tariff structures
including value added services. Virgin
and packages,
Mobile (a 50:50 venture with T-Mobile UK)
is an
example of an ESP that caters successfully for the
private customer. MVNOs are the final
tier in the
hierarchy of SPs. MVNOs provide similar services to
ESPs but they have their own identity and issue their
own SIM (subscriber identification module) cards. In

(78) The five licensed operators are all planning to roll out
their networks and, depending on the operator, are
expecting to start providing 3G services sometime in
2003 or 2004. As 3G networks and services have not
yet been launched commercially, no market shares or
assessment of substitutability between 2G and 3G
services can at present be provided. For 2G retail
services in 2002, the market share by operator by
revenue was the following: Vodafone — 34 %, Orange
— 27 %, O2 UK — 22 % and T-Mobile UK —
17 % (40). However, it is not clear to what extent the
position will be replicated in 3G and in addition, the
3G market will see the introduction of a new entrant
— Hutchison 3G UK operating under the brand ‘3’.
The entry of Hutchison 3G UK combined with the
potential for ESPs and MVNOs to play a greater role
may enhance competition, but the market is still likely
to see the established operators, including both Parties,
with strong market positions due to their existing 2G
network and customer base.

2.3. RESTRICTION OF COMPETITION

(79) Article 81(1) of

the Treaty prohibits agreements
between undertakings which may affect trade between
Member States and which have as their object or effect

( 38) Radiocommunications Agency,

‘Implementing Spectrum Trad-
ing’, A Consultation Document, July 2002. See http://www.radi-
o.gov.uk/topics/spectrum-strat/consult/
implementingspectrumtrading.pdf.

(39) Vodafone and O2 UK were held to hold market influence and
required to supply wholesale airtime. OFTEL decided to make
determinations to remove the MI determinations (5 April 2002),
http://www.oftel.gov.uk/publications/mobile/2002/
mide0402.htm.

(40) Oftel, Market Information Mobile Update, October 2002.

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the prevention, restriction or distortion of competition
within the Common Market. Parallel provisions in
respect of trade between Contracting Parties and effect
on competition within the EEA are set out
in
Article 53(1) of
the EEA Agreement. Agreements
restricting competition contrary to Article 81(1) of the
Treaty and Article 53(1) of the EEA Agreement can be
in
exempted provided
Article 81(3) of the Treaty/Article 53(3) of the EEA
Agreement are met.

conditions

out

the

set

(80) The Agreement between O2 UK and T-Mobile UK
involves cooperation in the roll-out of the Parties’ 3G
networks, via site sharing and national roaming. These
key objectives are pursued in three distinct areas of
the United Kingdom (i) the Initial Build Area (‘IBA’),
(ii) the Divided Area (‘DA’) and (iii) the Remaining
Area (‘RA’). They are implemented by the Parties
cooperating in the planning, acquiring, building,
deploying and sharing of 2G sites, 3G sites and 2G/
3G sites as well as through the provision of reciprocal
roaming services. The Agreement
includes detailed
implementing provisions, in particular in relation to
the
the exchange of confidential
purposes of managing the project.

information for

(81) The Parties are cooperating extensively in the roll-out
of
their 3G mobile networks. Such far-reaching
cooperation between two key players in a market with
only a limited number of competitors and high, if not
absolute, barriers to entry raises competition concerns.
Therefore the Agreement, or more particularly the site
sharing and the national roaming, need to be analysed
under Article 81 of the Treaty/Article 53 of the EEA
Agreement.

recital 23 of the preamble to Directive 2002/21/EC of
the European Parliament and of the Council of 7 March
common regulatory framework for
2002 on a
electronic
communications networks and services
(Framework Directive) (41) states that ‘Facility sharing
can be of benefit for town planning, public health or
environmental reasons, and should be encouraged by
national regulatory authorities on the basis of voluntary
agreements’.

(84) However, site sharing may have an adverse impact
on competition,
in particular by reducing network
competition, denying competitors access to necessary
sites and site infrastructure, thus foreclosing competi-
tors and, possibly in some cases, facilitating collusive
behaviour.

(85) The Parties are direct competitors in 2G and 3G
wholesale and retail markets and both have well-
established positions in 2G mobile telephony. They
are therefore in a strong position to individually roll-
out their networks, particularly in built-up areas, such
as the IBA, which are likely to see the greatest demand
for 3G services. The site sharing therefore needs to be
analysed under Article 81(1) of the Treaty/Article 53(1)
of the EEA Agreement to see if it is compatible with
the competition rules.

2.3.1.1. Shared network components and radio

plans

(82) The Parties’ plans in relation to the RA (the least
the United Kingdom) are not
populated parts of
sufficiently developed to allow the Commission to
determine the possible impact of the Parties’ cooper-
ation on competition in that area. This Decision
therefore does not apply to the Parties’ plans for the
RA.

the aerial

(86) The site sharing by the Parties in the IBA and the DA
covers certain ‘passive’ components of the network,
support structure, base station
such as
(Node B) cabinets, cooling and power supply (42). The
Parties have also indicated that they may consider
RAN sharing (for example, sharing Node Bs) (43) for
specific point solutions in the DA, although this is not
currently envisaged.

2.3.1.

SITE SHARING

(87) The site sharing between the Parties in the IBA and
the DA is
limited due to the network elements
involved. The Parties will retain independent control
of the key components of their access networks as
intelligent
well as their core networks,

including all

(83)

Site sharing between competitors has been common-
place in 2G but principally on an ad hoc basis.
However, the need for up to a twofold increase in the
number of sites for 3G heightens environmental and
health concerns. Site sharing is therefore increasingly
favoured for policy considerations and is expressly
example,
encouraged by Community

rules.

For

(41) OJ L 108, 24.4.2002, p. 33.
(42) Point (a) in recital 14 above.
(43) Point (b) in recital 14 above.

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parts of the network and the service platforms that
determine the nature and range of services provided.
the possibility that additional
Although there is
network elements may be shared in the DA,
this
should not significantly undermine the Parties’ ability
to retain independent control of their networks since
RAN sharing is only intended to be used in a few
specific cases. However the Parties’ plans are not
sufficiently developed for a conclusion to be reached
on this specific issue.

2.3.1.2. Designated Areas in the DA

(91) The Agreement provides

for

each Party to be
responsible for rolling out the network in the DA, in
particular Designated Areas which are broadly consist-
ent. The Parties have also agreed not to build out and
deploy 3G sites or networks outside of
their own
Designated Area, although this is subject to a number
of exceptions.

(88) The use of RAN sharing could also increase the risk
that the Parties would have a significant level of costs
in common which could facilitate the coordination of
market prices and output. However, given the limited
extent to which the network components are shared
by the Parties, the level of common costs arising from
the site sharing is likely to be low. This is supported
by estimates provided by T-Mobile which show that [a
very small proportion of the costs savings] (*) of the
savings arising from the
capital expenditure cost
Agreement will result from site sharing (operational
expenditure savings are [limited]
(*)). O2 UK has
provided figures using a different methodology but the
cost savings from site sharing can be expected to be
similar. Consequently,
the level of common costs
arising from site sharing will also be limited.

resulted in the assimilation of

(89) The Parties were planning to adopt a Joint Radio Plan
in the IBA and a Common Radio Plan in the DA,
deploying their radio equipment on the same or a
substantial number of the same sites. This could have
led to an adverse effect on competition since it could
the Parties’
have
networks, especially in terms of coverage. However,
the Parties have decided not to adopt a Joint Radio
Plan in the IBA (the most significant area in terms of
traffic) and expect less than [7 to 12 %] (*) of the total
number of sites used by them in the IBA to be
common sites. The Common Radio Plan is limited to
the DA and therefore the Parties will not be rolling
out similar networks across the whole of the United
Kingdom.

(90) As the scope of the site sharing is limited and the
Parties will not adopt a Joint or Common Radio Plan
across the whole of the United Kingdom, this particular
aspect of the site-sharing arrangement does not raise
competition concerns.

(92) The restriction on rolling-out in the Designated Area
of the other Party could be viewed at its simplest as a
form of market sharing which is considered as per se
restrictive of competition under Article 81(1) of the
Treaty. However, the Agreement permits either Party
to build out without the other Party’s permission in
the Designated Area of the other in a wide range of
circumstances,
including (i) to the extent that either
Party considers it necessary to do so due to market
demands, to meet competitive challenges or to meet
regulatory requirements; (ii) to the extent necessary to
meet the 80 % coverage requirement by 31 December
2007 as provided for in the Parties’ 3G licences; (iii)
on a temporary basis for the purpose of providing
coverage at a set of popular or special events such as
concerts etc; (iv) for special customers (Clause 11). The
Agreement therefore allows either Party to build out
in all conceivable situations in the Designated Area of
the other Party, including in line with market demand
and to meet regulatory obligations. It is also designed
for operational reasons to ensure that
the Parties
concentrate their resources in particular areas so as to
develop the sites as quickly and effectively as possible.
Given the wide exceptions,
the Clause does not
therefore have any appreciable adverse effect on
competition.

2.3.1.3. Option in IBA and DA

(93) The Parties have provided for a period of exclusivity
over the sites,
initially on the basis of an exclusive
Option and subsequently via a Right of first refusal.
The granting of exclusivity raises concerns since it
in particular
could potentially prevent third parties,
new entrants, from gaining access to sites and site
infrastructure for the installation of
their network
equipment and thereby potentially limit their ability to
provide services via an effective network. However, a
certain degree of exclusivity can be commercially
justified as it may lead to more effective site sharing
between the Parties.

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(94) The Agreement provides for the following exclusivity

(98)

periods to apply:

(a)

IBA — an Option period of two years and thirty
days from 31 December 2001 (until 30 January
2004) over the sites of the other Party;

(b) DA — an Option period of five years and thirty
days from 31 May 2002 (until 30 June 2007) for
a Party in its own Designated Area over 2G sites
of the other Party;

(c) DA — an Option period of two years and thirty
days from 31 May 2002 (until 30 June 2004)
over 3G sites (namely upgraded 2G sites and new
3G sites) of
the other Party in that Party’s
Designated Area.

(95) The Agreement allows the Parties to alter the start
date from which the Option periods begins to run. It
is therefore conceivable that the Option periods will
end later.

(96) One of the third parties which submitted comments
in response to the notice pursuant to Article 19(3) of
Regulation No 17 raised specific concerns about the
impact of the Option and Right of first refusal on
other mobile network operators. It emphasised that
the Option and the Right of first refusal could be used
selectively as a blocking tactic to foreclose market
entry. However this is only likely to be a concern if (i)
there is a lack of suitable sites available, (ii) the period
of exclusivity is too long, leading to market foreclosure,
and (iii) no appropriate regulatory solution exists.

Availability of sites

(97)

stated that

‘overall, we judge that

In the United Kingdom, there does not appear to be
lack of sites available for use by mobile
an overall
network operators.
In their response to the notice
pursuant to Article 19(3) of Regulation No 17 the UK
authorities
the
potential for site foreclosure is likely to be relatively
minor. There is a wide range of potential landowners
of sites, and site sharing by two or more operators is
common. Any difficulties for another operator gaining
access to sites may be limited to particular circum-
stances in isolated areas, where locally there is a strict
interpretation of
the planning regulations by the
planning authority’ (44).

( 44) UK authorities’ public response, paragraph 16.

In addition,

Site sharing is increasingly prominent amongst mobile
operators and around 26 % of all external sites are
shared sites (45).
the existence of an
important secondary market in the leasing of sites and
infrastructure for radio communications equipment
which helps to ensure that mobile operators do not
control access to all sites is also a significant factor.
These so-called ‘tower’ companies have a financial
incentive to ensure
sites are used as
extensively and efficiently as possible by operators.
There is therefore an inherent incentive for them to
allow site sharing. For example, Crown Castle supplies
a significant number of sites to each of the five 3G
mobile operators and [a significant proportion] (*) of
the approximately 3 200 sites that
it controls are
shared by more than two operators.

their

that

(99) However, the public are increasingly concerned about
possible health and environmental side-effects resulting
from the siting of masts, particularly near schools.
This has led in the United Kingdom to a modification
of
the planning system on the siting of masts to
ensure greater public consultation (46). In Scotland, the
Scottish Executive has introduced stricter planning
rules, which has lengthened the time it takes to obtain
planning permission (47).
In addition, 3G requires a
greater number of sites and there are five operators,
including a new entrant, seeking to simultaneously roll
out their networks (48). It is therefore possible that in
specific areas for example, areas of very high demand

(45) Department for Transport, Local Government and the Regions
(‘DTLR’) 2001 Regulatory and Statistical returns (Source: Radio-
communications Agency). See also Reply by Minister for Depart-
ment for Transport, Local Government and the Regions:
‘The
industry sends site-sharing statistics to the Department on a
quarterly basis as part of this commitment. Latest figures show
that, out of the current 10 416 sites that are capable of some
form of mast/tower share, 3 669 sites have at least one sharer
present.
In addition, 2 713 applications for site share are
pending’, 13 May 2002, column 445W, Hansard, see http://
www.parliament.the-stationery-office.co.uk.

(46) Report by the Independent Expert Group on Mobile Phones
‘Mobile Phones and Health’, May 2000, http://www.iegmp.or-
g.uk; UK ODPM, ‘Planning Policy Guidance Note 8 — Telecom-
munications’,
PPG8, August 2001, http://www.planning.-
odpm.gov.uk/ppg/ppg8.

(47) ‘Executive toughens telecommunications mast planning rules’,
Press Release SE 1534/2001 of 25 June 2001, available at http://
www.scotland.gov.uk.

(48) In the UK network roll-out for 2G was staggered due to the
allocation of licences under the Wireless Telegraphy Act 1949 at
different times. GSM 900 operators were granted licences in July
1992 (Vodafone and BT Cellnet). DCS 1800 were granted
licences later (Mercury One2One in March 1993 and Orange in
February 1994).

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in urban areas, areas near schools and hospitals, and
environmentally sensitive areas,
there may be a
third party operators could be
potential risk that
prevented from providing high network quality and
coverage by the lack of availability of appropriate sites
in certain pressure spots.

Duration of exclusivity

(100) There are a number of suppliers of sites for digital
mobile radio communications equipment in the United
themselves control
the Parties
Kingdom. However
access to a significant number of sites, the majority of
which can be modified for use in 3G.

(101) Some exclusivity is justified to ensure the commercial
success of the Agreement. However, if there were an
overall
lack of sites, a period of exclusivity which
would significantly prevent competitors and, in particu-
lar, new entrants from site sharing with either of the
Parties until
just before or after the deadline for
operators to meet the coverage requirements in their
licence, would require special scrutiny. It could make
it more difficult for third party operators to meet their
licence conditions as well as to roll out a competitive
network.
the policy of
encouraging widespread site sharing.

It could also go against

(102) In the IBA, the Parties enjoy a period of exclusivity
over each other’s sites until 30 January 2004. In its
own Designated Area within the DA, a Party enjoys a
period of exclusivity until 30 June 2007 over the 2G
sites of the other Party in that area. In the other Party’s
Designated Area in the DA, a Party enjoys a period of
exclusivity until 30 June 2004 over 3G sites of the
other Party in that area. Notwithstanding these end
dates, there remains the possibility for the Parties to
extend the exclusivity periods by agreeing new starting
dates for any of the Options due to roll-out delays.
There could therefore be a concern, especially in the
DA, that the Option periods would not lapse until
near or after the roll-out deadline of December 2007.
This could potentially impact on the ability of third-
party operators to site share with either of the Parties
and could make effective market entry more difficult.

interpretation of the planning rules. The Parties have
indicated that the Option does not preclude access for
third parties to spaces on sites which are capable of
accommodating more than two operators during the
Option period. Although not all sites will be capable
of accommodating more than two operators, many
‘greenfield sites’
(built without making use of any
existing structures) are capable of being redeveloped
to allow this. There is also the possibility for site
sharing with other mobile operators and there is
increasing use by all operators of tower companies,
in allowing multiple
which have a financial
use of their structures. Therefore the actual areas of
the United Kingdom where third parties may have
problems finding sites due to the use of the Option
are likely to be few in number and very localised. In
there is a specific regulatory remedy
any event,
available for problem areas where a scarcity of sites
would adversely affect-third party operators.

interest

Regulatory remedy

(104) Potential problems of third parties gaining access to
infrastructure have been foreseen by Community
legislators and, although the problem is often one of
planning, both the existing rules
and the new
regulatory framework which is to be applied from July
2003 (49) include specific provisions on infrastructure
sharing. Those provisions do not only apply to
operators enjoying a monopoly position over infra-
structure, such as incumbent owners of
the local
loop (50), but also to any undertaking operating an
electronic communications network, such as a mobile
operator. Article 12 of
the Framework Directive
provides
‘... Member States may impose the
that
sharing of facilities or property (including physical co-
location) on an undertaking operating an electronic
communications network ...’. Under the new regulatory
framework there is therefore a wide-reaching solution
should the Agreement have the effect of restricting
competition by denying competitors access to specific
sites and/or site infrastructure where the topography
of area and/or the specific parameters of demand
means that sites are scarce and site sharing is a
necessity.

(103) Nevertheless,

the areas where third-party operators
may face difficulties in gaining access to sufficient sites
to provide effective coverage are likely to be relatively
few, since there is not a general
lack of sites in the
stated that
United Kingdom. The UK authorities
difficulties were likely be limited to particular circum-
stances in isolated areas, where there was a strict

(49) Article 28 of the Framework Directive.
(50) ‘Local loop’ means the physical circuit connecting the network
termination point at
the subscriber’s premises to the main
distribution frame or equivalent facility in the fixed public
network. Directive 2002/19/EC of the European Parliament and
of the Council of 7 March 2002 on access to and interconnection
of electronic communications networks and associated facilities
(Access Directive) (OJ L 108, 24.4.2002, p. 7), Article 2(e).

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2.3.1.4. Right of first refusal in IBA and DA

(105) The existence of the Right of first refusal over sites —
a lesser form of exclusivity than the Option — does
not directly harm competition in this case since there
is no general scarcity of sites in the United Kingdom.
In addition, the time period of 14 days for the exercise
of the Right of first refusal allows third parties to
know very quickly whether
they need to make
alternative plans and does not cause a significant
the Agreement
the fact
bottleneck. However,
provides for third parties to pay a licence fee equal to
or higher than that of the Parties limits the commercial
freedom of the site-owning Party and potentially raises
the cost of entry for third parties, even if it is meant
to be tempered by the fact that the fee is based on
fair market rates. It may even be considered to amount
to an agreement to set a minimum price which is per
se illegal under Article 81(1) of the Treaty/Article 53(1)
of the EEA Agreement.

that

(106) On the basis of the Commission’s concerns, the Parties
have agreed to modify the clauses requiring third-
parties to pay a licence fee equal to or higher than
that of the Parties. The clauses, as amended, now state
the following:

of common costs brought about by site sharing is not
significant and the Parties retain control of the core
network and service platforms that determine the
nature and range of
the services provided. The
exclusivity over the sites (the Option and Right of first
refusal) does not lead to widespread foreclosure for
third-party operators since there is not an overall lack
of availability of sites in the United Kingdom. In any
event,
the new
there are specific problem sites,
regulatory framework allows National Regulatory
Authorities to impose site sharing.

if

2.3.2. ROAMING

2.3.2.1. Background

‘If at any time after the expiration of the option the
Site Operator receives a bona fide third-party offer
at a price acceptable to the Site Operator,
it shall
promptly notify the Sharer of the third-party offer
and the price, whereupon the Sharer shall within
14 days confirm to the Site Operator whether or
not it wishes to enter into a Site share Licence for
the Site concerned either at that price or at the
price agreed on the Rate Card (whichever is lower).

In the absence of written confirmation within such
time the Site Operator shall be free to enter into
site-sharing arrangement at the Site concerned with
the third party concerned on the terms of the bona
fide offer of the third party’.

(109) The Agreement provides for the Parties to provide 3G
services to their customers through the use of national
roaming where they have coverage gaps in the IBA,
but particularly in the DA. National roaming involves
the customer of one mobile operator using the
network of another operator within the same country
to make or receive phone calls and is underpinned
by complex technical arrangements relating to the
identification of the roaming customer, the switching
of calls, and the exchange of billing information. The
Parties are expecting to deploy new software to allow
their customers to benefit
from ‘seamless national
roaming’, which will allow calls to be handed over
when the caller moves across the networks without
the call being dropped or any loss of service functions.

(107) The new wording removes the concern over possible
price fixing and also ensures that the Parties cannot
raise the entry costs for third party operators by
requiring them to pay a higher licence fee. Therefore
the clauses as amended no longer have an appreciable
effect on competition.

2.3.1.5. Conclusion

(108) The Parties are sharing a limited number of passive
components of
the access network and they retain
including the
independent control of their networks,
critical core network. The Parties retain the ability to
differentiate their services downstream since the level

(110) Unless parties to a roaming agreement would be
unable to roll out their networks individually, such an
agreement raises significant competition concerns as it
limits almost all network infrastructure based compe-
tition and impacts on service-level competition. The
operators involved will face similar costs and may
only be able to differentiate their customer offering on
the basis of the services on offer, rather than on price
or quality. The Parties are both established operators
in 2G and are in strong positions to roll out their 3G
networks
the United Kingdom
because they have existing infrastructure that can be
modified for use in 3G and a strong customer base.
Therefore the supply of roaming services needs to be
analysed under Article 81(1) of the Treaty.

individually across

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(111) The Parties have not been able to roll out

their
network as rapidly as they had initially planned due
to capital expenditure constraints. There have also
been delays in the availability of the software to enable
seamless national roaming. The Parties have therefore
agreed to further subdivide the IBA into two parts.
First, they have agreed to designate a ‘core area’ within
the IBA where each Party will separately build out its
network. In this area, which covers the top 10 cities
in the United Kingdom and accounts for approximately
[32 to 38 %] (*) of the UK population, the Parties will
not rely on national roaming as each Party will have
already separately built out its own network by the
time seamless national roaming is expected to be
available (sometime in [...] (*)). Second,
the Parties
have designated a ‘residual area’ of the IBA which
covers a further 13 cities ([less than 10 %] (*) of the
UK population). Within this residual area, each Party
has been allocated a number of cities in which to roll
out the network and each Party will supply roaming
services to the other Party for such time as the other
does not have full 3G network coverage within this
area. In the DA, the Parties will continue to roll out
the networks in the respective Designated Areas as
originally planned, subject to possible delays, and will
rely on the provision of national roaming to provide
3G services in the Designated Area of the other Party
until such time as
they have their own network
coverage. However, the Parties are required in their
licences to cover 80 % of the population by the end
of 2007.

(112) On the basis of the latest available plans, [T-Mobile is
expecting to launch 3G services towards the end of
2003 whereas O2 UK does not
intend to launch
commercial services until the second half of 2004 (51).
the UK
The Parties will not cover the whole of
population at launch but coverage will grow between
2004 and 2007] (*).

(b)

(c)

(d)

each Party will build separate networks, particu-
larly in the IBA, and will still be able to compete
against the other, especially in terms of network
quality;

the Parties will be in a stronger position to
compete against third party operators and the use
of roaming ensures that the launch of full 3G
services is not delayed unnecessarily vis-à-vis
other operators;

due to the enhanced technology, competition at
the retail
(service) level will be more important
than infrastructure level competition in the 3G
market.

(114) In their response to the notice pursuant to Article 19(3)
of Regulation No 17,
the UK authorities were in
favour of allowing the Parties to roam in the DA but
were strongly opposed to allowing roaming within the
IBA on the basis that it would undermine network
competition:

‘Competing networks compete in terms of the full
range of costs and the quality and variety of
network and retail services. Competition at
the
network level positively enhances competition at the
In an infrastructure-sharing scenario,
service level.
there would be arguably less competition on issues
such as network coverage and quality. In 3G, there
are additional network performance parameters for
data transmission where competition might be
dampened as well (52)’.

(115) The UK authorities’ reasoning was in part based on
the fact that ‘network competition will be important
particularly in the initial stages of development of 3G
infrastructure in higher densely populated areas’ (53)
and that ‘economies of scale through infrastructure
sharing are not strong outside rural areas’ (54).

(113) The Parties have argued that roaming falls outside
Article 81(1) of the Treaty and have put forward four
main reasons, namely:

2.3.2.2. Network competition

(a)

roaming will be limited in duration in the IBA
and in the majority of the DA, since the Parties
are required to comply with roll-out obligations
in their 3G licences;

( 51) Press release of 22 January 2003,

‘Response to the [UK]
Competition Commission’s Recommendations regarding mobile
termination charges’ — ‘delay the planned launch of commercial
3G services until
see http://
www.mmo2.com.

the second half of 2004’,

(116) National roaming between network operators who are
licensed to roll out and operate their own competing
mobile networks by definition restricts competition
between those operators in all related network markets
on key parameters
such as coverage, quality and
transmission rates. It restricts competition on coverage
because instead of rolling out its own network to
obtain the maximum degree of coverage of territory
and population, a roaming operator will rely on the

(52) UK authorities’ public version, paragraph 12.
(53) UK authorities’ public version, paragraph 13.
(54) UK authorities’ public version, paragraph 13.

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degree of coverage achieved by the network of the
visited operator. National
roaming also restricts
competition on network quality and on transmission
rates, because the roaming operator will be restricted
by the network quality and the transmission rates
available to it on the visited network, which are a
function of the technical and commercial choices made
by the operator of the visited network.

(117) Finally, based on the Agreement, national roaming will
be charged at wholesale rates. Given that national
roaming will account for a small but not insignificant
proportion of their capacity in the IBA, and potentially
up to half in the DA, it is possible that the wholesale
rates that one Party will be able to charge to purchasers
of its own wholesale network and access services will,
to a significant extent, be constrained by the wholesale
rates it has to pay to the other Party.

(118) Given the resulting constraints on the ability of O2
UK and T-Mobile to compete on coverage, on quality,
on transmission rates, and on wholesale prices, 3G
national roaming between O2 UK and T-Mobile will
have an impact on competition in all 3G network
markets in the United Kingdom including the market
for wholesale national roaming access for 3G com-
munications services and the market
for wholesale
airtime access to 3G services.

(119) In the market for wholesale national roaming access
for 3G communications services there are five licensed
operators that have the ability to roll out networks.
Barriers to entry are very high if not absolute as
a result of
licensing requirements and investment
requirements. As 3G markets are emerging markets
there are no market shares available. However, it is clear
that cooperation between two established operators in
2G who can be expected to have strong positions
on the 3G market has an appreciable effect on
competition.

2.3.2.3. Retail level

(120) In addition the question should be examined whether
the Agreement on wholesale 3G roaming access
restricts competition for 3G retail services. National
roaming at wholesale level will
lead to a greater
uniformity of conditions at retail level, given the fact
that
the underlying network coverage, quality and
transmission speeds are likely to be similar. Trans-
mission speeds will determine to a significant extent
the types of service that a particular operator will be

In addition,

the timing of

able to provide.
the
introduction of particular services will be determined
by the moment when certain transmission speeds are
reliably available at network level, which will have to
be coordinated for purposes of national
roaming.
Finally, as operators using wholesale national 3G
roaming will have to pay charges for wholesale access
that will be based on retail minus minus system, the
scope for price competition will as a result be limited.
Also the retail minus minus system itself could give
rise to a risk of coordination on retail price levels.

(121) It is therefore likely that the cooperation between the
roaming will
Parties on wholesale 3G national
have effects on competition between the Parties in
downstream retail markets. Although the number of
parties present in these retail markets will be greater
than at network level and there are no precise market
shares available, if the combined market shares of the
Parties for 2G retail markets are used as a proxy, this
market share is significant (40 %).

2.3.2.4. Conclusion

(122) The reciprocal roaming arrangement has an appreciable
effect on competition since it limits the Parties’ ability
to compete at the network level on coverage, quality
and transmission rates. It also has effects downstream
since the Parties are dependent on the coverage, quality
and transmission rates of each others’ networks to
provide services.

2.3.3.

EXCHANGE OF INFORMATION

(123) There

is

the

a presumption that

exchange of
commercially sensitive information between competi-
tors is prejudicial to effective competition as it may
reduce market uncertainty and may facilitate collusive
behaviour. A significant proportion of the information
exchanged between the Parties can be considered as
exchange of
business
information is primarily of a technical nature and does
allow one Party to understand the overall
not
competitive strategy of
It must,
however, still be considered in the context of the
whole Agreement and the wider market and therefore
the
safeguard
the existence of
provisions, must be analysed in more detail.

the other Party.

including

In this

secrets.

issues,

case,

the

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(124) As regards site sharing,

the commercially sensitive
information exchanged in the IBA relates principally
to the configuration parameters of the sites. In the
DA,
the information is more extensive due to the
adoption of the Common Radio Plan and also includes
information that relates to the functioning of
the
including coverage roll-out plans, Node-
network,
and expected traffic
B radio design parameters
requirements.

(125) For

roaming,

two types of

information will be
exchanged on a regular basis. The first is functional,
defining, on a national basis, the functionality to be
supported on the networks and through the roaming
information concerns
service. The second type of
capacity, whether for different
types of service or
traffic (Bearer, Teleservices or SMS). It is principally
quantitative, relating to types and volumes of traffic to
be expected over the network.

share and to provide seamless

(126) Notwithstanding the confidential nature of the infor-
the cooperation must be
mation being exchanged,
analysed in the context of the overall agreement. The
exchange of information is necessary for the Parties to
site
roaming to
their customers. The information being exchanged is
primarily of a technical nature and does not allow one
Party to understand the overall competitive strategy of
the other Party. In particular, a Party cannot determine
with any accuracy the nature of
the end user
applications.

specifically prohibits

(127) The Parties have introduced safeguards to limit the
risk that the cooperation could spill over into anti-
competitive activity in downstream markets. The
Agreement
the exchange of
information on the pricing of products and services,
product development and launch plans. The Parties
have also undertaken to ensure that all employees
engaged in the implementation of
the project are
provided with appropriate guidance as to relevant
competition law, confidentiality and regulatory issues
and obligations.

(128) The information being exchanged is necessary to bring
about effective site sharing and roaming between the
Parties and does not relate to the end-user applications.
In addition the safeguard measures help to limit the
risk that the exchange of information could spill over
into collusive behaviour. The Commission therefore
considers that the information sharing does not have
an appreciable adverse effect on competition.

(129) The UK authorities have expressed concerns that the
close
and the
coordination between the Parties
extensive information exchange could spill over into

collusive behaviour and have asked for the Parties to
provide the Commission, periodically, with a report
on the functioning of the confidentiality arrangements
following an independent audit.

(130) The Commission agrees with the UK authorities that
in certain specific cases an independent audit of the
confidentiality safeguards may be appropriate. In this
particular case, the Parties are active in markets which
are closely monitored by the competition authorities
at national and Community level and by the national
regulator. The national competition authorities can
seek information directly from the Parties if they have
reasonable grounds for suspecting any infringement of
the competition rules. Therefore a requirement to audit
independently the safeguard measures so as to allow
monitoring by the Commission would appear to be
disproportionate.

2.3.4. OTHER POSSIBLE RESTRICTIONS

(131) The Agreement also includes a number of other
restrictions which could raise competition concerns. In
particular the following clauses must be considered
under Article 81(1) of the Treaty/Article 51(1) of the
EEA Agreement:

(a)

contract concluded ‘intuitu personae’;

(b)

access to other Party’s network

2.3.4.1.

Intuitu personae

(132) The Agreement provides that neither Party shall build
out or make arrangements for building out its network
in all or any part of its Designated Area or provide
the other with 3G services in its Designated Area by
means of any arrangement with any other licence
holder in any material respect similar to the arrange-
ments contemplated by the Agreement.

(133) This clause does impact on the extent to which each
Party can enter into similar arrangements in its own
Designated Area with third-party mobile operators.
However, it ensures that both Parties invest comparable
resources and is intended to guarantee the quality of
the roaming services provided as well as to maintain
the confidentiality of the information provided between
In the light of the overall aim of the
the Parties.
Agreement, it does not have an appreciable effect on
competition.

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2.3.4.2. Access to other Party’s network

2.5. ARTICLE 81(3) OF THE TREATY/ARTICLE 53(3)
OF THE EEA AGREEMENT

(134) The Agreement states that each Party remains free to
make arrangements for 3G national roaming with
third-party licensed 3G operators but that the other
Party shall not be obliged to allow subscribers or
customers of that third party on to its network via
roaming. According to the Parties, there are significant
technical complications from allowing national roam-
ing by another major operator on either of the Parties’
mobile network. However, in any event, the provision
of roaming services between network operators has
been identified as a restriction on competition in its
own right requiring analysis under the competition
rules. Therefore a limit on other licensed 3G network
operators joining in this form of cooperation cannot
be interpreted as constituting a restriction of compe-
the Parties
tition. On the contrary, should one of
conclude an agreement to resell significant volumes of
national roaming access to any of the other licensed
3G network operators, this would require a separate
analysis under the competition rules. In such circum-
stances, the clause does not have an adverse effect on
competition, especially as the Parties can offer national
roaming to MVNOs and service providers without
restriction.

2.4.

EFFECT ON TRADE BETWEEN MEMBER STATES

(135) The conditions for access to 3G infrastructure and
wholesale services of mobile network operators affect
trade between EEA States. This is because the services
provided over telecommunications networks are traded
throughout
the Community and the EEA — for
example, wholesale access to 3G international roaming
— and the conditions for access to telecommunications
infrastructure and wholesale services determine the
ability of other operators or service providers who
require such access to provide their own services (55).
The conditions for network sharing will also affect
purchases of network equipment from producers of
network equipment located in different EEA States. In
addition the conditions for access to 3G infrastructure
and wholesale services significantly affect the climate
for
including investment between EEA
States in 3G infrastructure and services. There is
therefore an effect on trade in the Community and the
EEA.

investment

(136) The provision of

roaming between O2 UK and
T-Mobile UK falls within Article 81(1) of the Treaty/
the EEA Agreement as it has an
Article 53(1) of
appreciable effect on competition and affects trade
between EEA States. An Agreement
restricts
competition contrary to Article 81(1) of the Treaty/
Article 53(1) of the EEA Agreement can be exempted
provided that it meets the following conditions set out
in Article 81(3) of the Treaty/Article 53(3) of the EEA
Agreement:

that

(a)

(b)

(c)

(d)

it must contribute to improving the production
or distribution of goods or services and promote
technical or economic progress;

it must allow consumers a fair share of
resulting benefit;

the

it must not impose on the undertaking concerned
restrictions which are not indispensable to the
attainment of these objectives;

it must not afford the undertaking concerned the
possibility of eliminating competition in respect
of a substantial part of the products in question.

2.5.1. CONTRIBUTION OF

TO
IMPROVING PRODUCTION OR DISTRIBUTION
AND PROMOTING TECHNICAL OR ECONOMIC
PROGRESS

THE AGREEMENT

(137) By offering each other 3G national roaming access the
Parties will be able to provide better coverage, quality
and transmission rates for 3G wholesale and retail
services more rapidly. Their joint networks can be
expected to have both a greater density and a more
extended footprint than they would have individually.
Since they compete with three other operators at
network level, the Parties also have an incentive to
realise greater density and a more extended footprint
rather
than merely economising on their network
In the light of competition from these other
costs.
parties as well as from a number of service providers
and possibly MVNOs
the Parties
at
individually have an incentive to provide a wider range
and better quality of services.

level,

retail

( 55) Cf. Access Notice, paragraphs 144 to 148.

(138) National roaming allows the Parties to provide better
for their
coverage, quality and transmission rates
services during roll-out phase in the IBA in competition
with the other providers of 3G wholesale and retail

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services.
In particular, roaming within the ‘residual
area’ of the IBA allows the Parties to provide coverage
across a number of cities significantly earlier than
would be the case without the arrangement.

2.5.2.

FAIR SHARE OF THE BENEFITS RESULTING FROM
THE AGREEMENT TO CONSUMERS

(139) Moreover, the allocation of Designated Areas in the
DA combined with reciprocal roaming arrangements
allows the Parties to roll out better quality networks
across a wider coverage area in areas where the
economic incentives to roll out are lower. This is
particularly the case for the areas beyond the 80 %
coverage requirement (20 % of the UK landmass). The
Parties will be covering at least a further [...] (*) of the
UK population which represents a significant increase
in the coverage of the UK territory (a further [...] (*)
of the UK landmass). This allows 3G services to be
made available more quickly to a greater number of
customers, thus allowing new technology to be much
more widely accessed.
It is also likely to enhance
competition in the DA between the Parties and the
three other operators.

(140) The Agreement therefore promotes competition in the
markets for 3G national roaming, for wholesale airtime
and at retail level, and consequently contributes to the
production and distribution of these services. Because
the 3G services concerned are expected to constitute a
broad range of new technologically advanced products
of enhanced quality and functionality compared to 2G
services, the Agreement also promotes technical and
economic progress.

incentives

(142) By enabling the Parties to compete more effectively,
the Agreement on 3G national roaming will enhance
competition both in digital mobile network and
services markets. Competition will develop more
quickly and competitors will have
to
introduce new services into the market and will be
under greater pressure to reduce prices as the result of
enhanced market entry with wider coverage based on
3G national roaming access between the Parties. This
is likely to enable consumers to benefit earlier from a
greater range of new and technically advanced 3G
services that are expected to be enhanced in quality
and range of choice as compared to 2G services. It
also makes price competition more likely. For example,
as a result of increased competition at retail level, any
cost-saving benefits due to the increased competition
on national roaming access and on resale of wholesale
airtime to MVNOs and service providers can be
expected to be passed on to end-users.

2.5.3.

INDISPENSABILITY

(143) Although national roaming between licensed network
operators has been identified as restrictive of compe-
tition, the Clauses in the Agreement that provide for
national roaming are indispensable to the benefits.

2.5.4. NO ELIMINATION OF COMPETITION IN RESPECT
OF A SUBSTANTIAL PART OF GOODS AND
SERVICES CONCERNED

(141) In the IBA and the majority of the DA, the Parties are
required to roll out separate networks by the end of
2007 under the terms of their licences. However, there
are clearly different economic benefits arising from
roaming in the IBA and the DA. The IBA covers the
most strategically significant area of the UK market
where the economic incentives to roll out independent
networks are high and where competition between
competitors will be the most critical
in determining
the competitiveness of the market. Even in the ‘residual
area’ of the IBA, the economic benefits arising from
roaming between the Parties, both of which are
established network operators, are limited. The econ-
omic incentives to roll out in the DA, which includes
less densely populated and less commercially attractive
parts of the United Kingdom, are significantly lower
than in the IBA, and the economic benefits arising
from the roaming arrangement are correspondingly
more significant, especially in the more rural areas.

(144) As set out above in section 2.5.1, the competition
between the five licensed operators of 3G networks
and services that intend to roll out 3G networks in
the United Kingdom and between MVNOs and service
providers is enhanced by the Agreement.

(145) The Agreement also leaves scope for effective compe-
tition between the Parties.
In spite of relying on
roaming for part of its coverage, the home network
operator will control its own core network, enabling
it to offer differentiated services. In addition, one of
the principles underpinning the Agreement
is the
maintenance of full competition between the Parties in
to
the supply of 2G services and 3G services
consumers, both directly and through intermediaries
(Clause 2.1.f).

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(146) The ability of the home-network operator to retain
control over the traffic generated by its customers
outside the home network and to provide access to
services that are not available on the host network is
improved by the use of
(customised
application for mobile network enhanced logic)
technology, including by means of call-back features.
For 3G retail services, the control of the home-network
operator over the services available to its end-users
while roaming will
increase because for all data
transfers, users will be connected to the packet data
network via their home network.

the Camel

(147) In addition, the responsibility for pricing and billing
remains with the home operator. Although billing data
is provided by the host operator to the home operator,
there is no direct relationship between the commercial
conditions for the wholesale roaming offer and for the
specific retail services that are based on this offer.

(148) The wholesale costs of 3G roaming are only a
transport cost, albeit a significant one, in addition to
which there are content costs, which for content-rich
3G data services are expected to increase in significance
in relation to transport costs over time. For the core
network, the costs of the operators will differ based
on vendor decisions, mode of transmission within the
core network (for instance based either on fixed leased
lines or on a wireless microwave network),
the
relationship between the number of users and available
capacity, operational costs and maintenance
and
operations. Finally, given the existence of a margin
between the applicable wholesale rates and anticipated
retail rates, and given that most traffic will not be
roamed, it is likely that the potential for a significant
degree of price differentiation remains. The Agreement
also allows either Party to supply wholesale airtime to
MVNOs and SPs,
including via roaming on the
other Party’s network. Competition is therefore not
eliminated for a substantial part of any of the markets
identified as affected by the Agreement.

2.5.5. CONCLUSION ON ARTICLE 81(3) OF THE TREATY/
ARTICLE 53(3) OF THE EEA AGREEMENT

(149) It is concluded that all the conditions for an individual
exemption pursuant to Article 81(3) of the Treaty and
Article 53(3) of the EEA Agreement are met in respect
the restrictions of competition related to the
of

Agreement on wholesale national 3G roaming between
the Parties. In particular, it allows the Parties to launch
3G commercially earlier and to provide services across
a wider geographic area to the benefit of consumers.

2.6. DURATION

(150) Pursuant to Article 8 of Regulation No 17 and to
Protocol 21 of the EEA Agreement respectively, the
to
Commission must
Article 81(3) of the Treaty and Article 53(3) of the
EEA Agreement for a specified period, and may attach
conditions and obligations.

issue a Decision pursuant

(151) The IBA covers the urban areas with the greatest
potential for infrastructure competition. Therefore an
exemption for roaming even in the ‘residual area’ of
the IBA between two established operators can only
be justified for such time as the cooperation helps to
promote competition during the initial roll-out phase
of the network and the commercial launch and early
take-up of 3G retail
services. Barring significant
unanticipated changes to the commercial or regulatory
environment, the economic justification for applying
Article 81(3) of the Treaty/Article 53(3) of the EEA
Agreement to roaming in the IBA thereafter will cease
to exist. In the light of the limited population covered
by the ‘residual area’ of
the regulatory
coverage obligation in the United Kingdom as well as
the Parties’ own plans and developments by third
parties in the United Kingdom,
it is appropriate to
exempt roaming in the ‘residual area’ of the IBA until
31 December 2007.

the IBA,

that

(152) The DA covers less densely populated and commer-
cially less attractive areas of
the United Kingdom.
Therefore an exemption for roaming in the DA can
be justified for a longer period than in the IBA,
in
particular to the extent
the Parties are going
beyond their regulatory obligations to cover some of
the more remote parts of
the United Kingdom.
However, the markets affected by the restrictions in
the Agreement are emerging markets and therefore the
likely effects of those restrictions cannot be evaluated
for a period that substantially exceeds five years.
Consequently the Commission considers it appropriate
to grant an exemption until 31 December 2008. The
commercial and regulatory situation prevailing at the
end of that period may be such that Article 81(3) of
the Treaty continues to apply to roaming across parts
of the DA.

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(153) According to Article 6 of Regulation No 17, a Decision
pursuant to Article 81(3) of the Treaty must not take
effect from an earlier date than the date of notification.
Accordingly, in so far as it grants an exemption from
Article 81(1) of the Treaty/Article 53(1) of the EEA
Agreement
from
6 February 2002. It should apply:

this Decision should take effect

,

(a)

until 31 December 2007 in relation to national
roaming in the ‘residual area’ of the IBA;

(b) until 31 December 2008 in relation to national

roaming in the DA.

(154) This Decision is without prejudice to the application
of Article 82 of the Treaty and Article 54 of the EEA
Agreement,

HAS ADOPTED THIS DECISION:

Article 1

the EEA Agreement

for action on the part of

On the basis of the facts in its possession, there are no
grounds under Article 81(1) of the Treaty or Article 53(1)
the
of
Commission in respect of the provisions of the Agreement
between O2 UK Limited and T-Mobile UK Limited dated
20 September 2001 and amended on 9 April 2002 (‘the
Agreement’) that relate to site sharing and the exchange of
information necessary to permit site sharing and national
roaming.

national roaming within the residual area of the Initial Build
Area as defined in the Parties’ statement of 12 March 2003
from 6 February 2002 until 31 December 2007.

Article 3

Pursuant to Article 81(3) of the Treaty and Article 53(3) of
the EEA Agreement, the provisions of Articles 81(1) of the
Treaty and Article 53(1) of the EEA Agreement are declared
inapplicable to the provisions of the Agreement that concern
national roaming within the Divided Area, from 6 February
2002 until 31 December 2008.

Article 4

This Decision is addressed to:

O2 UK Limited
260 Bath Road
Slough
Berkshire
SL1 4DX
United Kingdom

and

T-Mobile UK
Imperial Place
Maxwell Road
Borehamwood
Hertfordshire
WD6 1EA
United Kingdom.

Article 2

Done at Brussels, 30 April 2003.

Pursuant to Article 81(3) of the Treaty and Article 53(3) of
the EEA Agreement, the provisions of Articles 81(1) of the
Treaty and Article 53(1) of the EEA Agreement are declared
inapplicable to the provisions of the Agreement that concern

For the Commission

Mario MONTI

Member of the Commission