Recommendation of the EFTA Surveillance Authority No 194/04/COL of  14 July 2004  on relevant product and service markets within the electronic communications sector susceptible to  ex ante  regulation in accordance with Directive 2002/21/EC of the European Parliament and of the Council on a common regulatory framework for electronic communication networks and services, as incorporated into the Agreement on the European Economic Area
Date: 2004-07-14
Institutions: EFTA Surveillance Authority
Subjects: competition law, electronic mail, regulation of telecommunications, service, telecommunications, transmission network

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Official Journal of the European Union

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RECOMMENDATION OF THE EFTA SURVEILLANCE AUTHORITY

No 194/04/COL

of 14 July 2004

on relevant product and service markets within the electronic communications sector susceptible to
ex ante regulation in accordance with Directive 2002/21/EC of the European Parliament and of the
Council on a common regulatory framework for electronic communication networks and services,
as incorporated into the Agreement on the European Economic Area

THE EFTA SURVEILLANCE AUTHORITY,

Having regard to the Agreement on the European Economic
Area (1),

Having regard to the Agreement between the EFTA States on
the establishment of a Surveillance Authority and a Court of
Justice, and in particular Article 5(2)(b) thereof,

Having regard to the Act referred to at point 5cl of Annex XI to
the EEA Agreement and as adapted to the Agreement by
Protocol 1 thereto and by the sectoral adaptations contained
in Annex XI to that Agreement, Directive 2002/21/EC of the
European Parliament and of the Council on a common regu-
latory framework for electronic communication networks and
services (2), and in particular Article 15(1) thereof,

Whereas:

(1)

(2)

(3)

the

2002/21/EC (hereinafter

Directive
Framework
Directive), establishes a new legislative framework for
the electronic communications
to
respond to convergence trends by covering all electronic
communications networks and services within its scope.
The aim is to reduce ex ante sector-specific rules progres-
sively as competition in the market develops.

sector

seeks

that

Article 15 of the Framework Directive provides that the
EFTA Surveillance Authority (hereinafter the Authority)
shall, after public consultation and consultation with
in the EFTA
national
States adopt a recommendation on relevant product
and service markets.

regulatory authorities

(NRAs)

The European Commission has issued Recommendation
2003/311/EC on relevant product and service markets
within the electronic communications sector susceptible
regulation in accordance with Directive
to ex ante
2002/21/EC (3).

(1) Hereinafter referred to as the EEA Agreement.
(2) OJ L 108, 24.4.2002, p. 33.
(3) OJ L 114, 8.5.2003, p. 45.

(4)

(5)

(6)

(7)

In order to ensure homogenous application of EEA law
throughout the European Economic Area, the Authority
aligns this Recommendation as closely as possible with
the respective Commission Recommendation.

communications
hereinafter

The purpose of this Recommendation is to identify those
product and service markets in which ex ante regulation
may be warranted. However, this first Recommendation
has to be consistent with the transition from the 1998
regulatory framework to the new regulatory framework.
Directive 2002/19/EC of the European Parliament and of
the Council on access to, and interconnection of, elec-
associated
tronic
facilities (4),
and
Directive 2002/22/EC of the European Parliament and
of
the Council on universal service and users' rights
relating to electronic communications networks and
services (5), hereinafter the Universal Service Directive,
already identify specific market areas which need to be
analysed by NRAs in addition to the markets listed in
this
the
In
Framework Directive,
it is for NRAs to define relevant
geographic markets within their territory.

the Access Directive,

accordance with

Recommendation.

networks

and

Under the 1998 regulatory framework, several areas in
the telecommunications sector are subject to ex ante regu-
lation. These areas have been delineated in the applicable
‘markets’ within the
directives, but are not always
meaning of EEA competition law and practice. Annex I
of the Framework Directive provides a list of such market
areas to be included in the initial version of the Recom-
mendation.

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

imposed

1998

the

(4) OJ L 108, 24.4.2002, p. 7, as referred to at point 5cj of Annex XI to
the EEA Agreement and as adapted to the Agreement by Protocol 1
thereto and by the sectoral adaptations contained in Annex XI to
that Agreement.

(5) OJ L 108, 24.4.2002, p. 51, as referred to at point 5cm of Annex XI
to the EEA Agreement and as adapted to the Agreement by
Protocol 1 thereto and by the sectoral adaptations contained in
Annex XI to that Agreement.

(8)

(9)

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Official Journal of the European Union

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

effective

tend towards

competition within the
not
relevant time horizon. The application of this criterion
involves examining the state of competition behind the
barriers of entry. The third criterion is that application of
EEA competition law alone would not adequately address
the market failure(s) concerned.

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

operators

services

provide

for

to

(10)

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

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

(12)

first

structural,

criterion is

criteria. The

In identifying markets in accordance with EEA compe-
tition law principles, recourse should be had to the
the
following three
presence of high and non-transitory entry barriers
whether of
regulatory nature.
However, given the dynamic character and functioning
of electronic communications markets, possibilities to
overcome barriers within a relevant time horizon have
also to be taken into consideration when carrying out a
prospective analysis to identify the relevant markets for
possible ex ante regulation. Therefore the second criterion
admits only those markets the structure of which does

legal or

(13)

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

(14)

(15)

(16)

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

Legal or regulatory barriers are not based on economic
conditions, but result from legislative, administrative or
other state measures that have a direct effect on the
conditions of entry and/or the positioning of operators
on the relevant market. Examples are legal or regulatory
barriers preventing entry into a market where there is a
limit on the number of undertakings that have access to
spectrum for the provision of underlying services. Other
examples of legal or regulatory barriers are price controls
or other price related measures imposed on undertakings,
which affect not only entry but also the positioning of
undertakings on the market.

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

entry barriers are not

does

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Official Journal of the European Union

27.4.2006

(17)

(18)

(19)

(20)

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

firms

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

failing any one of them means that

In undertaking periodic reviews of the markets identified
in this Recommendation,
the three criteria should be
used. These criteria should be applied cumulatively, so
that
the market
should not be identified in subsequent recommendations.
Thus, whether an electronic communications market
continues to be identified by subsequent versions of
the Recommendation as justifying possible ex ante regu-
lation would depend on the persistence of high entry
barriers, on the
the
dynamic state of competitiveness and thirdly on the suffi-
ciency of EEA competition law (absent ex ante regulation)
to address persistent market failures. A market could also
be removed from a recommendation once there is
evidence of sustainable and effective competition on
that market within the European Economic Area,
provided that the removal of existing regulation obli-
gations would not reduce competition on that market.

criterion measuring

second

imposed under

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

that market definition for

requirement

(21)

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

(22)

(23)

identified

the identification of any market

The range of different network topologies and tech-
nologies deployed across the European Economic Area
means that in some cases NRAs must decide the precise
elements within, particular
boundaries between, or
markets
in the Recommendation, while
adhering to EEA competition law principles. NRAs may
identify markets that differ from those of the Recommen-
dation, provided they act in accordance with Article 7 of
the Framework Directive. Since the imposition of ex ante
regulation on a market could affect trade between the
Contracting Parties to the EEA Agreement as described in
the Authority
recital 38 of
the Framework Directive,
that
considers that
differs from those of the Recommendation are likely to
be subject to the appropriate procedure in Article 7 of
the Framework Directive. Failure to notify a market
which affects trade between the contracting parties to
in infringement
the
proceedings being taken. Any market
identified by
NRAs should be based on the EEA competition prin-
ciples developed in the EFTA Surveillance Authority
for the
Notice on the definition of relevant market
purposes of EEA competition law (1), and be consistent
with the Authority's Guidelines on market analysis and
the assessment of significant market power and satisfy
the three criteria set out above. Should an NRA consider
that demand and supply patterns may justify an alter-
native market definition of a market listed in this Recom-
appropriate
it
mendation,
procedures
the
set out
Framework Directive.

in Article 6 and 7 of

should then follow the

EEA Agreement may

result

that

this Recommendation identifies

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

competition,

encouraging

of

(24)

This Recommendation has been subject
consultation and to consultation with NRAs
national competition authorities,

to a public
and

(1) OJ L 200, 16.7.1998, p. 48 and EEA Supplement to the OJ No 28,

16.7.1998, p. 3.

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HAS ADOPTED THIS RECOMMENDATION:

1. In defining relevant markets in accordance with Article 15(3) of the Act referred to at point 5cl of Annex
XI to the EEA Agreement and as adapted to the Agreement by Protocol 1 thereto and by the sectoral
adaptations contained in Annex XI to that Agreement, Directive 2002/21/EC of the European Parliament
the Council on a common regulatory framework for electronic communication networks and services,
and of
national regulatory authorities are recommended to analyse the product and service markets identified
in the Annex.

2. This Recommendation is addressed to the EFTA States.

Done at Brussels, 14 July 2004.

For the EFTA Surveillance Authority

Hannes HAFSTEIN
President

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Official Journal of the European Union

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ANNEX

Retail level

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

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

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

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

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

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

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

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

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

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

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

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

Wholesale level

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

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

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

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

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

10. Transit services in the fixed public telephone network.

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

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

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

broadband and voice services.

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

loop) and to that referred to in Annex I(3) of

12. Wholesale broadband access.

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

13. Wholesale terminating segments of leased lines.

14. Wholesale trunk segments of leased lines.

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

15. Access and call origination on public mobile telephone networks, referred to (separately)

in Annex I(2) of the

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

16. Voice call termination on individual mobile networks.

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

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

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

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

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