Commission Recommendation of 17 December 2007 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 communications networks and services (notified under document number C(2007) 5406) (Text with EEA relevance )
Date: 2007-12-17
Institutions: European Commission
Subjects: approximation of laws, competition, electronic mail, information technology, regulation of telecommunications, services contract, telecommunications

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Official Journal of the European Union

L 344/65

RECOMMENDATIONS

COMMISSION

COMMISSION RECOMMENDATION

of 17 December 2007

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 communications networks and services

(notified under document number C(2007) 5406)

(Text with EEA relevance)

(2007/879/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

Having regard to the Treaty
Community,

establishing the European

the European
Having regard to Directive 2002/21/EC of
Parliament and of
the Council of 7 March 2002 on a
common regulatory framework for electronic communications
networks and services (1), and in particular Article 15(1) thereof,

Whereas:

(1)

Directive 2002/21/EC establishes a legislative framework
for the electronic communications sector that seeks to
respond to convergence trends by covering all electronic
communications networks and services within its scope.
The aim of the regulatory framework is to reduce ex ante
sector-specific rules progressively as competition in the
market develops.

(2)

The purpose of this Recommendation is to identify those
product and service markets in which ex ante regulation
may be warranted in accordance with Article 15(1) of

Directive 2002/21/EC. The objective of any ex ante regu-
latory intervention is ultimately to produce benefits for
end-users by making retail markets competitive on a
sustainable basis. The definition of relevant markets can
and does change over time as the characteristics of
products and services evolve and the possibilities for
demand and supply substitution change. With the
Recommendation 2003/311/EC having been in force
is now appropriate to
for more than four years,
revise the initial edition on the basis of market devel-
opments. Hence,
replaces
this
Commission Recommendation 2003/311/EC (2).

Recommendation

it

(3)

the
Article 15(1) of Directive 2002/21/EC requires
Commission to define markets in accordance with the
principles of competition law. Competition law principles
are therefore used in this Recommendation to set
product market boundaries within the electronic commu-
nications sector, while the identification or selection of
defined markets for ex ante regulation depends on those
markets having characteristics which may be such as to
justify the imposition of ex ante regulatory obligations.
The terminology used in this Recommendation is based
on terminology used in Directive 2002/21/EC and
Directive 2002/22/EC;
the Explanatory Note to this
Recommendation describes the evolving technologies in
relation to these markets. In accordance with Directive
it is for national regulatory authorities to
2002/21/EC,
define relevant markets appropriate to national circum-
stances, in particular relevant geographic markets within
their territory.

(1) OJ L 108, 24.4.2002, p. 33. Directive as amended by Regulation

(EC) No 717/2007 (OJ L 171, 29.6.2007, p. 32).

(2) OJ L 114, 8.5.2003, p. 45.

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(4)

(5)

and supply-side

forward-looking perspective,

The starting point for the identification of markets in this
Recommendation is the definition of retail markets from
a
taking into account
demand-side
substitutability. Having
defined retail markets, it is then appropriate to identify
relevant wholesale markets. If the downstream market is
supplied by a vertically-integrated undertaking or under-
takings, there may be no (merchant) wholesale market in
the absence of regulation. Consequently,
if the market
warrants identification, it may be necessary to construct
a notional upstream wholesale market. Markets in the
electronic communications sector are often of a two-
sided nature,
they comprise services provided
over networks or platforms that bring together users
for example end-users
on either side of
that exchange communications, or senders and receivers
of
information or content. These aspects need to be
taken into account when considering the identification
and definition of markets, as they can affect both the
way markets are defined and whether they have the
characteristics which may justify the imposition of ex
ante regulatory obligations.

the market;

in that

In order to identify markets that are susceptible to ex ante
regulation, it is appropriate to apply the following cumu-
lative criteria. The first criterion is the presence of high
and non-transitory barriers to entry. These may be of a
structural, legal or regulatory nature. However, given the
dynamic character and functioning of electronic commu-
nications markets, possibilities to overcome barriers to
entry within the relevant time horizon should also 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
tend
only those markets whose structure does not
towards effective competition within the relevant time
horizon. The
criterion involves
examining the state of competition behind the barriers
to entry. The third criterion is that application of compe-
tition law alone would not adequately address the market
failure(s) concerned.

application of

this

(7)

(8)

(9)

of competing networks or infrastructures. Any market
which satisfies the three criteria in the absence of ex
ante regulation is susceptible to ex ante regulation.

Newly emerging markets should not be subject to inap-
propriate obligations, even if
there is a first mover
advantage,
in accordance with Directive 2002/21/EC.
Newly emerging markets are considered to comprise
products or services, where, due to their novelty,
it is
very difficult to predict demand conditions or market
entry and supply conditions, and consequently difficult
to apply the three criteria. The purpose of not subjecting
newly emerging markets to inappropriate obligations is
to promote innovation as required by Article 8 of the
Directive 2002/21/EC; at the same time, foreclosure of
such markets by the leading undertaking should be
prevented, as also indicated in the Commission guidelines
on market analysis and the assessment of significant
regulatory
market
framework
and
services (1).
Incremental upgrades to existing network
infrastructure rarely lead to a new or emerging market.
The lack of substitutability of a product has to be estab-
lished from both demand and supply-side perspectives
before it can be concluded that it is not part of an
already existing market. The emergence of new retail
services may give rise to a new derived wholesale
market to the extent that such retail services cannot be
provided using existing wholesale products.

the Community

communications

electronic

power

under

for

As far as barriers to entry are concerned, two types are
relevant
this Recommendation:
structural barriers and legal or regulatory barriers.

the purpose of

for

Structural barriers to entry result from original cost or
demand conditions that create asymmetric conditions
impeding or
between incumbents and new entrants
preventing market entry of the latter. For instance, high
structural barriers may be found to exist when the
is characterised by absolute cost advantages,
market
substantial economies of
scale and/or economies of
scope, capacity constraints and high sunk costs. 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.

(6)

The main indicators to be considered when assessing the
first and second criteria are similar to those examined as
part of a forward-looking market analysis, in particular,
indicators of barriers to entry in the absence of regu-
lation,
sunk costs), market
structure, market performance and market dynamics,
including indicators such as market shares and trends,
market prices and trends, and the extent and coverage

(including the extent of

(1) OJ C 165, 11.7.2002, p. 6.

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(10)

(11)

(12)

Legal or regulatory barriers are not based on economic
conditions, but result from legislative, administrative or
other state measures that have a direct effect on the
conditions of entry and/or the positioning of operators
on the relevant market. An example of a legal or regu-
latory barrier preventing entry into a market 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 under-
takings on the market. Legal or regulatory barriers, which
can be removed within the relevant time horizon, should
not normally be deemed to constitute an economic
barrier to entry, such as to fulfil the first criterion.

Barriers to entry may also become less relevant with
regard to innovation-driven markets characterised by
ongoing technological progress. In such markets, compe-
titive constraints often come from innovative threats
from potential competitors that are not currently in the
In innovation-driven markets, dynamic or
market.
longer-term competition can take place among firms
that are not necessarily competitors
in an existing
‘static’ market. This Recommendation does not identify
markets where barriers to entry are not expected to
persist over a foreseeable period. In assessing whether
barriers to entry are likely to persist in the absence of
regulation,
the
industry has experienced frequent and successful entry
and whether entry has been or is likely in the future to
be sufficiently immediate and persistent to limit market
power. The relevance of barriers to entry will depend
inter alia on the minimum efficient scale of output and
the costs which are sunk.

is necessary to examine whether

it

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. Market
dynamics may for instance be caused by technological
developments, or by the convergence of products and
markets which may give rise to competitive constraints
being exercised between operators active in distinct
product markets. This may also be the case in markets
with a limited — but sufficient — number of under-
structures and facing
takings having diverging cost
price-elastic market demand. There may also be excess
capacity in a market that would normally allow rival
firms to expand output very rapidly in response to any
In such markets, market shares may
price increase.
falling prices may be
time
change over

and/or

(13)

(14)

(15)

(16)

observed. Where market dynamics are changing rapidly,
care should be taken in choosing the relevant
time
horizon so as to reflect
the pertinent market devel-
opments.

The decision to identify a market as susceptible to ex ante
regulation should also depend on an assessment of the
sufficiency of competition law to address the market
failures that result from the first two criteria being met.
Competition law interventions
to be
sufficient where the compliance requirements of an inter-
vention to redress a market failure are extensive or where
frequent and/or timely intervention is indispensable.

are unlikely

the three criteria should limit

The application of
the
number of markets within the electronic communi-
cations sector where ex ante regulatory obligations are
imposed and thereby contribute to the aim of the regu-
latory framework to reduce ex ante sector-specific rules
progressively as competition in the markets develops.
These criteria should be applied cumulatively, so that
failure to meet any one of them would indicate that a
market should not be identified as susceptible to ex ante
regulation.

Regulatory controls on retail services should only be
imposed where national regulatory authorities consider
that relevant wholesale measures or measures regarding
carrier selection or pre-selection would fail to achieve the
objective of ensuring effective competition and the
fulfilment of public interest objectives. By intervening
at the wholesale level,
including with remedies which
may affect retail markets, Member States can ensure
the value chain is open to normal
that as much of
competition processes as possible,
thereby delivering
the best outcomes for end-users. This Recommendation
therefore mainly identifies wholesale markets, the appro-
priate regulation of which is intended to address a lack of
effective
is manifest on end-user
markets. Should a national regulatory authority demon-
strate that wholesale interventions have been unsuc-
cessful, the relevant retail market may be susceptible to
ex ante regulation provided that the three criteria set out
above are met.

competition that

The process of identifying markets in this Recommen-
dation is without prejudice to markets that may be
defined in specific
competition law.
the scope of ex ante regulation is without
Moreover,
prejudice
that may be
to the
analysed under competition law.

cases under

scope of

activities

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(17)

(18)

The markets listed in the Annex have been identified on
the basis of these three cumulative criteria. For markets
not listed in this Recommendation national regulatory
authorities should apply the three-criteria test
to the
market concerned. For the markets in the Annex to
Recommendation 2003/311/EC of 11 February 2003,
which are not listed in the Annex to this Recommen-
dation, national regulatory authorities should have the
power to apply the three-criteria test in order to assess
whether, on the basis of national circumstances, a market
is still susceptible to ex ante regulation. For markets listed
in this Recommendation a national regulatory authority
may choose not to carry out a market analysis procedure
if it determines that the three criteria are not satisfied for
the particular market. National regulatory authorities may
identify markets that differ from those listed in this
Recommendation, provided that they act in accordance
with Article 7 of Directive 2002/21/EC. Failure to notify
a draft measure which affects trade between Member
in Recital 38 of Directive
States
2002/21/EC may result
in infringement proceedings
being taken. Markets other than those listed in this
Recommendation should be defined on the basis of
competition principles laid down in the Commission
Notice on the definition of relevant market
for the
purposes of Community competition law (1) and be
consistent with the Commission Guidelines on market
analysis
significant market
assessment of
power (2) whilst satisfying the three criteria set out above.

described

and the

as

that

that

is to say,

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
In particular, regulation cannot be
specific Directives.
imposed or must be withdrawn if
there is effective
competition on these markets in the absence of regu-
lation,
if no operator has significant
market power within the meaning of Article 14 of
Directive 2002/21/EC. Regulatory obligations must be
appropriate and be based on the nature of the problem
identified, proportionate and justified in the light of the
objectives
in
particular maximising benefits for users, ensuring no
restriction of competition, encouraging
distortion or
investment
in infrastructure and promoting
efficient
innovation,
and
efficient
encouraging
and
use
management of
and numbering
resources.

laid down in Directive 2002/21/EC,

radio frequencies

(19)

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

HEREBY RECOMMENDS:

1. In defining relevant markets appropriate to national circum-
in accordance with Article 15(3) of Directive
stances
2002/21/EC, national regulatory authorities should analyse
the product and service markets identified in the Annex to
this Recommendation.

2. When identifying markets other than those set out in the
Annex, national regulatory authorities should ensure that the
following three criteria are cumulatively met:

(a)

the presence of high and non-transitory barriers to entry.
These may be of a structural, legal or regulatory nature;

(b) a market structure which does not tend towards effective
competition within the relevant time horizon. The appli-
cation of this criterion involves examining the state of
competition behind the barriers to entry;

(c)

the insufficiency of competition law alone to adequately
address the market failure(s) concerned.

3. This Recommendation is without prejudice to market defi-
nitions, results of market analyses and regulatory obligations
adopted by national regulatory authorities in accordance
with Articles 15(3) and 16 of Directive 2002/21/EC prior
to the date of adoption of this Recommendation.

4. This Recommendation is addressed to the Member States.

Done at Brussels, 17 December 2007.

For the Commission

Neelie KROES
Member of the Commission

(1) OJ C 372, 9.12.1997, p. 5.
(2) OJ C 165, 11.7.2002, p. 6.

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ANNEX

Retail level

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

Wholesale level

2. Call origination on the public telephone network provided at a fixed location.

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

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

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

4. Wholesale (physical) network infrastructure access (including shared or fully unbundled access) at a fixed location.

5. Wholesale broadband access.

This market comprises non-physical or virtual network access including ‘bit-stream’ access at a fixed location. This
market is situated downstream from the physical access covered by market 4 listed above, in that wholesale broadband
access can be constructed using this input combined with other elements.

6. Wholesale terminating segments of leased lines, irrespective of the technology used to provide leased or dedicated

capacity.

7. Voice call termination on individual mobile networks.