Annex 1 Analysis of the retail market for access to fixed ...

Annex 1

Analysis of the retail market for

access to fixed telephony

Revised and updated

28 June 2010

Analysis of the retail market for access to fixed telephony

2


3

Summary ................................................................................................................................... 4 1 Background and framework for the market analysis ................................................... 6

1.1 Background .................................................................................................................. 6 1.2 Legal framework for the market analysis .................................................................... 7

2 History and market development ................................................................................... 8 3 Market definition ............................................................................................................ 12

3.1 General comments on market definition ................................................................... 12 3.1.1 The product market ............................................................................................ 12 3.1.2 The geographic market ....................................................................................... 13

3.2 Market definition in the previous analysis ................................................................ 14

3.3 Definition of the product market ............................................................................... 14 3.3.1 Division between residential and non-residential customers ............................. 14

3.3.2 Different forms of access ................................................................................... 17 3.3.3 Access to public telephone services via mobile networks ................................. 19

3.4 Definition of the geographic market .......................................................................... 20 3.5 Conclusion on market definition ............................................................................... 21

4 Analysis of the market ................................................................................................... 21 4.1 Introduction ............................................................................................................... 21

4.2 Market share .............................................................................................................. 22 4.3 Profitability ................................................................................................................ 23 4.4 Entry barriers ............................................................................................................. 24

4.4.1 Control of infrastructure not easily duplicated ................................................... 25

4.4.2 Sunk costs ........................................................................................................... 26 4.4.3 Economies of scale and scope ............................................................................ 26 4.4.4 Access to financial resources ............................................................................. 27

4.4.5 Access to distribution and sales channels .......................................................... 28 4.4.6 Barriers to expansion .......................................................................................... 28

4.4.7 Regulatory entry barriers .................................................................................... 28 4.4.8 Summary of entry barriers .................................................................................. 29

4.5 Potential competition and innovation ........................................................................ 29

4.6 Provider behaviour .................................................................................................... 30 4.6.1 Bundling/product differentiation ........................................................................ 30

4.6.2 Leverage of significant market power to closely related market ....................... 31 4.6.3 Price development .............................................................................................. 32

4.7 Conditions on the demand side .................................................................................. 32 4.7.1 Market power/countervailing buying power ...................................................... 32

4.7.2 Customers’ freedom of choice and possible costs of switching/lock-in effects 33 4.7.3 Customers’ access to information ...................................................................... 33

4.8 Conclusion on significant market power and designation of undertaking with

significant market power ...................................................................................................... 33


4

Summary

In the Norwegian Post and Telecommunications Authority’s (NPT’s) decision of 21 April

2006, Telenor ASA (Telenor) was designated an undertaking with significant market power

and directed to meet specific obligations in the retail fixed calls markets (former markets 1-

6). The basis for the Authority’s market definitions in market analyses and decisions from

2006 was the six retail fixed calls markets which comprised markets 1-6 in ESA’s

Recommendation on relevant product markets for ex ante regulation from 2004.

The starting point for NPT’s revision of the market regulation of the retail fixed calls

markets is ESA’s current Recommendation on relevant markets, which entered into force on

5 November 2008. In the revised Recommendation, the four retail fixed calls markets,

referred to as markets 3-6 in the previous recommendation, have been removed. The two

previous retail fixed access markets (former markets 1 and 2) have been merged into one

market, which is defined as including both residential and non-residential subscribers. This

market for access to the public telephone network at a fixed location for residential and non-

residential customers is market 1 in the current ESA Recommendation.

This document contains NPT’s updated market analysis of the relevant market for access to

the public telephone network at a fixed location for residential and non-residential customers

(market 1- retail market for access to fixed telephony). This document constitutes Annex 1

to the draft decisions on imposing specific obligations in this market. The market analysis

will provide the basis for applying sector-specific measures in markets in which an

operator/operators with significant market power is/are identified.

Chapter 1 contains a description of the background and legal framework for the market

analysis. Chapter 2 contains a short description of the overall developments in the fixed

telephony markets.

Chapter 3 contains NPT’s definition of the relevant market. The market definition is based

on NPT’s previous market definitions, and the revised Recommendation. Following a new

assessment NPT maintains its market definition assessments in the previous analysis, with

the exception of the division between residential customers and non-residential customers.

The relevant product market thus includes any form of connection to electronic

communications networks that provide access to public telephone services for end users,

regardless of the physical infrastructure or technology the connection is based on. The

geographic market is furthermore defined as Norway.

Chapter 4 contains the analysis of whether there is an undertaking that alone has significant

market power in the retail market for access to fixed telephony. At the end of 2009 Telenor

had a market share of approximately 75% measured by revenues and approximately 68%

measured by number of subscriptions. The market share has been declining in the period

since the previous market analysis. However, Telenor’s market share is still so high that it

gives a clear indication that Telenor has significant market power in the relevant market.

In NPT’s opinion, Telenor enjoys high profitability in its operations in the market. This can

indicate significant market power.

The Authority believes there are entry barriers in the market connected with PSTN/ISDN

subscriptions. However, the barriers to entry will be reduced if Telenor offers Wholesale

Line Rental. Voice over Broadband (VoB) growth has subsided, and the coverage of VoB


5

appears to be limited by slower migration to VoB than the price differences between

traditional telephony and VoB should objectively indicate. The retail market for access to

fixed telephony furthermore shows clear signs of being a mature market with sinking

volume. In NPT’s view this will also have an entry-deterring effect for both telephony

technologies. Economies of scale and scope represent a barrier to entry in the market to only

a limited degree. All told, NPT believes that entry barriers are contributing to maintaining

Telenor’s significant market power.

Innovation resulting from technological development does not appear to lead to considerably

changed competitiveness in the subscription market and contributes only to a certain degree

to a weakening of Telenor’s position in the market.

Telenor’s control over several network infrastructures can be viewed as a factor that

maintains Telenor’s position in this relevant market.

The price changes in the market in the period from the previous decision shows that Telenor

has maintained the prices for PSTN/ISDN subscriptions to non-business customers.

Furthermore, it has been possible for Telenor to implement a price increase for PSTN/ISDN

subscriptions in the business segment in 2009. In NPT’s view, this is a sign that the

company has market power in the relevant market.

NPT furthermore considers that countervailing buying power does not exist to appreciably

weaken Telenor’s strong position in the retail market for access to fixed telephony.

NPT has for this reason concluded that Telenor must still be deemed as having significant

market power in the retail market for access to fixed telephony.


6

1 Background and framework for the market analysis

1.1 Background

1. The regulatory framework for electronic communication is based on five directives

adopted by the European Union (EU).1 These directives entered into force for Norway on 1

November 2004. The directives have been implemented in Norwegian law through the

Electronic Communications Act and appurtenant regulations.

2. The framework shall lay the foundation for the harmonisation of regulation in the

EU/EEA, limit entry barriers and facilitate sustainable competition to the benefit of users.

3. NPT shall perform market analyses based on the pre-defined markets contained in

ESA’s Recommendation on relevant markets (the Recommendation).2 These market analyses

form the basis for assessing whether there are undertakings with significant market power in

a relevant market. Should the Authority find reason to designate undertaking(s) with

significant market power in a relevant market, the Authority shall impose one or more

specific obligations based pursuant to Chapter 4 of the Electronic Communications Act.

4. In NPT’s decision of 21 April 2006, Telenor ASA (Telenor) was designated an

undertaking with significant market power and directed to meet specific obligations in the

retail fixed telephony markets (former markets 1-6). The decision was based on NPT’s

market analyses of the same date, see Annex 1 of the decision. The basis for the Authority’s

market definitions in market analyses and decisions from 2006 was the six retail fixed

telephony markets which comprised markets 1-6 in ESA’s Recommendation on relevant

product markets for ex ante regulation from 20043.

5. ESA’s current Recommendation on relevant markets came into force on 5

November 2008. ESA’s Recommendation corresponds to the European Commission’s

Recommendation4 of 17 December 2007. In the current Recommendation, the number of

relevant markets for ex ante regulation has been reduced from 18 to 7. The four retail fixed

calls markets, referred to as markets 3-6 in the previous recommendation, have been

removed from the Recommendation. Furthermore, in the current Recommendation, the two

1 Directive 2002/21/EC on a common regulatory framework for electronic communications networks and

services (Framework Directive); Directive 2002/20/EC on the authorisation of electronic communications

networks and services (Authorisation Directive); Directive 2002/19/EC on access to, and interconnection of,

electronic communications networks and associated facilities (the Access Directive); Directive 2002/22/EC on

universal service and users’ rights relating to electronic communications networks and services (Universal

Service Directive); Directive 2002/58/EC concerning the processing of personal data and the protection of

privacy in the electronic communications sector (Directive on privacy and electronic communications). 2 EFTA Surveillance Authority Recommendation of 5 November 2008 on relevant product and service markets

within the electronic communications sector susceptible to ex ante regulation in accordance with the Act referred

to at point 5cl of Annex XI to the EEA Agreement (Directive 2002/21/EC of the European Parliament and of the

Council on a common regulatory framework for electronic communications networks and services), as adopted

by Protocol 1 thereto and by the sectoral adaptations contained in Annex XI to that Agreement. 3 EFTA Surveillance Authority Recommendation of 14 July 2004.

4 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.


7

retail markets for access to fixed telephony (former markets 1 and 2) have been merged into

one market, which is defined as including subscriptions for both residential and non-

residential customers. This market for access to the public telephone network at a fixed

location for residential and non-residential customers is market 1 in the current ESA

Recommendation. In the rest of the report the market is referred to as the retail market for

access to fixed telephony.

6. As described in the document “Methodology for Market Analysis” 5(the

methodology document), work on the market analyses may be divided naturally into three

phases:

1. Define relevant markets by defining relevant product markets and defining markets

geographically.

2. Undertake market analyses of each of the relevant markets, with a view to

uncovering whether there are undertaking(s) in the market that have significant

market power.

3. Identify undertakings with significant market power in each of the relevant markets

and issue decisions on specific obligations for undertakings designated as an

undertaking with significant market power.

7. This document contains NPT’s assessments in phases 1) and 2) for the retail market

for access to fixed telephony. The analysis is an annex to draft decisions on specific

obligations vis-à-vis Telenor in the retail market for access to fixed telephony.

1.2 Legal framework for the market analysis

8. The Electronic Communications Act’s definition of significant market power in

Section 3-1 reads:

“A provider has significant market power when the provider individually or jointly with

others has economic strength in a relevant market affording the provider the power to

behave to an appreciable extent independently of competitors, customers and consumers.

Significant market power in one market may result in a provider having significant market

power in a closely related market.”

9. The term “significant market power” in the Act on Electronic Communications is

very close to the competition law standard “dominant position” (“dominance”). It follows

from Norway’s obligations under the EEA Agreement that identification of undertakings

with significant market power is to be carried out in accordance with the guidelines and

recommendations prepared by ESA under the new Framework Directive for electronic

communications services: They are:

The Guidelines on market analyses and the assessment of significant market

power (hereinafter referred to as “the Guidelines”)6

Recommendation on relevant markets7

10. According to the Guidelines an assessment of relevant markets and significant

market power must be based on a market analysis. The assessment is to accord with

5Methodology for market analysis 11 June 2009, NPT.

6 EFTA Surveillance Authority Guidelines 14 July 2004.

7 EFTA Surveillance Authority Recommendation 5 November 2008 with the Commission’s Explanatory Note

13. November 2007 SEC(2007) 1483/2.


8

competition law methodology. The Guidelines and the Recommendation, together with the

provisions of the Electronic Communications Act, particularly Sections 3-1 to 3-3, will

therefore form the legal framework for the market analysis. However, the Guidelines are not

exhaustive and therefore in its methodology document NPT has elaborated on the criteria for

the market analysis on certain points. If the Guidelines and the Recommendation are

amended, NPT will amend this document accordingly. The methodology document in effect

at any given time shows the methodological starting point for the market analyses NPT

undertakes. This analysis is based on the methodology document dated 11 June 2009.

11. The market analyses will be subject to regular review. In markets with frequent and

comprehensive changes such reviews will have to be carried out relatively frequently. The

market analyses are therefore limited in the extent to which they are forward-looking, cf.

paragraph 20 of the Guidelines. This analysis has a time horizon of two to three years.

12. In accordance with the Electronic Communications Act, ex ante regulation of

providers with significant market power is only to be used where this is necessary in order to

achieve sustainable competition in the relevant or adjacent markets. In the Norwegian market

regulatory obligations may only be imposed on operators with significant market power in

those markets in which ESA or NPT has decided that sector-specific regulation is necessary.

In each of these relevant markets NPT must assess the extent to which sustainable

competition exists.

13. The document “Methodology for Market Analysis” prepared by NPT is not legally

binding, but expresses NPT’s understanding of the guidelines to which NPT is obliged to

adhere. The market analyses will therefore be carried out in accordance with the perceptions

and assessments that are expressed in the methodology document. Should there prove to be

discrepancies between the methodology document and the Guidelines or the

Recommendation, the methodology document will yield.

14. The document “Methodology for Market Analysis” in no sense regulates the

Norwegian Competition Authority’s assessments in accordance with the Competition Act.

Even though NPT’s assessments according to the methodology document will largely be

based on competition law methodology, NPT’s assessments will be based on the need for

general ex ante regulation. The assessments of the competition authorities will as a main rule

be done ex post in connection with specific cases. NPT’s and the Competition Authority’s

assessments in accordance with the two sets of rules may therefore differ even within the

same or overlapping markets.

2 History and market development

15. Fixed telephony for end-users can be described as access to the public telephone

network at a fixed location so the customer can make outgoing calls and receive incoming

calls. Telephone services provided at a fixed location are therefore usually offered as a

bundled package that includes both access and use. The presentation below includes both

these elements of the telephony service.

16. The markets for publicly available telephone

services at fixed locations were liberalised in 1998, and liberalisation enabled new providers

to establish themselves in the market and provide competing offers to Telenor’s offers.

17. In the summer of 1999, carrier pre-selection and number portability were

introduced. Using carrier pre-selection, Telenor’s competitors could offer all fixed calls as a

bundled product, while number portability helped improve the competitive conditions for


9

Telenor’s competitors who based their service on direct access (predominantly to business

customers).

18. The first competitive offers after liberalisation were largely based on carrier

selection code calls and direct connection, i.e., subscriptions and calls via their own and/or

leased lines. While there have been offers of access to the public telephone network at a

fixed location to business customers from Telenor’s competitors since liberalisation, the

situation was different regarding offers to retail customers.

19. Shortly after liberalisation, many of Telenor’s competitors sought an

access/subscription product in the upstream market so that they could offer a comprehensive

telephony product package incorporating both subscription and calls. In autumn 2001 NPT

ordered Telenor to offer such a product, and Telenor launched its product at the end of

2002/beginning of 2003. However, the decision was revoked by the Ministry of Transport

and Communications on 10 June 2003 due to the lack of a legal basis for such a directive.

Telenor nevertheless chose to continue to offer the Wholesale Line Rental product.

20. At the beginning of 2004 the first VoB service for residential customers was

launched. This type of offer had existed in the business market a few years previously, but in

a limited scope. Today, VoB is offered both by providers with and without their own access

network. The number of residential VoB subscriptions at the end of 2009 was 500,985 and

the number of business subscriptions was 18,306. Most of these subscriptions were

established as replacements for PSTN/ISDN subscriptions. As of the same date, there were

1,258,830 PSTN\ISDN subscriptions and 1,783,426 fixed telephony subscriptions.

PSTN/ISDN and VoB thus amounted respectively to 70.5% and 29.1% of the total fixed

telephony subscription market.

21. Figures 1 and 2 show the development in demand for fixed telephony for

subscriptions/connections and calls, respectively. Figure 3 shows the change in demand for

VoB alone, measured by number of subscriptions.


10

Figure 1: Total number of connections (in thousands at 31 December) PSTN, ISDN 2B+D, fixed

connections in all (including ISDN 30B+D, telephone connections via cable TV network and other types

of connection) 1970-2007. Annual percentage change in the number of total connections.

Sources: Norwegian Telecom and Norwegian Telecom’s Central Administration 1970-1993, Norwegian

Post and Telecommunications Authority from 1994.

Figure 2: Traffic volume from fixed-line telephone and annual volume change in per cent.

Source: NPT.

-8 %

-6 %

-4 %

-2 %

0 %

2 %

4 %

6 %

8 %

10 %

12 %

0

500

1000

1500

2000

2500

3000

19

70

19

71

19

72

19

73

19

74

19

75

19

76

19

77

19

78

19

79

19

80

19

81

19

82

19

83

19

84

19

85

19

86

19

87

19

88

19

89

19

90

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

Ye

arly

ch

ange

Nu

mb

er

of

sub

scri

pti

on

s in

10

00

PSTN ISDN 2B+D ISDN 30B+D Other fixed subscriptions Yearly change

-25 %

-20 %

-15 %

-10 %

-5 %

0 %

0

5 000

10 000

15 000

20 000

25 000

30 000

2001 2002 2003 2004 2005 2006 2007 2008 2009

Ye

arly

ch

ange

Mill

ion

min

ute

s

Traffic minutes


11

Figure 3: Growth in number of VoB subscriptions. Source: NPT.

22. Developments on the demand side show that both the number of fixed telephony

subscriptions and traffic volume are steadily decreasing. Meanwhile, growth in the number

of broadband subscriptions has slowed since 2006.

23. Figure 1 shows the number of fixed telephony subscriptions during the period 1970

to 2009. Up until 1997 there was steady growth in the demand for access to fixed telephony.

However, the decline since the last analysis8 is significant. At the end of 2009, approximately

36% of all Norwegian households did not have a fixed-line subscription. Based on half-year

figures for 2005, 17% of households did not have a fixed-line subscription. The number of

broadband customers with VoB has increased from 13% in June 2005 to 33% at the end of

2009. As growth in terms of VoB has slowed, the number of broadband customers is

growing faster than the number of VoB customers. In other words, the share of broadband

customers with VoB is decreasing.

24. Figure 2 shows the growth in traffic volume from fixed telephony in the period from

2001 to 2009. Since 2001 there has been a clear decline in traffic volume. There has also

been a significant reduction since the previous analysis, and traffic has dropped by more than

half since 2005 (approximately a 54% reduction).

25. The reduction in the number of fixed telephony subscriptions is mainly because

more people choose to only use mobile telephony. This applies especially to the younger

segment of the population. Mobile telephony usage is close to 100% in the adult segment of

the population, and as the call rates for mobile telephony have been reduced, many people no

longer see the need for fixed line services. A relatively high fixed subscription fee for fixed

telephony encourages the decision to cancel the fixed telephony subscription.

26. Similarly, increasing use of mobile telephony led to reduced traffic volume for fixed

telephony. In addition, the sharp reduction in the use of dial-up Internet also contributed to a

significant reduction of traffic volume for fixed telephony.

8 The market analyse of 21 April 2006 is based on 2005 half-year figures.

-20 000 0 20 000 40 000 60 000 80 000 100 000 120 000

1st half 2004

2nd half 2004

1st half 2005

2nd half 2005

1st half 2006

2nd half 2006

1st half 2007

2nd half 2007

1st half 2008

2nd half 2008

1st half 2009

2nd half 2009


12

3 Market definition

3.1 General comments on market definition

27. Work on the market analyses is based as mentioned on the Recommendation, and

NPT must furthermore assess whether ESA’s predefined markets are appropriate for

Norwegian conditions. A description/definition of the product market is to be given and the

geographic market defined.

28. The definition of relevant markets will follow the same procedure used for market

definition within competition law. In some cases, however, markets defined by competition

authorities can differ from markets defined in ESA’s Recommendation or by national

regulatory authorities pursuant to Article 15, paragraph 3 of the Framework Directive9.

3.1.1 The product market

29. A relevant product market comprises products or services (the terms are used

interchangeably below without difference in meaning) that are sufficiently substitutable. The

starting point for the definition of a relevant product market is an assessment of demand-side

substitutability. However substitutability may also exist on the supply side and may thus be

relevant in definition of the relevant market.

30. Demand-side substitutability exists when two or more products in the market are, in

the perception of the end user, mutually exchangeable or substitutable on the basis of

characteristics, price and area of utilisation.

31. Supply-side substitutability exists when providers of other (non-substitutable)

products, in response to a marginal price change in the short term, can change their

production or distribution and offer substitutable products without incurring significant

additional costs or substantial risk.

32. An acknowledged method of analysing substitutability is the so-called “hypothetical

monopolist test” (SSNIP), where one endeavours to find the best-defined market in which a

hypothetical monopolist can exercise market power10

. This test assesses the effect of a small,

but significant (in practice 5-10 per cent) and lasting price increase for the relevant product,

based on the assumed price level in a market with effective competition. All other prices are

assumed to be unchanged. The effect of the price increase in the relevant market and the

overall effect on the producer’s revenues are then assessed. Determining whether the price

increase will be profitable for the producer is key.

33. The method depends on a significant amount of data that will often be difficult to

obtain. The Recommendation does not make use of the SSNIP test an absolute requirement

in market definition for the market analyses. The description of the SSNIP test in the

Recommendation should be understood as a description of a procedure and a set of criteria

for assessing market definition. Similar methods may therefore also be used.

34. The hypothetical assessment should be supplemented by factual information on

behaviour on the supply and demand sides to the extent that such information is available.

On the demand side, factors such as the end users’ access to information, the costs of

changing and other lock-in mechanisms should be taken into consideration. On the supply

9 The Guidelines, paragraph 26.

10 “Small but Significant Non-transitory Increase in Price”. The Guidelines, paragraph 40.


13

side, account should be taken of the actual potential a provider has to change production as

well as any regulatory conditions that prevent rapid market entry by competitors in the

market.

35. A further assessment criterion used in market definition is whether there are joint

pricing constraints between products.11

In such cases it can be expected that both providers

and those demanding the products largely view pricing of the products as one, and that it is

therefore the total price that is significant for demand. Such joint pricing constraints can

indicate that the products are in the same market, even though in principle neither demand

nor supply-side substitution indicates this.

3.1.2 The geographic market

36. Once the relevant product markets are determined, the geographic market is defined.

In accordance with the Guidelines, paragraph 57, the geographic market may be defined as

that area in which the relevant product is offered on approximately similar and sufficiently

homogeneous conditions of competition. However, the Guidelines, paragraph 60, point out

that geographic markets in electronic communications have traditionally been defined by

reference to the relevant network’s area of coverage as well as the effective boundaries

(jurisdiction) of the legal regulation of the market.

37. The relevant geographic market is that area in which the relevant products and

services are provided on sufficiently similar or homogeneous competitive terms. In assessing

substitutability on the demand side one should take account of preferences and geographic

purchase patterns, if such information is available. With this as the basis the markets can be

defined regionally within the national frontiers, nationally or trans-nationally. However, NPT

can only define regional or national markets. The expertise for defining transnational markets

is vested in ESA.

38. Assessment of the relevant geographic market will be somewhat different depending

on whether the assessment is made ex post or ex ante. A definition of geographic markets ex

ante must necessarily have a wider basis and a more general approach than is taken with an

ex post definition. An ex post definition is based on an actual event the extent of the effects

of which one can chart, whilst the forward-looking assessment must be based on somewhat

different circumstances. This will therefore also characterise the scope of the assessment of

the relevant geographic market.

39. In accordance with Section 1-3 of the Electronic Communications Act, cf.

Regulation No. 882 of 4 July 2003, the Electronic Communications Act applies to Svalbard,

Jan Mayen, the dependencies and Antarctica. However in regard to Svalbard, exceptions

have been made for Chapter 3 (significant market power), Chapter 4 (access) and § 9-3

(consultation procedure). However, electronic communications on Jan Mayen, the

dependencies and Antarctica are assumed to have very little significance for the market

analyses NPT carries out in accordance with the Electronic Communications Act.

40. Further reference to Norway as a jurisdiction should therefore be taken to mean

mainland Norway/Norwegian land territory.

11

The Guidelines, paragraph 42.


14

3.2 Market definition in the previous analysis

41. The starting point for NPT’s market definitions of the two subscription markets for

publicly available telephone services provided at a fixed location to end users in the market

analysis of 21 April 2006 was the description of these markets in the original

Recommendation. NPT considered whether these pre-defined markets were suitable for

Norwegian conditions. The Authority concluded that it was not necessary to change the

definitions which came from the Recommendation from 2004. The market for access to the

public telephone network at a fixed location for residential customers (market 1) and the

market for access to the public telephone network at a fixed location for non-residential

customers (market 2) were further defined as follows:

Market 1: This market includes any form of connection to electronic communications

networks that provide access at a fixed location to public telephone services

for residential customers, regardless of the physical infrastructure or

technology the connection is based on.

Market 2: This market includes any form of connection to electronic communications

networks that provide access at a fixed location to public telephone services

for non-residential customers, regardless of the physical infrastructure or

technology the connection is based on.

42. The relevant geographic market for the two subscription markets was restricted to

Norway.

3.3 Definition of the product market

43. In the definition of the relevant market NPT used the market definition of the two

subscription markets in Chapter 2 of the market analysis of 21 April 2006. Furthermore, the

Authority has used ESA’s current Recommendation, where the two subscription markets

have now been merged into one market, which is defined as including subscriptions for both

residential and non-residential customers.

44. Both the earlier and the current Recommendation distinguish between markets for

access to fixed telephony and markets for fixed calls. The Commission’s Explanatory Note12

states that even though subscription and use are usually purchased as a bundled service,

provision of carrier pre-selection and carrier selection make it relatively simple for end users

to use different providers for access and calls, respectively. Furthermore, the Commission

assumes that supply-side substitution indicates that subscription and outgoing calls should be

defined as different markets. NPT consequently still finds that fixed-line subscriptions and

calls are largely complementary rather than substitutable products.

3.3.1 Division between residential and non-residential customers

45. In line with the Recommendation from 2004 NPT concluded in the previous

analysis that the subscription markets for fixed telephony had to be differentiated into two

markets for residential customers and non-residential customers, respectively. Assessments

of both demand-side and supply-side substitution favoured a division between markets for

residential customers and non-residential customers. At the same time the Authority pointed

out that in principle there was no clear distinction between provision of publicly available

12

Page 23.


15

telephone services provided at a fixed location directed at residential customers and non-

residential customers, respectively. This applied with respect to both access and use of

telephone services provided at a fixed location.

46. This division was not maintained in the predefined access market for fixed

telephony that constitutes market 1. The Commission’s Explanatory Note13

states that the

conditions for access are not significantly and systematically different between services to

non-business and business segments in most EU member states. Because the products

offered to the non-business and business segments are relatively similar, supply-side

substitutability is furthermore assessed as being present in that providers will change their

services to the non-business market in the event of a small but significant non-transitory

increase in price in this segment, and vice versa.

47. In principle there cannot be said to be a very clear distinction between provision of

publicly available telephone services at a fixed location directed at residential and non-

residential customers, respectively. Both residential and non-residential customers can

purchase a basic telephony subscription (PSTN, ISDN 2B+D or VoB) from many providers

in the market. The same types of services are used by both categories of end users, which in

isolation may indicate a single market.

48. On the other hand, some of the services in this market are aimed only at one of these

customer segments. For example, the connection product ISDN 3014

B+D is aimed only at

non-residential customers. This is due to different needs on the demand side in the market,

which in isolation may indicate different relevant markets.

49. For a business, choosing, for example, ISDN 2B+D or ISDN 30B+D will mainly be

a question of capacity need compared with the price of the two products. A business could

start with ISDN 2B+D and may upgrade to ISDN 30B+D if the company grows and the

capacity need increases. However, there will not be any clear and unambiguous division

between different types of companies with respect to which products are sought. This will

often depend on the nature of the business. Some relatively small companies may have a

large communications need and may thus be best served by ISDN 30B+D, while some larger

companies do not have equally large communications needs and are thus best served by

ISDN 2B+D.

50. Furthermore, some customers (including sole-proprietorships and self-employed

persons) can largely choose whether to purchase fixed telephony as a non-business or

business customer. Since the call volumes and usage patterns vary within these groupings, it

is difficult on a general basis to categorise customers of this type clearly as either residential

or non-residential customers.

51. Employees of businesses with home office solutions, which means that the employer

is the billed party and pays all or part of the employee’s home telephone bill, are another

example of a category of customer that may be said to be in the border zone between

residential and non-residential customers. The same applies to residential customers

affiliated with a housing cooperative or the like where the cooperative seeks telephone

services collectively on behalf of several households so that that the housing cooperative is

registered as a non-residential customer by the provider of the telephone services.

13

Page 22. 14

Telenor has from March 2010 expanded the company’s services on line alternatives for ISDN UT. In addition

to 30 lines, Telenor now also offers 12, 16 and 22 lines.


16

52. The providers of fixed telephony appear largely to distinguish between marketing,

sales and customer service to residential and non-residential customers. For example,

Telenor, Tele2, Telio and Ventelo operate with different areas for “Non-business” and

“Business” on their home pages. Providers also usually have different units for customer

service to non-business and business customers. Furthermore, contract terms and price

structures, including discount plans, are different for residential customers and non-

residential customers. The price structures and discount schemes for non-residential

customers generally depend on the size of the company, number of subscriptions/lines, call

volume, call patterns, lock-in periods etc., and are often agreed for larger companies after

prior negotiation between the undertaking and the individual company. An ordinary

household does not have a call volume or usage pattern that would enable it as a residential

customer to attain the same discounts as in the non-residential market. However, the same

will also apply to smaller companies.

53. For this reason NPT believes that after an assessment of demand-side substitution it

is difficult to draw a clear conclusion that fixed-line subscriptions for residential customers

and non-residential customers can be seen as a single or two markets.

54. With respect to supply-side substitution, NPT believed in the previous analysis that

the assessment indicated that the markets for residential customers and non-residential

customers could be viewed as different relevant markets. The Authority then found that most

providers in the market for publicly available telephone services provided at a fixed location,

with the exception of Telenor and Tele2, had designed up to the time of the analysis services

either for residential customers or non-residential customers. This has changed in recent

years. All four largest providers of fixed telephony in Norway measured by revenues

(Telenor, Ventelo, Tele2 and Telio) now have services for both residential customers and

non-residential customers. TDC still offers its services only to non-residential customers,

while Get offers services to both individual households and housing amalgamations.

Furthermore, operators such as Lyse, BKK and NTE offer broadband telephony to both

residential customers and non-residential customers.

55. Services for residential and for non-residential customers, respectively, are based to

a certain degree on different business models and different strategic choices. Various factors

such as staffing requirements, organisational model, product portfolios, sales channels,

marketing methods, plus technical and administrative support systems will to some degree be

different for operators that aim their services at residential customers than at non-residential

customers, compared with operators generally serving the market as a whole. Despite this,

developments since 2006 show that the incurrence of substantial restructuring costs is

unlikely if operators currently offering publically available telephone services provided at a

fixed location either to residential or to non-residential customers should choose to expand

their services to include both customer segments. It appears technological development, with

increased coverage of VoB and greater opportunities for bundling several services, has

helped reduce the barriers for offering services to both groups of customers.

56. In NPT’s opinion it is on the basis of the above highly likely that operators offering

fixed-line subscriptions to either residential customers or non-residential customers will

expand their services to both segments in response to a small but significant non-transitory

increase in price in the other part of the market. An assessment of supply-side substitution

therefore suggests that fixed-line subscriptions for residential customers and non-residential

customers can be seen as one and the same relevant market.

57. For this reason NPT has concluded that no division should be drawn any longer

between residential customers and non-residential customers in the analysis of the retail


17

market for access to fixed telephony in Norway. The Authority has emphasised that there

seems to be a large degree of substitution on the supply side. On the demand side the picture

is more unclear, but the products offered in the non-business and business segments are

relatively similar, as the Commission has also assumed in its Explanatory Note. NPT has also

emphasised that ESA and the Commission have concluded that market 1 includes both

residential customers and non-residential customers. As long as the market in Norway does

not seem to be substantially different from corresponding markets in other European

countries, harmonisation indicates that the market should be defined in line with the

Recommendation.

3.3.2 Different forms of access

58. The Recommendation defines a single access market for publicly available

telephone services provided at a fixed location. In the previous analysis NPT undertook an

assessment of the need to further differentiate the two markets for access since different

access products exist for fixed telephony.

59. NPT considered PSTN and ISDN access as being part of the same relevant market.

The Authority furthermore believed that telephone service over cable TV networks belonged

to the same market as telephony over PSTN/ISDN networks. The Authority cannot see any

reasons in favour of departing from the above-mentioned conclusion from the previous

analysis. NPT thus considers that the assessments in section 2.5 in the previous analysis still

express the Authority’s viewpoints with respect to the substitutability between the above-

mentioned forms of access, so that PSTN and ISDN connection and telephone service over

cable TV networks are included in the retail market for access to fixed telephony.

60. With respect to access to telephony over broadband networks, NPT concluded in its

previous analysis that VoB facilitating end-to-end connectivity (category 3)15

was included

in the subscription markets. Seen from the demand-side the Authority assumed that VoB

facilitating end-to-end connectivity was substitutable with traditional fixed telephony. The

Authority assessed the functionality of this form of VoB as largely corresponding with

ordinary PSTN/ISDN telephony, and most end users that buy VoB do this as a replacement

for traditional fixed telephony. NPT also assessed supply-side substitution and concluded

that VoB and telephony in the PSTN/ISDN network are substitutable also seen from the

supply side.

61. With respect to provision of VoB from access-independent providers, the Authority

considered that the high share of end users that choose such a provider called for

substitutability. In the same manner, a user survey showed that the quality of such services

was consistently satisfactory. For this reason, NPT concluded that VoB offered regardless of

broadband connection was also part of the relevant retail markets.

62. NPT still believes that VoB facilitating end-to-end connectivity (category 3) has a

functionality and service quality that largely corresponds with traditional telephony. VoB in

this category has normally an interconnection interface with the PSTN/ISDN network and

uses numbers according to the national numbering plan in the same manner as traditional

telephony. The same user equipment in the form of telephone apparatuses can be used with

respect to both technologies. The service quality of VoB, which was regarded as satisfactory

in the previous analysis, cf. inter alia above-mentioned user survey, has been further

15

Category 3 VoB is furthermore described in NPT’s “Regulation of VoB pursuant to the Electronic

Communications Act” of 14 June 2006.


18

improved in the period16

. As mentioned under Chapter 2, most customers that have obtained

VoB have done this as a replacement for a PSTN/ISDN subscription. The growth in the share

of customers that have abandoned traditional telephony in favour of VoB shows that

consumers regard VoB as largely having a service quality corresponding to traditional

telephony. In NPT’s view this factor bolsters the Authority’s earlier view of substitutability

on the demand side.

63. However, the price level of PSTN/ISDN telephony is still higher than for VoB. With

the previous analysis the Authority pointed out that VoB was a relatively new product and

that this to some degree could limit the number of customers that would be willing to

exchange its traditional fixed telephony service in favour of VoB. As mentioned above NPT

believes that the growth in the share of customers that have abandoned traditional telephony

in favour of VoB shows that the two technologies are regarded as having corresponding

service quality in the market. To conclude that there is a sufficient degree of demand-side

substitution between the two technologies, NPT has assessed that the share of customers that

have chosen VoB in favour of traditional telephony should have been higher at this time,

seen in light of the price difference between the two technologies and that the products are

functionally viewed as substitutable.

64. Of a total of 1,783,426 fixed-line subscriptions, 519,291 customers had VoB at the

end of 2009. VoB now consists of 29.1% of the total market17

for fixed-line subscriptions.

The share of customers that have traditional telephony is 70.6%. At the time of the previous

analysis VoB and traditional telephony made up 5% and 94%, respectively. The changes in

the shares for the two technologies must also be seen in connection with the fact that during

the same period there has been a considerable decline in the total number of connections for

fixed telephony.

65. In NPT’s view the growth in VoB shows that a considerable share of the customers

have responded to the price difference between the two technologies. At the same time, the

Authority sees that a high percentage of customers still choose to keep PSTN/ISDN

telephony despite the fact that VoB is cheaper. NPT believes that some of the explanation for

this is related to the fact that fixed telephony customers are not a homogenous customer base

and that a larger share, particularly the older customer base, is less price sensitive due to

tradition and other factors. In the Authority’s view this means that certain customers will

choose traditional telephony almost regardless of the price difference between the two

technologies, and that for this part of the customer base the claim can be made that it is not

demand-side substitution. Furthermore, customers that are provided both PSTN/ISDN and

broadband over the same copper line will normally see an increase of the subscription charge

for broadband service during transition from PSTN/ISDN to VoB.18

This can help reduce the

savings that are achieved.

66. On the other hand, the development of the share shows that a larger group is also

price sensitive. Despite that the growth in VoB has slowed since 2006, and that the total

market is in sharp decline, the Authority believes there is reason to believe that development

in the shares between the two technologies in favour of VoB will also continue in the coming

period. Even though the growth of the share of VoB customers has possibly been somewhat

16

For example, the quality of routing calls to emergency services improved with respect to VoB. 17

The total market also covers connections over cable TV networks (not IP-based). This share has moved from

around 1% to virtually zero (0.3%) during the period from the previous market analysis. 18

The increase is because there are no longer two services that can share the costs of the line. The provider of

broadband service must pay a higher wholesale price than before for access to the copper line (full access against

previously shared access).


19

slower than the price differences objectively should have provided a basis for, the Authority

believes the market displacement that despite all has been between the two technologies

provides a basis for claiming that the products are regarded as substitutable for much of the

customer base.

67. In the previous analysis NPT pointed out that Telenor’s own commitment to VoB,

as the largest PSTN/ISDN provider, indicates that the company assumes that the two

technologies are substitutable products on the demand side. In the Authority’s view there is

reason to maintain this viewpoint since Telenor has maintained its commitment to VoB and

together with Telio lead the market also in this technology.

68. NPT otherwise considers that the assessments in section 2.11 in the previous

analysis still expresses the Authority’s viewpoints with respect to the substitutability between

VoB and traditional telephony. For this reason NPT finds that VoB facilitating end-to-end

connectivity is included in the retail market for access to fixed telephony. This applies to

both VoB offered together with broadband connection and VoB supplied independently of

broadband connection.

3.3.3 Access to public telephone services via mobile networks

69. The Recommendation differentiates between markets for publicly available

telephone

services at fixed locations and public telephone services based on mobile networks. In

principle, this means that access to public telephone services via mobile networks is not to be

considered part of the predefined retail market for access to fixed telephony.

70. In its 21 April 2006 analysis NPT concluded that there was not a sufficient degree of

substitutability between telephone access from fixed and mobile networks, respectively, for

mobile-based access to be included in the access markets for fixed telephony. With respect to

access by mobile network-based PBX solutions in particular, the Authority concluded that

nor should such access be included in the access markets, inter alia because there is no clear

difference between when such a solution is used as a pure replacement for access to the fixed

network, and when it is used as an “ordinary” mobile phone.

71. The marketing and technical differences between mobile telephony and fixed

telephony have become less clear, and there are increasingly more end users that choose to

only buy mobile telephony. In the previous analysis NPT referred to the fact that the share of

end users in the non-business segment that only had mobile telephony was 15%19

. The

figures from the end of 2009 shows that 36% of the households have abandoned fixed

telephony. At the same time real mobile telephony coverage is 96%. The change from the

previous analysis shows a continued migration from fixed network-based telephony to

mobile telephony. However, the decline in the number of fixed-line subscriptions is

somewhat smaller among businesses than among residential customers, indicating that the

degree of substitutability between fixed telephony and mobile telephony is less in that part of

the market.

72. The share of households with a fixed-line telephone is 64%. Most of these have in

addition mobile telephony, cf. mobile telephone coverage as mentioned above. NPT believes

that even though the share of end users who have both products is falling, the share is still so

high that it provides a basis for maintaining that a majority of end users still see access to

public phone services via mobile networks as more of a supplement than a substitute for such

access via the fixed network. Furthermore, the NPT believes relatively big differences still

19

Third quarter 2004.


20

exist in the production of mobile and fixed telephony. For this reason, the Authority

maintains assessments in section 2.10.1 of the analysis of 21 April 2006. Nor can the

Authority see reasons for departing from above-mentioned conclusions in the previous

analysis with respect to mobile network-based PBX solutions.

73. NPT has therefore concluded that there is not a sufficient degree of substitutability

between telephony access from fixed and mobile networks, respectively, for mobile-based

access to be included in the retail fixed line market.

3.4 Definition of the geographic market

74. As stated in section 3.1.2, geographic markets in the electronic communications

sector have traditionally been determined by reference to the relevant network’s area of

coverage as well as the effective boundaries (jurisdiction) of the legal regulation of the

market. The markets have thus been viewed as national.

75. It might make sense in the case of some product markets to divide them into

geographic markets smaller than the nation-state, since there are local providers of electronic

communications services covered by the relevant product market.

76. ERG published its “Common Position on Geographic Aspects of Market Analysis

(definition and remedies)”20

(ERG Common Position) in October 2008. Here, ERG

recommends a step-by-step process for geographic definition of the market. The first step in

this process is to identify whether it is necessary to undertake a detailed geographic analysis.

“Preliminary analysis”, paragraph 1, page 2 of the ERG Common Position reads:

“Before going into the details of geographic analysis, NRA’s should look at a number of

criteria which are easily accessible and indicate whether competitive conditions are such

that a national approach to market definition, market analysis and the implications of

remedies is justified. Indicators pointing in this direction are:

- The hypothetical monopolist test suggests that there is sufficient demand- and/or supply-

side substitution between different areas.

- Competitive conditions are sufficiently homogenous:

Alternative networks either have small coverage and market shares or have (close to)

national coverage with similar prices;

There is a uniform price of the incumbent operator and similar prices of alternative

operators;

There are no significant geographical differences in product characteristics.”

77. The relevant question during the hypothetical monopolist test for geographic

definition of the market is whether a marginal, but non-transitory price increase (5-10%) in

an area means that a sufficient number of end users will move to a different area or whether

providers from other areas will start to offer the product in the relevant area in response to

the price increase, so that it would not be profitable.

78. In the analysis of 21 April 2006, NPT concluded that the geographic market for both

of the two subscription markets was the entire country. The Authority emphasised the fact

that the subscription product is offered by many providers at equal prices and terms in the

entire country. This is still the case, and neither Telenor, Tele2, Telio nor other nationwide

20

http://www.erg.eu.int/doc/publications/erg_08_20_final_cp_geog_aspects_081016.pdf

http://www.erg.eu.int/doc/publications/erg_08_20_final_cp_geog_aspects_081016.pdf


21

providers differentiate between geographic areas in the pricing of the subscription product.

Any variation in prices and terms is primarily due to the individual end user’s call volume,

number of telephone subscriptions, contract period or the like, and is not based on

geographic location. Nor do preferences and purchasing patterns on the demand side appear

to vary substantially between the various geographic areas in the country.

79. The Authority furthermore believed that provision of telephony subscriptions from

regional/local operators (e.g. cable TV companies and local/regional broadband operators)

had too limited coverage to provide a basis for departing from the entire country as the

geographic market. Such services have increased somewhat in scope, but this has

nevertheless not caused Telenor or others to differentiate their offer in the relevant areas.

Through Telenor’s retail services, Wholesale Line Rental or unmanaged VoB it will also be

relatively simple for other providers to offer competing products if regional/local providers

should increase their prices.

80. In NPT’s opinion, different competitive conditions do not exist in stable and clearly

defined parts of the country to indicate that a geographic division of the market is necessary.

In NPT’s view, further analysis of the question of whether the market shall be divided

geographically is therefore unnecessary, and the Authority assumes a national approach for

market definition and analysis.

81. NPT believes that the geographic market for fixed-line subscriptions is still the

whole of Norway.

3.5 Conclusion on market definition

82. With the exception of that the subscription market is considered to include both

households and non-households, NPT stands by its assessments of the relevant product

market and geographic delineation in the analysis of 21 April 2006.

83. In NPT’s assessment, the relevant market thus includes any form of connection to

electronic communications networks that provide access at a fixed location to public

telephone services to end users, regardless of the physical infrastructure or technology the

connection is based on. It means that this relevant market is not limited to analogue (PSTN)

and digital (ISDN) access to the copper-based access network, but also includes end users’

access to public telephone services via other fixed-location access networks (including cable

TV networks and broadband access networks based on various technologies).

84. This product market corresponds to market 1 in the Recommendation: “Access to

the public telephone network at a fixed location for residential and non-residential

customers”.

85. The geographic market is defined as Norway.

4 Analysis of the market

4.1 Introduction

86. In the 21 April 2006 analysis NPT concluded that Telenor had significant market

power in the two retail fixed access markets (former markets 1 and 2). PT believed that

Telenor had economic strength in both of these markets that allowed the company to largely


22

be able to act independently of other competitors, customers and consumers. High and

relatively stable market shares and the Telenor Group’s strong position in most electronic

communications markets in Norway were especially weighty factors in this assessment.

87. In this chapter NPT will undertake a new assessment of whether undertakings with

significant market power exist in the retail market for access to fixed telephony. Because

NPT in the previous market analysis concluded that Telenor had significant market power in

the two subscription markets, it is appropriate that the Authority’s renewed assessment of

market 1 is based on Telenor’s position in the relevant market.

88. As with the previous analysis, the assessment of significant market power is based

on the criteria specified in the Guidelines and NPT’s methodology document. In the analysis

NPT has assessed the following criteria:

Market share

Profitability

Entry barriers

Potential competition and innovation

Provider behaviour

Conditions on the demand side

4.2 Market share

89. High and stable market share over time can indicate significant market power. In

paragraph 76 of the Guidelines ESA points out that the Commission assumes that single

dominance will normally be found at providers with more than a 40% market share. ESA

furthermore writes:

“According to established case-law, very large market shares - in excess of 50 % - are in

themselves, save in exceptional circumstances, evidence of the existence of a dominant

position. An undertaking with a large market share may be presumed to have SMP, that is to

be in a dominant position, if its market share has remained stable over time. The fact that an

undertaking with a significant position on the market is gradually losing market share may

well indicate that the market is becoming more competitive, but it does not preclude a

finding of significant market power.”

90. At the end of 2009 the market consisted of all together 1,783,426

connections/subscriptions, divided into 1,258,830 PSTN/ISDN subscriptions, 5,305

subscriptions via cable TV networks (non IP-based) and 519,291 subscriptions via broadband

access. Revenues for said connections (including subscriptions, installation, moving and

additional services) amounted at the end of 2009 to approximately NOK 3.0 billion.

91. Table 1 shows that Telenor’s market share is falling, measured both according to

number of subscriptions and according to revenues, compared with the market share figure

for the previous analysis21

. While Telenor’s market share measured in the number of

subscriptions amounted to approximately 80% the first half of 2005, the share fell by about

12 percentage points to approximately 68% at the end of 2009. Telenor’s market share

measured by revenues was approximately 83% in the first half of 2005. At the end of 2009

Telenor’s market share measured by revenues fell to approximately 75%.

21

The figures used in the 21 April 2006 analysis were based on NPT’s statistics for the first half of 2005.


23

Marketshare per 31.12.2009 Marketshare per 01.07.2005

Operators Subscriptions Revenue Subscriptions Revenue

Telenor 67,85 % 74,50 % 79,80 % 83,30 %

Tele2 5,89 % 5,85 % 8,00 % 7,20 %

Telio 5,31 % 5,84 % 2,30 % 1,00 %

Ventelo 4,81 % 5,95 % 2,20 % 1,70 %

Fix Telecom 1,60 % 2,50 %

UPC 1,00 % 0,70 %

Get 2,77 % 1,35 %

Next GenTel 2,72 % 1,18 %

Lyse Tele 1,77 % 1,60 % 0,80 % 0,60 %

Axiti 0,50 % 1,00 %

Andre 8,40 % 3,75 % 4,10 % 2,00 %

Table 1: Market share measured by number of subscriptions and revenues by the end of 2009 and first

half of 2005.22

92. Telenor has several competing providers, but as shown in Table 1, they have

significantly lower market share than Telenor. Although Telenor’s market share has

decreased somewhat since the last analysis, NPT believes that Telenor’s still very high

market share, measured both by number of subscribers and revenues, is a clear indication that

Telenor has a strong market position in this market. The company’s market share is well

above the thresholds that the Commission has issued for there to be a presumption that a

provider has significant market power, see paragraph 76 of the Guidelines. In such situations

it would be exceptional not to consider the vendor as having significant market power.

However, market share alone is insufficient for determining whether a provider has

significant market power, but must be viewed in context with the other relevant assessment

criteria, cf. paragraph 79 of the Guidelines.

4.3 Profitability

93. If over a period of time an operator operates with a price that substantially exceeds

the underlying costs and thereby achieves high profitability (compared with alternative

investments), this may be an indication of significant market power.

94. However, allowance must be made for the possibility that high profitability over a

given period of time may be the result of factors other than market power, for example

efficiency enhancements, innovation or accounting value assessments that do not necessarily

correspond to actual value reduction in invested capital.

22

As at the first half of 2005 the market shares for Ventelo, Axiti, PGOne and Catch Communication were

reported per company. In all, these companies had a market share of 3.6% measured by number of subscriptions

and 3.2% measured by revenues. Per 2009 Ventelo had purchased the said companies. Furthermore, Fix

Telecom’s customers were transferred to Briiz half way through 2005. Briiz later became Fortel, and in February

2009 Ventelo took over Fortel’s PSTN/ISDN customers.


24

95. Similarly, low profitability is not necessarily an argument against an operator having

significant market power. Low profitability may be because of inefficient production.

96. Telenor’s annual regulatory cost accounting contains product accounts for

PSTN/ISDN subscriptions. The profit margin has been positive for the Group, but there has

been a downward trend from approximately 36% in 2006 to approximately 32% in 2008. See

table 2 below.

Year 2008 2007 2006

Product income 2 703 3 056 3 544

Product costs 1 839 1 978 2 256

Product result 864 1 078 1 288

Profit before imputed interest 32,0 % 35,3 % 36,3 %

Table 2: Telenor’s result for PSTN/ISDN subscriptions. Source: Telenor’s regulatory cost accounting

2008, 2007 and 2006.

97. NPT has not regulated prices at the retail level in the subscription market. The

Authority has regulated the wholesale price of products such as interconnection services23

used as inputs by competing providers. Telenor’s regulatory cost accounting for the

interconnection markets show that the margin for the interconnection products is lower and

that the falling trend is more pronounced than in terms of the subscription market. This may

indicate that the subscription market has relatively high profitability.

98. None of Telenor’s competitors disclose corresponding figures for the profitability of

the fixed telephony markets. NPT has therefore limited insight into the operators’

profitability and only has access to published financial statements. Based on available

information, NPT finds it likely that most of Telenor’s competitors have significantly lower

profitability for public telephone services provided at a fixed location than Telenor.

99. PT assumes that the subscription market seems to be highly profitable for Telenor,

and the Authority believes that this strengthens the presumption that Telenor has significant

market power in the relevant market.

4.4 Entry barriers

100. Potential competition from new operators will normally affect a dominant operator’s

behaviour in the market, including price setting. Various forms of entry barriers may,

however, weaken or remove the basis for potential competition. Possible entry barriers

related to this relevant market are discussed below.24

101. In the market analysis of 21 April 2006, NPT believed that entry barriers in the two

subscription markets had been significantly reduced compared to earlier. The reasons for this

were mainly that since 2003 Telenor has offered access to its PSTN/ISDN network through

Wholesale Line Rental. Furthermore, the Authority believed that the growth of VoB also

23

Cf. NPT’s decision of 24 March 2006 in the call origination, call termination and transit services markets. 24

ESA writes about entry barriers in paragraph 81 of the Guidelines. 81:“In fact, the absence of barriers to entry

deters, in principle, independent anti-competitive behaviour by an undertaking with a significant market share.”


25

helped reduce the barriers to entry. The Authority found, however, that it is necessary to

ensure regulatory predictability so Telenor’s competitors could base their telephony services

on Wholesale Line Rental, and Telenor was thus required to offer such a product for

PSTN/ISDN.

102. As stated in Chapter 2, PSTN/ISDN subscriptions are still over 70% of the total

market for fixed-line subscriptions, and the proportion of VoB has increased to just under

30%. Although the entry barriers to VoB are, in the Authority’s view, substantially lower

than for traditional telephony, the proportion of VoB customers shows that the migration to

VoB has possibly gone somewhat slower than the price differences between the two

technologies objectively should have provided a basis for. As stated in NPT’s assessment in

section 3.3.2, it seems that part of the customer base demanding fixed telephony is less price

sensitive, partly because of tradition. NPT’s assessment of entry barriers for VoB in the

previous analysis was based on the technical production of the product, including the ability

to offer unmanaged VoB. The views associated with entry barriers for VoB in the previous

analysis should be moderated in NPT’s opinion, since cost-effective end user choice appears

to be limited by tradition in parts of the customer base.

103. When it comes to NPT’s evaluation of entry barriers for PSTN/ISDN telephony in

particular, the Authority stresses that predictable access to Wholesale Line Rental for

PSTN/ISDN, on equal terms, is an important prerequisite for the Authority’s assessments of

the entry barriers discussed below in 4.4.1, 4.4.2 and 4.4.4.

4.4.1 Control of infrastructure not easily duplicated25

104. Control of infrastructure not easily duplicated which simultaneously is a necessary

input for the production of a service, may indicate market strength and may also involve

entry barriers to new providers.

105. Without taking a position on whether the relevant infrastructure in this market may

be seen as an “essential facility” in terms of competition law, NPT has assessed whether

control of infrastructure not easily duplicated can be seen as an entry barrier in this relevant

market.

106. Technically, it is possible to establish physical infrastructure parallel with Telenor’s

nationwide copper access network. In other words Telenor does not have control over

infrastructure in this market that is impossible to duplicate in technical terms. In practice,

however, establishment of an adequate alternative to Telenor’s copper access network would

be so resource and time-consuming that the Authority still assumes that Telenor’s nationwide

access network is not easily duplicated. In the period since the previous market analysis the

development pace of local/regional alternative access networks increased. These networks

are largely initiated by energy companies and are often based on fibre technology and in

some cases, radio technology. These new access networks are being built primarily to offer

faster Internet and TV content services. Such networks have nowhere near the coverage

equivalent to the coverage of a nationwide operator. Telephone services are often provided as

part of what is called a “triple play” package, especially for households.

107. Control of networks will normally represent a barrier to entry. Competitors’

provision of PSTN/ISDN subscriptions and VoB supplied via broadband based on Telenor’s

copper access network (xDSL) depends on access to Telenor’s access network. Provided that

Telenor’s competitors have predictable access on equal terms to Telenor’s nationwide access

25

The criterion corresponds to “control of infrastructure not easily duplicated” in paragraph 79 of the

Guidelines.


26

network, including provision of Wholesale Line Rental, LLU and broadband access, this will

however contribute to reduced entry barriers in the retail market for access to fixed

telephony.

4.4.2 Sunk costs26

108. Unrecoverable (sunk) costs are defined as already incurred irreversible costs, i.e. a

provider cannot expect to recover the invested amount once it is made, for example through

the sale of the investment item, if the provider wishes to exit the market. In the ecom sector

sunk costs will, for example, consist of the costs of developing, building, and establishing

networks for electronic communication. Sunk costs mean that a potential new entrant faces

higher decision-relevant costs than the (or those) operator(s) already established. This cost

difference is an entry barrier to the potential new entrant.

109. Sunk costs are often portrayed as a counterweight to avoidable costs, including

variable costs. Variable costs can be allocated to the use of the network, such as the costs of

producing and transporting electronic communication. Variable costs of production in the

network will cease as the use of the network ceases.

110. In this market sunk costs may represent considerable amounts for undertakings

basing their operations on establishing alternative physical infrastructure leading up to end

users. This is a factor that may serve to limit the extent of alternative infrastructure, or at

least slow the pace of rollout.

111. As mentioned in section 4.4.1, it is not necessary to build alternative access

networks to offer fixed-line subscriptions to end users, provided that Telenor’s competitors

have predictable access on equal terms to Telecom’s nationwide access network. In the event

the resale of Telenor subscriptions does not exist, sunk costs will represent a significant

barrier to entry in this market.

4.4.3 Economies27 of scale and scope28

112. Economies of scale exist when an increase in production causes the average unit

cost to fall. This is characteristic of production based on technology with relatively high

fixed costs and low variable costs.

113. Economies of scope are reductions in average unit cost when more than one service

is produced using common means of production, for example common infrastructure or

common administrative systems.

114. Economies of scale and scope can work both as entry barriers for new potential

operators and as a competitive advantage for established competitors in the market.

115. NPT finds that Telenor has significant economies of scale in the relevant market as a

result of its nationwide services and a significant number of customers. The Telenor

competitors that use the access product Wholesale Line Rental in their production, will to a

certain degree be able to enjoy the same economies of scale through the use of Telenor’s

26

ESA refers to sunk costs in footnote 86 of the Guidelines: “One of the most important types of entry barriers is

sunk costs. Sunk costs are particularly relevant to the electronic communications sector in view of the fact that

large investments are necessary to create, for instance, an efficient electronic communications network for the

provision of access services and it is likely that little could be recovered if a new entrant decides to exit the

market.” 27

The criterion corresponds to “economies of scale” in the Guidelines, paragraph 79. 28

The criterion corresponds to “economies of scope” in the Guidelines, paragraph 79.


27

copper access network. For provision of VoB the scope of the provider’s network is of minor

importance for realising economies of scale.

116. With respect to customer base, it is believed that none of the other operators in this

market have sufficient “critical mass” to benefit from economies of scale to the same extent

as Telenor. This does not mean that the biggest competitors of Telenor in this market cannot

be said to have economies of scale in certain market segments, such as in certain less

geographically restricted areas.

117. Parts of a telecom operator’s infrastructure and support systems can be used for the

production and delivery of various services. NPT finds that Telenor, owing to its broad

product portfolio and large customer base in several electronic communications markets, has

greater economies of scope in this market than any of its competitors. At the same time

technological and market-related development in recent years means that Telenor’s

competitors in the retail market can to a greater degree than previously offer bundled

products, for example in the form of triple play (telephony, broadband and TV) or bundle

fixed and mobile telephony.

118. Technological developments, particularly relating to the coverage of VoB, have in

NPT’s opinion lessened the importance of economies of scale and scope associated with

PSTN/ISDN telephony as an entry barrier in this market. These benefits therefore represent a

barrier to entry to only a limited extent in the subscription market.

4.4.4 Access to financial resources29

119. Access to financial resources is important to an operator’s opportunity to enter a

market. This is of particular significance in markets that require major initial investment

(high entry costs). Differences between operators relating to access to financial resources

may comprise an entry barrier. In addition, everything else being equal, it will be expected

that an operator with market power and good financial standing will be less exposed to

competition than an operator with market power without good access to financial resources.

An operator with good access to financial resources will be better able to defend its market

share if new competitors enter the market than an operator with market power without good

access to financial resources.

120. Regarding the latter, namely the importance of access to financial resources for

competitive pressures in the market, there is in general hardly any reason to claim that

Telenor has better access to financial resources than potential competitors. It can be assumed

that the parent companies behind many of Telenor’s competitors have at least as good access

to financial resources that Telenor.

121. Concerning the importance of access to financial resources in markets that require

large initial investment, the Authority considers that it will be very capital intensive to

establish options to Telenor’s access network for access to public telephone services. These

are factors that can act as an entry barrier in this relevant market.

122. As mentioned in the assessment in section 4.4.1, it is however not necessary to build

alternative access networks to offer fixed-line subscriptions, provided that Telenor’s

competitors have predictable access on equal terms to Telecom’s nationwide access network.

In the event the resale of Telenor subscriptions does not exist, access to financial resources

will however represent a significant barrier to entry in this market.

29

The criterion corresponds to “easy or privileged access to capital markets/financial resources” in the

Guidelines, paragraph 79.


28

4.4.5 Access to distribution and sales channels30

123. In markets in which the established operators have a well-developed distribution and

sales network this may function as an entry barrier to potential new operators. This applies in

particular in markets in which there are major costs associated with establishing distribution

and sales channels, or where the established operators have concluded exclusive agreements

with the largest/most important distribution channels in the market.

124. Sales of fixed-line subscriptions take place via relatively easily accessible channels,

such as through direct sales and retail sales, through phone and/or Internet sales, through

direct mail or through agreements with housing associations. Neither Telenor nor other

providers prioritise the sale of subscriptions as an isolated product, but often offer the

subscription product as part of a comprehensive provision of telephony, internet and TV.

Access to the distribution and sales channels is therefore considered not to represent a

significant barrier in establishing this market.

4.4.6 Barriers to expansion31

125. A market with large growth potential will usually be regarded as more attractive to

potential new operators than markets in which the total units sold and/or the number of

customers has stagnated or is trending downward (mature markets). Operators considering

entry into mature markets must largely aim to capture customers from the established

operators. Barriers to expansion in a market can therefore be considered a possible barrier to

entry.

126. The decrease in the number of connections/subscriptions for fixed telephony, both

for non-business customers and businesses, has been pronounced in recent years. In the

decade from 1998 to 2008 the total number of subscribers fell from approximately 2.5

million to approximately 1.9 million. The decrease is largely due to the fact that an

increasing number choose to be connected to public telephone services only through mobile

networks.

127. The retail market for fixed-line subscriptions can be viewed as a mature market, in

which the number of connections/subscriptions cannot be expected to increase in the near

future. On the contrary, further reduction is expected in the future. This trend means that any

new providers must rely on capturing customers from other providers, mainly from Telenor.

The lack of growth potential means that entry in the market based on both traditional

telephony and VoB will become less attractive.

4.4.7 Regulatory entry barriers

128. Regulatory entry barriers exist when market access is limited by regulatory

conditions, for example requirements for public licences, resource restrictions or restrictions

in regard to health, environment or safety (direct regulatory restrictions). Furthermore,

various forms of price control may also have an entry-deterring effect, cf. recital 11 of the

Recommendation.

129. The previous absolute direct regulatory entry barriers in this market were removed

as part of the liberalisation of the telephony market in 1998. Up until the end of

2002/beginning of 2003 there was a price cap scheme for Telenor, which was based on a

30

The criterion corresponds to “a highly developed distribution and sales network” in the Guidelines, paragraph

79. 31

The criterion corresponds to “barriers to expansion” in the Guidelines, paragraph 79.


29

“basket” of subscription and call charges. In NPT’s opinion, no regulatory barriers to entry

exist in the relevant markets today.

4.4.8 Summary of entry barriers

130. NPT believes there are entry barriers in the market connected with PSTN/ISDN

subscriptions. However, the barriers to entry will be reduced if Telenor offers Wholesale

Line Rental. Moreover, the prevalence of VoB seems to be limited by a slower migration to

VoB than the price differences between traditional telephony and VoB objectively would

imply. The retail market for access to fixed telephony furthermore shows clear signs of being

a mature market with sinking volume. In NPT’s view this will also have an entry-deterring

effect for both telephony technologies. Economies of scale and scope represent only a limited

barrier to entry in the market. All told, NPT believes that entry barriers are contributing to

maintaining Telenor’s significant market power.

131. NPT will also point out that despite the fact that competitors have been able to

provide PSTN/ISDN subscriptions through resale since 2003, the proportion of such

subscriptions still accounts for only approximately 11% of the total market for fixed-line

subscriptions and about 16% of PSTN/ISDN subscriptions. In the Authority’s opinion this

supports the conclusion that entry barriers contribute to maintaining Telecom’s dominant

position in the subscription market.

4.5 Potential competition and innovation

132. As a rule, in markets with a high degree of innovation the opportunities for

exercising market power will be more limited than in markets with little innovation.

Technological development may therefore be of significance for potential competition in the

market. Innovation resulting from technological development can therefore contribute to

weakening an operator’s position in the market in relation to potential competitors.

133. Even though this relevant market is viewed as a mature market where there is not

expected to be any growth in the number of connections/subscriptions in the near future,

technological development can serve to weaken Telenor’s position in the market.

134. Convergence on both the network and service level will continue to influence future

development. In particular, the use of Internet protocols that carry various electronic

communications and information services, making it attractive for new operators to offer

access to public telephone services provided at a fixed location, especially if new operators’

offerings include several Internet-based products.

135. Wireless handsets, wireless networks (WLAN) and wireless telephone exchanges

are helping to erase the dividing lines between fixed telephony and mobile telephony.

Reduced price differences between mobile telephony and fixed telephony are simultaneously

influencing the preferences of users in the direction that mobile telephony will win out.

136. Potential competition and innovation related to VoB have served to reduce

Telenor’s market power somewhat in this market. At the same time NPT’s statistics show

that Telenor also has the largest proportion of customers on VoB.

137. Innovation resulting from technological development thus does not appear to lead to

considerably changed competitiveness in the subscription market and consequently

contributes only to a certain degree to weakening Telenor’s position in the market.


30

4.6 Provider behaviour

4.6.1 Bundling/product differentiation32

138. A high degree of product differentiation, or heterogeneous products, can create

customer loyalty, and make it difficult for competitors to enter the market, as opposed to

where products are more homogeneous. Strong brands may have a similar effect.

139. Bundling is a variation of product differentiation. An operator with market power in

a relevant market can link (tie together) the services or products in this market with services

or products in another market, so that the operator can provide a bundle of services/products

that are differentiated from the competitors’ offerings and that the competitors have a limited

opportunity to copy. In this way bundling of services/products can contribute to market

power in one market creating competitive advantage in another market. Such competitive

advantages may be relevant for assessing significant market power in the latter market.

140. Up until service based on Wholesale Line Rental was launched, Telenor enjoyed a

more or less unique position with regard to bundling telephony subscriptions/connections

and telephony traffic. However, VoB and the possibility of offering Wholesale Line Rental

mean that competing providers of calls now have the same ability to bundle calls with

subscriptions. This form of product bundling thus no longer represents as great a competitive

advantage for Telenor as it did 8-9 years ago.

141. Another factor for the competitive situation in this market is the possibility of

bundling telephone subscriptions and access to other fixed and mobile electronic

communications services. Telenor as well as many of the other providers in this market wish

to offer bundled solutions/“product packages” that address as many as possible of the

customer’s overall electronic communication needs. Telenor has a broader product range

than most of its competitors, and offers fixed telephony, Internet via broadband, mobile

communication and cable and satellite TV through Canal Digital. On the other hand, many of

Telenor’s competitors also offer several services. This is true for instance of Ventelo and

TDC, who offer broadband, fixed telephony and mobile telephony. Tele2 offers both fixed

telephony and mobile telephony. Other operators, for example Get and NextGenTel, offer

TV, broadband and fixed telephony. Lyse has a product range including TV, broadband,

fixed telephony, mobile telephony and alarm services.

142. Since Telenor is the leading operator in the fixed telephony, mobile telephony,

broadband (fixed and mobile), cable TV and satellite TV markets (through its ownership of

Canal Digital), Telenor is considered to have at least as good opportunities as its competitors

to put together attractive bundled services, and to bundle and price these products in new

ways in the time to come.

143. Telenor’s various operations have historically been organised into different

divisions/business areas. The organisational dividing lines between the various business

areas are nevertheless not viewed as very clear to end users. Effective 1 January 2010,

Telenor also combined the former companies Telenor Mobil, Telenor Telecom Solutions,

Telenor Privat and Telenor Bedrift into Telenor Norge AS. Furthermore, Telenor’s price and

discount structures are also characterised of being tailor-made for a company that is

dominant in both the mobile and fixed network market. Telenor offers inter alia its own

customer pages with information about all the subscriptions the customer has with the

company.

32

The criterion corresponds to “product/services diversification (e.g. bundled products or services)” in the

Guidelines, paragraph 79.


31

144. Opportunities for product bundling, as discussed above, are helping Telenor to

maintain its significant market power.

4.6.2 Leverage of significant market power to closely related market33

145. Significant market power in one market may help to strengthen a provider’s market

power in a closely related market. Such leverage of market power may be vertical, i.e.

between a wholesale market and a retail market, or horizontal, i.e. between various product

markets at the same level in the value chain.

Vertical integration34

146. A vertically integrated provider is characterised by the provider’s activities

comprising more than one link in the relevant value chain. A vertically integrated provider

will typically be present in the upstream market and the downstream market. Through a

strong position in the upstream market, vertically integrated providers may attempt to shut

out competitors in the downstream market, for example through high wholesale prices or by

failing to offer the wholesale product to providers that compete in the downstream market. In

this way a vertically integrated provider with a strong position in the upstream market can

strengthen its position in the downstream market.

147. Telenor’s activities related to access to the public telephone network at a fixed

location are vertically integrated. This means that Telenor’s strong position in the upstream

market, as a consequence of its ownership of the nationwide copper access network, can be

transferred to the downstream market, which is the relevant market for this analysis.

148. Vertical integration of Telenor’s operations, combined with the company’s control

of the access network and thus competitors’ opportunities for subscription connections, is

helping to maintain Telenor’s significant market power.

Horizontal integration

149. A provider is horizontally integrated when through ownership it has control of

different parallel infrastructures that may be used to supply competing products to the end

user. In this case the provider can strengthen its market power in a market by preventing

competition from an alternative infrastructure over which it has control.

150. As a consequence of the emerging convergence, infrastructures originally planned

for use with only one kind of electronic communication or information transmission may in

the future serve as alternative infrastructures for access to the public telephone network at a

fixed location. This may serve to weaken Telenor’s position in this market.

151. Telenor is dominant in most other electronic communications infrastructure markets,

including the broadband, cable and satellite TV markets (through its ownership of Canal

Digital Kabel and Canal Digital), terrestrial broadcasting (Norkring), digital broadcasting

(Telenor owns a third of Norsk Televisjon) and mobile communication.

152. Telenor’s position as a horizontally integrated operator in the upstream market in

question may help to reduce the competitive pressure in this relevant downstream market.

Telenor’s incentives will probably go in the direction of making maximum use of the current

access network. Telenor’s control over several alternative network infrastructures may thus

be viewed as a factor that helps to strengthen Telenor’s position in this relevant market.

33

Cf. the Guidelines, paragraph 85. 34

The criterion corresponds to “vertical integration” in the Guidelines, paragraph 79.


32

153. In addition to being dominant at the infrastructure level in most electronic

communications markets, Telenor, as a result of being vertically integrated, is also a leader in

most associated retail markets. As the market leader in many of the retail electronic

communications markets, Telenor will be able to offer various combinations of product/price

packages, tailored to different customer segments’ needs and willingness to pay. Telenor’s

broad product portfolio aimed at the retail market may serve to maintain Telenor’s

significant market power.

4.6.3 Price development

154. The development of prices over time may indicate something about the degree of

competition, possibly the degree of potential competition, and can thereby provide an

indication of whether a provider has market power.

155. VoB has given end users opportunities for purchasing fixed telephony at lower

prices compared with PSTN/ISDN products. Table 3 shows the development of Telenor’s

nominal rates for the analogue Basis subscription aimed at the non-business market35

.

Table 3: Prices for connection, relocation and subscriptions 1996 - 2009 for the Telenor analogue Basis

product, non-business customers. Source: NPT.

156. In the period since the previous decision Telenor has maintained its prices for

PSTN/ISDN subscriptions for non-business customers. It was also possible for the company

to implement a price increase for PSTN/ISDN subscriptions in the business segment of the

market in 2009. In the Authority’s opinion, the development of PSTN/ISDN subscription

prices indicates that Telenor has market power in the relevant market.

4.7 Conditions on the demand side

4.7.1 Market power/countervailing buying power36

157. The presence of customers with bargaining power can restrict a provider’s

opportunity to behave independently in the market. Such countervailing buying power may

be the result of a customer’s size, purchasing volume or the customer having something to

offer, for example better market access to other markets.

158. The demand side is characterised by various types of customers, where many

individual residential customers make up the majority. In addition, there can be

amalgamations of consumers such as OBOS and NBBL, and companies with large volume.

These groups of customers may have the opportunity to compare the various providers, but

do not appear to represent widespread or real buyer power.

159. In NPT’s opinion, countervailing buying power does not exist to appreciably

weaken Telenor’s strong position in the relevant market.

35

The increase in the monthly rate in 1998-1999 is largely due to rebalancing subscription and call rates related

to the introduction of competition in fixed telephony. 36

The criterion corresponds to “absence of, or low countervailing buying power” in the Guidelines, paragraph

79.

NOK incl. VAT 1996 1997 1998 1999 Okt 2000 Aug 2001 Mai 2002 Apr 2003 Apr 2004 Apr 2005 Apr 2006 Apr 2007 Mai 2008 mai.09

Connection 750,00 750,00 750,00 750,00 750,00 760,00 990,00 990,00 990,00 990,00 990,00 990,00 990,00 990,00

Relocation 500,00 350,00 350,00 350,00 350,00 360,00 490,00 490,00 490,00 490,00 199,00 199,00 199,00 199,00

Monthly charge 118,00 118,00 136,00 149,00 149,00 150,00 159,00 159,00 159,00 159,00 159,00 159,00 159,00 159,00


33

4.7.2 Customers’ freedom of choice and possible costs of switching/lock-in effects

160. Restrictions or costs associated with the end user switching providers increase the

opportunity for a provider with market power to behave independently in the market. Such

restrictions may be of a practical, technical or financial nature, or may be a result of the end

user having greater confidence in existing and well-established operators in preference to

new operators and being unwilling to take the risk that a switch could involve.

161. In addition to Telenor’s provision of Wholesale Line Rental, the many new

providers of VoB have given end users more freedom of choice. Number portability also

reduces the barriers for switching providers.

162. One factor that to some degree can limit the individual household’s freedom of

choice, is there where housing cooperatives/commonhold associations represented by the

board makes decisions on behalf of all connected residential customers. In such cases,

agreements can be entered into that require a certain degree of support and often also involve

exclusivity. However, this factor has a modest impact on the market as a whole, and will not

affect Telenor’s market power to any extent.

163. NPT finds that factors relating to customers’ freedom of choice and any costs of

switching/lock-in effects are not helping to bolster Telenor’s market power to any significant

degree in this relevant market.

4.7.3 Customers’ access to information

164. For customers to be able to make effective choices between the various providers in

a market they must have access to information that makes it possible to compare the various

offers. Complicated price structures and various bonus and discount schemes can restrict the

opportunities to make effective end user choices and may thus contribute to strengthening an

already dominant operator’s position in the market.

165. Like other telephony markets several services have been established in this relevant

market to help an end user compare different offers by using the user-specific parameters. An

example of such services is NPT’s own, www.telepriser.no.

166. For this reason NPT finds that customers’ access to information is not a factor

significantly affecting Telenor’s position in this market.

4.8 Conclusion on significant market power and designation of undertaking with significant market power

167. Assessing significant market power builds on Section 3.1 of the Guidelines, and is

based on the various criteria discussed in Chapter 4 above. In accordance with paragraph 76

of the Guidelines, and with a starting point in existing market conditions, NPT has based the

assessment of significant market power on a forward-looking analysis. The time horizon for

this analysis is approximately two to three years.

168. As mentioned in section 1.2, the Electronic Communications Act’s condition for

significant market power follows from Section 3-1 of the Act. The provision states:

“A provider has significant market power when the provider individually or jointly with

others has economic strength in a relevant market affording the provider the power to

behave to an appreciable extent independently of competitors, customers and consumers.”


34

169. For the sake of clarity NPT wishes to emphasise that it is significant market power

that is the relevant subject of assessment and not anti-competitive misuse of significant

market power. It is therefore not crucial to the SMP assessment whether any market

power/dominance is actually misused or not. However, this does not mean that a provider’s

behaviour in the market is irrelevant to the assessment of significant market power. Even if

structural factors carry the most weight in the assessment, behaviour that contributes to

creating or maintaining competitive advantage for a provider who already has a dominant

position in the market may imply a strengthening of this provider’s market power.

170. At the end of 2009 Telenor had a market share of approximately 75% measured by

revenues and approximately 68% measured by number of subscriptions. The market share

has been declining in the period since the previous market analysis. However, Telenor’s

market share is still so high that it gives a clear indication that Telenor has significant market

power in the relevant market.

171. The accounting representation of the subscription products as they are presented in

Telenor’s regulatory accounts indicates that Telenor has high profitability on its business in

the market. High profitability can indicate strong market position.

172. There are entry barriers in the market connected with PSTN/ISDN subscriptions.

However, the barriers to entry will be reduced if Telenor offers Wholesale Line Rental.

Moreover, the prevalence of VoB seems to be limited by a slower migration to VoB than

price differences between traditional telephony and VoB objectively would imply. The retail

market for access to fixed telephony furthermore shows clear signs of being a mature market

with sinking volume. In NPT’s view this will also have an entry-deterring effect for both

telephony technologies. Economies of scale and scope represent only a limited barrier to

entry in the market. All told, NPT believes that entry barriers are contributing to maintaining

Telenor’s significant market power in the market.

173. Although technological development, including the provision of VoB, can change

the market’s structural conditions and Telenor’s strong market position, NPT finds that the

experience during the period since the previous market analysis indicates that the rate of

change is slow. The growth of VoB has slowed. Innovation resulting from technological

development thus does not appear to lead to considerably changed competitiveness in the

subscription market and consequently contributes only to a certain degree to weakening

Telenor’s position in the market.

174. Telenor is the market leader at both the retail and wholesale level in several

electronic communications markets. This gives Telenor plenty of opportunities to put

together attractive total offerings in the retail market and to bundle and price these products

in customised ways. Control of infrastructure and inputs in the wholesale market provide

similar opportunities to reduce competitive pressures in the retail market. Telenor’s control

over several network infrastructures can thus be viewed as a factor that maintains Telenor’s

position in this relevant market.

175. Telenor has in the period since the previous decision maintained its prices for

PSTN/ISDN subscriptions for non-business customers. It was furthermore possible for the

company to implement a price increase for PSTN/ISDN subscriptions in the business

segment of the market in 2009. This is a sign that the company has market power in the

relevant market.

176. NPT furthermore considers that countervailing buying power does not exist to

appreciably weaken Telenor’s strong position in the retail market for access to fixed

telephony.


35

177. For this reason it is NPT’s conclusion that Telenor has significant market power in

the retail market for access to fixed telephony.

Annex 1 Analysis of the retail market for access to fixed ...

Documents

Transcript of Annex 1 Analysis of the retail market for access to fixed ...