Commission Decision of 16 July 2003 relating to a proceeding under Article 81 of the EC Treaty and Article 53 of the EEA Agreement

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In February 2002, O2 and T-Mobile (the Parties) notified the European Commission (the Commission) of two agreements that provided for cooperation between the Parties in the form of infrastructure sharing and national roaming arrangements in the United Kingdom and Germany.  The Commission issued this decision concerning the agreement between O2 and T-Mobile in Germany (the German agreement).  The Commission’s decision identifies two markets that are directly affected by the agreement. The first market is the market for sites and site infrastructure for digital mobile radiocommunication equipment.  The second is the market for wholesale access to national roaming for 3G services. The Commission’s analysis focuses on the two main forms of cooperation contemplated in the German agreement, namely, site sharing and national roaming in Germany.  The Commission held that the proposed site sharing arrangements did not restrict competition.  Key considerations in the Commission’s determination include the fact that the cooperation would extend only to basic network elements and that T-Mobile and O2 would each retain independent control of their core networks.  The Commission noted that RAN sharing could restrict competition since the Parties would have a significant level of costs in common, which, in turn, could facilitate the coordination of market prices and output.  However, the German agreement did not provide for extensive RAN sharing and, therefore, the level of common costs arising from sharing network components was likely to be low.  The risk that the German agreement would restrict competition was thus correspondingly low.  Site sharing was also considered beneficial for environmental and health reasons. The Commission found that the reciprocal roaming arrangements established in the German agreement did restrict competition at the wholesale level with potential harmful effects in downstream retail markets.  The Commission held that the roaming arrangements would limit the ability of O2 and T-Mobile to compete on coverage, quality, transmission rates, and wholesale prices in both the market for wholesale national roaming access for 3G services and the market for wholesale airtime access to 3G services.  The Commission further noted that there are significant (if not absolute) barriers to entry due to licensing requirements, the scarcity of frequency, and the investment needed to enter the 3G market.  The Commission therefore concluded that cooperation between O2 and T-Mobile, two established operators in the 2G market who can be expected to have strong positions in the 3G market, would have an appreciable effect on competition in wholesale markets.  The roaming arrangements could also be expected to have effects in the downstream retail markets since O2 and T-Mobile were dependent on the coverage, quality, and transmission rates of each others’ networks to provide services to end-user customers.  Notwithstanding the fact that the roaming arrangements would restrict competition, the Commission determined that it was appropriate to issue exemptions to O2 and T-Mobile that would allow them to roam on each other’s networks for a set period of time.    During the network rollout stage, national roaming arrangements would allow each Party to provide better coverage, quality, and transmission rates for 3G wholesale and retail services more quickly.  Competition with other operators at the network level, particularly in urban areas, would create incentives for O2 and T-Mobile to realise greater density and a more extended network footprint.  Thus, O2 and T-Mobile would retain individual incentives to provide a wider range and better quality of services.  During the network rollout stage, then, national roaming arrangements would facilitate a faster and more extensive rollout of higher quality 3G networks. National roaming arrangements were permitted for a longer time in rural and remote areas than in urban and semi-urban areas.  The Commission noted that there are low incentives for rolling out high quality 3G networks to rural and remote areas.  Permitting national roaming arrangements in rural and remote areas would allow the Parties to roll out better quality networks across a wider coverage area in areas where the economic incentives for such roll-out are weak.  This would facilitate a faster delivery of 3G services to a greater number of customers, which, in turn, would allow new technology to be accessed on a much wider basis.  It would therefore be beneficial to allow O2 and T-Mobile to enter into national roaming arrangements during the network rollout phase, provided that the Parties continue to have economic incentives to build out separate networks when the market for such services takes off. This decision should be read in conjunction with the Commission’s decision with respect to the agreement between O2 and T-Mobile concerning site sharing and national roaming in the United Kingdom (the UK agreement).  The Commission’s decision regarding the German agreement is consistent with its decision concerning the UK agreement.  However, T-Mobile appealed the Commission’s decision concerning the national roaming arrangements in the German agreement to the European Court of First Instance (CFI).  The CFI ultimately held that the Commission’s decision that national roaming restricts competition was incorrect and therefore the CFI quashed the Commission’s decision with respect to the prohibition on national roaming. 

By European Commission. Published February 2010.

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