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131101-A-KOM-single-market-Kommission-Carrier Selection-Comvenience translation

Graf-Recke-Straße 82 D-40239 Düsseldorf Tel +49 (211) 90 99 16 - 0 Fax +49 (211) 90 99 16 - 99 www.juconomy.de

Düsseldorf

Rechtsanwälte Dr. Martin Geppert Dr. Peter Schmitz Dr. Marc Schütze Dr. Jens Schulze zur Wiesche

1

Dr. Jens Eckhardt

2

Christine Nolden, LL.M.

1

Fachanwalt für gewerblichen Rechtsschutz

2

Fachanwalt für Informationstechnologierecht

Kooperationspartner Wien

Rechtsanwälte Lichtenberger & Partner

Ihr Ansprechpartner:

Dr. Marc Schütze chuetze@juconomy.de

Unser Zeichen:

MS/

Datum: 05.11.2013

JUCONOMY Rechtsanwälte, Graf-Recke-Straße 82, D-40239 Düsseldorf

Per Email: Neelie.Kroes@ec.europa.eu European Commission Mrs. Neelie Kroes, BERL 10/224 1049 Brussels,

Belgium

COM(2013) 627/3 - EU Single Market: Response from 01051, Callax and MEGA (Provider of Carrier Selection/ Carrier Preselection) to the Proposal for a Regulation of the European Commission

(1.) Call for guaranteed access to wholesale access prod-

ucts

(2.) Rejection of a equalization of prices for national and

international calls – significantly higher average enduser prices

Convenience Translation

Dear Mrs. Kroes,

in response to the released proposal by the European Commission, concerning the European Single Market of Electronic Communications (COM(2013) 627/3), we hereby ubmit the present response on behalf of our clients, 01051 Telecom GmbH („01051“), Callax Telecom Holding GmbH („Callax“) and MEGA Communications GmbH („MEGA“). As providers of network infrastructure, these three companies contribute, via carrier selection (see article 12 paragraph 1 lit. a) Directive 2002/19/EC), considerably to the high levels of competitiveness on the end-user markets for telephony, for private as well as business customers. This way they provide competitive prices even for customers not using carrier election services, which is why the Federal Association of Consumer Advice Centers (Verbraucherzentrale Bundesverband – vzbv), repeatedly supports, on behalf of the end-

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users, the perpetuation and even extension of carrier selection, e.g. for cable television networks as recently displayed in their comment, August 2013, regarding the procedure of control of concentration with the companies Vodafone and Kabel Deutschland. The vatm e.V. (an association of competitors) also comprehensively and unconditionally supports the insurance of carrier selection, as can be seen in the vatm’s response to the single market concept by the European Commission in October 2013.

On behalf of our clients, we would like to point out several important issues, which are of essential significance from the competitors and end-users' point of view.

In agreement with the vzbv e.V. and the vatm e.V. and on behalf of our clients, 01051, Callax and MEGA, we strongly disapprove of the European Commission’s objective to abolish price differentiation between national and international calls on the mobile telephony and fixed telephony markets.

If the governments of the member states should follow the newly drafted guidelines and proposals, as outlined by the European Commission, a paradigm change of extensive dimenions will take place in the European telecommunications policy. Following their concept of the internal European market in the telecommunications sector, the Commission acts upon the assumption, that there is a uniform market for telecommunications networks and services. In terms of competitive policy and market structure, the idea of this model, is the narrow oligopoly of only a few telecommunications companies operating pan-European. The consequence of the paradigm change would be the regulation of end-users prices, which eemed to be overcome already. International calls should be no more expensive than national calls. This regulatory objective would strongly change and compromise the competitive tructures of the infrastructure-based competition of services. The competitive potential, which is currently derived from carrier network operators like e.g. 01051, Callax and MEGA and which is utilized for the consumer benefit would be considerably decreased. Additionally it is doubtful, whether the consumer benefit would increase through this regulatory goal. The Commission's approach would cause a re-balancing of prices, resulting in the increase of prices. If, at the same time, the competitive options of the carrier network operators are suspended, the competitive corrective compensating would be missing and negative effects for the end user inevitable.

Critical politicians and consumer advice associations have already warned, that con-

umers will not benefit from the European plans, as claimed by the Commission. The Federal Minister for Consumer Protection, Ilse Aigner (CSU), urged, that the outcome for the consumer would have to be effectively beneficial (see Welt, 10 September 2013). The Federal Association of Consumer Advice Centres (Verbraucherzentrale Bundesverband – vzbv), in their press release from the 12th of September 2013 (http://www.vzbv.de/12233.htm), has also warned, that the Commission's single market plans could cause higher national average prices to the detriment of the average consumer.

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Even the DTAG’s designated chairman admitted rather bluntly during an extensive

interview with the German newspaper, Wirtschaftswoche (28 October 2013), that the consequences would be significantly higher prices and therefore to the consumers’ disadvantage. This means, that the planned oligopoly would cause high monopoly profits instead of prices adequate to a competitive market.

BEREC, the association of national regulatory agencies, in their latest statement

form 18 October 2013 [BoR (13) 142] very distinctly cautioned against replacing the ultimate principles of European telecommunications policy, namely to promote competition and consumer benefit, with the Commission's aim of installing global telecommunications companies. According to BEREC, the Commission's aim and plans are insufficiently secured and the figures presented partly biased. The Commission's plans would force the smaller network operators like the carrier network operators out of the market and thus cause a decrease in competition and consumer benefit.

I.

Inaccurate and random assumptions regarding the proposed equalization of enduser prices for international and national calls

The intended equalization of international and national tariffs without any regard to the providers’ wholesale costs and internal costs compromises the competition and successful business models to the detriment of end-users. This kind of market intervention is unjustified and does not correlate with the actual provision of services to the customer. The regulation of end-user prices intended by the Commission can only be compensated by the increase of prices or by cross-subsidization from other areas, which would be detrimental to end-user interests. In consequence, the average consumer would be at a disadvantage, if the average price level would be increased. The proposed equalization of national and international prices is not consistent with the trengthening of end-users rights as the Commission claims. On the contrary; there is the risk that successful competition will be compromised and the existing business models significantly strained. In particular, it must be pointed out, that so far in these markets no significant market power could be determined: Voice-over-IP, call-by-call / carrier selection, calling cards and a significant number of providers ensure intensive competition regarding national and international calls. Specifically call-by-call / carrier election contribute to low end-user prices in the German telecommunications market and put an effective pressure on the connection prices of the incumbent – especially in case of carrier selection. The Commission's proposal leads to a concealment of the actual costs and not to transparency.

From the end-users point of view it is to be expected – as already critically noted by the consumer protection associations –, that an equalization of national and international calls, will lead to an increase of the calling tariffs, because the network providers will till have to cover their average expenses. Thus, customers who seldom make international calls, would cross-subsidize the customers making many international calls. From our point of view there is no indication for regulatory measures.

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It is surprising and confirms the criticism of taking random action, that the European Commission wants to impose restricting measures on the end-user market for international calls, which would be detrimental to competition, whilst the Commission, on the other hand, 4 years ago had positively determined effective and sustainable competition on the same end-user markets and accordingly erased the former markets 4 and 6 of the Commission Recommendation 2003/311/EC (publicly available international telephone services provided at a fixed location for residential customers and Publicly available international telephone services provided at a fixed location for nonresidential customers) for want of a need of regulation. In contrast, the according wholesale markets (markets 1 and 2 of the Commission Recommendation 2007/789/EC), which as “underlying” wholesale markets render the end-user services of carrier selection possible in the first place were assessed as in need of regulation by all member states. But according to the Commission especially markets 1 and 2 shall be removed from the Commission recommendation. That way, the, especially in Germany successfully working counterweight against exaggerated end-user prices would be removed and, without need, be replaced by the most imposing regulatory measure – a strict regulation of end-user prices by way of equalizing of prices for national and international calls. Thus, the now existing effective competition would be eliminated intead of creating a sustainable competition. In addition the national prices would significantly increase because of the elimination of competition and consequently the tariffs for international calls would rise due to the reduction of providers following the elimination of the required regulated wholesale access.

Therefore, it would be more suitable and consistent with the former regulatory policy, if the Commission were to strengthen the carrier selection on those markets where “open call-by-call” can not yet develop properly for reasons such as problems with billing and invoice processing. It is rather paradoxical and counterproductive to on the one hand take the markets 1 and 2 out of regulation whilst on the other hand the Commission criticizes exaggerated end-user tariffs, because by removing regulation from markets 1 and 2 the effective corrective in shape of carrier selection is removed too.

Thereby the impression is created that the EU Commission apply double standards and acts inconsistently. The proposed approach to adjust the prices will lead to higher end-user prices (cf the interview with the designated CEO of DTAG quoted above). The incumbents as DTAG will reap huge profits because of the lack of competition and any price correctives.

Whereas customers can realize significant savings by carrier selection/preselection.

The preceding statement is confirmed by a decision of the Federal Court of Justice in Germany (BGH) in 2011. In favor of end users the BGH decided that end user except the opportunity of call-by-call in case of a full-fledged connection of DTAG (decision

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from 01/20/2011, file number I ZR 28/09) to save cost for international calls and calls to cellphones in comparison to cable network providers (p. 13 of the decision).

II.

Importance of Carrier Selection for competition

We would like to show the great importance of carrier selection/preselection in the following to create and to preserve competition in the telecommunications sector. It is the ignificant for low retail pricing and give important suggestions for future developments.

The well-respected WIK institute has drafted an expert´s report and pointed out the crucial meaning of carrier selection/preselection for low end-user pricing (see above, appendix 1).

Especially the companies KDG and Vodafone charge much higher prices for telephony ervices for their customers beyond flat rate tariffs in comparison to carrier selection/preselection:

Figure-1:

Comparison of prices TDG, Kabel Deutschland, Vodafone, United Internet (1&1) plus the 5 most favorable Call-by-Call-providers in Germany, different call destinations (December 2012; Price of the TDG is dependent on 1, price competition is given in % of the TDG price)

Source

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(Note TDG = Telekom Deutschland GmbH = operative unit of DTAG in Germany)

In our opinion, there is a need for implementing carrier selection/preselection in cable TV networks as well as in DSL networks. Other merged cable network companies recently enforced price increasings concerning calling minutes – the corrective carrier selection/preselection would have prevented this development.

http://www.teltarif.de/kabel-bw-unitymedia-tarif-erhoehung-preis-telefonkosten/news/49687.html

If competition between cable networks and DTAG would be established, carrier selection/preselection provides variety in this competitive field, leading to lower prices in the long term.

The WIK institute has pointed out this aspect detailed within an article (cf appendix 2).

We have to keep in mind that carrier selection/preselection increases the variety of ervice provider in the market. The, mostly smaller competitors, are completely independent of the big vertical and horizontal integrated mobile and cable network providers. They set impulses and have a strong demand for wholesale products. Without their demand the wholesale market would be given to consolidation, which would lead to loss of employment, distortion of competition and disadvantages for customers. This tep would be irreversible, new infrastructure would not be built again.

Surprisingly the WIK institute has come to the conclusion, that especially smaller business customer would take advantage of carrier selection/preselection. They cannot use connection for residential subscribers with cheap flat rate tariffs. For this reason many of them turn to carrier selection/preselection. Recently Austria contrasted declining volumes of carrier selection/preselection of private customers with the increasing use of business connections. The contractual situation in Austria is comparable with the situation in Germany.

Besides this, also the consumer association Verbraucherzentrale Bundesverband (vzbv) supports the demand to maintain carrier selection/preselection. In this case Michael Bobrowski can be contacted as responsible contact person at vzbv (email: michael.bobrowski@vzbv.de).

01051, Callax and MEGA and their affiliated enterprises offer various telecommunication services. They belong to the first movers so called carrier selection/preselection

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and Call-by-Call in Germany. Since 1988 – long before any correspondingly legislature – they offer free tariff announcements. Without carrier selection/preselection, the great liberation of the telecommunication market would have been impossible. Our clients have their own extensive infrastructures and have built modern, nationwide networks. Today significant investments are placed in construction sustainable NGA-Connection with DTAG.

Carrier selection/preselection supports competition in Germany today, in 2013 in a ubstantial way. It has to be offered under the current ex-ante-regulation as price corrective technologically neutral for all connection of Telekom Deutschland GmbH. This is valid even for all-IP/NGN-connections of Telekom Deutschland.

Without carrier selection/preselection there is only competition in the area of customer connections, not in the area of business connections. Consequence would be a fast market consolidation in conjunction with a loss of competition. Especially nationwide or at least super regional offers can be made by big companies, eg. big mobile telecommunication providers, including their fixed network departments and by cable network providers.

Access for infrastructure based providers has to be standardized as well as in the bittream access area. As well as infrastructure based network operators infrastructure based service providers fulfill crucial functions in the competition and effect great benefit for private customers. Even though customers do not use this service, this benefit occurs because network operators are forced set appropriate prices.

Besides this the access to wholesale products is less invasive and more proportionate. The obliged company with significant market power gets a relative fee for those products.

Carrier selection/preselection was the reason why Telekom Deutschland offered flat rate tariffs, in the beginning in the form of so called AktivPlus-tariffs.

Many customers could not, however, afford these products. But they could switch over to other competitors by carrier selection/preselection. Later on, the flat rate tariffs decreased. There is a presumption that without carrier selection/preselection, the flat rate tariffs will increase immediately or will disappear completly. That implies that carrier selection/preselection promises benefits even for those customers who do not use carrier election/preselection themselves. Carrier selection/preselection serves as a crucial price corrective.

In addition to this certain flat rate tariffs for international calls are offered in Germany, because providers must fear, that customers change the provider.

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Certain flat rate tariffs for international calls exist in Germany mainly because access operators must fear that the customer will switch to a different company (Telekom Deutschland), which offers carrier selection.

As mentioned in the opinion above, by the EU Commission, it seems to be contradictory: on the hand the Commission wants to cancel the markets 1 and 2, on the other hand the Commission criticizes high prices in several EU countries and want to implement customer price regulation. This would lead to increasing average prices. If the Commission is right then the markets 1 and 2 have to be regulated and – if appropriate – the markets 4 and 6 have to be included in the market regulations. Otherwise the high prices – criticized often by the Commission – would not decrease, but increase.

Together with the concerns of the consumer associations, the desired standard prices will be far higher the level today and the incumbent will reap huge profits because of their significant market power.

Please contact us for further information.

Best Regards,

(Dr. Marc Schütze) Rechtsanwalt

(Appendix)

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  • Title: 131101-A-KOM-single-market-Kommission-Carrier Selection-Comvenience translation
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