In Turkey, 3G mobile communications licenses have been granted in the previous year (April 2009) and the number of subscribers has already reached to 11,4 million (approx. to 14% penetration rate) and market share of mobile broadband services to 14,5% (while DSL is at %75) according to the data on Turkish Information and Communication Technologies Authority website1. It seems that the mobile broadband market will progress faster than the other broadband markets in Turkey. One of the main factors promoting timely emergence of mobile broadband markets is the collaborative agreements between mobile operators (competitors) and other players in the complementary industries, such as content and application providers, navigation companies. In Turkish market, exclusive agreements between incumbent mobile operators and companies providing value-added services have been subject to a number of examinations of Turkish Competition Authority and continuous monitoring of the Authority should be expected in the future. This article aims to provide a brief guidance for market players in respect of compliance of their collaborative agreements to related competition law principles.
Roll-out of 3G networks and services is the result of a complex interaction of influencing factors, such as technological implementation, appropriate regulatory environment, and emergence of a new value chain and adaptation of business structures thereof. From the operators' perspective, competition strategy in 3G mobile communications depends on timely establishment of infrastructure and network with minimum cost and attracting users by offering new value-added services at affordable prices. In order to achieve this target, operators develop new corporate strategies to co-build new or supplementary networks, to share network or terminal equipment with competitors and to cooperate with other companies for providing content and applications. Indeed, collaborative agreements create efficiencies in time and financial resources, enable operators to focus on their own activities and eliminate investment risk by supplying services from the specialists. Therefore, the number of such collaborative agreements between mobile operators and firms operating in complementary industries of 3G markets is increasing rapidly.
From regulatory perspective, collaborative agreements are encouraged because of their impact on the realization of information society purpose and policies on environment and public health. Nevertheless, in turn, such agreements may result in anti-competitive effects under certain conditions of market. Therefore, in respect of competition law assessment regarding such arrangements a balance should be kept to benefit from their efficiencies whilst preventing their anti-competitive impacts.
Firstly, accurate and stable regulatory environment must be adopted in respect of these agreements, especially for agreements establishing joint operating entities and on network sharing. Besides, such regulatory intervention must be as little as possible in order to encourage short-term development prospects for 3G mobile infrastructure sharing. Policies requiring unbundling of wholesale and retail services on 3G networks to permit and promote a virtual mobile services market are also essential. In addition, 3G auctions shall be designed from a proper competition policy perspective, i.e. providing precautions to reduce post-entry tacit collusion risk, and with principles promoting mobile-Internet convergence. Thus, a reliable business environment can be provided which encourages operators in entering into markets and prevents their failure afterwards. Principles set by the European Union, which are explained in the European Commission's (the Commission) communications2, should be followed by Turkey in this respect.
Secondly, from competition law perspective, implementation of these agreements should continuously be monitored by competition authorities and agreements which have effects of restricting competition must be prohibited.
The Commission has adopted a positive approach to structural mergers and JVs which lead to the building of significant new infrastructure3. Sharing of masts and passive network elements are generally permissible, while sharing of core network components or frequencies will not generally be authorized4. These elements determine the variety and nature of services and constitute a majority of costs and therefore might have great influence on competition. The decisions of the Commission on network sharing agreements of T-Mobile and O2 have established a set of rules that can be followed by national competition authorities and also by national regulatory authorities in this respect.
In February 2002, T-Mobile and O2 notified two agreements that provided for the parties to cooperate by way of network sharing in the build-out of their 3G networks in the UK (and Germany) and to provide reciprocal roaming services to each other's customers5. In the UK agreement, the parties divided the UK into three distinct areas, Initial Build Area (IBA), Divided Area (DA) and Remaining Area (RA). In the IBA, parties agreed to share site and to roam on each other's respective networks in case there were coverage gaps. The agreement also allowed the parties to look into more extended forms of site sharing (e.g. sharing antennae and Node Bs). In the DA, parties agreed to share site on the basis of a common radio plan and to roam on each other's networks. Each party was responsible for rolling-out the network in a particular geographic area but not on an exclusive basis. In the RA, parties agreed to roll-out their networks on the same basis as in the DA when market conditions allowed. The agreement also provided for each party to benefit from some limited exclusivity over the sites of the other party for a limited number of years.
As regards the network sharing aspect of the agreement, the Commission raised four main areas of concern with respect to Article 81(1) EC (new Art. 101(1)). In the scope of shared network components, the Commission pointed out the risk of limitation of the price competition on retail markets and coordinated effects which might result due to the high degree of common costs between T-Mobile and O2. Second, the parties' project to adopt a joint and common radio plan could have resulted in the assimilation of the parties' networks, especially in terms of coverage, and have limited network competition as parties would roll out similar networks. Third, the Commission underlined the foreclosure risk which might result from the exclusivity granted to the parties over the sites. Related provisions could potentially have had effect of foreclosing market access for new entrants as they could be used as a blocking tactic against competitors. As the last point regarding the network sharing, the Commission examined the potential effect of the agreement which provided for the third parties to pay a licence fee equal to or higher than that of the parties. This might limit the commercial freedom of the parties, raise the entry cost of the third parties, and amount to an agreement in order to set a minimum price.
As a result, the Commission held that site sharing between mobile operators did not restrict competition in the UK, since the cooperation extended only to basic network elements and the parties retained independent control of their core networks including all intelligent parts of the network and the service platforms that determined the nature and range of services provided. Although more in-depth cooperation such as RAN sharing (Nodes B and RNC) could raise greater concerns6, this was not specifically addressed since the parties were not planning to implement the technology in the foreseeable future. Site sharing was also considered beneficial for environmental and health reasons7.
In respect of vertical collaborations, Commission's decision on the foundation of JV Vizzavi is considered very significant8. Vizzavi was established by Vodafone (mobile network operator), Vivendi (communications operator) and Canal+ (engaged in audio-visual activities such as broadcasting and content producing). Parties aimed to develop market and provide a multi-access horizontal Internet portal in Europe and to provide customers with a seamless environment for web-based interactive services, across a variety of platforms, such as fixed and mobile telephone networks, PCs, palm-top computers and television sets. Besides, parties agreed to develop and supply content and act as an ISP with the new entity. Thereby, it combined core competencies in content, aggregation and distribution.
In the course of competition analysis, the Commission focused on likely creation of a dominance in a market on the boundary between infrastructure and e-commerce (that for portals) as well as on the parties' control over infrastructure, namely the mobile networks of Vodafone and the set-top box infrastructure of Canal+. The Commission's investigation confirmed that JV would have given rise to competition concerns in the emerging national markets for TV-based internet portals and emerging national and pan-European markets for mobile phone-based internet portals.
Consequently, the Commission declared the establishment of JV agreement compatible with the EC Treaty, due to its efficiencies, subject to a package of commitments which were principally designed to eliminate potential foreclosure effects of the JV in the relevant markets. In particular, through commitments the Commission aimed to ensure that competing internet portals have equal access to parent companies' set-top boxes and mobile handsets. Therefore, consumers would have the opportunity to access to the third party portals, change default portals or authorise a third party portal operator to change the default setting for them. Thus the decision ensured that current competitive model of internet services, where consumers can choose their content provider independently of their access provider, would be carried over into the developing markets of Internet provision via mobile phones and televisions9.
Taking into consideration the communications and aforementioned decisions of the Commission, we may define the following principles that would be considered in respect of competition law assessment of collaborative arrangements in mobile broadband market;
- A careful definition of relevant markets, considering potential developments in the markets. Competitive assessment in 3G must cover all related markets, not only the mobile communications market itself.
- Both actual and potential market power of the parties and competitors should be determined; while competitive market structures in 3G can be only achieved by preventing gatekeepers from further strengthening their positions or preventing dominant operators from moving into other related fields.
- Extend of network shared should be defined whether it is likely to cause coordinated effects via restricting price and network competition.
- Restrictions on access to content and important rights should be considered.
- The possible impacts of exclusivity clauses on competition in the markets should be examined in respect of concept and duration.
Therefore, market actors should pay attention to the compliance of their collaborative contracts and business decisions to avoid risks that might arise due to competition law concerns which might result in loss of money and time. This is especially necessary at this stage of the market where there is still some place for effective competition and restructuring the market.
2. Communication on Introduction of Third Generation Mobile Communications in the EU and the State of Play and the Way Forward, COM(2001)141 final, Brussels, 20.3.2001.
Communication on Towards the Full Roll-Out of Third Generation Mobile Communications, COM(2002) 301 final Brussels, 11.6.2002
Communication on Barriers to Widespread Access to New Services and Applications of the Information Society Through Open Platforms in Digital Television and Third Generation Mobile, COM(2003) 410 final, Brussels, 9.7.2003
Communication on European Electronic Communications Regulation and Markets 2003, COM(2003) 715 final Brussels, 19.11.2003.
Communication on Mobile Broadband Services, COM(2004) 447, Brussels, 30 June 2004.
3. Walden, I. and Angel, J. (ed.), Telecommunications Law and Regulation, 2005, Oxford, 332.
4. Garzaniti, L., Telecommunications, Broadcasting and the Internet: EC Competition Law and Regulation, 2003, 285.
5. Commission Decision, COMP/38.370, O2 UK Ltd./T-Mobile UK Ltd., 30.4.2003.
6. Gabathuler, D. and Sauter, W., "Network Sharing in 3rd Generation Mobile Communications Systems: Minding the Coverage Gap and Complying with EC Competition Rules", Competition Policy Newsletter, Autumn 2003, No. 3, p. 43-46, 45.
7. See also Recommendation of OFCOM dated 10 October 2002 (OFCOM website).
8. Commission Decision, COMP/JV.48, Vodafone/Vivendi/Canal Plus, 20.7.2000.
9. Nikolinakos, N. T., "EU competition law on access to premium content: the emergence of new media", Computer and Telecommunications Law Review, Jan. 2005, V. 11, Is. 1, 2005, 15.
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