ARTICLE
28 March 2024

THREE LEGS GOOD – TWO LEGS BETTER? – BEREC Disagrees With The European Commission On The Maltese Broadband Market

GA
GVZH Advocates

Contributor

GVZH Advocates is a modern, sophisticated legal practice composed of top-tier professionals and rooted in decades of experience in the Maltese legal landscape. Built on the values of acumen, integrity and clarity, the firm is dedicated to providing the highest levels of customer satisfaction, making sure that legal solutions are soundly structured, rigorously tested, and meticulously implemented.
George Orwell will excuse us for taking a leaf (even if misquoted) from his famous novel however, the recent twist in the Maltese broadband market notification saga seems reminiscent of that.
Malta Media, Telecoms, IT, Entertainment
To print this article, all you need is to be registered or login on Mondaq.com.

George Orwell will excuse us for taking a leaf (even if misquoted) from his famous novel however, the recent twist in the Maltese broadband market notification saga seems reminiscent of that.

The cornerstone of electronic communications regulation in the EU is founded on the principle of effective competition and in particular infrastructure-based competition. Historically, decisions of national regulatory authorities suggested that the presence of at least three firms is conducive to effective competition.1 Therefore, the Commission's observation that the presence of two nationwide infrastructures capable of providing gigabit connectivity to retail customers is sufficient, came as a surprise to seasoned observers.2

Background

In December 2023, the Malta Communications Authority ('the MCA') notified the European Commission of its intention to regulate the Maltese wholesale physical and virtual infrastructure access market and to impose remedies on GO plc as the operator determined to enjoy significant market power3. In its draft measure, the MCA concluded that at the wholesale level GO retained a very high market share in the physical and virtual access infrastructure access ('PVIA') market covering:

  • Wholesale physical access over GO's copper network;
  • Virtual Unbundled Local Access ('VULA') over GO's Fibre to the home ('FTTH') network; and
  • Duct Access to GO's infrastructure.4

Based on a Three Criteria Test assessment ('the 3TCT'),5 the MCA concluded that the wholesale PVIA market is susceptible to ex ante regulation and that GO enjoyed a position of significant market power ('SMP') in that market. The MCA proposed to impose two types of access remedies on GO:

  • Geographically differentiated VULA on FTTH; and
  • Nationwide duct access.

Commission has Serious Doubts

On 26 January 2024, the European Commission notified the MCA and the Body of European Regulators for Electronic Communications ('BEREC') that it had serious doubts as to the compatibility of the notified draft measure with EU law and considered that it creates a barrier to the internal market. In so doing, the Commission opened the so-called Phase II investigation.

The Commission disagreed with the MCA's assessment of competition problems at the retail level. Indeed, the Commission argued that given the current level of investments, retail prices (although higher than the EU average, the price trend is downwards), and existing infrastructure-based competition, the retail market appears to be effectively competitive and that accordingly, ex ante regulation should be lifted.

In particular, the Commission considered that the MCA had not provided sufficient evidence to conclude that there is a problem at the retail level that would justify maintaining ex ante regulation. The Commission observed that Malta's population of 500,000 inhabitants was already serviced by two nationwide infrastructures capable of providing gigabit connectivity to retail customers.

The Commission further held that in its wholesale market analysis the MCA did not sufficiently consider the competitive constraints from cable. The MCA should have taken into account Melita's self-supply on its own cable infrastructure when defining the PVIA market.

In the Commission's view, there was a lack of sufficient evidence that the PVIA market met the 3TCT. According to the Commission, it had serious doubts that the second criterion was met: retail price levels were not excessively high; evidence pointed to the market tending towards effective competition given the limited size of the market, the presence of two networks delivering gigabit internet speeds at prices close to the EU average.

The Serious Doubts letter was notified to the MCA and BEREC. Under Article 32 of the EECC BEREC must issue an opinion on whether these serious doubts are justified following which the Commission must consider BEREC's opinion and either withdraw its serious doubts letter or require the MCA to withdraw the proposed measure.

BEREC Opinion on the Serious Doubts Letter

On 23 February 2024, BEREC adopted its opinion. It disagreed with the Commission's main observation that the presence of two nationwide infrastructures capable of providing gigabit connectivity to retail customers is sufficient to rebut the MCA's findings that the downstream retail market would not be effectively competitive absent regulation. BEREC pointed to various authors and analyses conducted by National Regulatory and Competition Authorities in concluding that, "while there is no 'magic number' for the minimum number of competitors necessary for effective competition, [...] competition is unlikely to be effective with just two firms".6 BEREC crudely observed that the Commission had not, in these cases, criticized the application of a 'greater than two' operator presence criterion.

BEREC also noted a number of contradictions with the Commission's view that that the broadband market would be competitive absent regulation including:

  • Market shares that appeared to be similar and stable;
  • Similar retail strategies by GO and Melita in applying long-term contracts coupled with high early termination fees, leading to switching barriers;
  • In the absence of ex ante regulation, it was uncertain that Epic could further expand its activities, leading to a duopoly and a foreclosure of the market;
  • 40% of respondents to the MCA survey thought that prices were expensive or very expensive;
  • Absent regulation, retail prices could increase, because not only would Epic's competitive pressure would be reduced but also GO's and Melita's incentives to compete on price would be affected.

BEREC disagreed with the Commission's serious doubt that the second criterion of the 3TCT was met. It pointed out that the Commission's analysis of downward trend in retail prices did not consider the fact that this is in the presence of VULA regulation and following the entrance of Epic in the market in 2019. Furthermore, BEREC observed that other nine NRAs continued to regulate similar wholesale markets in spite of the fact that retail broadband prices were lower than in Malta which therefore suggested that the Commission recognized that upstream regulation may be warranted even when downstream retail prices are lower than the EU average. BEREC considered that the retail pricing relied on by the Commission did not provide strong evidence of a tendency towards effective competition in the upstream PVIA market.

BEREC also disagrees with the Commission's assessment that cable is likely to be a direct competitive constraint on the PVIA market and ultimately declared that that it did not share the Commission's serious doubts that the MCA's findings that GO holds a position of SMP in the PVIA market complies with Article 67 of the EEC.7

BEREC concludes that there are insufficient grounds to justify the withdrawal or amendment of the MCA's draft measure.

NEXT STEPS

Under Article 32, the Commission now has to take utmost account of the BEREC opinion and may either decide that the MCA should withdraw the draft measure or alternatively lift its reservations.

The Commission decision will be looked at with a lot of interest across Europe. It could have significant repercussions on the broadband market in Malta. If ex ante regulation is lifted it could have a material impact on the continued deployment of fibre based broadband services by Epic to Maltese end-users calling into question the competitive pressure that it arguably exerts on GO and Melita. If the MCA and BEREC are right, the price drop that has characterized the Maltese broadband market could soon be a thing of the past.

It could also set an interesting precedent for the rest of Europe. Certainly, it will represent a remarkable demarcation from previous NRA decisions on infrastructure-based competition and the need for competing networks.

Footnotes

1. See by way of example OFCOM's review of the Wholesale Broadband Access Market, 26 June 2014 at paras. 4.132 et seq.

2. Commission opens in-depth investigation into the proposed regulation of the wholesale broadband market in Malta | Shaping Europe's digital future (europa.eu)

3. The procedure is set out in Article 32 of Directive (EU) 2018/1972 of the European Parliament and of the Council of 11 December 2018.

4. Despite Melita enjoying the highest and stable retail market share, the wholesale product market definition explicitly excluded cable.

5. In accordance with Article 67(1) of the EECC and Recital 20 of the 2020 Recommendation on Relevant Markets. The 3TCT includes: (i) high and non-transient barriers to entry; (ii) market does not tend towards effective competition; and (iii) insufficiency of competition law.

6. BEREC Opinion at fol. 9.

7. Article 67 of the EECC sets out the market analysis procedure including the 3TCT.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

See More Popular Content From

Mondaq uses cookies on this website. By using our website you agree to our use of cookies as set out in our Privacy Policy.

Learn More