ARCEP continues to ease regulation on fixed telephony retail markets

Paris, 1^st June 2007

ARCEP continues to ease regulation on fixed telephony retail markets by raising France Telecom’s obligations on residential markets. In this way, the end consumer will benefit from a market richer in innovative offers while still enjoying protection from regulation of France Telecom’s base prices under universal service.

ARCEP plans to ease regulation on fixed telephony business markets only once the quality of service offered by France Telecom to alternative operators is considered satisfactory.

The deregulation of retail fixed telephony residential markets eases constraints on France Telecom and benefits the end consumer by encouraging innovation

During its market analyses, ARCEP prefers to impose on operators obligations on wholesale markets (also called "intermediate markets") to prevent competition problems identified on retail markets. Nevertheless, in 2005, given the difficulty in foreseeing the effect of obligations imposed on these wholesale markets on the functioning of competition, ARCEP considered it necessary to complete this measure with obligations applied to France Telecom directly on fixed telephony retail markets.

After easing regulation of retail residential markets in 2006, ARCEP is now continuing this by raising most of the remaining obligations on these markets.

This is made possible through the implementation of the wholesale subscription sale offer which had been imposed on France Telecom, with initial sales in 2006.

This dynamic regulation of the fixed telephony market (cf. appendix 1) let the consumer enjoy innovative offers, such as unlimited call offers as early as 2004, and, in recent months, the first offers combining subscriptions and calls for a flat rate offered by all operators.

Telephone call base rates remain regulated to protect the end consumer

While easing its regulatory action on fixed telephony retail markets, ARCEP continues to protect the consumer, in particular through universal service.

France Telecom’s services covered by universal service (subscription, "base" tariff national and international calls) remain subject to the regulator’s control, which ensures that they are affordable. To this end, ARCEP established a multi-year pricing framework for national calls in 2005 which covers national calls under the universal service offer and ensures that these prices are reduced by 3% over the period 2005-2008 (cf. appendix 2). Remaining universal service prices, i.e. primarily those for international calls as well as telephone subscription fees, are subject to prior individual checks which ensure directly that they are affordable.

It is also important to note that other deregulated France Telecom retail prices may be appealed to the competition authority, Conseil de competition, under the normal framework of competition law.

The easing of regulation on business fixed telephony markets will be considered only once the quality of service of France Telecom’s wholesale offers improves

The alleviation measure currently proposed by ARCEP does not involve raising the obligations currently in force on business fixed telephony markets which do not yet present satisfactory and complete characteristics for regulation to be removed.

Indeed, on business markets where the concept of quality of service (guaranteed effective recovery times, or guaranteed service availability) is structuring, the quality offered by France Telecom to alternative operators buying its wholesale offers could still be improved.

So, ARCEP believes that before taking on any new phase of alleviating retail obligations imposed on France Telecom on business markets, it should first check that France Telecom has established optimal and complete conditions, in terms of quality of service, allowing alternative operators to reproduce its offers.

So, ARCEP is conducting works with all sector players which will allow it to identify reliable indicators on all of France Telecom's wholesale offers underpinning the retail offers (wholesale access to telephone service, unbundling, regional ADSL collection offer, capacity services, etc) and to conduct a precise review.

Appendix 1

PUBLIC CONSULTATION ON THE EASING OF REGULATION APPLIED TO RETAIL FIXED TELEPHONY MARKETS

ARCEP submits for consultation its analysis of the functioning of fixed telephony retail markets and invites sector feedback on the modification of current regulation of these markets

 
ARCEP suggests modifying the obligations on retail residential call markets

On 27 September 2005, ARCEP adopted decision no. 05-0571 on the definition of relevant fixed telephony markets, the designation of operators having a significant influence on these markets and obligations imposed because of this. This market analysis decision remains valid until 1^st September 2008.

In its analysis, ARCEP identified six relevant retail markets for ex ante sector-based regulation. On each of these markets, France Telecom’s significant influence and the insufficient remedies applied on the underlying wholesale markets were highlighted, and so ARCEP imposed a number of specific obligations on the operator for retail markets.

The regulatory framework lets ARCEP modify the obligations imposed on powerful operators prior to the term of the market analysis decision, without having to revise the definition of the relevant markets.

In 2006, given the progressive implementation of the access and interconnection obligations, and in particular of the bulk sale of access to telephone service as well as the evolution of retail markets due to the pressure put on France Telecom by broadband voice communication services in particular, ARCEP considered it justified to re-examine the remedies imposed on retail markets.

Noting at that time that the necessary development of France Telecom wholesale offers was not yet homogenous (and bulk sale of access to telephone service in particular), ARCEP decided to establish deregulation of retail markets in several phases with the goal of full market deregulation before the term of the current market analysis, or 1^st September 2008, whenever it would be justified given the evolution of the criteria it presented in its decision.

In its decision no 06-0840, dated 28 September 2006, ARCEP raised most of the retail obligations imposed on France Telecom for residential call offers.

Given the evolution of the functioning of the residential market in its entirety, but also of the continuous development of the bulk sale of access to the telephone service offer which lets alternative operators replicate offers pairing access and communications, ARCEP proposes modifying the remedies imposed on France Telecom on the residential access offers in addition to the previous easing of regulation.

So, ARCEP plans to raise almost all of the obligations imposed on France Telecom on access services on residential markets (prior notice, with as a corollary its ability to oppose the sale of an offer, the proscription of non-excessive pricing, predatory pricing and abusive bundling).

Modifications not affecting retail business markets

This review of the obligations imposed on France Telecom on the fixed telephony retail markets concerns only residential markets and does not lead to a raising of the remedies in force on the access and communications markets for business markets.

Indeed, ARCEP considers that the business markets do not present the satisfactory and complete characteristics of markets on which ex ante regulation can be eased and expects France Telecom to implement optimal and complete replicability conditions, in particular in terms of quality of service.

Given the pre-eminence and structuring nature of quality of service in the offers which operators propose on business markets, before taking any further action to ease regulation on fixed telephony retail markets, ARCEP plans to review the quality of service of France Telecom’s intermediate offers (also called wholesale offers such as the bulk sale of access to telephone service, unbundling, regional collection, etc). If appropriate, it will request that France Telecom improve its commitment level, and at the least, expand the indicators which are currently in place.

Public consultation and notification to the European Commission of the proposed measures

The draft decision proposing this new easing of the regulation of fixed telephony retail markets is being submitted to public consultation and has been notified today to the European Commission and to all National Regulatory Authorities (NRA).

ARCEP invites contributors to express their opinions on its analysis and on the easing of the remedies that it plans to implement at the conclusion of this public consultation to be launched today and which will end on 2 July 2007.

ARCEP will adopt its final decision once it has taken into account the comments to the public consultation and to the notification to the European Commission and NRAs.

  Appendix 2

MULTI-YEAR FRAMEWORK OF UNIVERSAL SERVICE TELEPHONE CALL TARIFFS

In July 2006, ARCEP initiated the global deregulation process of fixed telephony retail markets and established a multi-year framework for France Telecom’s base telephone call tariffs covered by universal service

In its decision no. 06-0725 dated 25 July 2006, ARCEP formalised the commitment taken by France Telecom when it applied for designation as universal service operator. At this occasion, France Telecom proposed offering universal service customers regular decreases in national telephone call tariffs.

The framework formalised in this decision applies for the years 2005 to 2008, to calls made by two representative subscribers, one located in Metropolitan France and one Overseas, having chosen France Telecom’s universal service offer, and which constitute two distinct baskets: the Metropolitan basket and the Overseas basket (which includes the départements of Réunion, Guadeloupe, Martinique, Guyana, and the territorial unit of St-Pierre-&-Miquelon and the departmental collectivity of Mayotte).

The means of this decision conform with France Telecom’s proposals and with the recommendations ARCEP had expressed in its opinion made in early 2005.

This decision guarantees that end customers of the universal service offer—France Telecom’s default offer—will benefit from regular decreases to their national call tariffs and that all decreases in mobile call termination tariffs imposed by ARCEP will be entirely passed on to the customer.

So, for the period 2005-2008, the annual average price of each basket will evolve each year at most at the rate of the consumer price index (excluding tobacco) minus 3% and minus any mobile call termination charge decreases imposed by ARCEP.