Paris, 16 June 2006
Following the favourable opinion from France’s competition authority, Conseil de la Concurrence, Autorité de Régulation des Communications électroniques et des Postes (ARCEP) notified the European Commission of its draft decision regarding the wholesale market analysis for SMS call termination on mobile networks in Metropolitan France. At the same time, and until 17 July, ARCEP launched a new public consultation on this market analysis.
- ARCEP identifies a new relevant market in Metropolitan France: SMS call termination
Under the new Community regulatory framework, ARCEP, like any national regulatory authorities, conducts competition analyses of the 18 markets identified by the European Commission as being relevant, and may, depending on specific national circumstances, define new relevant markets, which have not been identified at the European level.
Although SMS unit costs have significantly declined, French MNOs (Mobile Network Operators) have never changed, on their own initiative since the implementation of SMS interoperability in December 1999, the rates of SMS call termination (or "SMS CT"), which represent close to 50% of the retail price of SMS.
Initially set at 5.3 euro cents, SMS CT rates were subsequently lowered to 4.3 euro cents following a dispute settlement ruling by ARCEP.
Given the development of SMS in Metropolitan France, which can be illustrated with the number of interpersonal SMS exchanged multiplying by 8.6 between 2000 and 2005, and the competition problems which have been identified, ARCEP considers that, given France’s particular national circumstances, it is now necessary to put in place specific regulation on wholesale SMS CT markets, in order to promote competition on the retail market and to expand SMS beyond the mobile world.
Number of SMS sent between 2000 and 2005
(millions of units)
Number of SMS sent
In its opinion no. 06-A-05, the Conseil de la Concurrence wondered if the planned reductions on SMS termination rates will really benefit to virtual operators and to the end consumers. While sharing the Conseil's concerns, ARCEP hopes that its action on the wholesale markets will be sufficient and considers that direct intervention on the retail market is not necessary at this point. Nevertheless, once the decision adopted, ARCEP will closely monitor the changes in SMS wholesale prices, particularly those invoiced to MVNOs (virtual operators), as well as the prices to end users on the retail market.
Therefore, ARCEP proposes identifying as a relevant market under sector-based regulation the wholesale SMS call termination market on the network of each mobile operator in Metropolitan France.
- Obligations planned by ARCEP
- designating each of the three mobile operators in Metropolitan France (Orange France, SFR and Bouygues Telecom) as having significant market power on the wholesale SMS call termination market on their own networks
- as such, imposing on them obligations of access, transparency, non-discrimination and account separation
- imposing price controls on SMS call termination rates, in the form of cost orientation
In light of the elements in its possession and the objectives of economic efficiency, of promoting fair and effective competition between operators, and of optimising the advantages for the consumer, ARCEP considers as justified and proportionate to establish the maximum SMS call termination rate in Metropolitan France at:
- 3 euro cents per efficient SMS for Orange France and SFR
- 3.5 euro cents per efficient SMS for Bouygues Telecom
A cost analysis conducted by ARCEP justifies the price gap established between the operators, as does the particular situation of the third entrant mobile operator, which cannot benefit from the same "club effects" as SFR and Orange France, which both have greater market share. In this, ARCEP followed the recommendation of the Conseil de la Concurrence which stated in its opinion that "(…) the monopolistic position of the three operators on the markets in question as well as the different role played by the corresponding resources in the financial balance of each operator, can justify more precise regulation of these tariffs, as long as the position of any particular player is not weakened, in particular, the operator having the smallest market share". Nevertheless, ARCEP wishes to emphasize that, while such pricing differentiation is justified temporarily, it should not last, particularly with regard to economic efficiency criteria.
- Analysis timetable and stages
After considering the observations received in response to its first public consultation, (October 2005), the document was submitted to the Conseil de la Concurrence (January 2006), which then rendered its opinion on 10 March 2006.
This draft decision is being notified to the European Commission and to all National Regulatory Authorities (NRAs). It is also submitted for public consultation until 17 July 2006. Once these last two steps have been completed, ARCEP will adopt its final decision.
France is the first country in Europe to consider regulation on this wholesale market.
A. What is SMS call termination?
An SMS (Short Message Service) or text message is a written message, composed of a maximum of 160 characters. This service is available on almost all mobile phones in circulation on the market and works on all types of mobile networks (GSM, GPRS, UMTS). Some fixed operators also offer SMS service on compatible fixed phones.
SMS call termination can be defined as the wholesale service offered by Operator A to Operator B, in order to allow Operator B’s subscribers to send SMS to Operator A’s subscribers. When a user, who is a subscriber of Operator B, sends an SMS to someone subscribing to Operator A, Operator B delivers the SMS to Operator A which "terminates" the SMS call. For this termination service, Operator A invoices Operator B a wholesale price (the "termination rate"). Operator B then re-invoices this tariff on the retail market to the consumer originating the SMS. SMS call termination tariffs generally have a direct impact on the prices paid by consumers for sending SMS.
B. Key figures : context and economic impact
The number of SMS exchanged multiplied by 8.6 in volume between 2000 and 2005. Exchanges of data (SMS and MMS) represent about 12% of mobile operators’ sales. In 2005, close to 13 billion SMS were sent, generating sales of over €1 billion.
B.1. Comparison of change in SMS and Voice traffic
B.2. Number of SMS sent per week according to user age
In all of 2005, users sent about 23 SMS per month on average (Source: ARCEP, Services Market Observatory). According to CREDOC, SMS continue to be the territory of young people, although it is gradually spreading to the rest of the French population.
B.3. The European context
During the summer of 2005, ARCEP built a benchmark on SMS call termination rates in Europe. In analysing the benchmark, two important facts can be established:
- First, SMS CT is clearly a component of the retail price of SMS and more precisely a cost in providing retail SMS.
- Second, it appears that, the later SMS CT rate was established, the lower it is. This is the case in a number of countries which still practiced the "bill and keep" system whereby operators exchange SMS traffic without billing each other for SMS call termination, and which set their SMS call termination rates when they eliminated this system in 2002 or 2003.
C Technical operating principle for SMS
SMS service is available on almost all mobile phones in circulation on the market and works on all types of network (GSM, GPRS, UMTS). Under the GSM standard, SMS use signalling capacities and are transmitted using signalling link no. 7 (SS7).
Some fixed operators also offer SMS service on compatible fixed phones.
Other than end-to-end SMS, the GSM standard distinguishes between SMS-MO (Mobile Originated) and SMS-MT (Mobile Terminated). SMS-MO designates the transfer of an SMS from a mobile phone to the SMSC (SMS Centre), whereas SMS-MT designates the transfer of an SMS from the SMSC to a mobile phone.
Technically, SMS service requires the use of one or more specific servers on the network. The SMS server (SMSC) stores SMS in databases, distributes SMS to destination mobile phones (when they sign onto the GSM network to which they belong) and processes the validity dates of the SMS. The MSC (Mobile services Switching Centre), a switching element on the mobile networks shared by other types of traffic, sends SMS-MO and receives SMS-MT.
C.1. Mobile-to-mobile SMS
French and foreign mobile operators send interpersonal SMS to the network of a third-party mobile operator under SMS interoperability contracts, which are generally reciprocal. Under this type of contract, when an SMS is terminated from Operator A on Operator B’s mobile network, the destination mobile operator routes the SMS sent to one of its mobile subscribers in the form of an SMS-MT.
Regarding the way the service is invoiced at the retail level, the calling party pays system prevails: customers are billed only for sending SMS, receiving SMS is free.
On the wholesale market, mobile operators do not pay interconnection charges for on-net SMS, but pay the SMS call termination charge for off-net SMS. In this case, the calling party’s mobile operator pays only the SMS call termination charge to the called party’s mobile operator. At 31 December 2005, SMS CT rate was 4.3 euro cents.
C.2. SMS outside the mobile world
In addition to mobile operators, other players, such as fixed telephony operators, IAPs and service publishers may also require SMS-MT services from the destination operator. In this case, SMS-MT are sent off line. This is called "Push SMS". While the network architectures are slightly different, the exchanges are made in the same way as described above.
Rather than passing through a number of interfaces (one per destination operator) with different characteristics and requiring certain technical developments, these non-mobile players generally use the services of an aggregator (like the transit operator for "voice") which routes the SMS.