Paris, 24 October 2005
Today, and until 25 November, Autorité de régulation des communications électroniques et des postes (ARCEP) launched a public consultation on its market analysis for wholesale SMS termination on mobile networks.
The explosion of SMS on the mobile market
SMS (Short Message Service) have grown extremely strongly in Metropolitan France since the signing of interoperability agreements in December 1999 by the three mobile operators, Orange France, SFR and Bouygues Telecom.
Close to 11 billion SMS were sent on these operators’ networks in 2004 (a full sevenfold increase over 2000), for sales of over one billion euros (compared with €151 million in 2000). However, although mobile customers sent 23 SMS per month in 2004 on average (compared with seven in 2001), the use of SMS remains the territory of 12-25 year olds (who sent close to 80 SMS per month in 2004), for whom it has become a new medium which is both convenient and private, as well as a new way of communicating. Far from being sated, consumers’ appetite for this type of service should next focus on fixed networks, where SMS use remains limited, and increase yet again with the arrival of new value-added services (SMS+, MMS, etc).
SMS call termination (CT) prices limit the play of competition
This exceptional growth offers new opportunities, in particular to fixed telephony and Internet players, who now wish to develop alternative SMS offers. ARCEP approves of the diffusion of SMS beyond the mobile world and notes that, in the short term, the essentially mobile nature of SMS (over 90% of traffic) offers a starting point for this movement. In this context, the high interconnection fees charged by mobile operators for the sending of SMS on their networks constitute a real obstacle, which discourage the launch of alternative offers. These fees, called SMS call termination (or SMS CT), are currently set at 5.336 euro cents (c€) excluding VAT per SMS for each of the operators, a level which has remained unchanged since 1999 despite the strong decline in SMS unit costs.
Given the current level, SMS CT also structure the mobile-to-mobile SMS value chain and have contributed to the relative stagnation of corresponding retail prices in recent years.
ARCEP’s market analysis
This is why, within the framework of the market analysis, ARCEP proposes:
- designating each of the three operators in Metropolitan France—Orange France, SFR and Bouygues Telecom—as having significant power on the wholesale SMS termination market on their own networks
- imposing pricing controls, in the form of cost orientation for SMS CT
- establishing a ceiling for SMS CT of around 2.5c€ per SMS (compared with 5.336c€ currently) initially
On the other hand, ARCEP considers that direct intervention on the retail market is neither desirable nor necessary: ARCEP’s action on the wholesale markets should be sufficient to significantly revitalise the play of competition and allow the diffusion of SMS beyond the mobile world.
The document is submitted for public consultation until 25 November 2005. After examining comments, ARCEP will submit its analysis to the Conseil de la concurrence which will then rule on the market definition and the designation of powerful operators. Planned measures and their justification will then be submitted to the European Commission and to the National Regulatory Authorities (NRA) of EU member countries.
The European context
In 2002, the European Commission identified 18 relevant markets which might be subjected to sector-based regulation. Given the limited development of the SMS market at the time, the wholesale SMS termination market was not included in this list, although voice was.
However, given the development of the SMS market in Metropolitan France and the competition problems identified, ARCEP now considers it necessary to put in place specific regulation, in order free up the play of competition for SMS on the retail market and allow the diffusion of SMS beyond the mobile world.
France is the first country in Europe to consider such regulation. ARCEP has held discussions with other NRAs within the Independent Regulators Group (IRG), in order to establish an initial benchmark of SMS CT (see graph below).
N.B.: The names of the countries have not been included at the request of the NRAs
Responses to the call for comments should be sent to firstname.lastname@example.org .
The English version of the Public Consultation is available to download (pdf) (pdf - 1.39 Mo)