ARCEP submits its market analysis concerning SMS call termination in Metropolitan France and the overseas territories to public consultation.

Paris, 17 November 2009

Regulation governing SMS call termination

For a text message to reach its destination, it is essential that a mobile network operator provide an SMS call termination service for incoming SMS that are sent from other operators' networks. When no regulation exists, this structural bottleneck allows each mobile operator to decide the terms governing this service unilaterally. As a result, in 2006, ARCEP established a first set of regulations to apply to these markets for a period of three years, which included requiring Metropolitan France's three mobile operators to provide SMS call termination access and interconnection offers under transparent and impartial conditions and at cost-oriented prices.

Positive results from the first cycle of retail market regulation, but status quo in wholesale markets unchanged…

The Authority has today released its assessment of this first regulatory cycle. Its evaluation of retail market regulation is largely positive, given that it has led to a very strong increase in SMS usage with no additional cost for heavy users. ARCEP does nevertheless note that the decrease in the average price of the service does not benefit occasional users of SMS whose unit price has changed very little.

On the other hand, ARCEP indicates that wholesale SMS call termination markets have not evolved, with current prices being the same as the ceiling tariffs set by the Authority in 2006, even though the volume of SMS being consumed by users has increased sharply since then, which has led to a decrease in average costs. ARCEP also points out that, contrary to what was recommended in 2006, operators still do not yet provide interconnection with other operators of non-mobile networks.

This observation confirms the lack of dynamic competition in wholesale SMS call termination markets that was identified back in 2006.

… requiring regulation to be maintained

ARCEP therefore suggests prolonging the regulation that was put into effect in 2006, and has submitted its analysis of these markets to public consultation.

The analysis determines the existence of a relevant market for each operator, as each one enjoys a monopoly on its own network that cannot be offset by countervailing buyer power. The Authority then points out the competitive distortions created by these developments in the retail market.
In particular, the emergence of quantity-based competition for text messages has led to an abnormal shift between wholesale and retail markets, with the average revenue per SMS in the retail market now being equal and in some cases lower than the wholesale price of the underlying SMS termination service.

As a result, the Authority plans on extending the system of obligations that was put into place during the first regulatory cycle, reducing ceiling tariffs and eliminating current pricing asymmetries.

Regulation that needs to be extended to overseas markets

The assessment published by ARCEP also examines the status of the supply and consumption of SMS in the overseas départements and territories, which vary a great deal from market to market.

The Authority has observed very dynamic competition in the Reunion, where, in the span of a year, unlimited SMS has become a central and irreversible part of the post-paid market. However, only the dominant operator markets high-volume offers to prepaid customers, who constitute the bulk of the market.
This healthy dynamic has not emerged in Mayotte or in the Antilles-Guyana region, however, where per-unit consumption of SMS remains the norm and where a relatively small volume of text messages is exchanged.

Regardless of the situation in the retail market, the Authority notes that high SMS call termination prices, associated with asymmetrical market share, are preventing the emergence of lasting competition, especially in the overseas départements' and territories' core market, namely prepaid offers.

ARCEP therefore believes it would be advisable to regulate SMS call termination markets in the overseas départements and territories as well, and has therefore included them in its market analysis submitted to public consultation.

The public consultation

The Authority's assessment of current regulation and its draft market analysis will be subject to public consultation until 5 pm on 18 December 2009. In a bid to maintain transparency, ARCEP will publish all of the feedback it has received, except those parts that are covered by business secrecy.