How MVNOs are faring in France's mobile telephony market: ARCEP gives the Competition authority its opinion at the request of Alternative Mobile

Paris, 22 January 2013

At the request of Alternative Mobile, the French Competition authority asked ARCEP to give its opinion on the state of competition in wholesale and retail mobile telephony markets in France, in particular by examining wholesale prices in relation to the retail prices that network operators charge, and by providing market players and the regulator with recommendations on measures that could be taken to allow MVNOs to improve competition in the mobile telephony retail market.

Following the publication of the Competition authority's opinion, at the request of Alternative Mobile, ARCEP is now publishing the opinion transmitted to the Competition authority on 20 November 2011. We are also gratified to see that the Competition authority's opinion reiterates most of our own analysis.

ARCEP notes that since the opinion (1) sent to the Competition authority in 2008, there have been tremendous developments in the mobile retail market for consumers in Metropolitan France, and in the wholesale market for access and call origination on mobile telephone networks:

- the emergence of "éco" SIM only solutions in 2010, then of contract-free plans in 2011;
- the launch of low-cost, subsidiary brand offers by incumbent carriers in 2010;
- the ubiquity of high-volume calling, SMS and data plans and the development of quadruple play solutions;
- the commercial launch of Free Mobile in January 2012, which was particularly significant for the simplicity of its plans, their pricing and the fact that subscriptions are never bundled with the handset.

ARCEP also indicates that MVNOs' share of the residential market grew from 2009 to 2011, and has held steady at around 13% since the start of 2012, compared to only around 6% in 2009.

MVNOs have been affected in different ways by the arrival of the fourth mobile network operator (MNO). However, unlike MNOs, virtual network operators continue to have more pay-as-you-go customers than customers on a set plan. Also worth mentioning is that MVNOs have very little presence in the mobile business market.

MVNO hosting commitments, the first full-MVNO agreements

During this same period, ARCEP has observed significant developments in the wholesale market as well.

Indeed, following through on its Competition authority opinion of 2008, which had underscored the need to lift certain contractual restrictions that were hampering MVNOs, in its call for applications for 4G spectrum and the remaining 3G frequencies, ARCEP included a criterion concerning network operators' commitment to terms for hosting virtual operators. As a result, MNOs are obligated to grand all reasonable requests for access to their network, under specific contractual, technical and pricing terms that are listed in theses newly-awarded frequency licences.

Moreover, the first full-MVNO agreements between a network operator and a virtual network operator were signed in 2011. These mark a positive step towards enabling MVNOs to become more autonomous in their business practices.

How MVNOs are faring in this new marketplace

It nevertheless appears that less significant strides have been made in certain aspects of the wholesale market, which are defined by the host operators, and particularly in the arena of pricing and certain technical dimensions.

As concerns the specific points raised by Alternative Mobile, the result of this lack of development has meant that MVNOs continue to have access to only a weak, so as not to say non-existent, economic area for a portion of their host operator's solutions, whether in terms of pricing or services.

This opinion is shared by the Competition authority which has noted that MVNOs have helped stimulate the market and the diversity of available solutions thanks to their ability to innovate and explore new customer segments. Because of the upheavals in the mobile market, however, these MVNOs are struggling to be present in all market segments, and particularly in the low-cost niche.

Competition authority recommendations and follow-up for ARCEP

The Competition authority's main conclusions are:

- "that network operators must not impose any technical or pricing barriers (volume caps, pricing structure of wholesale agreements creating a lock-in effect, bandwidth caps, access to femtocell or location-based services) that would run the risk of putting MVNOs at a competitive disadvantage;";

- "that commitments tied to the allocation of 4G spectrum, to which the the four network operators agreed voluntarily (hosting full MVNOs, reasonable pricing) must apply fully even before MNOs roll out their first 4G plans commercially, to ensure that MVNOs are able to introduce similar offers at the same time those being marketed by their host operators".

As these recommendations are based on the commitments made by operators, either as part of the award of the 4th 3G licence, of remaining 3G frequencies or of 4G frequencies, ARCEP reminds stakeholders that it will work to ensure that these commitments are met, and stresses that it will be paying particularly close attention to the Competition authority's conclusions. This could result in penalties being imposed for failures to comply, or in having to rule on a conflict between an MVNO and its host operator.

_________________________ (1) Opinion No. 2008-0702 of 24 June 2008