The European Commission approves ARCEP’s draft decision regulating fixed and mobile termination markets, but questions the regulation on SMS termination markets

Paris, 3 December 2014

On 28 November 2014, the European Commission approved ARCEP’s draft decision regulating the markets for fixed voice call termination and mobile voice call termination from 2014 to 2017, and requested additional justifications on SMS termination. ARCEP will work with the European Commission and BEREC to take efficient regulation measures that serve both market development and users.

The termination rate (TR) is the fee that Operator A pays Operator B when one of Operator A’s customers calls one of Operator B’s customers. It pays Operator B for the cost of carrying the call on its network.

Termination fee billed by the receiving operator for relaying a voice call or an SMS
to the destination customer

Because call termination markets are structural monopolies, ARCEP has been regulating them for more than 10  years. This regulation has fostered competition and promoted the widespread adoption of offers with high volumes, for the benefit of users. ARCEP is currently preparing a new round of regulation. After a public consultation that ran from 12 September to 13 October 2014, ARCEP notified its draft decision on regulating wholesale markets for fixed voice call, mobile voice call and SMS termination from 2014 to 2017, to the European Commission.

On 28 November 2014, the European Commission, in charge of controlling the consistency of electronic communication regulation among EU Member States, approved the notified draft regulation on fixed voice call termination and mobile voice call termination, which can therefore be adopted.

However, the Commission requested additional justification for the regulation of the wholesale markets for SMS termination. With respect to the procedure that aims at fostering the internal market, the Commission has launched a two-month period of investigation and dialogue with ARCEP and BEREC*, after which it will decide whether or not to approve ARCEP’s draft decision. BEREC is also invited to issue an opinion on the doubts raised by the Commission. ARCEP will actively work with both the Commission and BEREC to take efficient regulation measures, that serve both market development and users, and which are relevant within the internal market.

ARCEP will finalise in the coming days the process for adopting its analysis of the wholesale markets for fixed voice call termination and mobile voice call termination, which introduces a decrease in maximum call termination rates on 1 January 2015.

SMS termination regulation

SMS termination regulation, which has been in place since 2006, has made it possible to improve the terms and conditions under which operators exchange text messages, by ensuring their mutual interconnection, and by ordering a significant decrease in the wholesale rates they charge on another. It has thus facilitated competition between mobile operators, by enabling the ubiquitous development of retail plans that include unlimited SMS.

At the same time, instant messaging (IM) services, notably those that use over-the-top applications downloaded on smartphones, are also growing. These services have interesting features that will satisfy some of users’ additional needs, such as group chats, sending large attachments, etc. Those services are often based of closed-source systems, downloaded on smartphones or linked to compatible handsets, and require both parties to use the same application.

In the French market where close to half of all consumers do not own a smartphone, those restrictions imply that less than 20% of customers in France use this type of application on a regular basis, which is fewer than in other European countries.
SMS, on the other hand, has the advantage of being universal, interoperable (between all operators and all devices) and guaranteeing the message will be relayed in an optimal fashion. ARCEP considers that, within the regulatory period in question (2014-2017), instant messaging services will serve as a complement to text messaging rather than its replacement.

The proposed regulation therefore aims to maintain, and in no way increase, the obligations that are already imposed on operators, to firm up the results achieved over the previous regulatory periods. The goal in supervising termination rates is to avoid the emergence of artificial barriers to the development of SMS and to protect their open and interoperable nature by guaranteeing interconnection between all operators.

This regulation is pro-competitive: it allows each operator to determine its own commercial strategy, notably the composition of its plans, without being constrained by other operators’ choices. The results observed up to now have been positive, since close to nine out of ten plans being sold in the retail market include unlimited SMS, and users in France employ text messaging in abundance: they send an average 250 SMS a month, which is more than in most European countries.

The European Commission is questioning the relevance of a new SMS termination regulation that could, in the Commission’s view, disadvantage the development of instant messaging services, and so reduce the resulting benefits to consumers in terms of choice, quality and price.

While the interoperability nature of SMS require a certain degree of technical and pricing harmonisation, ARCEP has chosen not to hamper this open and universal solution that is popular with users, for the sole motive of driving the development of instant messaging services which, although sometimes more feature-rich, also have certain inherent limitations.

The regulation planned for the period running from 2014 to 2017 aims, on the contrary, to prolong the virtuous balance between the efficient operation of a reliable, universal solution (SMS), and IM products on smartphones whose development is not being hampered in any way. The regulation will thus allow operators to market attractive products, and allow consumers to choose between products based on their own merits.

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* BEREC: Body of European Regulators for Electronic Communications, which gathers regulation authorities from EU Member States, and regulators from EEA States and candidates for accession to the EU.