Brussels, 5 January 2010
In a letter just sent the European Commission has informed the Polish telecoms regulator, UKE, that it has serious doubts whether UKE is right to define two separate markets for IP traffic exchange (IP transit and IP peering with the network of Telekomunikacja Polska). The Commission has also questioned the assigned incumbent with significant market power in those markets. During the following two months the Commission will assess further market data from UKE and consult with market players.
"This is the first time that a European regulator considers IP traffic exchange as non-competitive and that regulation is proposed. This is therefore a complex precedent case which requires thorough, in-depth analysis, and strong supporting evidence. In that context opening a second phase investigation is an opportunity to examine in detail whether the proposed measures are well-founded." said Viviane Reding, the EU Telecoms Commissioner.
Competition Commissioner Neelie Kroes said "Only a sound analysis of the markets for IP traffic in Poland can clarify whether the competitive situation justifies ex-ante regulation. It is important not to impose regulatory measures that deter competition and hinder the further development of the markets concerned".
UKE believes that Telekomunikacja Polska SA (TP) dominates the wholesale markets for IP transit in Poland and IP peering with the network of TP. Although those markets are generally not regulated in the EU, UKE is of the view that there are exceptional circumstances in Poland which justify the imposition of regulatory obligations. In particular, UKE claims that the incumbent refuses to exchange IP traffic at publicly available internet exchange points and forces alternative internet service providers (ISPs) to interconnect at high prices at the private exchange point belonging to TP.
The Commission underlines in its serious doubts letter just sent that the data provided by UKE so far does not support the finding of two separate markets for IP traffic exchange. Direct interconnection to TP's network seems to be interchangeable with cheaper, indirect interconnection and the two markets could in fact constitute one single market for IP traffic exchange. Furthermore, UKE has not sufficiently demonstrated TP's significant market power in the two defined markets. Given that the provision of retail internet services depends on full connectivity to large international operators (Tier 1) on one side and a large number of internet service providers and content providers on the other side, it remains unclear why TP should not have the incentive to exchange traffic with other networks.
UKE has also failed to provide information on TP's wholesale share of the proposed market for IP transit which would allow the Commission services to assess TP's ability to act independently from its competitors and consumers. UKE and the Polish competition authority have previously imposed obligations and fines to prevent TP from conducting any discriminatory practices concerning the exchange of IP traffic. TP's prices for IP traffic exchange are on a clear downward trend, which may be the result of low entry barriers and competitive constraints.
Internet Service Providers must ensure the connectivity of their costumers with content providers and subscribers of other networks. There are two ways to do this: IP Peering and IP Transit. IP Peering can be defined as the direct exchange of IP traffic between two interconnected networks. In case one ISP is not directly connected to another ISP, then the traffic can be exchanged via a third operator which offers transit services against payment.
UKE defines (i) a wholesale market for IP traffic exchange in the IP Peering mode only with the network of TP, arguing that TP is the sole provider of this service on its network and controls the underlying network, and (ii) the wholesale market for IP traffic exchange in Poland (IP Transit). UKE claims that -due to lack of supply side substitution for peering services - TP has 100% market share in the exchange of IP traffic through direct connection (peering) with its own network.
The Commission's serious doubts on UKE`s draft measure follow the " Article 7 procedure ", under the Framework Directive of the EU telecoms rules ( MEMO/09/539 ). This procedure leaves some scope for regulators to achieve effective competition in their national telecoms markets, while ensuring consistency across the EU, and therefore requires them to notify the Commission of draft regulations. Where these concern market definitions and analyses of whether operators have significant market power, as in the present case, the Commission can require the regulator to withdraw the measure. Where they concern regulatory measures, the Commission may make comments of which the regulator must take utmost account.
The Commission's letter sent today to the Polish regulator will be published at the end of this week at: