IP/09/1676
Brussels, 5 November 2009
Telecoms: Commission invites Dutch regulator to bring calculation method for setting fixed termination rates in line with the EU approach
The European Commission, in a letter sent today, asked the Dutch telecoms regulator, Onafhankelijke Post en Telecommunicatie Autoriteit (OPTA), to align its cost accounting method for calculating fixed termination rates with the approach recommended by EU guidelines, adopted on 7 May 2009 ( IP/09/710 ). Call termination charges, which the operator of the calling network pays to the operator of the receiving network, should be based on the current costs of an efficient operator employing efficient technology. Until now, OPTA's specific calculation model includes costs that should not be attributed to the provision of call termination services. The resulting above-cost regulated termination rates may limit the benefits of competition and encourage operators charge consumers too much.
"It is important that fixed termination rates are regulated effectively and in a consistent manner across the EU. EU guidelines on termination rates say it is vital for national regulators to align their methodologies for setting these important inter-operator charges so that they reflect the current costs of efficient operators who employ efficient technologies. Only that will ensure a consistent European regulatory landscape and an enhanced Single Market," said Viviane Reding, the EU's Telecoms Commissioner.
EU Competition Commissioner Neelie Kroes added: "We need to put excessive termination rates behind us in Europe. Termination providers are natural monopolists, and regulators need to keep them in check to protect the interests of consumers and competitors. Telecoms operators should generate value through efficiency by providing the highest-quality innovative services to their customers, not by billing above-cost termination charges to their competitors."
In a letter sent to OPTA today, the Commission called upon the regulator to reconsider its top-down cost allocation system (EDC, Embedded Direct Cost) which takes into consideration the incumbents' termination rates in order to set the glide-paths for fixed termination rates for all operators. However, the methodology chosen by OPTA allocates non-traffic related costs to the provision of termination services, thus leading to competitive distortions resulting from above-cost termination rates and failing to provide a correct cost signal to operators to increase efficiency. The Commission has on many occasions said that according to the principle of forward looking efficiency, termination rates should be set on the basis of an efficient operator employing efficient technology.
Background
In 2008 OPTA designated all operators as having significant market power and imposed on them a price control obligation with regard to their fixed termination rates, details of which were to be set at a later stage. At the same time, OPTA also signalled its intention to re-examine the market and adjust the termination tariffs in its next market review in line with the approach advised in the Commission's Recommendation on Termination Rates.
Termination rates are wholesale tariffs charged by the operator of a called party to the operator of the calling party's network. The tariffs have a considerable impact on consumers' phone bills and are therefore subject to price regulation by OPTA.
The notified measure sets the termination rates based on OPTA's old cost allocation system (EDC) for the period between 1 January 2009 and 31 December 2011. The local termination rate increases in this period from 0.47 to 0.65 cents/minute, the regional from 0.51 to 0.70 cents/minute in December 2011.
According to the European Commission, EDC's accounting methodology allows the telecoms operator to include costs that are not directly generated by the termination traffic. According to the Recommendation on the regulatory treatment of termination rates of 7 May 2009 , rates should be set on the basis of traffic-related costs of an efficient operator. In this regard, the Commission highlights the importance of LRIC (Long-Run Incremental Cost) accounting models using the current costs of an efficient operator.
The Commission's letter to OPTA is sent under the " Article 7 procedure ", of the EU Framework Directive (part of the EU telecoms rules). This leaves considerable scope for national regulators on how to achieve effective competition but requires them to notify draft regulatory measures to the Commission. For measures concerning regulatory remedies, the Commission may make comments which the national telecoms regulator should take into utmost account.
For further information:
The Commission's letter will be made available in the coming days at:
http://circa.europa.eu/Public/irc/infso/ecctf/library?I=/commissiondecisions
