Regulating interconnection was an important phase of the liberalization of the Romanian communications market.
In order to promote competition, to ensure interoperability of the electronic communications services and to protect users’ rights and interests, the National Regulatory Authority for Communications and Information Technology (ANRCTI) adopted, starting in 2002, a series of measures to prevent the abusive conduct of operators with significant market power. This regulatory process is ongoing.
Steps undertaken prior to the market liberalization
Since the liberalization of the communications market (January 1st, 2003), ANRCTI has issued and made available for public consultation normative decisions and projects as follows:
Following identifications of the operators holding significant power in the fixed and mobile telephone markets, ANRCTI imposed specific obligations upon them in order to eliminate barriers to fair competition:
In accordance with the decision establishing the principles and preconditions of the Reference Interconnection Offer (adopted on December 13, 2002), ANRCTI proposed that a system of maximum interconnection tariffs be adopted by S.N.Tc. Romtelecom S.A. in commercial relations with other providers (starting with January 1st, 2003) as follows:
1.15 eurocents/minute for local interconnection
2.1 eurocents/minute for simple transit interconnection
2.5 eurocents/minute for double transit interconnection
Interconnection tariffs established by ANRCTI were lower than similar tariffs in other countries aspiring to EU membership that had already liberalized the electronic communications market. At that time, the average local interconnection tariff in the EU was 0.85 eurocents, whereas in the candidate countries it was much higher: Hungary – 2.87 eurocents, Slovenia – 2.01, the Czech Republic – 1.95; for simple transit interconnection the average tariff in the EU was 1.23 eurocents, in Hungary – 3.63 eurocents, in Slovenia – 2.45, in the Czech Republic – 2.59; for double transit interconnection the average tariff in the EU was 1.86 eurocents, in Hungary – 3.63, in Slovenia – 2.90, and in the Czech Republic – 3.14. ANRCTI proposed that the level of tariffs be set at higher than the average of those in member countries and below the average of those in candidate countries. Meanwhile, the Romanian rate for the mobile-fixed networks interconnection was the equivalent of 5 cents (US dollars).
With respect to collocation, ANRCTI set up a maximum tariff between 5 Euros/sqm and 10 Euros/sqm, to be differentiated on the national territory according to the real state market prices.
These tariffs were hosen by applying the „benchmarking” method used in Europe, which does not take into account providers’ historical costs. The use of historical costs could lead to the inclusion of the cost of the operators’ inefficiencies in the interconnection tariffs. ANRCTI intended to avoid the situation where an operator with a significant market power would build the cost of its potential inefficiency into the interconnection price charged to other operators, costs which would ultimately be borne by the end-users.
This charging system was intended to be beneficial for the user, since the final tariffs, which include the interconnection tariffs, could become accessible. The impact of establishing such tariffs on operators was different depending on the power and the growing abilities of each company. Strong and efficient companies could bear these tariffs while maintaining their profitability. The tariffs provided incentive to the rest of the companies to make their operations and internal procedures more efficient. For operators new on the market, these tariffs represented a good basis for honoring their interconnection and collocation payments, resulting in competitive tariffs for the final user.
Regulations for providers holding a dominant position on the fixed and mobile telephone market
In 2005, ANRCTI required that the operator with significant power on the fixed telephone market (former monopoly provider)– RomTelecom – implement a reduction of the interconnection tariffs planned in two stages- January 1st, 2006 and January 1st, 2007- resulting in tariffs reduced by 16.0% for interconnection at a local level, 51.5% for interconnection at a regional level and 55.8% for interconnection at a national level (at the end of the two stages).
In July 2005, ANRCTI launched a public consultation regarding interconnection tariffs, including the new data provided by RomTelecom, as well as input from the other players in the market. ANRCTI updated the calculation method of the cost and arrived at tariffs lower than those initially set by the agency.
In 2006, ANRCTI informed the operators with a dominant position on the mobile telephone market- Vodafone Romania and Orange Romania- of the obligation to reduce interconnection tariffs gradually, by 11.3%, in 4 stages (from September 1st, 2006 until of January 1st, 2009).
To establish the interconnection tariffs, ANRCTI developed a method of calculating the costs based on the expenses associated with the installation, operation and maintenance of an efficient public mobile telephone network. The calculation method (developed between October 2004 and April 2005) was subject to public consultation until May 8, 2006 and was revised based on the comments and information provided by the operators present on the market.
Alexandrina Hirtan, Vice president of ANRCTI: “We made the calculations based on real costs, the LRI model, which enables operators to have a 15% profit margin (at Romtelecom) or 17-18% (for Vodafone and Orange), even where this tariff is lowered. It is among the highest rates of profit in Europe, where the average rate is approximately 10-11%. Tariffs, before the implementation of our regulation, were eight eurocents per minute – the interconnection cost we calculated with the mobile operators’ networks was 5.3 eurocents per minute. However, due to the discrepancy between these two levels, we set up a transition period, so that the reduction in tariffs will occur gradually, without affecting the operators’ business plans.”
According to decisions 436 and 437 of 2006, the reduction of the interconnection tariffs that could be charged by Vodafone and Orange was planned as follows:
Subsequently, ANRCTI decided to delay the reduction of these tariffs (according to decisions 4774/2006 and 4775/2006) as follows:
7,21 eurocents/minute, from September 1st, 2006
6.40 eurocents/minute, from January 1st, 2008
and 5.03 eurocents/minute, from January 1st, 2009.
According to ANRCTI, this decision was due to the delays of interconnection tariffs’ reductions at a European level, thus avoiding the creation of an even bigger gap between the Romanian mobile telephone operators’ tariffs and those of similar operators from the European markets.
Conflict between ANRCTI and the providers holding a dominant position on the fixed and mobile telephone market
At the end of 2006, RomTelecom decided to attack ANRCTI’s decisions in court, showing that the interconnection tariff paid to Vodafone and Orange is 7.21 eurocents/ minute, whereas mobile telephone operators pay 2.27 eurocents/minute to Romtelecom (expecting the tariff to fall down to 1.29 eurocents from January 1st, 2007.)
According to the ANRCTI’s press release, RomTelecom appealed Decision 4774/2006 before the Administrative Court and requested that the decision be annulled and that its enforcement be suspended until the issue of annulment has been finally and irrevocably resolved. Although the Bucharest Court of Appeal denied the suspension request, the High Court of Cassation and Justice allowed RomTelecom’s appeal and suspended the enforcement of Decision 4774/2006 (until the annulment as finally and irrevocably resolved). In these circumstances, the highest tariff threshold that could be used by Vodafone in 2008 as the one established by Decision 436/2006 (5.67 eurocents/minute.) As more providers were notified of the fact that Vodafone does not implement the regulated tariff, ANRCTI requested the operator to apply this tariff.
In the meantime, RomTelecom and Net-Connect Internet (which had requested to intervene as party in the lawsuit) filed requests to withdraw the appeal of the civil verdict rendered by the Bucharest Court of Appeal (with respect to RomTelecom’s request to annul decision 4774/2006). Since the court took note of these requests, the aforementioned civil decision affirming Decision 4774/2006 remains final and irrevocable. Given these circumstances, the suspension of the enforcement is terminated, and the maximum tariffs which may be charged by Vodafone remain those established by this decision (6.40 eurocents/minute, for the year 2008, and 5.03 eurocents/minute, starting with the 1st 2009). Considering the circumstances, Vodafone also withdrew its request for annulment of Decision 436/2006.
With respect to interconnection tariffs implemented by Orange, Romtelecom appealed Decision 4775/2006, requesting that the decision be annulled and that its enforcement be suspended until the issue of annulment has been finally and irrevocably resolved. The court allowed the action for annulment initiated by Romtelecom, as well as the requests to intervene filed by Telemobil and Net-Connect Internet. ANRCTI appealed, which (according to the legislation in force) resulted in the suspension of the annulment. Due to the fact that the annulment of Decision 4775/ 2006 was suspended, the maximum interconnection tariffs that can be charged by Orange are those established by this decision (6.40 eurocents/minute, from the January 1st, 2008 and 5.03 eurocents/minute, from January 1st, 2009).
Catalin Dima, Executive Director of Romtelecom’s Legal Department: "In 2007, Romtelecom’s action as directed at securing the stability and consistency of the regulatory framework for the Romanian telecommunications sector, as a necessary background for the company’s development. With respect to the tariffs for the interconnection with the mobile telephone networks, the company applied a similar strategy, based on the assumption that the security and consistency of the regulatory framework is in the interest of all operators in the market. Based on this reasoning, Romtelecom decided to withdraw its motion to contest ANRCTI’s decision 4774/ 2006 in court, given that that Vodafone Romania also decided to withdraw its motion against ANRCTI’s decision 436/2006 in court."
New regulations to be amended by stakeholders
In early 2008, ANRCTI launched for public consultation the revision of the interconnection provisions for the two leading fixed telephone operators, Romtelecom and RCS & RDS, as well as for the opportunity to regulate the interconnection with other 31 operators.
The regulatory measures subject to review relate to the providers’ position on the market. Thus, with respect to the interconnection with the RomTelecom network, ANRCTI proposes to maintain the entire set of obligations imposed to this operator by previous decisions. Moreover, ANRCTI aims to set up an unique tariff for each level of interconnection with the RomTelecom’s network, ending the current practice whereby interconnection tariffs are established based on the time elapsed.
Moreover, with regard to interconnection with the RCS & RDS network, ANRCTI proposes to maintain the duty of transparency and the obligation of allowing access and use of specific elements of the network and the related infrastructure. Besides, ANRCTI proposes that RCS & RDS comply with the duty of non-discrimination, as well as changing the obligation of tariff control. The same duties proposed to RCS & RDS are considered in connection with the third largest provider on the fixed telephone segment, UPC Romania.
At the same time, ANRCTI proposes constraints such as transparency, nondiscrimination, access and use of specific elements of the network and related infrastructure, as well as tariff control of the other 30 alternative providers on fixed telephone market. These obligations are justified by the need to ensure that the operators will not use the market power they hold – by virtue of the monopoly position with regard to the termination of calls in their own network – to the detriment of competitors, affecting the interests of the end users of telephone network services.
The obligation to control the tariffs, imposed on alternative operators, implies setting up a target-level of the interconnection tariff charged that equals on average RomTelecom’s average interconnection tariff at a regional level. RomTelecom’s interconnection tariff at a regional level was determined by ANRCTI on the basis of the hybrid costs calculation method and represents, in the Authority’s opinion, the cost of an efficient operator on the market, for services for call terminations at fixed locations, at least for the period of time covered by the market analysis conducted. ANRCTI proposes the gradual reduction of the current interconnection tariffs practiced by alternative operators in two stages, until the end of the year 2009. Thus, it is expected that the average interconnection tariffs of the operators that are still unregulated will drop after the decisions take effect, to the level of 1.15 eurocents/minute, and that on the January 1st, 2009, it is expected that the tariff will reach 0.97 eurocents/minute (the value of the average tariff of the interconnection with the Romtelecom network at a regional level).
The list of providers with significant market power for services relating to call termination at fixed locations in public telephone networks can be found on the Authority’s website; the list is preliminary in nature and may be subject to modifications following the review process. For this purpose, the Authority invites interested persons to express their opinion with regard to the need to expand or restrict this list, and with regard to any other aspects emphasized by the analysis, related to the definition of the relevant markets, suggested solutions etc.
After the conclusion of the public review period and the analysis of the observations and proposals received, according to the relevant norms of the European regulatory framework applicable to Romania based on its status as a EU member, ANRCTI shall notify the European Commission and the national regulatory authorities of the other member states of the set of measures proposed, including the definitions of the identified relevant markets, the designation of the providers with significant power, as well as the obligations which it intends to impose on the analyzed markets, together with the reasons for these measures. The European Commission and the other regulatory authorities may send ANRCTI comments and observations within a month of notification date, and ANRCTI must take them into account when adopting the set of proposed measures.
Involvement of the sector’s representatives
ANRCTI’s initiatives are permanently subject to public consultation as decision proposals are published on its website, and through discussions within the Consultative Council (a body which facilitates the dialogue between the Authority’s representatives, representatives of other governmental institutions, companies’ representatives active in this sector, and the representatives of the civil society). Thus, the sector representatives have the opportunity to express their opinions and offer suggestions for improving the secondary legislation issued by the Authority, before all the legislative texts have been published in the form decisions of the Authority’s president.
During discussions regarding secondary regulation framework, the sector’s representatives claimed the need to impose margins for maximum interconnection tariffs that could be charged, in particular by the former monopoly operator. The associations repeatedly emphasized the fact that the interconnection tariffs system does not ensure the conditions to eliminate the possibility of ’abuse’ on the part of significant operators. Moreover, they underlined the need to review the entire regulatory framework with regard to the interconnection tariffs in order to ensure an equal treatment or all operators on the market. These changes are currently underway.