EUROPEAN COMMISSION. Commission Decision concerning Case CY/2012/1398: Wholesale Access Services for the distribution of TV content to the end users

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1 EUROPEAN COMMISSION Brussels, C(2012) 9838 Γραφείο Επιτρόπου Ρυθμίσεως Ηλεκτρονικών Επικοινωνιών Και Ταχυδρομείων (OCECPR) Helioupoleos Λευκωσία Cyprus For the attention of: Mr. Polis Michaelides Commissioner Fax: Dear Mr. Michaelides, Subject: Commission Decision concerning Case CY/2012/1398: Wholesale Access Services for the distribution of TV content to the end users Comments pursuant to Article 7(3) of Directive 2002/21/EC I. PROCEDURE On 15 November 2012, the Commission registered a notification by the national regulatory authority of Cyprus, the Office of the Commissioner of Electronic Communications and Postal Regulation (OCECPR) 1 concerning the second review of the market for wholesale access services for the distribution of TV content to end users 2 in Cyprus. The national consultation 3 ran from 26 October 2012 to 9 November Under Article 7 of Directive 2002/21/EC of the European Parliament and of the Council of 7 March 2002 on a common regulatory framework for electronic communications networks and services (Framework Directive), OJ L 108, , p. 33, as amended by Directive 2009/140/EC, OJ L 337, , p. 37, and Regulation (EC) No 544/2009, OJ L 167, , p. 12. Corresponding to Market 18 in Commission Recommendation 2003/311/EC of 11 February 2003 on relevant product and service markets within the electronic communications sector susceptible to ex ante regulation in accordance with Directive 2002/21/EC of the European Parliament and of the Council on a common regulatory framework for electronic communications networks and services, OJ L 114, , p. 45. In accordance with Article 6 of the Framework Directive. Commission européenne/europese Commissie, 1049 Bruxelles/Brussel, BELGIQUE/BELGIË - Tel

2 On 28 November 2012, a request for information 4 was sent to OCECPR and a response was received on 3 December Pursuant to Article 7(3) of the Framework Directive, national regulatory authorities (NRAs), the Body of European Regulators for Electronic Communications (BEREC) and the Commission may make comments on notified draft measures to the NRA concerned. II. DESCRIPTION OF THE DRAFT MEASURE II.1. Background The first review of the market for wholesale access services for the distribution of TV content to end users was assessed by the Commission under case CY/2006/ OCECPR considered five different product markets 6, excluded from the relevant markets cable, XDSL as well as satellite and digital terrestrial transmission, and concluded that none of the wholesale markets met the three-criteria-test and therefore was susceptible to ex ante regulation. OCECPR referred to the State regulation applicable in Cyprus, under which the Radio Television Authority of Cyprus (RAC) was empowered to granting licences for the establishment, installation and operation of radio and television services, with each licensed station being responsible to install its own broadcast network or to share masts and sites if necessary. OCECPR concluded that, in particular, given the presence of 5 competing analogue terrestrial broadcast networks providing nation-wide coverage and the fact that there was no indication of refusal to supply transmission services, no ex ante regulation was warranted on the markets for analogue television transmission. Furthermore, the market for analogue radio transmission was characterised by low entry barriers. The Commission had no comments. II.2. Market definition OCECPR explains that the market structure has changed since the last market review with the transition from analogue to digital transmission. TV channels now use digital terrestrial broadcasting services, IPTV services and cable TV services to broadcast their contents. 7 Furthermore, the majority of viewers watch local TV channels broadcasted through digital terrestrial services. 8 OCECPR, therefore, identifies two relevant markets for the distribution of TV content to end-users: the market for digital terrestrial broadcasting services 9 and the market for digital non terrestrial TV broadcasting In accordance with Article 5(2) of the Framework Directive. SG-Greffe(2006) D/ (1) local analogue terrestrial radio broadcasting services, (2) nation-wide analogue terrestrial radio broadcasting services, (3) local analogue terrestrial television broadcasting services, (4) nation-wide analogue terrestrial television broadcasting services, and (5) digital broadcasting services. Local TV channels do not use satellite services as broadcasting means. OCECPR explains that at retail level 55% of the households watch free local TV channels via digital terrestrial services while 28% watch them via IPTV, and 6% via cable TV. In addition, 9% of the households watch paid satellite channels and 7% watch paid digital terrestrial TV channels. Assessing demand side substitution, OCECPR finds that TV channels choose to be broadcasted via terrestrial digital broadcasting because this platform has the wider coverage (nation-wide) and because this is the only one viewers can watch free of charges. Assessing supply side substitution, OCECPR explains that only one broadcasting platform (Velister) has been granted in 2011 with a commercial 2

3 services 10. II.3. Three criteria test OCECPR assesses the competitive conditions on the two relevant markets and concludes that the market for digital terrestrial broadcasting services meets the three criteria test. OCECPR points in particular to the existence of legal barriers to entry because only one monopolistic operator (i.e. Velister 11 ) has been granted with a license to provide digital terrestrial broadcasting services to TV channels in Cyprus. With the transition to digital transmission, the Cypriot government has taken the decision to restrict the licenses of broadcasting services in order to avoid duplication of networks and make savings. This situation will not change under the market review since following the tendering process organized by the Cyprus State, only one exclusive license for commercial digital terrestrial broadcasting services on a nation-wide scale has been granted in 2011 for a period of fifteen years. Therefore, no entry is expected on this market. On the market for digital non terrestrial TV broadcasting services several alternative platforms (IPTV and cable TV) are present and effectively competing. Entry barriers are low and therefore the three criteria test is not met. II.4. Finding of significant market power OCECPR intends to designate Velister as having SMP in the market for digital terrestrial broadcasting services. The main criteria considered by OCECPR when reaching its conclusion on SMP include: market shares (i.e.100%), the structure of the market (i.e. de facto monopolistic given the licensing regime) and legal barriers to entry (i.e. without a license granted by the State, entry in the market is not possible). II.5. Regulatory remedies OCECPR proposes to impose on Velister the following obligations: (i) access to and shared use of the facilities should be granted to the licensees of TV content, (ii) nondiscrimination; (iii) transparency, including the publication of a reference offer, (iv) accounting separation; (v) and price control (i.e. cost-orientation). OCECPR explains that in order to allow other local TV channels that may not belong to the Velister consortium to broadcast their content and have access to the monopolistic provider, access terms and conditions must be regulated. III. COMMENTS The Commission has examined the notification and the additional information provided by OCECPR and has the following comments: license to transmit digital terrestrial television signals. OCECPR mentions as well the existence of a second operator (RIK) which is State controlled and cannot commercially provide digital terrestrial broadcasting services. OCECPR explains that digital broadcasting services are provided as well over two IPTV networks and one cable operator, but that those services cannot be considered as a substitute to digital terrestrial broadcasting services because the provision of such services are limited to the geographical coverage of each network and because viewers have to subscribe in addition to an IPTV or to a cable TV service. Velister is a consortium consisting of local TV channels: Antenna, Mega, Sigma TV, Plus TV, LTV and Alpha, and of internet providers Primetel and Cablenet. In accordance with Article 7(3) of the Framework Directive. 3

4 Need to monitor the effectiveness of ex ante regulation The market for broadcasting transmission services is no longer recommended by the Commission for ex ante regulation, as greater platform competition and fewer capacity constraints, mainly due to the transition from analogue to digital transmission platforms, should render it effectively competitive. In the Cypriot circumstances, the Commission recognises, however, that given the specificities of the relevant market as delineated by OCECPR and the legal environment in Cyprus, i.e. the monopolistic licensing regime, the market for terrestrial digital broadcasting services warrants ex ante regulation. However, the Commission would like to emphasise that the exclusive licensing regime chosen in Cyprus constitutes a legal barrier to market entry for other terrestrial digital transmission service providers and hinders the development of competition on the market for the foreseeable future. The Commission would like to stress that such a licensing regime, which falls under the responsibility of the Cypriot Government, makes it extremely difficult for the NRA to promote competition in the provision of electronic communications networks and services as specified under Article 8(2) of the Framework Directive and may unnecessarily prolong ex ante regulation of the relevant market. The Commission notes as well that although the majority of the viewers in Cyprus watch local TV channels broadcasted through the digital terrestrial platform, most of the channels are also broadcasted via alternative platforms (IPTV and cable TV). Further to that, data provided by OCECPR show that the number of subscribers to those platforms has increased recently 13 and that the coverage of IPTV, in particular, could reach a significant scale 14. Notwithstanding the monopolistic licensing regime applicable on the market for terrestrial digital broadcasting transmission services, the Commission, therefore, invites OCECPR to verify regularly over the review period the state of competition between the broadcasting platforms in Cyprus and therefore the need for regulation of the relevant market at stake. Pursuant to Article 7(7) of the Framework Directive, OCECPR shall take the utmost account of the comments of other NRAs, BEREC and the Commission and may adopt the resulting draft measure; where it does so, shall communicate it to the Commission. The Commission s position on this particular notification is without prejudice to any position it may take vis-à-vis other notified draft measures. Pursuant to Point 15 of Recommendation 2008/850/EC 15 the Commission will publish this document on its website. The Commission does not consider the information contained herein to be confidential. You are invited to inform the Commission 16 within three From 66,722 subscribers in Q to 81,714 subscribers in Q One IPTV provider covers already around 95% of the population. Furthermore, OCECPR mentions the regulation imposed on the wholesale broadband markets aiming at the provision of IPTV services. Commission Recommendation 2008/850/EC of 15 October 2008 on notifications, time limits and consultations provided for in Article 7 of Directive 2002/21/EC of the European Parliament and of the Council on a common regulatory framework for electronic communications networks and services, OJ L 301, , p. 23. Your request should be sent either by or by fax:

5 working days following receipt whether you consider that, in accordance with EU and national rules on business confidentiality, this document contains confidential information which you wish to have deleted prior to such publication. 17 You should give reasons for any such request. Yours sincerely, For the Commission, Robert Madelin Director-General 17 The Commission may inform the public of the result of its assessment before the end of this three-day period. 5

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