ITALY: SECTION 1377 REVIEW OF TELECOMMUNICATIONS

UNCLAS ROME 001226 SIPDIS DEPT PASS USTR FOR SCHAGRIN; EB/CIP - TFINTON; COMMERCE FOR NTIA SPECK E.O. 12958: N/A TAGS: ECPS ETRD IT EUN SUBJECT: ITALY: SECTION 1377 REVIEW OF TELECOMMUNICATIONS AGREEMENTS - ADDITIONAL INFORMATION REF: A. ROME 119 ¶B. SECSTATE 50683 ¶1. IN RESPONSE TO QUESTIONS POSED IN REFTEL B, POST RECEIVED THE FOLLOWING WRITTEN COMMUNICATION FROM THE COMMUNICATIONS AUTHORITY (ITALY'S EQUIVALENT OF THE FCC): ¶2. QUESTION: HOW DOES ITALY DEFINE "SIGNIFICANT MARKET POWER" IN TELECOMMUNICATIONS AND HOW DOES THIS RELATE TO ITS REGULATORY COMMITMENTS UNDER THE WTO? ¶3. RESPONSE: ITALY APPLIES THE CONCEPT OF "SIGNIFICANT MARKET POWER" (SMP) AS DEFINED BY EUROPEAN COMMUNITY LAW, AND THUS, ITALY COMPLIES WITH ITS REGULATORY COMMITMENTS UNDER THE WTO. AS THE USG IS AWARE, A NEW REGULATORY FRAMEWORK (NRF) FOR TELECOMMUNICATIONS WILL ENTER INTO FORCE IN JULY 2003. UNDER THE 1998 REGULATORY PACKAGE, AN OPERATOR IS PRESUMED TO HAVE SMP WHEN ITS MARKETS SHARE EXCEEDS 25 PERCENT. MARKET SHARE ALONE IS, HOWEVER, NEITHER A NECESSARY NOR A SUFFICIENT CONDITION FOR AN SMP FINDING. EUROPEAN LAW REQUIRES THAT OTHER FACTORS BE TAKEN INTO ACCOUNT, SUCH AS: THE ORGANIZATION'S ABILITY TO INFLUENCE MARKET CONDITIONS; ITS TURNOVER RELATIVE TO THE SIZE OF THE MARKET; ITS CONTROL OF THE MEANS OF ACCESS TO END-USERS; ITS ACCESS TO FINANCIAL RESOURCES AND ITS EXPERIENCE IN PROVIDING PRODUCTS AND SERVICES IN THE MARKET. UNDER THE NRF, AN SMP OPERATOR IS DEFINED AS AN UNDERTAKING ENJOYING (INDIVIDUALLY OR JOINTLY WITHIN A CONSORTIUM, E.G.) A POSITION OF ECONOMIC STRENGTH AFFORDING IT THE POWER TO BEHAVE TO AN APPRECIABLE EXTENT INDEPENDENTLY OF COMPETITORS, AND ULTIMATELY, CONSUMERS. IN IMPLEMENTING SUCH A DEFINITION, NATIONAL REGULATORY AUTHORITIES (NRAS) ARE REQUIRED TO APPLY THE PRINCIPLES OF EUROPEAN COMPETITION LAW. THE NRF EMPHASIZES THE NEED FOR SOUND ECONOMIC ANALYSIS OF RELEVANT MARKETS UNDER A CASE-BY-CASE APPROACH, USING EUROPEAN ANTI-TRUST JURISPRUDENCE - WHERE APPLICABLE TO EX-ANTE REGULATION - AS A BLUEPRINT FOR ACTION. WE BELIEVE THAT ITALY IS ALREADY IMPLEMENTING THIS NEW APPROACH WITHIN THE CONSTRAINTS OF THE OLD REGIME (SEE ALSO NEXT ANSWER) WITH A VIEW TO IMPROVING MARKET PERFORMANCE AND INCREASING CONSUMERS' WELFARE, AND IN DOING SO, FULLY COMPLYING WITH ITS WTO OBLIGATIONS. ¶4. QUESTION: SINCE ITALIAN MOBILE OPERATORS DISCRIMINATE BY CHARGING OTHER MOBILE OPERATORS LESS THAN WHAT THEY CHARGE FIXED LINE OPERATORS FOR WHAT APPEARS TO BE A LIKE SERVICE OF TERMINATION, IS THAT THE GOI/THE COMMUNICATIONS AUTHORITY CONCERNED THAT THERE MIGHT BE INCONSISTENCY WITH ITALY'S NON-DISCRIMINATION OBLIGATION UNDER THE GATT'S TELECOMMUNICATIONS ANNEX? ¶5. RESPONSE: WE DO AGREE THAT REGULATION OF MOBILE TERMINATION IS A VERY PRESSING ISSUE, ONE IN WHICH THE NRF CAN HELP BRING ABOUT NEW AND BETTER REGULATION FROM THE OPERATORS' AND, ULTIMATELY, THE CONSUMERS' POINT OF VIEW. AS YOU ARE AWARE, AFTER A LONG DEBATE, THE EUROPEAN COMMISSION DECIDED TO IDENTIFY A SEPARATE RELEVANT MOBILE TERMINATION FOR EACH OPERATOR, AND REQUIRE NRAS TO ANALYZE IF MARKET CONDITIONS ARE SUCH THAT OPERATORS ARE ABLE TO REAP EXTRA-PROFITS IN PROVIDING THESE SERVICES. THIS UNDOUBTEDLY REPRESENTS A STEP FORWARD IN THE REGULATION OF THESE MARKETS AS COMPARED TO THE OLD REGIME, WHERE, FOR A START, TERMINATION MARKETS COULD BE CONSIDERED AS PART OF THE LARGER INTERCONNECTION MARKET, WHICH COVERED BOTH MOBILE AND FIXED MARKETS. WHILE WE CANNOT, AT THIS MOMENT, ANTICIPATE TO WHAT EXTENT THE CURRENT REGULATION OF FIXED-TO-MOBILE AND MOBILE-TO-MOBILE TERMINATION WILL CHANGE UNDER THE NRF, WE COULD NOT RULE OUT SOME FORM OF ASYMMETRY BETWEEN THE TWO TYPES OF SERVICES. IN FACT, WHILE THERE IS SOME COMPETITIVE DISCIPLINE IN THE MOBILE-TO-MOBILE AVERAGE RETAIL TERMINATION RATES, SINCE OPERATORS ARE COMPETING WITH ONE ANOTHER TO ATTRACT CUSTOMERS, THIS IS NOT THE CASE WHEN THE TWO NETWORKS ARE NOT CLOSE SUBSTITUTES (AS FIXED AND MOBILE NETWORKS ARE, AT LEAST UNDER CURRENT TECHNOLOGY AND DEMAND CONDITIONS). ¶6. END WRITTEN COMMUNICATION FROM THE COMMUNICATIONS AUTHORITY. SEMBLER NNNN 2003ROME01226 - Classification: UNCLASSIFIED