The Commission today issued a recommendation, requiring the German telecoms regulator (BNetzA) to lower the termination rates charges by smaller operators of fixed lines to competitive levels. The rates proposed by BNetzA, while no longer using the previously criticised LRAIC+ methodology, are calculated by BNetzA based on an international benchmarking exercise. BNetzA proposes to do so, however, despite the fact that it had run the recommended pure BU-LRIC model for Germany and in doing so, arrived at rates significantly lower than those now proposed.

Today the European Commission issued a second recommendation for Germany on the fixed termination rates (FTRs), as the German regulator BNetzA's proposed rates to be charged by smaller operators were not in line with the EU telecoms regulatory framework. On 23 June 2017 the European Commission issued a similar recommendation concerning the FTRs of Deutsche Telekom

BNetzA proposed to base FTRs for smaller operators (as well as for Deutsche Telekom) on an international benchmarking approach despite having developed a cost model in line with the EU regulatory framework. The proposed rates would result in FTRs being over six times higher than the level calculated by BNetzA itself based on operators' efficient costs, resulting in significantly higher prices for German and EU consumers (calling to Germany) than would otherwise prevail.

The Body of European regulators (BEREC) expressed its full support for the Commission's position.

Following a three-month in-depth investigation, the Commission supported by the Body of European regulators (BEREC), now requests BNetzA to withdraw its proposal or to amend it in order to bring the FTRs for smaller operators for the period of January 2017 until December 2018 in line with the EU telecom rules. BNetzA is asked to communicate its decision to the Commission by 11 December 2017.

Background

Termination rates are the rates telecoms networks charge each other to deliver calls between networks, and each operator has market power over access to customers on its own network. These costs are ultimately included in call prices to the detriment of consumers and business.

BNetzA had first calculated the FTRs according to its own pure BU-LRIC model developed in line with the Commission Termination Rates Recommendation. However, as the rates coming from its own model proved to be significantly below the average of the other Member States which applied pure BU-LRIC, BNetzA later decided to apply an EU benchmark. BNetzA's benchmarking approach used as the relevant benchmark those Member States which apply the recommended pure BU-LRIC cost model.

In light of low rates resulting from BNetzA's pure BU-LRIC model the Commission – when opening the in-depth investigation – invited BNetzA to assess whether the used parameters in its model are, indeed, comparable to those used in other MS. However, during the in-depth investigation, BNetzA underlined the correctness of its model and remained committed to set FTRs based on an EU benchmark approach. 

As a result BNetzA's proposal, if adopted, would allow the operators in Germany to charge FTRs over six times higher than the rates calculated with BNetzA's own pure BU-LRIC model, which calculates the efficient costs of such services in Germany. BNetzA justified this adjustment with the objective to harmonise termination rates at EU level and reduce the difference between individual rates in the different MS in order to contribute to the development of the internal market. The objective of the Termination Rates Recommendation, however, is not to harmonise the absolute level of termination rates in the EU, but to ensure a consistency in the approach and methodology to set such rates. The Commission's recommendation is not aimed at restricting NRAs ability to set lower prices if they reflect the true costs of an efficient operator and, thus, best simulate and "as-if-competition" price.

In the past, the European Commission and BEREC have requested the German telecoms regulator to set fixed termination rates based on the recommended BU-LRIC methodology. In its previous decision in 2016, BNetzA proposed to change its costing methodology, previously based on an LRAIC+ approach (resulting in significantly higher FTRs), and to set the FTRs on the basis of the pure BU-LRIC methodology; the Commission made no comments on that notification. However now, BNetzA has notified its decision, in which it proposes to approve the fixed termination rates significantly above the results of BNetzA's own BU-LRIC model results.

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