The European Commission has opened an in-depth investigation into proposed high fixed termination rates for 74 smaller operators in Germany. Despite having developed a cost model in line with EU rules, the German regulator (BNetzA) calculates rates based on international benchmarking. BNetzA follows the same approach used to set Deutsche Telekom's rates and which led to a Commission recommendation in June 2017 asking the regulator to amend or withdraw the proposal.

 

Today the European Commission opened an in-depth investigation concerning the German regulator's (BNetzA) proposal to set fixed termination rates (FTRs) for 74 smaller operators, other than Deutsche Telekom, at a level over six times higher than what is recommended by the EU.

On 23 June 2017, the Commission - fully supported by the Body of European regulators (BEREC) - already requested BNetzA to amend or withdraw a similar proposal in relation to Deutsche Telekom's rates, in order to bring it in line with EU telecom rules. BNetzA was asked to communicate its decision to the Commission by 23 July 2017.

In the current case, concerning all other fixed telephone operators, the Commission has the same serious concerns as to the compatibility of BNetzA's draft measures with the EU telecoms framework. The current proposals, if implemented, would set the rates for alternative operators at the same level as those originally proposed for Deutsche Telekom. The rates are based on an international benchmarking approach despite BNetzA having developed a cost model in line with the EU regulatory framework. In particular, the proposed rates would result in FTRs being over six times higher than the level based on operators' efficient costs, resulting in significantly higher prices for German and EU consumers calling to Germany.

The Commission now has three months to discuss the draft measure relating to 74 alternative operators with BNetzA, in close cooperation with the body of European regulators (BEREC). The Commission may, at the end of the investigation period, either lift its reservations or issue a Recommendation under Article 7a of the Framework Directive, which will require BNetzA to amend or withdraw its draft measure.

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 for Deutsche Telekom 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.

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 an "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 and to set the fixed termination rates on the basis of the 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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