Art. 7: Geographic segmentation in Poland

The Commission published its comments on the M5 analysis in Poland. This is interesting for geographic segmentation of market and remedies. In particular, it makes clear that LLU is necessary (in addition to end-to-end cable) to withdraw bitstream access. The Commission's comments are copied below: "Exclusion of allegedly competitive communes from the national geographic market Exclusion of allegedly competitive communes from the national geographic market The Commission notes that UKE excludes from the notified national geographic market 20 communes that (i) are, according to UKE, characterised by strong infrastructure competition, and (ii) exhibit a high degree of competition at retail level. UKE confirms in its reply to the request for information that it will adopt a separate decision concerning those 20 communes which are not covered by the present notification and notify the Commission and the national regulatory authorities in other Member States of a full market analysis covering market definition, SMP assessment and the resulting outcome concerning regulatory obligations. The Commission asks UKE to notify its draft measure concerning the 20 remaining communes without unjustified delay. The Commission further requests UKE to base this forthcoming market definition and analysis on a thorough analysis of all relevant structural (in particular market shares and its evolution over time and entry barriers) as well as behavioural factors (in particular differences in prices, product/service functionalities and marketing strategies). The forthcoming notification should take utmost account of the results of the currently pending national consultation and, in case the 20 communes in question are considered to form one single (subnational) geographic market, show that (i) competition conditions across these communes are sufficiently homogenous and (ii) the differences in demand and supply conditions compared to the presently notified major part of the Polishterritory are stable and significant enough to justify such definition of a separate market37. The Commission's assessment of the present notification is without prejudice to any future position of the Commission with regard to either UKE's forthcoming market analysis for the remaining 20 communes or other measures taken at EU level relating to broadband services in Poland. This includes the question whether it is justified that these communes constitute a separate market from the rest of the Polish territory and whether the exact delineation of the currently notified market should be reassessed in the light of the market analysis to be carried out for the forthcoming notification. Furthermore, the Commission recalls that in the meantime the currently applicable SMP obligations in the 20 communes will remain in force until the relevant measure is consulted at national and EU levels and subsequently adopted Geographic variation of remedies within the notified geographic market UKE defines one relevant geographic market, but distinguishes between three different groups of communes and proposes to vary remedies between these groups. The Commission notes that the regulatory framework does not preclude the imposition of different remedies in the same relevant market, in cases where differences in competitive conditions are observed but the evidence may not be such as to justify the definition of sub-national markets.38 In this regard, the Commission acknowledges that UKE does not find variations of competition between the three groups of communes strong and stable enough to justify the definition of sub-national markets; in particular, TP still applies the same pricing policy across the three groups of communes identified and both the level of customer shares at retail level and the regionally diverging existence of infrastructure competitors seem to indicate that some communes exhibit competitive features such as to deserve different, less intense regulatory remedies to redress the competition problem observed. UKE's finding of a, in principle, national geographic market and the imposition of differentiated remedies is, therefore, not challenged by the Commission. However, the Commission would like to draw UKE's attention to the fact that it is questionable whether the mere assessment of the number of operators present in an administrative unit (i.e. the commune) and their market shares at retail level is a sufficiently elaborated criterion to distinguish between areas with more intense remedies and areas with less intense remedies. While the Commission takes note of UKE's view that competition on the retail broadband market is in Poland rather driven by the rollout of parallel end-to-end networks, and in particular by the presence of cable-TV networks and LAN operators, it points out that, in some areas, it cannot be discarded that competition may as well be driven by the presence of LLU operators which are still relying on TP's copper loop, in a context where DSL still accounts for around 50 % of the retail broadband connections in Poland. Therefore, in addition to the number of end-to-end network infrastructures present in a given commune and their respective customer shares, the Commission invites UKE to undertake a more granular analysis when grouping together those local exchanges, which display sufficiently homogenous conditions of competition. In this respect, while the Commission is not challenging UKE's approach to differentiate remedies within the notified market, additional factors such as the presence of LLU operators in the footprint of the exchanges belonging to a commune and the development of LLU coverage in a given commune would be appropriate to assess the level of entry barriers and differentiate between areas with the need for either more or less intense regulation. Furthermore, in order to appropriately assess the replication of TP's network in a given area and consequently the intensity of competition, the Commission invites UKE to provide more precise information in its final measure regarding the network upgrade and investment strategies of the end-to-end infrastructure operators, including TP's migration plans towards NGA. Also, the Commission would like to stress that any relaxation of remedies should be supported not only by the presence of infrastructure competition but also by evidence that the successful imposition of physical access remedies were to render additional bitstream remedies redundant. In this respect the Commission regrets that UKE – in its adopted measure concerning market 4 – decided to impose only conditional access to unbundled fibre loops/sub-loops. The Commission therefore reiterates its previously expressed position that UKE should withdraw the "conditionality clause" associated with the fibre unbundling access obligation. Otherwise alternative operators in Poland, in particular those who provide their services in group 2 and 3 communes, may be unnecessarily hindered to migrate their customers from partially liberalised bitstream market to the next step of the ladder of investment i.e. local loop. Lack of price regulation and monitoring of market developments The Commission notes that UKE proposes to withdraw the price control remedy for group 2 given TP's limited share of retail customers and the potential of infrastructure competition in the majority of the communes concerned. However, the Commission also notes that in some group 2 communes TP's share of retail customers remains in excess of 30 %. The Commission would, therefore, invite UKE to consider maintaining a price control obligation for these communes. With regard to group 3 communes, which are understood by the Commission to be mainly located in rural areas, the demand for broadband services is currently mainly met by small-scale local operators. However, TP is already providing voice services in those areas and already acquired a customer base. Should consumer demand change and TP start providing retail broadband services, a new analysis of the new competitive conditions and a re-assessment of the need to impose additional remedies might be required. In any event, the Commission invites UKE to regularly re-assess the appropriateness of remedies proposed for group 2 and group 3 communes and consider modifications if justified and appropriate. In this context, the Commission takes note of UKE's clarification provided in its response to the request for information that even in those areas where no price control is mandated (i.e. groups 2 and 3), UKE will be in a position to apply a margin squeeze test. In order to have the necessary tools available to carry out such test, the Commission invites UKE to maintain the accounting separation obligation in all three groups of communes. The Commission would also like to ask UKE to adapt its currently used margin squeeze test, which only relates to copper-based access products, with the relevant cost data for fibre-based products. This would ensure that the proposed relaxation of price regulation is not detrimental to competition based on fibre-based WBA"