26. april 2006
Journal nr. 4/0120-0100-0004/ISA/FIB/CHJ
The Council Meeting 26 April 2006
On 26th April 2006 the Competition Council adopted a decision requesting five telecoms operators to reduce their prices for access to each others mobile masts. The background is that the mobile operators are all parties to an industry agreement which set out the principles for the price calculation used by the mobile operators when they hire out positions on their mobile masts to other mobile operators. This industry agreement had an individual exemption, however, the Danish Competition Council concluded that the exemption could not be renewed as the agreement would lead to very high prices.
The telecom operators are members of the organisation – Telecoms Industries Association in Denmark - which in turns forms part of the larger organisation -The Confederation of Danish Industries (DI). The Telecoms Industries Association in Denmark and the telecoms operators have entered into an agreement for the telecom industry whereby they have agreed on the principles used for the price calculations when the operators hire out aerial positions located on their mobile masts of less than 50 meters.
In 2003 the Competition Council gave the industry agreement an individual exemption for a 3-year period based on Section 6, 1st paragraph of the Danish Competition Act. The exemption was based on the assumption that the agreement would lead to advantages for the consumers due to a more efficient use of the infra structure. It was also found that the agreement would lead to advantages for the environment. The agreement would in particular reduce the need to build new masts and would thereby lead to a more efficient use of the existing masts already established by the different mobile operators. Finally, it was concluded that the agreement could facilitate the access for new mobile operators to the Danish market for mobile telephony.
The industry agreement would expire on 29th October 2006 and the Competition Authority initiated the assessment of the agreement in order to give the parties enough time before the expiry of the exemption if it proved necessary to amend the agreement in order for the parties to apply for a new exemption under section 8, 1st paragraph of the Competition Act.
The Competition Authority initiated the assessment of the industry agreement after having received information from the Danish National IT and Telecom Agency suggesting that telecom operators such as Tele Danmark and SONOFON earned significant profits from hiring out aerial positions located on their mobile masts to the other operators. The Danish National IT and Telecom Agency urged the Danish Competition Authority to initiate a closer examination of the price calculations in the above-mentioned industry agreement.
On this basis, the Danish Competition Authority examined the principles for the price calculations in the agreement as well as the underlying costs of establishing new masts. The Competition Authority found that the agreement had three significant effects:
The object of the agreement is to secure that the existing mobile masts are used commonly for mobile communication. This leads to an efficient use of the infrastructure and protects the environment.
- The object of the agreement is to secure that the parties use the same principles for their prices calculations.
- The agreement leads to higher prices than the prices based on the actual costs.
In its assessment in 2003 the Competition Authority took the two first effects into account, however, at the time it was not possible to assess the effects of the prices which the agreement would lead to. On that basis, the Authority issued a 3-year individual exemption.
The recent examination by the Competition Authority proved that the agreement leads to high prices resulting in significant surpluses for some of the parties to the agreement when they hire out the above-mentioned positions on mobile masts to the other operators. This is due to the fact that some operators have had a first mover advantages as they have been on the market for longer period than new entrants whereby the former have had more time to establish many mobile masts across the country.
The prices resulting from the principles in the industry agreement were significantly higher than what could be explained by the actual costs of establishing the masts with the addition of a reasonable profit (mark-up). The high prices proved to be a significant problem for new entrants having recently entered the Danish marked for mobile telephony. The reason is that the new entrants normally rent more aerial positions on the mobile masts of the more established operators than the amount of positions the latter are able to hire out themselves to other operators.