Radio Access Network sharing agreement between Telia Denmark A/S and Telenor A/S

On February 29 2012 the Danish Competition Council (DCC) cleared a case concerning a horizontal production agreement in the mobile telecommunications sector. The clearance is subject to conditions.

Telia Denmark and Telenor A/S plan to implement a network sharing agreement via a joint venture, Newco, by which they will jointly own, control and develop the RAN-infrastructure (Radio Access Network) needed for their respective businesses. RAN is a component in the production of mobile telecommunications (mobile telephony and mobile broadband). The purpose of the parties’ agreement is to optimize their respective businesses by obtaining efficiency gains, i.e. cost reductions and the creation of a better network in terms of better coverage and technology.

The DCC finds that the network sharing agreement does entail a better and more efficient network for Telia’s and Telenor’s individual businesses. This improved coverage and improved availability of technology of and in the parties’ respective networks is beneficial to the consumers. However, the DCC has identified six issues which give rise to anti-competitive concerns. Five of these issues are solved by commitments offered by the parties. Accordingly, the DCC has no grounds for action according to TFEU article 101(1) and Section 6 of the Danish Competition Act. The latter issue meets the criteria for individual exemption in TFEU article 101(3) and Section 8 of the Danish Competition Act.

Facts

The parties to the agreement, Telia Denmark and Telenor A/S, are mobile operators in Denmark. They plan to implement a network sharing agreement via a joint venture, Newco, by which the operators jointly own, control and develop their RAN-infrastructure (Radio Access Network). RAN is a component in the production of mobile telecommunications (mobile telephony and mobile broadband).

The RAN sharing agreement comprises sharing of the physical RAN-infrastructure (masts and antennas), but also frequency resources. The cooperation via the network sharing agreement involves all mobile technologies (2G, 3G, LTE, and potentially LTE-advanced). Newco’s network covers the entire Danish territory. The parties will not share the “intelligent” part of their respective mobile networks (i.e. the core networks) where the different services and customer data are defined, as well as some parts of their individual transmission capacity. The parties will thus remain separate mobile operators on both the wholesale and retail markets.

Besides the parties, there are two other mobile operators in Denmark: TDC (the largest operator on the retail level) and Hi3G (“3”). Telenor and Telia are respectively number 2 and 3 on the retail markets for mobile telephony and number 1 and 3 on the wholesale market.“3” is not active on the wholesale market.

The purpose of the parties’ agreement is to optimize their respective businesses by obtaining efficiency gains, i.e. cost reductions and the creation of a better network in terms of better coverage and technology. Finally the parties’ ambition is to create a network that is competitive to the incumbent’s (TDC’s) mobile network with respect to coverage and technology.

Legal assessment

The DCC finds that the parties’ network sharing agreement may infringe TFEU Article 101 (1) and section 6 of the Danish Competition Act.

The DCC concludes that the cooperation agreement may have an anti-competitive impact on the market for access to sites (for mobile antennas), the wholesale market for mobile telephony and mobile broadband, the retail market for mobile telephony and mobile broadband and finally a market for purchase of frequency licenses. The DCC has left the final market definitions open, since the assessment of the agreement does not change irrespective of the final market definitions.

The DCC has identified the following anti-competitive concerns:

1. The agreement may increase the risk of a collusive outcome on the wholesale market for mobile telephony and mobile broadband in Denmark.
2. The tariff structure initially chosen by the parties to recover the joint venture’s costs from the parties may change the underlying cost structure of the Radio Access network compared to the situation before the agreement in a way that converts fixed costs into variable costs. This can reduce the parties’ incentives to compete and attract new customers.
3. The parties may obtain a joint amount of frequency resources that in the long term significantly exceeds that of the competing operators.
4. The parties will reduce the number of antennas and masts in their common Radio Access network, which may create coverage problems for competitors that rent antenna positions on the parties’ masts.
5. The agreement increases the risk of exchange of commercially strategic information that exceeds the sharing of data necessary for the joint production of the goods subject to the network sharing agreement.
6. The agreement reduces competition on significant parameters such as coverage and the development and spread of new technology (LTE, LTE-Advanced). This is due to the fact that these parameters are solely defined in the Radio Access network. The agreement implies that the parties’ respective Radio Access networks are integrated and the parties’ mobile coverage and supply of mobile technologies will thus become identical.

The parties have submitted commitments which solve the first five concerns mentioned above.

Regarding the last concern, the DCC finds that, since the parties have provided sufficient proof that the conditions set out in TEUF article 101 (3) and the corresponding article in the Danish Competition Act are fulfilled, there are no grounds for action on this point.

On that basis the DCC finds that there are no grounds for action according to TEUF article 101(1) and Section 6 of the Danish Competition Act.

The commitments

The DCC has adopted a decision by which the council clears the network sharing agreement subject to a series of commitments offered by the parties.

The commitments are the result of a series of prima facie competition concerns raised by the Danish Competition and Consumer Authority. The parties have agreed to the commitments summarized below in order to resolve the concerns mentioned above:

In re concern no. 1: The parties will accept all requests from wholesale customers to buy mobile telephony and mobile broadband on customary and market conditions.

In re concern no. 2: The parties will pay the commonly owned joint-venture for its supply of Radio Access-capacity according to a tariff structure that at all times reflects the underlying cost structure of the Radio Access network.

In re concern no. 3: In the future the parties are obliged to buy frequency licenses in common (through the joint venture). This secures against a situation where the parties buy spectrum separately and afterwards pool the obtained frequency resources in the joint venture, thus gaining access to an overall larger amount of spectrum.

In re concern no.4: The parties are obliged to sell or let the antenna sites that prove to be superfluous to any interested player on the market.

In re concern no. 5: The parties adopt a set of restrictions regarding the appointment of the members of the Board of the joint venture, the employment of the Management and employees of the joint venture, the information that may be exchanged within the joint venture and between the joint venture and the parties, etc.