Development of subscriber connection rents and the market in 2014–2015

Published 06.08.2015

In the spring of 2015, FICORA set maximum amounts for the prices of subscriber connections for the five largest significant market power operators. Through these decisions, FICORA obligated the operators to lower their wholesale prices to a cost-oriented level.

In Finland, the majority of properties are connected to the telecommunications network by only one leased line. By renting out these subscriber lines implemented with subscriber connections from each other, telecommunications operators can also offer subscriptions to consumers outside their own network, for example, and thus create choices for users through their supply.

A total of 24 telecommunications operators have a significant market power (SMP) position in the wholesale market concerning these rented subscriber connections. An obligation to rent out both metallic and fibre-optic subscriber connections at a cost-oriented price has been imposed on five of the most significant operators from the point of view of the market, i.e. Anvia Telecom Ltd, DNA Ltd, Elisa Corporation, Lounea Oy, and TeliaSonera Finland Oyj. Other SMP operators must rent out subscriber connections on non-discriminating terms and conditions and at non-discriminating prices.

In 2014, FICORA examined the pricing of subscriber connection products by the five largest SMP operators. In October 2014, FICORA presented its view of the cost-oriented price level of the subscriber connection products and the principles for the assessment of prices. Because the operators did not lower their prices to the level presented by FICORA at their own initiative, FICORA took supervisory action in the matter.

The median of the monthly rent of a subscriber connection implemented with metallic local loops increased by 2 per cent between May 2014 and May 2015, and was EUR 12.85/month in May 2015. The median of the connection fee fell by 4 per cent to EUR 100.39 during the same period of time. Monthly fees vary between EUR 9.19–20.10 per month, and connection fees between EUR 75–161.46. The increase in the median prices of a subscriber connection implemented with metallic local loops is due to the fact that two telecommunications operators increased the monthly rents of the subscriber connection by 8–18 per cent compared to the prices in May 2014. During the review period, none of the operators decreased their monthly fees, and one operator decreased its connection fee by 5 per cent.

The median of the monthly rent of a fibre-optic subscriber connection (one fibre) remained unchanged during the corresponding period at EUR 140.00 per month, and the median of the connection fee increased by 1 per cent to EUR 282.50. Monthly fees vary between EUR 95–250 per month, and connection fees between EUR 163–735. Compared to the prices charged a year previously, in May 2015 the connection fees of fibre-optic subscriber connections (one fibre) had decreased by 3–56 per cent with five telecommunications operators. Four operators had decreased their monthly fees by 17–55 per cent. During the review period, only one operator increased the monthly fees of fibre-optic subscriber connections, and the increase was 37 per cent.

In April 2015, FICORA issued decisions on the maximum amounts of subscriber connection prices for the five largest SMP operators. Through these decisions, FICORA obligated the operators to lower their wholesale prices to a cost-oriented level. The monthly rent of a subscriber connection implemented with metallic local loops may be at most EUR 10.70 and the connection fee EUR 85, and the connection fee of a parallel connection may not exceed EUR 57. The monthly rent of a subscriber connection implemented with a fibre-optic local loop may be no more than EUR 75.50 and the connection fee EUR 131. Due to the decisions, the prices of subscriber connections implemented with metallic local loops of the five largest SMP operators are expected to decrease by an average 24 per cent and the prices of fibre-optic subscriber connections are expected to decrease by an average 43 per cent.

The deficiencies in cost-oriented pricing increasingly strengthen the need for price regulation. The current regulation system that is mostly based on ex post control is ineffective and time-consuming because FICORA is forced to challenge the prices set by the telecommunications operators on a case-by-case basis. The telecommunications operators are not willing or forced to set their prices to the reasonable level required by law at their own initiative, and the operators do not become subject to any sanctions from unreasonable pricing that has been detected in arrears.

The deficient information concerning the operators' networks detected in connection with the previous price supervision will probably continue to make it more difficult to supervise pricing using the models which have been used until now and which are based on the information provided by the telecommunications operators. At the end of 2014, FICORA launched a feasibility study where it is assessed how the recommendation issued by the European Commission on non-discrimination and costing methodologies would be suitable for the assessment of the cost-orientation of the pricing on the Finnish market for the wholesale network infrastructure access at a fixed location and the determination of the price. The work aims to examine what kind of a bottom up LRIC+ pricing model based on the costs of a theoretically efficient operator would best suit the Finnish market. The LRIC model, which is enabled by the entry into force of the Information Society Code, is believed to significantly assist price regulation in the future. 

This article is a part of FICORA's Communications Sector Review 2/2015.

Key words: Internet , Markets , Significant market power , Wholesale services , Articles , Reviews

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