US embassy cable - 03ROME1226

UNCLAS ROME 001226 
 
SIPDIS 
 
 
DEPT PASS USTR FOR SCHAGRIN; EB/CIP - TFINTON; COMMERCE FOR 
NTIA SPECK 
 
E.O. 12958: N/A 
TAGS: ECPS, ETRD, IT, EUN 
SUBJECT: ITALY: SECTION 1377 REVIEW OF TELECOMMUNICATIONS 
AGREEMENTS - ADDITIONAL INFORMATION 
 
 
    REF: A. ROME 119 
     B. SECSTATE 50683 
 
1.  IN RESPONSE TO QUESTIONS POSED IN REFTEL B, POST RECEIVED 
THE FOLLOWING WRITTEN COMMUNICATION FROM THE COMMUNICATIONS 
AUTHORITY (ITALY'S EQUIVALENT OF THE FCC): 
 
2. QUESTION: HOW DOES ITALY DEFINE "SIGNIFICANT MARKET POWER" 
IN TELECOMMUNICATIONS AND HOW DOES THIS RELATE TO ITS 
REGULATORY COMMITMENTS UNDER THE WTO? 
 
3. RESPONSE: ITALY APPLIES THE CONCEPT OF "SIGNIFICANT MARKET 
POWER" (SMP) AS DEFINED BY EUROPEAN COMMUNITY LAW, AND THUS, 
ITALY COMPLIES WITH ITS REGULATORY COMMITMENTS UNDER THE WTO. 
AS THE USG IS AWARE, A NEW REGULATORY FRAMEWORK (NRF) FOR 
TELECOMMUNICATIONS WILL ENTER INTO FORCE IN JULY 2003. 
 
UNDER THE 1998 REGULATORY PACKAGE, AN OPERATOR IS PRESUMED TO 
HAVE SMP WHEN ITS MARKETS SHARE EXCEEDS 25 PERCENT.  MARKET 
SHARE ALONE IS, HOWEVER, NEITHER A NECESSARY NOR A SUFFICIENT 
CONDITION FOR AN SMP FINDING.  EUROPEAN LAW REQUIRES THAT 
OTHER FACTORS BE TAKEN INTO ACCOUNT, SUCH AS: THE 
ORGANIZATION'S ABILITY TO INFLUENCE MARKET CONDITIONS; ITS 
TURNOVER RELATIVE TO THE SIZE OF THE MARKET; ITS CONTROL OF 
THE MEANS OF ACCESS TO END-USERS; ITS ACCESS TO FINANCIAL 
RESOURCES AND ITS EXPERIENCE IN PROVIDING PRODUCTS AND 
SERVICES IN THE MARKET. 
 
UNDER THE NRF, AN SMP OPERATOR IS DEFINED AS AN UNDERTAKING 
ENJOYING (INDIVIDUALLY OR JOINTLY WITHIN A CONSORTIUM, E.G.) 
A POSITION OF ECONOMIC STRENGTH AFFORDING IT THE POWER TO 
    BEHAVE TO AN APPRECIABLE EXTENT INDEPENDENTLY OF COMPETITORS, 
AND ULTIMATELY, CONSUMERS.  IN IMPLEMENTING SUCH A 
DEFINITION, NATIONAL REGULATORY AUTHORITIES (NRAS) ARE 
REQUIRED TO APPLY THE PRINCIPLES OF EUROPEAN COMPETITION LAW. 
 
THE NRF EMPHASIZES THE NEED FOR SOUND ECONOMIC ANALYSIS OF 
RELEVANT MARKETS UNDER A CASE-BY-CASE APPROACH, USING 
EUROPEAN ANTI-TRUST JURISPRUDENCE - WHERE APPLICABLE TO 
EX-ANTE REGULATION - AS A BLUEPRINT FOR ACTION.  WE BELIEVE 
THAT ITALY IS ALREADY IMPLEMENTING THIS NEW APPROACH WITHIN 
THE CONSTRAINTS OF THE OLD REGIME (SEE ALSO NEXT ANSWER) WITH 
A VIEW TO IMPROVING MARKET PERFORMANCE AND INCREASING 
CONSUMERS' WELFARE, AND IN DOING SO, FULLY COMPLYING WITH ITS 
WTO OBLIGATIONS. 
 
4. QUESTION: SINCE ITALIAN MOBILE OPERATORS DISCRIMINATE BY 
CHARGING OTHER MOBILE OPERATORS LESS THAN WHAT THEY CHARGE 
FIXED LINE OPERATORS FOR WHAT APPEARS TO BE A LIKE SERVICE OF 
TERMINATION, IS THAT THE GOI/THE COMMUNICATIONS AUTHORITY 
CONCERNED THAT THERE MIGHT BE INCONSISTENCY WITH ITALY'S 
NON-DISCRIMINATION OBLIGATION UNDER THE GATT'S 
TELECOMMUNICATIONS ANNEX? 
 
5. RESPONSE: WE DO AGREE THAT REGULATION OF MOBILE 
TERMINATION IS A VERY PRESSING ISSUE, ONE IN WHICH THE NRF 
CAN HELP BRING ABOUT NEW AND BETTER REGULATION FROM THE 
OPERATORS' AND, ULTIMATELY, THE CONSUMERS' POINT OF VIEW.  AS 
YOU ARE AWARE, AFTER A LONG DEBATE, THE EUROPEAN COMMISSION 
DECIDED TO IDENTIFY A SEPARATE RELEVANT MOBILE TERMINATION 
FOR EACH OPERATOR, AND REQUIRE NRAS TO ANALYZE IF MARKET 
CONDITIONS ARE SUCH THAT OPERATORS ARE ABLE TO REAP 
    EXTRA-PROFITS IN PROVIDING THESE SERVICES.  THIS UNDOUBTEDLY 
REPRESENTS A STEP FORWARD IN THE REGULATION OF THESE MARKETS 
AS COMPARED TO THE OLD REGIME, WHERE, FOR A START, 
TERMINATION MARKETS COULD BE CONSIDERED AS PART OF THE LARGER 
INTERCONNECTION MARKET, WHICH COVERED BOTH MOBILE AND FIXED 
MARKETS. 
 
WHILE WE CANNOT, AT THIS MOMENT, ANTICIPATE TO WHAT EXTENT 
THE CURRENT REGULATION OF FIXED-TO-MOBILE AND 
MOBILE-TO-MOBILE TERMINATION WILL CHANGE UNDER THE NRF, WE 
COULD NOT RULE OUT SOME FORM OF ASYMMETRY BETWEEN THE TWO 
TYPES OF SERVICES.  IN FACT, WHILE THERE IS SOME COMPETITIVE 
DISCIPLINE IN THE MOBILE-TO-MOBILE AVERAGE RETAIL TERMINATION 
RATES, SINCE OPERATORS ARE COMPETING WITH ONE ANOTHER TO 
ATTRACT CUSTOMERS, THIS IS NOT THE CASE WHEN THE TWO NETWORKS 
ARE NOT CLOSE SUBSTITUTES (AS FIXED AND MOBILE NETWORKS ARE, 
AT LEAST UNDER CURRENT TECHNOLOGY AND DEMAND CONDITIONS). 
 
6. END WRITTEN COMMUNICATION FROM THE COMMUNICATIONS 
AUTHORITY. 
SEMBLER 
 
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 2003ROME01226 - Classification: UNCLASSIFIED