Spain: Telecoms and Media

Blanca Escribano and Sofía Fontanals

Bird & Bird

Introduction

From a regulatory point of view, 2008 is continuing to be a very active year in the Spanish telecommunications sector. The main interest is focused on the second round of the market analysis that has been promptly initiated by the regulator, taking into account that the first review was finalised in summer 2006. The first public consultations have just been launched, and the full proceedings are expected to be completed by the end of the year. In this regard, the future regulation affecting the deployment of Next Generation Networks is raising great expectancy in the market. There are other important developments currently in the spotlight, such as the activation of the Universal Service National Fund in order to finance the net cost derived from the provision of universal service. However, definitive regulatory measures in this regard are likewise not anticipated until the end of the year.

Universal service

By the end of 2007 the Spanish telecommunications market underwent a very significant change derived from the Telecommunications Market Commission (TMC) decision to open the Universal Service National Fund for financing the net cost of the provision of universal service in 2003, 2004 and 2005.
This supposes a remarkable turn in the criteria maintained by the regulator so far, taking into account that since the market liberalisation Telefónica, the historic operator designated to provide universal service, has defrayed the costs arisen from such provision as the TMC had found that such company was not subject to an unfair burden. In this sense, it is important to remember that, in accordance with the Spanish rules¹ transposing EU legislation,² only if as a result of the calculation of the net cost the National Regulatory Authority considers that the provision of universal service represents an unfair burden on the designated undertaking, it is entitled to the financing of such net cost.
By means of a decision dated 29 November 2007³ the TMC now affirms the existence of an unfair burden on the former monopoly as a consequence of the obligation to provide universal service. Consequently, the TMC has deemed the activation of a sharing mechanism (the Universal Service National Fund) necessary so the financing of the net cost resulting from the obligation to provide universal service has to be shared by the electronic communications networks and services operators.
This decision was not well received by one of the members of the TMC Board⁴ and by most of market players, who considered that it is lacking in transparency and that the arguments adduced by the Commission have not been developed and reasoned enough. Another foremost concern was the fact that, whereas the current regulation obliges the regulator to conduct the estimation of the net cost on an annual basis, this decision includes the valuation related to three accumulated years, which would imply a detriment to the affected operators. This, among other reasons, led some operators to appeal the decision, an appeal which was partially accepted by the TMC but only with regard to the date of the net cost of 2003, so the main findings reached by the regulator were not modified.⁵ Therefore, the decision is likely to be appealed again before the administrative courts.
Very recently,⁶ TMC published the draft of the second part of the universal service ruling⁷ designating which operators are obliged to contribute to the new fund to cover costs between 2003 and 2005 and evaluating the amount of each contribution. Telefónica’s mobile phone unit Movistar, Vodafone and France Telecom will now join Telefónica to pay universal service costs. For the three-year period, Telefónica will pay €72.1 million, Movistar €58.9 million, Vodafone €31.4 million, and France Telecom €20.2 million. The TMC’s cost breakdown for 2006 and 2007 is pending.

Second round of market analysis

The recent opening of the second round of the market analysis procedures represents one of the sector’s current main concerns.
In accordance with article 10 of the Spanish General Telecommunications Act – which implements article 15 of the Framework Directive⁸ – the analysis of those markets identified as being susceptible to ex ante regulation must be performed by the TMC every two years.
Since the first market review was concluded by the Spanish regulator in summer 2006, the TMC has promptly initiated this second round by launching several public consultations concerning the following markets: (i) access to the public telephone network at a fixed location for residential and non-residential customers;⁹ (ii) publicly available local and/or national and international telephone services provided at a fixed location for residential and non-residential customers;¹⁰ (iii) call origination on the public telephone network at a fixed location;¹¹ (iv) call termination on individual public telephone networks provided at a fixed location;¹² and (v) voice call termination on individual mobile networks.¹³
At present the proceedings are still at an early stage, but once completed, in the light of the new review, the TMC will verify the existence of effective competition and the suitability of current regulation affecting each market. Accordingly, it will ascertain if the obligations imposed as a result of the first market analysis must be maintained, modified or withdrawn, or, where appropriate, if new regulatory remedies need to be imposed on operators having significant market power.
The TMC intends to complete this second review by the end of 2008.

Next Generation Networks

After having launched a public consultation last summer in order to test market opinion on how regulation should approach the deployment of Next Generation Networks (NGN), by 17 January 2008¹⁴ the TMC published a Decision on the main outlines of the NGN’s regulation. According to that Decision, the TMC’s opinion seemed to be that: (i) current obligations of access by third parties to the copper network will continue (unbundling or virtual unbundling) and the TMC will impose an obligation on the incumbent, Telefónica, to provide the operators currently present in local exchanges with sufficient information on any changes that will take place in the network and the map for local exchanges (all these conditions will be established in the Reference Unbundled Offer); (ii) contrarily, The TMC will not regulate fibre to the home (FTTH). In the Decision on the main outlines of the NGN’s regulation, The TMC distinguished between competitive and non-competitive areas. In non-competitive areas, The TMC stated that those operators that roll out fibre to the home must provide broadband access by means of indirect access or bitstream if the services cannot be replicated. In competitive areas, indirect access obligations on FTTH will be linked to a sunset clause (temporality clause); (iii) regarding access to the civil infrastructure (posts, chambers, ducts) The TMC considered it reasonable to impose transparency and non-discrimination obligations on significant market power (SMP) operators and when sharing becomes impossible, access to dark fibre obligations could be imposed; and (iv) with regard to access to buildings, the TMC proposed updating Common Telecommunication Infrastructure regulations to include fibre (this is the responsibility of the government) and within its competencies, the TMC would establish access and sharing obligations for all or some of the operators to share their infrastructures in the buildings. The Decision on the main outlines of the NGN regulation includes also the TMC’s opinion on functional separation. The Spanish regulator believes that this remedy should be a last resort and only be considered when discriminatory situations persist despite the imposition of other less intrusive remedies. Thus, the TMC believes it is necessary to have regulatory capability to impose a functional separation remedy.
Four months later, the TMC issued a Provisional Measure Decision¹⁵ on the review of market 4 of the 2007 Markets Recommendation and former market 11 of the 2003 Markets Recommendation. This provisional measure focused on NGN access, imposing the following obligations on Telefónica until the final decision on market 4 of the new Recommendation is published in order to ensure that the incumbent did not have an unfair advantage over its competitors’ fibre-optic network: provision of access to civil infrastructures at cost-oriented prices and transparent and non discriminatory conditions; and provision of FTTH/GPON virtual unbundling (virtual local loop) to those operators that have reasonably requested access to civil infrastructure. This service should guarantee the replicability of Telefónica Group’s retail offers and should be provided at cost oriented prices, with non-discriminatory and transparent conditions.
The Provisional Measure Decision was appealed by the incumbent and by the most relevant alternative operators. The TMC considered Telefónica’s arguments and by a Decision of 31 July 2008,¹⁶ the TMC withdrew the virtual local loop obligation imposed on Telefónica’s FTTH/GPON network. This Decision has been very much questioned even inside the TMC Board, as three of the nine Board members, including the TMC vice president, published dissenting statements. Their dissenting arguments are focused on the fact that Telefónica’s competitors will not be able to provide fibre-optic services with its own networks in the long term and therefore, the level playing field will be far from adequate.

Radio spectrum management and regulation

The growth of radio spectrum-based technologies and services derived from rapid technological improvements has made the adaptation of radio spectrum regulation to the new market reality necessary. Hence, the Royal Decree 863/2008, dated 23 May, approving the Regulation developing General Telecommunications Act 32/2003, dated 3 November, with regard to the use of the radio spectrum (the new Regulation) has just been enacted in Spain, coming into effect on 8 June 2008.
The key objectives to be achieved by the new Regulation are to enable more effective and efficient radio spectrum management, allow more flexible use of the radio spectrum, facilitate the launching and introduction of new services and encourage market competition.
These new rules establish the legal basis for the planning, management and control of this scarce resource and impose the creation of a public Register of awardees of rights to use radio frequencies. In addition, the proceedings for granting the entitlements to use radio spectrum and the legal regime applicable to them – which will depend on the type of radio spectrum use (common, special or privative) – are described in the new Regulation. It also sets up the conditions necessary to establish a radio spectrum secondary market by means of the regulation of the total and partial transfer of titles to use radio spectrum as well as the assignment of radio spectrum use rights, which represents one of the most important novelties introduced by the new Regulation.
On the other hand, the Spanish Ministry of Industry, Commerce and Tourism has recently launched a public consultation regarding the use of the 2500-2690 MHz frequency band and regarding the possible new methods for exploitation of the 900 MHz, 1800 MHz and 3.5 GHz bands, in order to obtain the industry’s opinion on that score.
In line with that established in the new Regulation and with the European Commission approaches,¹⁷ the Ministry aims to allow more flexible use and more efficient and effective management of this resource, as well as facilitating access to radio frequencies for new operators.
The consultation is open for contributions until 30 September 2008. After receiving the market players’ comments, the Ministry intends to put the new 2.6 GHz band into operation in order to facilitate the provision of advanced services, particularly broadband services in mobility. Furthermore, the GSM and DCS mobile concessions will be converted so that the 900 MHz and 1800 MHz frequency bands can be used for the provision of third-generation services (UMTS). The current titles for radio access fixed networks in the 3.4-3.6 frequency band will also be converted, enabling the modification of the conditions linked to them and, subsequently, allowing higher flexibility in the use of radio spectrum (eg, mobility).

Other matters of interest

In June 2008 the TMC and the National Competition Commission (NCC) have reached a collaboration and coordination agreement with the purpose of monitoring and promoting competition in the electronic communications and audiovisual services markets. By means of this agreement, the Spanish regulatory and competition authorities intend to provide the regulatory decisions related to telecommunications markets with consistency and coherence as well as encourage competition in such markets. Among other joint actions, the agreement foresees the organisation of annual meetings, the exchange of information regarding the communications held with the European Commission or the creation of a commission that will review and control the agreement.
With regard to the market movements experienced in Spain, the European Commission has cleared two significant transactions in recent times: the acquisition by Vodafone of Tele2 Spain and Tele2 Italia, subsidiaries of the Swedish holding company Tele2 AB,¹⁸ in November 2007; and the acquisition by Abertis Telecom and the Spanish state-controlled entities SEPI, CDTI and INTA of the joint control over the Spanish satellite operator Hispasat,¹⁹ in June 2008.
In October 2007 the NCC opened sanction proceedings²⁰ against the main three mobile operators (Movistar, Vodafone and Orange) with the purpose of verifying if they have infringed the dispositions of the Competition Defence Law²¹ by means of a price-fixing agreement. This derives from the coincident and similar modification of tariffs and of the billing systems announced by such operators in January 2008 in order to comply with new consumer regulations which prohibit tariffs being rounded up. No decision has been yet adopted by the competition authority.
The recent annulment by the Spanish Supreme Court of a €2 million fine imposed on Telefónica by the TMC in 2003 must also be highlighted. The regulator fined Telefónica and its subsidiary Telefónica Telecomunicaciones Públicas for not fulfilling a decision imposing provisional measures that obliged them to disrupt the commercialisation of their offer of services for locutorios (call centres) and to cease any discriminatory behaviour that they could be carrying out with regard to other public use telephony companies. The appeal filed by the incumbent was initially dismissed by the Administrative National Court. However, in July 2008 the Supreme Court concluded that the TMC did not apply the most favourable legislation for the telecom operator and has obliged the regulator to recalculate the amount of the fine.
Other worth mentioning development has been the approval by the TMC of a new Circular,²² which aims at providing mobile portability management with more transparency and reliability, given the increase of market players due to the entrance of virtual operators into the Spanish mobile market. Up to now, the mobile operators had to access their competitors’ servers in order to manage the users’ portability requests. According to the model introduced by the new Circular, the mobile network operators, full MVNOs and other service providers may have access to a centralised database (known as Nodo Central) which will be managed, financed and maintained by the operators and monitored by the regulator. This mobile networks Reference Entity – similar to that already established regarding fixed portability – must be implemented by 30 June 2009. The Circular also introduces certain measures to remove obstacles to users when requesting the change to other operator, and establishes a specific procedure for massive number migrations through the portability tool.
In addition, it is remarkable that the protection of consumers and users of electronic communications services has become an essential concern for the Spanish authorities. Thus different measures to strengthen that protection are being taken such as the approval of a new regulation on the provision of SMS and MMS premium services²³ or the preparation of a Consumers’ Rights Charter, which is currently being drafted by the Ministry of Industry, Tourism and Commerce and is expected to be enacted soon.

Media

Significant developments are expected in the Spanish media market soon. First of all, in the context of the plan to reform the audiovisual sector designed by the Spanish government and approved in 2005, two key issues are still pending: the enacting of the Audiovisual General Law, which will cover the legal framework for all radio and television services independently from the signal conveyance technical system and the service coverage scope; and the creation of the Audiovisual Regulator Board, an independent body that will control the market players’ activity. In addition, the new AVMS Directive,²⁴ approved in December 2007 and reviewing the former TVWF Directive²⁵ with the purpose of adapting it to the technological advances and market changes, must be transposed into national law. Spain has a two-year period to carry out this implementation, which must be completed by 19 December 2009 at the latest.
The acquisition and exploitation of football rights still represent one of the hottest topics in the Spanish scenario. In this sense, the NCC has opened sanction proceedings²⁶ with regard to this market against several audiovisual operators and football clubs: Sogecable, Audiovisual Sport, Mediaproducción, Televisió de Catalunya, TVC Multimedia, Televisión Autonómica Valenciana, Televisión Autonomía de Madrid, Caja de Ahorros y Monte de Piedad de Madrid and 38 first and second division clubs. The procedure was initiated in April 2008 on the basis of information obtained by the NCC in other proceedings that revealed the existence of certain agreements (between audiovisual operators and between audiovisual operators and football clubs) that could restrict competition in the market of acquisition and exploitation of football rights. The NCC has not yet published its final decision on this regard.
At the same time and independently from the above-mentioned proceedings and not as a consequence of such, in June 2008 the NCC published a report on football audiovisual rights from a competition point of view. The report analyses the current model established in Spain under which the consent of both clubs involved is required for broadcasting a match. In the NCC’s opinion this system, together with certain usual contractual practices, restrains the entry of other interested parties in the market. Additionally the model is compared with two different alternatives: the individual negotiation without the consent of the visiting team – ‘arena right’ – and the centralised sale of rights by the association that organises the championship.

Notes

1 General Telecommunications Act 32/2003, dated 3 November. Regulations on the conditions for the provision of electronic communication services, universal service and consumers’ protection, approved by Royal Decree 424/2005, dated 15 April.
2 Directive 2002/22/EC of the European Parliament and of the Council of 7 March 2002 on universal service and users’ rights relating to electronic communications networks and services (Universal Service Directive). OJEC L 108/51 of 24 April 2002.
3 TMC Decision, dated 29 November 2007, on the estimation of the net cost of the provision of universal service in the years 2003, 2004 and 2005 proposed by Telefónica de España, SAU. (File MTZ/2007/1015).
4 Dissenting Opinion filed by Board member Mrs Inmaculada López Martínez.
5 TMC Decision, dated 8 May 2008, resolving the reverse appeals interposed by France Telecom España, SA and Vodafone España, SAU against the Decision dated 29 November 2007, on the estimation of the net cost of the provision of universal service in the years 2003, 2004 and 2005 proposed by Telefónica de España, SAU. (File AJ 2008/7).
6 13 August 2008, Spanish Official Gazette.
7 File MTZ 2007/1459.
8 Directive 2002/21/EC of the European Parliament and of the Council of 7 March 2002 on a common regulatory framework for electronic communications networks and services (Framework Directive) OJEC L 108/33 of 24 April 2002.
9 New market 1, according to the Commission Recommendation of 17 December 2007, on relevant product and service markets within electronic communications sector susceptible to ex ante regulation in accordance with Directive 2002/21/EC of the European Parliament and of the Council on a common regulatory framework for electronic communications networks and services (new Market Recommendation) OJEC L 344/65 of 28 December 2007; (former markets 1 and 2 of the previous Market Recommendation: Commission Recommendation 2003/311/EC of 11 February).
10 Markets 3 to 6, according to the former Market Recommendation (deleted from the new Market Recommendation).
11 New market 2, according to the new Market Recommendation (former market 8).
12 New market 3, according to the new Market Recommendation (former market 9).
13 New market 7, according to the new Market Recommendation (former market 16).
14 File MTZ 2007/358.
15 File MTZ 2008/626, Decision dated 8 May 2008.
16 File AJ 2008/100.
17 In this sense, a new recommendation on radio spectrum management is currently being drafted at the European level. Furthermore the European Commission has approved two important decisions in recent times: Decision 2008/477/EC of 13 June 2008 on the harmonisation of the 2500-2690 MHz frequency band for terrestrial systems capable of providing electronic communications services in the Community (OJEC L 163/37 of 24 June 2008); and Decision 2008/411/EC of 21 May 2008 on the harmonisation of the 3400-3800 MHz frequency band for terrestrial systems capable of providing electronic communications services in the Community (OJEC L 144/77 of 4 June 2008).
18 Case COMP/M.4947 – Vodafone/Tele2 Italia/Tele2 España.
19 Case COMP/M.5105 – SEPI/CDTI/INTA/Abertis/Hispasat.
20 Case 2759/07 Móviles.
21 Competition Defence Law 17/2007, dated 3 July.
22 TMC Circular 1/2008, dated 19 June, on conservation and migration of telephone numbering.
23 Order ITC/308/2008, dated 31 January, giving instructions on the use of numbering public resources for the provision of short text messages and multimedia messages services.
24 Directive 2007/65/EC of the European Parliament and of the Council of 11 December 2007 amending Council Directive 89/552/EC on the coordination of certain provisions laid down by law, regulation or administrative action in member states concerning the pursuit of television broadcasting activities (‘Audiovisual media services without frontiers’ Directive). OJEC L 332/27 of 18 December 2007.
25 Council Directive 89/552/EEC of 3 October 1989 on the coordination of certain provisions laid down by law, regulation or administrative action in member states concerning the pursuit of television broadcasting activities (‘Television without Frontiers’ Directive). OJEC L 298 of 17 October 1989.
26 S/0006/07 (Derechos de Fútbol).

An extract from The European Antitrust Review 2009