An analysis of a possibility to implement functional separation in Poland and recommendations of the most beneficial separation scenario of Telekomunikacja Polska S.A.
Assumptions of the report
The report was prepared for the President of the Office of Electronic Communications by an advisory consortium of KPMG, KPMG Advisory, the Grynhoff, Woźny, Maliński law firm and the National Institute of Communications. The aim of the report is to present the results of an analysis of a possibility to implement functional separation in Poland and to recommend the most beneficial separation scenario of Telekomunikacja Polska S.A. (referred to further on as TP).
Each chapter of this report describing the results of the analysis and the recommendations starts with a presentation of the methodology applied in the analysis, ending with conclusions used to formulate final conclusions.
Conclusions of the report
The goal of the report was to conduct an analysis of a possibility to implement functional separation in Poland and to recommend the most beneficial separation scenario of Telekomunikacja Polska S.A. (TP).
The most important conclusions presented by the authors of the report are:
- Analyses indicate that the markets of fixed telephony services and data transmission services lack effective competition which finds its dimension in a strong market advantage of TP;
- Examination of responses submitted by alternative operators (AO) show that there exists a persistent barrier to the development of the market in the form of TP’s anti-competition approach, which manifests itself by obstructive actions as far as cooperation with AOs is concerned and the flow of information in the TP Group which makes it impossible to undertake anti – competitive measures;
- Other persistent barriers are: low quality of the access network and the risks stemming from the fact that AOs operate based on administrative decisions (which is the result of weaknesses of the Polish legal system);
- A lack of the right price relationship between fees for wholesale services of WLR, BSA and LLU, even though temporary, is another significant barrier, which in view of AOs causes the provision of retail services based on LLU to be unprofitable. It is a barrier to the development of infrastructure based competition;
- The existing regulatory measures have not eliminated barriers for the market development, identified in the report and there is a lack of perspectives that these barriers will be removed.
- Analyses of functional separation as a regulatory measure and examples of solutions introduced in other countries (UK and New Zeland) indicate that the introduction of functional separation of the incumbent (INCMB) can eliminate the barrier of the anti-competition approach of TP. The analyses also show that functional separation may limit negative effects of the weaknesses of the legal system in Poland as far the development of competition is concerned (through a shift in TP’s approach which will not be oriented on taking advantage of legal loopholes and weaknesses);
- Functional separation will not address the barrier of low quality infrastructure and will be unable to remove inappropriate relations of fees for wholesale services of WLR, BSA and LLU. To eliminate these, it is necessary to undertake additional regulatory measures. Once the relations of wholesale fees for regulated services have been appropriately changed, the separation will become a solution supporting the development of LLU and other wholesale services.
- In the light of the current legal order, pursuant to art. 8 (3) and (4) of the Access Directive there is a legal possibility to introduce a regulatory measure in the form of functional separation of the incumbent. The outcome of the assessment of this measure by judiciary bodies in Poland remains uncertain. The measure also requires the consent of the European Commission which depends upon a conclusion that the measure is adequate, justified and proportionate and the measures applied so far have not eliminated and do not give rise to perspectives for elimination of a determined barrier in the form of an anti-competitive approach of TP. A lack of definite and effective execution measures to enforce upon TP enactment of all actions necessary for the proper implementation of the separation appears to pose a serious risk to functional separation;
- Preliminary assessment of economic costs and benefits related with the introduction of functional separation of TP shows that in the analysed period, the measurable benefits for consumers resulting from separation (i.e. benefits which are consumer savings resulting from the drop in consumer prices, assuming the barrier of inappropriate relations of prices for WLR, BSA and LLU has been removed) are approximately at the same level as the costs of the imposition of separation. This is why, when making a decision on functional separation of TP, other (immesurauble) benefit should be taken account of as well as risks identified in this report in the scope of effectiveness of implementation od functional separation;
- The assessment of benefits and risks in the scope of the influence of functional separation on investments in telecommunications networks in Poland and the interest of end users as well as experiences of the countries which implemented or started the separation process generally indicate advantages of the introduction of this regulatory measure.
Recommendations for the President of UKE
In connection with these conclusions, the advisory consortium indicate that functional separation should be considered an effective regulatory measure as far as elimination of TP’s anti-competitive attitude and taking advantage of weaknesses of the legal system are concerned. However, this means cannot be deemed as a proper tool with regard to the elimination of other, identified market development barriers.
The report also includes:
- Conclusions of experiences of other countries (UK, New Zealand, Sweden, Italy and Ireland) which either have introduced or are/were considering the introduction of functional separation;
- Recommendations of the consortium concerning the way in which functional separation of TP should be carried out, including relocation of wholesale services and network elements to particular units of the incumbent, the legal status of the separated unit, a supervisory authority and a potential timetable for the implementation process;
- Proposals for amendments to Polish law which are required because of the assumed goals for the separation.
A full version of the report is available in Polish.
The President of UKE invites all interested parties to submit their opinions with regard to the published report, by sending them to: firstname.lastname@example.org