Press Releases

Lisbon, 13 October 2006 – In response to the Invitation to Pronounce on the Position taken by the Board of Directors of Anacom (Telecommunications Regulatory Authority), Vodafone Portugal has sent the Regulator its stance with regard to the Projected Decision of the Competition Authority (AdC) to approve the Sonae/PT merger.

In this document Vodafone reiterates its position, outlining that the operation proposed will result in the accumulation of a set of factors leading to an unacceptable situation of a dominant position and restriction of competition. This will seriously jeopardise the levels of quality and competition, with the consumers inevitably losing out. As such it should not be authorised in its current form, namely including the merger of the mobile operators TMN and Optimus.

Based on the information available, the group of remedies proposed by Sonaecom and accepted by the AdC are not only insufficient to offset the negative effects introduced into the mobile market, but they will also contribute to strengthening and widening this dominant position, with the consumers and the other operators in the market clearly losing out.

The mobile operator resulting from the TMN/Optimus merger will have an extremely dominant position in the mobile market, further enhanced by a dominant position in the connected fixed markets, a strong position in retail distribution, benefiting from its incorporation into a business group with strong weight in the national economy which will allow disproportionate power over its suppliers, and could even allow it to act independently from its competitors.

Furthermore, Vodafone Portugal states that it makes no sense to set up a strict and artificial regulatory framework for the mobile sector as a justification for the creation, in this important sector, of an extremely dominant position. It is also incomprehensible that increased competition in the fixed communications market, deriving from the separation of the copper and cable networks, be used as a degree of compensation for the creation of significant obstacles to competition in the mobile sector. The increase in competition in the fixed market can be stimulated in more effective ways, without damaging the competitiveness of the mobile market.

The only remedy that could make the takeover viable would be for the buying company to sell one of the mobile operators resulting from the merger, complemented by other remedies, as expressed in this document.

Mobile market. Vodafone Portugal has always been of the opinion that the proposed merger, taking into account its background and conditions, is a backwards step from today’s situation with three operators in the market, which no remedy can put right. This situation has led to a competitive mobile market, compared to any European standards, whether in terms of innovation, quality of service or prices charged.

The need for three operators to maintain the current competition levels of the market is defended by the architect of the remedies proposed by Sonaecom and accepted by the AdC. The intention is that the remedies presented encourage the entrance of a third operator. Consequently what is difficult to understand is that the AdC is willing to cut the number of operators from 3 to 2, to later attempt to artificially bring about a return of the initial position, with the effectiveness of this scenario open to question.

Vodafone Portugal is in general clearly against the introduction of mechanisms that restrict the retail freedom and creation of innovative offers by the operators, such as price caps or convergence of on net / off net tariffs. The architecture of remedies designed by Sonaecom and accepted by the AdC, as well as creating an artificial situation of over-regulation, introduces regulatory mechanisms that are not rigorous and will be difficult to check in the area of retail tariffs, such as the introduction of price caps.

This architecture is also based on the introduction of MVNOs in such as way that will favour the operator resulting from the merger and prejudice the other operators, and on the creation of conditions that will supposedly encourage the appearance of a new third operator on the market.

The conditions dictating the introduction of the MVNOs, as well as upsetting possible ongoing negotiations with the various MVNO applicants, warp the market by allowing and favouring the operator resulting from the merger to accommodate all the existing MVNOs, strengthening its position of dominance in retail and also leading to wholesale dominance, giving it leeway to control the terms and the timing of negotiations and the actual start-up of the MVNOs on the market.

The conditions for supporting the entrance of a new operator, as well as allowing Sonaecom to sell the frequencies that should, in this case, be returned to Anacom, do not change (and could never change) the structural conditions to make it viable for a third network operator to enter the market in time.

In a stagnant market (with penetration rates surpassing 110%, and which therefore do not allow new customers to be captured), with two operators installed and new MVNOs with lower operating costs fighting for the customers, with retail prices among the cheapest in Europe and with short investment cycles that force a minimum critical mass to be recovered, the entrance of new operators will be at the least uncertain.

The creation of an operator backed up by an artificial “oxygen mask”, which cannot last forever, will inevitably lead to a strengthening of the dominant position of the entity resulting from the merger and a backward step in competition with the consumers losing out as a consequence.

Vodafone believes that the entrance of MVNOs into the national market is a natural market movement that should take place in accordance with the principles of free negotiation among the parties involved; that any regulations should limit the capture of wholesale revenue by the dominant operator and not guarantee it artificially; and that the entrance of any new MNO has to come about without discriminating against the rest of the operators on the market, especially taking into account the conditions for attributing the third-generation licences and the investment already carried out by Vodafone in the Portuguese market.

Fixed market. It is acknowledged by all that, in contrast to the mobile market, the fixed market has a lack of competition resulting from a dominant position in Europe. Sonaecom intends to increase the competitiveness of this market through the remedies. While the intention is praiseworthy, it is curious that this increase in competitiveness is sought accepting the creation of a dominant position and reducing competitiveness in a market as important as the mobile communications market, following a logic of compensation that is incomprehensible. Moreover, one cannot fail to mention that the efficacy of the remedies proposed is far from guaranteed.

Vodafone Portugal believes that although the remedies presented for the fixed market may make sense in general terms, they must be delineated more thoroughly.

The architecture of remedies proposed on the fixed market is based on two essential pillars: the sale of one of the fixed networks (copper or cable as chosen by Sonaecom), and, if the network retained by Sonaecom is the copper one, the establishment of a vertical separation (although purely functional) between the wholesale activities and retail activities of the network.

In the event of one of the networks being sold, the proposal leaves Sonaecom in control of deciding which purchaser is most convenient, not only from the point of view of the immediate revenue but also with regard to its competitive position in the long term. In the event of vertical separation, in being purely functional, it maintains in practice the incentive to allocate disproportionate costs in the wholesale unit, prejudicing the respective customers who are not integrated.

Vodafone believes that the sale of one of the fixed networks should be carried out in a transparent manner, through a process carried out by an independent third party, and that the vertical separation should be structural and economic, selling at least one of the activities.