Upon a request of Bouygues Telecom, which complained that the new mobile entrant Free does not bear the same investment constraints as its competitors, benefiting in particular from national roaming and infrastructure sharing, the French government asked for an opinion from the French Competition Authority (“FCA”) regarding mobile infrastructure sharing and national roaming . In its Opinion 13-A-08 of 11 March 2013 on conditions for sharing and roaming on mobile networks, the FCA develops the conditions under which network sharing between mobile phone operators may be permitted without harming competition and reviews the roaming arrangement enjoyed by Free.

Background.  While the French market for mobile telephony was structured around three network operators, with different but relatively stabilized market shares, the granting of a 3G license to Free Mobile by the French Telecom Regulatory Authority (ARCEP) has reshuffled the cards. Twelve months after the launch of its commercial offer, Free Mobile has managed to win 5.2 million subscribers and to reach nearly an 8% market share. This spectacular progression finds its origin in several factors: a simple and aggressive pricing, a fleet of loyal broadband customers who benefited from a special reduced tariff, but also the ability to rely on a national roaming agreement for 2G and 3G networks with Orange which enabled Free to immediately offer a reliable service and a high coverage.

The Opinion.  The FCA first recalled that network infrastructure competition is essential for the opening up to competition of the telecommunications sector in France. If each operator relies on its own network, the establishment of continual competition between network operators is preserved and innovation as well as product differentiation are encouraged.  The FCA took account of the intrinsic characteristics of the mobile market to assess that any coordination or production agreement in this sector must be carefully examined. The FCA suggested a methodology, inspired by the EU guidelines on horizontal cooperation agreements, and compiled the main three criteria assessing the impact of such agreements on competition: the degree of cooperation between the parties to the agreement, the market power acquired by partners and the characteristics of the areas covered by the agreement. It made a distinction between sparsely populated areas in which network sharing should not be excluded and densely populated areas where it does not compromise operators’ ability to differentiate themselves. The FCA is much more reserved regarding frequency sharing, which of active network infrastructure can undermine the principle of network infrastructure competition and sharing which are likely to involve the exchange of sensitive information.

In line with these principles, the FCA stated that network sharing can help save costs and improve network coverage. Provided certain conditions are respected, it may fall within the network infrastructure competition model. The roaming enjoyed by Free Mobile has encouraged competition by lowering barriers to entry into the market for the new operator. However, because it reduces differentiation between operators due to the roaming agreement with Orange, such an advantage must be limited in time. The FCA states that national roaming agreements must be supervised with regard to duration.  Regarding 3G roaming, the FCA emphasizes that the national roaming contract should not be extended after the termination of the agreement between Free Mobile and Orange. A control of the French Telecom Regulatory Authority is necessary to ensure that Free Mobile is investing to meet its licence obligations and that a gradual phase-out of national roaming is organised, in the same way the European Commission did in Germany with T-Mobile and O2. The situation for 2G roaming is different because this type of network will only be used by a very small minority of subscribers in the future, due to 3G and 4G terminals replacing outdated 2G phones. If the 2G roaming agreement was to be extended beyond its 2016 due date, it should be restricted to customers having 2G capabile terminals only.

In the context of 4G, Free has not yet concluded a 4G roaming agreement and the FCA is prepared to accept that roaming could offset this handicap in rural areas. However, caution is required for the extension of 4G roaming to densely populated areas, in which the FCA believes that reallocating frequencies would be preferable to roaming.  This opinion confirms FCA’s commitment to infrastructure-based competition, which has historically structured the development of the mobile market and should remain the reference model for the French authorities.