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OPTA wishes to prevent KPN’s competitors from experiencing a price squeeze

OPTA wishes to ensure that the evolution of ongoing competition in the telecommunications market will not be impeded by the occurrence of a price squeeze. This could occur, if KPN’s competitors were squeezed, as it were, between the tariffs which they are required to pay for using KPN’s network and the tariffs which they can charge their customers. In such a case their profit margin would be so small that it would be almost impossible for them to compete with KPN. In order to avoid the occurrence of a price squeeze it is conceivable that in some cases OPTA may need to prevent KPN from lowering its charges.

OPTA makes this statement in a consultation document on price squeeze, which was published today. In this paper OPTA describes the phenomenon of price squeeze and proposes a number of measures to prevent it from occurring. Telecommunications companies and other stakeholders will be given the opportunity to respond to the questions posed and solutions proposed in this consultation document.

In this consultation document OPTA proposes a price squeeze test. What this amounts to is an examination of whether there really is an appropriate margin separating the tariffs which KPN charges its subscribers (end-user charges) and the tariffs which its competitors are required to pay for using its network (interconnection tariffs). If KPN wishes to reduce its charges in the future, OPTA will apply this as a standard test. Should this test produce a negative outcome, OPTA will have to oppose the proposed reduction of these charges.

If this test is applied to KPN’s current charges, it would appear that the effects of a price squeeze can already be seen in relation to KPN’s so-called local and regional charges. This refers to calls within one’s own dialling code area and to adjacent areas. In this respect KPN charges for weekend calls are so low that it is almost impossible for other telecommunications companies to compete with it.

According to OPTA various solutions are available for this problem. One of the possibilities is the introduction of separate charges for calls made within one’s own dialling code area (the local call tariff) and to adjacent area (the regional call tariff). The current local and regional call tariff is based on the average charges billed for local and regional calls. This keeps down the average local and regional call tariff and makes it more difficult for other telecommunications providers to compete with KPN’s low charges. A possible separate regional tariff, which is based on the actual cost of using KPN’s network, would exceed its current local and regional call tariff. There would then be greater scope for other telecommunication service providers to compete with KPN at the regional level. At the same time ‘genuine’ local calls would then be somewhat cheaper.