Breaking News: The Danish Competition Authority have started legal proceedings against a number of Danish municipalities for being part of a price cartel that has agreed on what to charge four Danish mobile operators: TDC, Telenor, Telia and 3
|19 January, 2012 (UPDATED)|
The Danish Competition and Consumer Authority that handles all competitive legislation in Denmark have probably reported number of Denmark’s 98 municipalities to the Danish police department for financial criminality, for forming a price cartel and for breaking the Danish competitive laws. The police report is based on the analysis “How to ensure satisfactory mobile coverage in the future”, that Strand Consult compiled in the autumn of 2011. The survey describes the process that starts when a mobile operator receives a license and starts building a mobile network. In other words the process from being allocated a frequency and the terms the frequency is given on, and right up to acquiring permissions to erect mobile masts around the country in order to actually build the network.
There are probably a number of reasons why the Danish Competition Authority has taken such drastic measures as reporting councils to the police. One of the main reasons is that Denmark is considered one of the least corrupt countries in the world and the Danish authorities will not tolerate that any companies or public offices break the rules that are designed to ensure healthy competition on the market. Strand Consult does not believe that this Danish case is by any means unique. We believe that mobile operators in most countries around the world experience exactly the same kind of cartel pricing that has been going on in Denmark.
Background information: The mobile mast market – how it works
Denmark currently has around 10,000 mobile mast locations, in other words 10,000 locations where mobile operators have placed their masts that handle mobile voice and data traffic. In order for a mobile operator to ensure mobile coverage in an area he needs to find a location suitable for erecting a mobile mast. Local municipalities play a central role in this task, as it is the local municipality that need to approve the mast application in order that a mobile mast can be erected.
If a mobile operator rents a location from the municipality, it is often the same administrative office that handles the mast applications that also handles access to municipal property. In practice municipalities can quite easily force mobile operators to erect mobile masts on municipal property, rather than private property. According to Danish mobile operators and their advisers, there have been a number of examples in this area where municipals have forced operators to use municipal property instead of private property.
It usually takes between 12 to 18 months to find a suitable location, sign the necessary agreements and erect a mobile mast. The cost of actually erecting a mobile mast will usually end at around somewhere between 100,000 and 200,000 euro. Basically, erecting a mobile mast is a long, tedious and costly affair.
When the mobile mast has been erected and is fully functioning, it becomes part of a mobile network that often consists of between 3000 – 5000 mobile masts that together ensure full mobile coverage for the mobile operator’s customers. Moving a mast from one location to another is an elaborate and expensive process that will almost certainly result in a change in the quality of mobile coverage for some customers. This can furthermore result in making it necessary to move other mobile masts to restore full mobile coverage. Many mobile masts around the country are not simply a single mobile antenna, but rather a communication hub that uses radio transmitters to connect mobile antennas to the mobile operator’s central network.
In our analysis “How mobile operators can reduce cost for mobile masts and improve mast regulation” we have described the process from when a mobile operator decides to build a mobile network, up to the point where they actually can offer their customers mobile coverage via a network of mobile masts. You can read more about our analysis here: How mobile operators can reduce cost for mobile masts and improve mast regulation
Strand Consult claims that a number of municipalities have formed a pricing cartel in order to increase the rental prices they are charging mobile operators
On 23 November, 2011, Strand Consult decided to report 15 Danish councils to the Danish Competition Authority for being part of a pricing cartel. We believe that our investigation and the documents we have in our possession strongly indicate that a number of municipalities have communicated together and agreed to increase the property rental prices they are charging mobile operators. There are four main areas in the process that are identical for all councils and thereby enable them to have a mutual pricing agreement.
1. It is often the council that approves the location of a mobile mast and additionally owns the property for the location which it then rents to mobile operators. By combining the two jobs of approving the location and owning the location, the municipality ensures that the mobile operator actually has no choice or say in the matter regarding the location of a mobile mast.
2. Municipalities are fully aware of the fact that it is very expensive to move a mobile mast. The cost of placing a mobile mast is basically a “sunk cost” as none of the investment can be reused if it later becomes necessary to relocate the mast.
3. If a mobile operator moves an individual mast, it often becomes necessary to also relocate other masts, as each individual mast is part of a larger network that ensures seamless mobile coverage in the area the operator covers.
4. When a municipal determines the rental charges for their services, the price is not determined by the value of what is being rented or what a similar property would cost to rent somewhere else in the municipality, but is instead based on what the council calls a “market price”. A number of municipalities believe that the “market price” is the highest price that someone else managed to obtain for a mast location somewhere else in Denmark. In other words municipalities are not taking into consideration whether a mast is placed in a scarcely populated area with low property prices when determining the price for a mobile mast location.
In practice the usual procedure is that the council first decides where the mobile operator is allowed to place their mobile mast, and then it is most often the municipality that rents out the property and decides the price of that property based on what they call a “market price”. When the agreement has been signed and the operator has spent the necessary investment in erecting the mobile mast, the council additionally ends up having a monopoly on the rental agreement. Moving a mobile mast is not only expensive for a mobile operator, it is almost impossible, as each individual mast is placed to ensure seamless mobile coverage on their network. Moving one mast will often result in having to move other masts to restore full mobile coverage.
If you read the documents in our analysis “How mobile operators can reduce cost for mobile masts and improve mast regulation” it is very obvious that a number of councils have deliberately raised rental prices when renegotiating their rental contracts for mobile masts, or as soon as the municipality had the possibility of terminating the contract and then telling the operator that the operator would either need to find a new position for their mast, or alternatively accept a rental increase of 300 – 400%.
Our analysis shows that despite the industry using standard contracts that have been approved by the Danish Competition Authority, whereby the property owner is only allowed to increase their rent by 3% annually, the actual increase in rent is often 15 – 20% a year. Our analysis documents that there are many examples of both private and public property owners taking advantage of their monopolistic position once a mobile mast has been erected, to significantly increase rent over time.
Conclusion – It is not only the Danish mobile operators that are experiencing cartel pricing.
We believe that our analysis “How mobile operators can reduce cost for mobile masts and improve mast regulation” documents that mobile operators around the world are facing the same challenges regarding how they are being treated when renting property for their mobile masts. In Denmark we can see that a number of municipalities with the municipality of Esbjerg and Tønder leading the way, have tried to harmonise their rental prices and rental terms. We believe that some of these municipalities are deliberately taking advantage of their monopoly on renting out property for mobile masts, to charge a rent far above the actual market value of any individual plot of land. They simply view mobile operators as a “cash cow” that they can milk as they please.
The analysis “How mobile operators can reduce cost for mobile masts and improve mast regulation” not only describes the process from frequency to mobile signal, but also describes the many challenges that mobile operators face during this phase of their operations. The analysis additionally includes a number of suggestions on how to make the whole process more flexible and significantly lower the costs for mobile operators.
Strand Consult has no doubt that the Danish Competition Authority police report will greatly influence how this market will function in the future. We believe that the combination of our analysis and that we reported the municipalities in question to the Danish Competition Authority for cartel pricing, is so well documented, that many operators around the world are in a good position to question what is happening on their own markets.
If you would like more information about our analysis “How mobile operators can reduce cost for mobile masts and improve mast regulation” please click here: How mobile operators can reduce cost for mobile masts and improve mast regulation
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