annual report 2011 - Konkurentsiamet
annual report 2011 - Konkurentsiamet
annual report 2011 - Konkurentsiamet
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ANNUAL REPORT<br />
ESTONIAN COMPETITION AUTHORITY<br />
<strong>2011</strong>
CONTACT<br />
Auna 6<br />
10317 Tallinn<br />
Phone: (+372) 667 2400<br />
Fax: (+372) 667 2401<br />
E-mail: info@konkurentsiamet.ee<br />
Homepage: www.konkurentsiamet.ee<br />
Director General<br />
Märt Ots<br />
E-mail: mart.ots@konkurentsiamet.ee<br />
Head of the Competition Division – Deputy Director General<br />
Kristel Rõõmusaar<br />
E-mail: kristel.roomusaar@konkurentsiamet.ee<br />
Head of the Energy and Water Regulatory Division – Deputy Director General<br />
Külli Haab<br />
E-mail: kylli.haab@konkurentsiamet.ee<br />
Head of the Railway and Communications Division – Deputy Director General<br />
Margus Kasepalu<br />
E-mail: margus.kasepalu@konkurentsiamet.ee<br />
Head of the External and Public Relations Department<br />
Maarja Uulits<br />
E-mail: maarja.uulits@konkurentsiamet.ee
CONTENTS<br />
FOREWORD ................................................................................................................................. 1<br />
ORGANISATION ........................................................................................................................ 3<br />
Structure ........................................................................................................................................................ 3<br />
Personnel and budget ................................................................................................................................. 4<br />
EXTERNAL AND PUBLIC RELATIONS .............................................................................. 5<br />
COMPETITION SUPERVISION IN <strong>2011</strong> ............................................................................. 7<br />
Direction of waste by local governments ............................................................................................... 8<br />
AS Levira earned inequitably large profit .............................................................................................. 9<br />
Fines imposed on AS Eesti Post for abusing its dominant position in the market ................... 12<br />
CONTROL OF CONCENTRATIONS ................................................................................... 15<br />
Prohibition of the concentration of AS Eesti Post and AS Express Post .................................... 16<br />
<strong>2011</strong> IN THE AREAS OF ENERGY AND WATER REGULATION ............................. 19<br />
Electricity market ..................................................................................................................................... 19<br />
Competition Authority’s assessment of the condition of the security of electricity supply in<br />
Estonia ...................................................................................................................................................... 22<br />
Developments in the natural gas sector .............................................................................................. 25<br />
Price regulation of heating undertakings ............................................................................................ 27<br />
Heat procurement organisation ............................................................................................................. 28<br />
Complaints of consumers and judicial practice .................................................................................. 29<br />
Public water supply and sewerage system .......................................................................................... 30<br />
Activation of the Agency for the Cooperation of Energy Regulators .......................................... 33<br />
DEVELOPMENTS IN THE ELECTRONIC COMMUNICATIONS MARKET IN<br />
<strong>2011</strong> ............................................................................................................................................... 36<br />
Electronic communications sector ........................................................................................................ 36<br />
Market analyses and supervision over the electronic communications sector ........................... 50<br />
RAILWAY SERVICES .............................................................................................................. 52<br />
POSTAL SERVICES .................................................................................................................. 54<br />
Unreasonably encumbering costs ......................................................................................................... 54<br />
Affordable fees ........................................................................................................................................... 55<br />
Verification mailing .................................................................................................................................. 56<br />
Supervision ................................................................................................................................................. 57<br />
Postal network ........................................................................................................................................... 57<br />
0
FOREWORD<br />
Dear reader,<br />
Once again it is a pleasure to present the overview of the activities of the Estonian<br />
Competition Authority in <strong>2011</strong>. Highlights from the previous year come to mind when<br />
writing this foreword. The first that is remembered is, of course, adopting the euro – as a<br />
year ago we automatically calculated the prices in Estonian kroons, and now more than a<br />
year later this habit has gradually started to disappear. Surely, the decision made by Estonia<br />
has caused many discussions and raised questions about whether we are in a position to help<br />
those in need that are in fact richer than us. <strong>2011</strong> has been equally important in terms of the<br />
development of the European integration. It has been seriously discussed if in the future the<br />
European Union will be more like the United States of America, and if we are heading<br />
towards deeper integration or not. These are difficult choices and there are no clear answers.<br />
In Europe, we are united by the Christian cultural background, at the same time we are<br />
faced with language barriers. Considering the economic power of the rest of the world and<br />
the English language being the lingua franca more and more nowadays, integration seems to<br />
be more inevitable than ever.<br />
However, without the bad, there would be no good – the global economic crisis is indeed<br />
unpleasant and we all hope it would end sooner; however, such an intensive European<br />
integration would have probably not taken place without it. In addition it has pointed out<br />
the weaknesses in the world economy. Increasingly, it is stated, that economic growth is<br />
ensured by the competitiveness of the country and various restrictive factors of competition<br />
hinder economic development. It is, of course, impossible to achieve the ideal model of<br />
market economy, where the state is collecting taxes, ensuring the security and social<br />
protection of citizens, but the market barriers should be critically analysed. That is the<br />
reason why it is also one of the main aims of the Competition Authority to draw attention to<br />
possible bottlenecks and offer solutions for the promotion of competition. Although Estonia<br />
is an open, liberal economy, there are areas where things could be organized in a better way.<br />
An example of this is the restriction of the establishment of pharmacies. Seemingly it is<br />
nobly aimed at maintaining the pharmacies in the countryside, but there are cases where it<br />
has resulted in the fact that there are no pharmacies existing neither in the countryside nor<br />
in the densely populated areas. An activity licence is not granted to an undertaking that<br />
would be prepared for the free competition and to meet the strict quality requirements, but<br />
to whom that gains the licence in the form of drawing lots.<br />
1
The subject, which also ties in with the Authority´s daily work are different subsidies for the<br />
generation of electricity. If in 2007 the subject was of minor importance, then today we are<br />
dealing with a significant part of our electricity bill. It is difficult to find producers who are<br />
not subsidised - starting with the largest power station in Estonia Narva Elektrijaam and<br />
ending with a few hundred kilowatt watermills. I do not dispute that it is the task of the<br />
state administration to guide the production towards environmentally friendly ways, but it<br />
must be conducted by a tax policy, not by wide subsidies. Tax policy gives equal conditions<br />
for everyone and the winners are those who are more effective and use better technology.<br />
The winners through subsidies are the best deal makers. The EU´s system of excise duties<br />
on motor fuels that has driven the producers to more effective models may be brought as an<br />
example here. Twenty years ago no one would have believed that a properly equipped<br />
comfortable passenger car only consumes on average 4 litres of fuel per 100 kilometres, but<br />
today it is reality. It would have hardly been achieved by other means than through the high<br />
fuel price, which has driven the producers towards innovation.<br />
For the first year the Authority approved the prices both to all district heating as well as<br />
water undertakings. It has been widely discussed whether this step was right or not, but it is<br />
clear that in a small country like Estonia it is more effective to have one price regulator<br />
rather than many. It is also positive that prices for all undertakings shall be approved on the<br />
same basis. Now all the heating prices are comparable. It is also good to clear the problems –<br />
with today´s high prices for oil and gas there is no place for a heat supply where nearly half<br />
of the energy does not reach the consumers, but vanishes somewhere halfway. And once<br />
again we end up with competition matters; namely, the local self-governments have the<br />
right to designate district heating network areas, where this type of heating is the only<br />
possibility. Seemingly this is aimed at consumer protection, but regrettably, as a result the<br />
consumer lacks the money as well as the possibility to choose an alternative type of heating.<br />
Fortunately, however the previously mentioned areas are rare examples, where free<br />
competition should be implemented more effectively. As mentioned above, Estonia may<br />
certainly be used as an example of a country where the emphasis is on promoting free and<br />
fair competition. This trend must undoubtedly continue in the future and the Estonian<br />
Competition Authority is responsible for making every effort to contribute to the goal.<br />
With best wishes,<br />
Märt Ots<br />
Director General<br />
2
ORGANISATION<br />
Structure<br />
According to the statutes of the Competition Authority, the Authority includes three field-based<br />
divisions, which are the Competition Division, the Energy and Water Regulatory Division and<br />
the Railway and Communications Regulatory Division. In addition to the divisions, there is the<br />
External and Public Relations Department which is responsible for ensuring effective support<br />
services. The Director General is at the head of the Authority (Figure 1). Structural Divisions are<br />
directed by the Heads of Divisions, who are at the same time the Deputy Directors General.<br />
FIGURE 1. Structure of the Competition Authority<br />
According to the statutes, the functions of the Authority are divided between structural units or<br />
divisions as follows:<br />
The main functions of the Competition Division are: conducting the proceedings of<br />
complaints and concentration notifications submitted by undertakings; conducting proceedings<br />
of cases on its own initiative; replying to inquiries of undertakings and their representatives;<br />
counselling and raising competition related awareness of the public.<br />
3
The main functions of the Energy and Water Regulatory Division are: price regulation;<br />
activity licences; market supervision; security of supply and quality control in the energy and<br />
water sectors.<br />
The main functions of the Railway and Communications Regulatory Division are: regulating<br />
the communications market; monitoring the performance of imposed measures; monitoring<br />
developments on the markets of electronic communications; settlement of competition and<br />
electronic communications related disputes regarding communication services and networks;<br />
regulating the postal market; organising the provision and exercising the supervision of the<br />
universal service; settlement of applications, inquiries and complaints regarding postal services;<br />
perform duties regarding railway regulation.<br />
The main functions of the External and Public Relations Department are: coordination of<br />
the relations between the Authority and the general public; organisation of international relations;<br />
ensuring administrative organisation; organisation of state assets and means in the possession of<br />
the Authority; ensuring the existence of tools and inventory; organisation of personnel work and<br />
training; organisation of customer service, document management and administration of archives.<br />
Personnel and budget<br />
The Competition Authority employed 62 persons as of the end of <strong>2011</strong>, 8 new employees joined<br />
the Authority and 2 people left the organisation during the year. The division of personnel<br />
between the structural units was as follows:<br />
External and Public Relations Department<br />
Competition Division<br />
Energy and Water Regulatory Division<br />
Railway and Communications Regulatory Division<br />
6 persons<br />
21 persons<br />
20 persons<br />
15 persons<br />
Officials with up to 10 years of public service were the majority. Most staff members have higher<br />
education in economics (business administration, business management, finance, economics, etc)<br />
or in law. The third group of officials consisted of those with higher education in other<br />
disciplines, such as radio electronics, telecommunications, thermal energy, public administration<br />
or other.<br />
In <strong>2011</strong> the budget of the Competition Authority was 1,83 million euros.<br />
4
EXTERNAL AND PUBLIC RELATIONS<br />
In <strong>2011</strong> the Estonian Competition Authority hosted the Annual Baltic Electronic<br />
Communications and Postal Services Regulators Meeting in Kuressaare, and in addition<br />
the everyday work in working groups of international organisations continued. Many<br />
officials gave lectures or presentations at various Estonian or international events and<br />
responded to numerous inquiries from undertakings and organisations in Estonia and<br />
other countries.<br />
The Competition Authority participates in the work of competition, energy, communications and<br />
railway related working groups and unions. During <strong>2011</strong> the officials of the Competition Division<br />
attended meetings and discussions of the ECN (European Competition Network), the ECA<br />
(European Competition Authorities) and the ICN (International Competition Network) working<br />
groups and subgroups. For the first time a representative of the Estonian Competition Authority<br />
acted as the rapporteur for the EC Advisory Committee on restrictive practices and dominant<br />
position. Officials of the Energy and Water Regulatory Division participated in the meetings of<br />
the CEER (Council of European Energy Regulators) and the ERRA (Energy Regulators Regional<br />
Association). The Railway and Communications Regulatory Division was actively involved in the<br />
organisation comprising European national communications regulators - BEREC by taking part<br />
in the working groups of mobile and fixed termination rates, cost accounting, transparency and<br />
the designation of undertaking with significant market power. Furthermore, the Authority has to<br />
also <strong>report</strong> the developments on the railways market, supervisory activities, and co-operation with<br />
other regulators and organisations at the meetings of regulators working groups. The<br />
Competition Authority is also involved in the work of IRG-Rail (Independent Regulators´ Group<br />
– Rail)<br />
On March 3, <strong>2011</strong> the Agency for the Cooperation of Energy Regulators (ACER) began to<br />
operate. The ACER was established by the regulation (EC) No 713/2009 of the European<br />
Parliament and of the Council because the need was identified for a partner that has the right to<br />
adopt legally binding decisions. One of the objectives of the ACER is to contribute to the<br />
functioning of cross-border energy trade and the removal of obstacles, as well as to contribute to<br />
the national regulatory authorities fulfilling the regulatory tasks at the EU level and, if necessary,<br />
to coordinate the activities of these bodies.<br />
The Annual Baltic Electronic Communications and Postal Services Regulators Meeting was held<br />
in Kuressaare on August 25 th -26 th . The <strong>annual</strong>ly organised roundtable provides an opportunity to<br />
introduce the previous years´ developments in the legislation and on the organisational level, and<br />
5
also to discuss the possibilities of implementing single practices. Traditionally the first day is<br />
dedicated to general panel discussions and the second day focuses on the postal services and<br />
electronic communications working groups.<br />
Raising the competition related awareness was also one of the Authority´s priorities in <strong>2011</strong>. One<br />
of the most visible events of these activities is the Estonian Competition Day, organised once a<br />
year. The third Competition Day brought together entrepreneurs from different sectors and<br />
competition experts who debated on these subjects and economic sectors that gained the most<br />
attention during the year. The main keywords of the Competition Day <strong>2011</strong> were electronic<br />
communications, banking, health care, food processing, aviation, tourism and water services.<br />
6
COMPETITION SUPERVISION IN <strong>2011</strong><br />
The Supervisory Department of the Competition Authority deals with solving all competition<br />
related matters, which are not covered by other economic sector specific regulatory units of the<br />
Authority. Therefore the field of activity of the Supervisory Department is extremely varied,<br />
ranging from extensive criminal cases to, for example, analyses of legal acts that may affect the<br />
competitive situation. The year <strong>2011</strong> brought along the first procedural act carried out in<br />
cooperation with the European Commission, namely the inspection of AS Eesti Gaas (Estonian<br />
Gas Company).<br />
In <strong>2011</strong> the emphasis of the Supervisory Department was on several substantial and complex<br />
proceedings. Many of the supervisory proceedings were related to different infrastructure<br />
undertakings. For example the pricing of AS Levira was examined and it was found that its<br />
profitability was too high in 2007/2008 – 2009/2010. Such proceedings targeted directly at<br />
controlling the profitability of an undertaking in a dominant position are relatively rare both in<br />
Estonia as well as internationally, because these are fairly complex legal disputes. The<br />
Competition Authority, however, holds the development of competition law´s approach to the<br />
pricing of incumbent undertakings as a matter of priority. Therefore the pricing control of the<br />
Eesti Interneti Sihtasutus (Estonian Internet Foundation) was also started in <strong>2011</strong>.<br />
Cases concerning the activities carried out by AS Eesti Post (Estonian Postal Operator) appeared<br />
to be the most considerable of the infringements committed by the undertakings in a dominant<br />
position. Historically AS Eesti Post is the only postal service provider operating the postal<br />
network covering the whole of Estonia and according to the Postal Act as well as to the<br />
Competition Act it has to enable other undertakings to access its postal network on nondiscriminating<br />
conditions. The Competition Authority found on several occasions that AS Eesti<br />
Post had not done so and therefore incurred a fine on several occasions. The misdemeanour<br />
procedure conducted concerning AS Eesti Post also showed more clearly that such type of<br />
procedure is foremost meant rather for the simple and rapid proceeding of violations and is<br />
therefore inappropriate for the proceedings of complex economic violations. Compared to other<br />
countries the fines are very small and limitation periods are too short. The Competition Authority<br />
regards the ineffectiveness of sanctioning the incumbents as one of the biggest shortfalls in the<br />
supervisory activities.<br />
Estonia is one of the few countries in Europe where agreements restricting competition are<br />
investigated as criminal matters. In <strong>2011</strong> the Competition Authority passed the materials of the<br />
criminal case of the competition restricting agreements concluded between AS Pristis and<br />
7
Securitas Eesti AS to the Prosecutor’s Office. In April 2012 the parties to the agreement were<br />
found guilty by compromise procedure. The second significant case that was forwarded to the<br />
Prosecutor´s Office was the one that accused AS Tartu Mill and its representatives of having<br />
participated in concluding the anti-competitive agreement. The court has not yet made a<br />
judgment in this criminal case. The decision made by the Supreme Court No. 3-1-1-12-11 of<br />
04.05.<strong>2011</strong> where AS KPK Teedeehitus and the member of its Board were acquitted of the<br />
charges in concluding an anti-competitive agreement must be considered as most substantial<br />
from the viewpoint of the interpretation of competition law. Under that decision the Supreme<br />
Court gave an important explanation, in particular, to the provisions of § 6 of the Competition<br />
Act containing the so-called exception to the rule in criminal proceedings.<br />
Direction of waste by local governments<br />
In previous years the Competition Authority has presented views to local governments<br />
condemning discretionary direction of waste to waste management facilities (mostly municipal).<br />
For example, such recommendations have been submitted to Tallinn and Narva City<br />
Governments. In <strong>2011</strong> the discussion concerning the determination of waste management<br />
facilities by the local governments continued. The Competition Authority doubts if local<br />
governments even have the competency to direct waste as the Waste Act does not include<br />
provisions that would clearly regulate this matter.<br />
Of course, the final answer to this question will be given by the court. It is important that the<br />
market would remain open to other eligible undertakings – this means that the waste transport<br />
provider must have a choice of operators meeting the legal criteria. If the waste management<br />
facilities are limited to one, the market will be closed for other alternative, potentially eligible<br />
desired locations. Maintaining free competition is particularly important with respect to<br />
investments made in the waste management that have already created new environmentally<br />
friendly solutions.<br />
In addition, the Competition Authority highlights that giving a competitive advantage to certain<br />
undertakings must always be justified by indicating which public interests or requirements of the<br />
law it serves. Thus, when granting a special or exclusive right the local government has to clearly<br />
indicate the reasons why the free competition would lead to non-desirable consequences and why<br />
the interference to effective competition would lead to a better outcome. The decision taken by<br />
the local government has to be justified particularly in the light of consumer´s interests.<br />
8
In <strong>2011</strong> the Competition Authority was informed that Võru Town Government wants to<br />
conclude an agreement which obliges the waste transporter Ragn-Sells AS to direct all mixed<br />
municipal waste which is collected in the framework of organised waste transport in the town of<br />
Võru to be handled by one undertaking – the waste management facility of MTÜ Võru<br />
Jäätmekeskus in Umbsaare, although Ragn-Sells AS had informed that it would be remunerative<br />
for the consumers if municipal waste will be driven to competing waste management facilities. At<br />
the same time, the new competition for waste shipment was being organised by the Võru Town<br />
Government. In the Competition Authority´s view a remarkable advantage had been given to the<br />
waste management facility in Umbsaare. It remained unclear from the information collected in<br />
the course of the procedure which public interests does the intention of Võru Town<br />
Government to prefer Umbsaare waste management facility serve, if many undertakings wish to<br />
provide a similar service and some of them allegedly at a cheaper price. The environmental<br />
objectives named by the Town Government may also be obtained by other means and are not<br />
actually related to the exclusive right.<br />
The Competition Authority took the view that the activity of the Võru Town Government has<br />
restricted competition, undermining the interests of consumers. On May 31 st the Authority issued<br />
a recommendation to the Võru Town Government not to grant MTÜ Võru Jäätmekeskus waste<br />
management facility located in Umbsaare either directly or through public procurement<br />
conditions an exclusive right or other competitive advantages in the handling of waste collected<br />
through organised municipal waste transport in Võru. Võru Town Government informed the<br />
Authority of complying with the recommendation.<br />
AS Levira earned inequitably large profit<br />
On 16/09/<strong>2011</strong>, the Competition Authority made a decision according to which AS Levira<br />
(hereinafter Levira) had earned an inequitably large profit in the financial years 2007/2008<br />
through 2009/2010 due to the dominant position in the market. The undertaking’s profitability<br />
decreased back to a reasonable level in the course of the proceedings.<br />
The Competition Authority found that Levira held the dominant position on the television<br />
broadcasting market due to its above-ground broadcasting network, which means that the prices<br />
of its services should have been calculated on a cost basis. The most important factor for the<br />
assessment of Levira’s market power was the fact that the only above-ground broadcasting<br />
network covering the whole of Estonia was at the undertaking’s disposal. The network consists<br />
9
of above-ground masts and transmitters conveying the signals that can be received with a<br />
standard TV antenna.<br />
Although the Technical Surveillance Authority announced Starman to have won the tender for<br />
the issue of three multiplex frequency authorisations organised in January <strong>2011</strong>, Starman made an<br />
agreement with Levira about the construction of the networks on the basis of the latter’s masts<br />
after winning the tender. Thus Levira essentially remained the only undertaking in Estonia to<br />
provide above-ground broadcasting services. The fact the Starman did not construct its network<br />
independently of Levira confirms the conclusion that prospective competitors would find that<br />
extremely expensive. The main reason there is no competition for Levira as far as the above<br />
services are concerned lies in the fact that it is the tall masts over a hundred meters high that are<br />
suitable for the above-ground transmission of television programmes, and the majority of these<br />
belong to Levira. In addition, these masts are located to cover the whole territory of Estonia. The<br />
masts belonging to other companies do not cover the whole country.<br />
The Competition Authority regards the construction of a television network covering the whole<br />
territory of Estonia on the basis of low, so-called mobile communication masts and the use of the<br />
same frequency transmitters so financially and technically complicated that it would not exert<br />
much notable competition pressure on Levira. Low masts have been designed and constructed to<br />
provide mobile communication, and the needs of broadcasting have not been taken into<br />
consideration, especially as far as powerful transmitters, including energy supply, the antenna and<br />
the permanent connection, are concerned. In addition, consumers will have to buy<br />
supplementary antennas if such a network is constructed. The existing antennas can be<br />
redirected, but one would not be able receive the signal of the free channels transmitted by Levira<br />
with the same antenna, which would make entering the market with a new network even more<br />
complicated.<br />
Other types of television programme transmission such as cable broadcasting, satellite<br />
broadcasting and broadband networks (IPTV) are not of much competition to Levira’s services<br />
either. The reason for that lies in the limited availability of various technical solutions and<br />
strikingly different price formation. For instance, the fact that cable broadcasting and broadband<br />
networks only allow densely populated areas to be covered with a television signal must be taken<br />
into consideration. In such case television shows and programmes would not find their way to<br />
more sparsely populated places and the expansion of the broadcasting area in the coming years<br />
would be out of the question. In consumers’ opinion, those various technical solutions are not<br />
interchangeable in this particular instance. As opposed to Levira’ above-ground network services,<br />
fees are charged for cable broadcasting and broadband network services, which changes the state<br />
10
of competition drastically. As far as satellite networks are concerned, price formation is similar,<br />
but these can cover the whole territory of Estonia as opposed to cable broadcasting and<br />
broadband networks. It turns out that while the services provided through Levira’s above-ground<br />
network are free of charge for consumers as far as free channels are concerned, a fee is charged<br />
for the services provided through the satellite network, and consumers must buy parabolic<br />
antennas to receive the signal. The free channels include, for example, ETV, ETV2, Kanal3 and<br />
TV3. The Competition Authority finds that the large price difference supports the positioning of<br />
these two services in different goods markets from the consumers’ point of view. Having<br />
switched from the above-ground broadcasting service to the satellite service, consumers do not<br />
replace one type of service with the other, but change their consumption habits by starting to<br />
consume a more expensive and considerably more extensive service.<br />
In the process of the assessment of Levira’s price formation, the Competition Authority<br />
proceeded from the determination of whether the ratio of the profitability and the economic<br />
merit of the service provided by Levira were reasonable. According to section 16 of the<br />
Competition Act, any direct or indirect abuse by an undertaking or several undertakings of the<br />
dominant position in the goods market is prohibited. Clause 1 of section 16 of the same act<br />
forbids an undertaking of the dominant position in the goods market to impose unfair purchase<br />
or selling prices or other unfair trading conditions directly or indirectly.<br />
It was found that Levira had earned profits higher than usual in the financial years 2007/2008<br />
through 2009/2010 as it simultaneously provided both analogue and digital signal broadcasting<br />
services in 2007–2010 and received fees for both services. The situation at the moment was<br />
different from other periods. The Competition Authority believes that a period of three years<br />
should have been sufficient for a market-dominant undertaking to have adjusted its price<br />
formation to the changed circumstances. Prices in a competitive market would certainly have<br />
decreased significantly within that period due to the pressure of competition.<br />
Levira ceased broadcasting the analogue signal on 01/07/2007, which resulted in a decrease in<br />
both sales proceeds and profitability. However, Levira’s expenses did not decrease in the amount<br />
proportional to the decrease in returns after the broadcasting of the analogue signal was ceased.<br />
By the end of the proceedings, the Competition Authority was convinced that the profit earned<br />
by Levira was not unreasonably high any more as the result of the changes introduced by Levira.<br />
As Levira had stopped violating the law, the Competition Authority ended the proceedings<br />
without issuing a precept.<br />
11
Fines imposed on AS Eesti Post for abusing its dominant<br />
position in the market<br />
By the decision dated 16/11/<strong>2011</strong>, the Competition Authority imposed fines for a total amount<br />
of 36,000 euros on AS Eesti Post (hereinafter Eesti Post) for the infringement of the<br />
Competition Act committed in September 2010. The Competition Authority found that Eesti<br />
Post, holding the dominant position in the market, discriminated against AS Itella Information<br />
(hereinafter Itella) on two separate occasions having offered postal services to the latter under<br />
unfair trading conditions.<br />
AS Eesti Post’s first infringement<br />
In September 2010, the Ministry of Finance conducted simplified public procurement<br />
proceedings for the “Provision of postal services” service to be purchased; the service included<br />
the storage of information materials about the adoption of the euro in Estonia and euro<br />
calculators and assembling them in sets, the production of envelopes, placing the sets in<br />
envelopes and delivering them as unaddressed direct mail (so-called blind mail) to the post boxes<br />
of all private persons. The bidders for this public procurement were Itella and Eesti Post jointly<br />
with its subsidiary undertaking AS Eesti Elektronpost (hereinafter Eesti Elektronpost).<br />
Both Itella and Eesti Elektronpost offer the services of printing materials or letters and placing<br />
them in envelopes as well as personalisation and set-assembling services (so-called preparation<br />
services). None of the above companies deliver mail, and they have to use the services of a postal<br />
operator. Eesti Post is by far the largest postal operator in Estonia and the only holder of the<br />
nation-wide postal network. Eesti Post uses the above postal network for providing a variety of<br />
postal services and other services including the delivery of direct mail (for instance, blind mail<br />
services). Thus Itella must usually use Eesti Post’s services for completing large-scale orders<br />
which imply the delivery of mail in addition to the services provided by Itella itself.<br />
The Competition Authority found that in its joint bid with its subsidiary undertaking Eesti<br />
Elektronpost, Eesti Post had offered the delivery of the materials of the Ministry of Finance at a<br />
significantly lower price than the price Eesti Post had quoted to Itella on the basis of the price<br />
lists of the former for the purpose of Itella taking part in the public procurement announced by<br />
the Ministry of Finance. Considering the fact that Itella and Eesti Elektronpost would have<br />
equally prepared the materials of the Ministry of Finance to be forwarded to Eesti Post for<br />
delivery, the cost of the delivery incurred by Eesti Post could not have varied significantly<br />
12
depending on whether the materials of the Ministry of Finance were prepared by Eesti<br />
Elektronpost or Itella.<br />
According to clause 3 of section 16 of the Competition Act, an undertaking of the dominant<br />
position in the goods market is forbidden to offer or apply dissimilar conditions to equivalent<br />
agreements with other trading parties, thereby placing some of them at a competitive<br />
disadvantage.<br />
The Competition Authority confined the relevant goods market to the provision of blind mail<br />
(unaddressed direct mail) services in the Republic of Estonia and found that Eesti Post held a<br />
dominant position in the above market.<br />
By quoting a significantly lower price for the delivery of the materials of the Ministry of Finance<br />
to be prepared by its subsidiary undertaking Eesti Elektronpost than the price for the delivery of<br />
equally prepared materials quoted by Eesti Post to Itella, Eesti Post placed Itella at a competitive<br />
disadvantage in the process of bidding for the provision of the preparation services. In a situation<br />
where the customer (the Ministry of Finance) wished to purchase a complex service which<br />
included both the preparation services and the delivery service, Eesti Post created an advantage<br />
for its subsidiary undertaking Eesti Elektronpost, thus limiting competition in the bidding for the<br />
provision of the preparation services. The Competition Authority found that the activity of Eesti<br />
Post described above had violated the prohibition for a undertaking of the dominant position in<br />
the goods market established by clause 3 of section 16 of the Competition Act, which qualifies as<br />
the abuse of the dominant position in the market.<br />
According to clause 1 of section 73 5 of the Competition Act, the establishment of unfair trading<br />
conditions, or the limitation of production, services, market, technical development or<br />
investments, or engaging in activities involving abuse of the dominant position in the market<br />
shall be punished by a fine of up to 300 fine units or by detention. The same act, if committed by<br />
a legal person, is punishable by a fine of up to 32,000 euros (clause 2 of section 73 5 of the<br />
Competition Act).<br />
The Competition Authority found that the activity of Eesti Post met the criteria of a violation<br />
described in clause 2 of section 73 5 of the Competition Act and imposed a fine in the amount of<br />
18,000 euro on Eesti Post.<br />
AS Eesti Post’s second infringement<br />
In September 2010, Eesti Energia AS conducted a tender procedure for the printing of letters<br />
about the replacement of the information system and delivering them to the customers of Eesti<br />
13
Energia AS. The bidders for the above public procurement were Itella and Eesti Post jointly with<br />
its subsidiary undertaking Eesti Elektronpost.<br />
The Competition Authority found that in its joint bid with its subsidiary undertaking Eesti<br />
Elektronpost for the purpose of the tender of Eesti Energia AS, Eesti Post had offered the<br />
delivery of the letters of Eesti Energia AS at a significantly lower price than the price Eesti Post<br />
had quoted to Itella on the basis of the price lists of the former. Considering the fact that Itella<br />
and Eesti Elektronpost would have equally prepared the letters to be forwarded to Eesti Post for<br />
delivery, the cost of the delivery of Eesti Energia AS’s letters incurred by Eesti Post could not<br />
have varied significantly depending on whether the letters were prepared by Eesti Elektronpost<br />
or Itella.<br />
The Competition Authority confined the relevant goods market to the provision of direct mail<br />
(i.e. addressed direct mail) services in the Republic of Estonia and found that Eesti Post held a<br />
dominant position on the above market.<br />
The Competition Authority found that by quoting a significantly lower price for the delivery of<br />
the Eesti Energia AS’s letters to be prepared by its subsidiary undertaking Eesti Elektronpost<br />
than the price for the delivery of equally prepared letters quoted by Eesti Post to Itella, Eesti Post<br />
placed Itella at a competitive disadvantage in the process of bidding for the provision of the<br />
preparation services. In a situation where the customer (Eesti Energia AS) wished to purchase a<br />
complex service which included both the preparation services and the delivery service (provided<br />
neither by Eesti Electronpost nor Itella on their own), Eesti Post created an advantage for its<br />
subsidiary undertaking Eesti Elektronpost, thus limiting competition in the bidding for the<br />
provision of the preparation services. The Competition Authority found that the activity of Eesti<br />
Post described above had violated the prohibition for a undertaking of the dominant position in<br />
the goods market established by clause 3 of section 16 of the Competition Act, which qualifies as<br />
the abuse of the dominant position in the market. As the activity of Eesti Post met the criteria of<br />
a violation described in clause 2 of section 73 5 of the Competition Act, the Competition<br />
Authority imposed a fine in the amount of 18,000 euro on Eesti Post.<br />
AS Eesti Post filed a complaint to Harju County Court concerning the Competition Authority’s<br />
decision of 16/11/<strong>2011</strong>. On 27/04/2012, Harju County Court made a judgement according to<br />
which the Competition Authority’s decision of 16/11/<strong>2011</strong> concerning AS Eesti Post having<br />
violated the Competition Act was to remain in force, but the fine imposed on AS Eesti Post on<br />
the basis of clause 2 of section 73 5 of the Competition Act was to be decreased to 18,000 euros.<br />
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CONTROL OF CONCENTRATIONS<br />
The control of concentration is designed to assess its effects of the competition law and to<br />
prevent the creation or strengthening of a market dominant position which may impede effective<br />
competition in the market.<br />
In <strong>2011</strong>, 21 notices of concentration were submitted to the Competition Authority and one case<br />
was brought over from 2010. Thus the Authority proceeded with 22 cases and made 17 decisions<br />
to grant permission to concentration, one decision to prohibit concentration and in one case the<br />
proceeding was ended because the parties to the concentration decided not to concentrate. In<br />
three cases the decision was postponed to 2012. In two cases a decision was made to initiate<br />
supplementary proceedings.<br />
16 out of 17 decisions to grant permission to concentration were made in the first phase of the<br />
proceedings, i.e. during the 30 calendar days prescribed by law. One decision to grant permission<br />
and one decision to prohibit concentration were made in the second phase of the proceedings i.e.<br />
during the five months prescribed by law. Thereby the running of the term was suspended in<br />
four cases in connection with the elimination of deficiencies in the notice. The actual average<br />
length of proceedings of the first phase was 21 days and the length of the supplementary<br />
proceedings was 130 days.<br />
The breakdown by types of concentration was as follows:<br />
An undertaking acquired control of the whole or a part of another undertaking in the case<br />
of 16 concentrations (§ 19 (1) p 2);<br />
Undertakings jointly acquired control of the whole or a part of another undertaking in the<br />
case of 5 concentrations (§ 19 (1) p 3);<br />
A natural person already controlling at least one undertaking acquired control of the<br />
whole or a part of another undertaking or parts thereof in 1 case (§ 19 (1) p 4)<br />
Majority of the concentrations (16) took place among Estonian undertakings; in three cases both<br />
of the parties to the concentration were foreign undertakings and also in three cases the parties to<br />
the concentration were both domestic and foreign undertakings.<br />
In conclusion, it may be observed that the intensity of the concentrations between those<br />
Estonian undertakings whose specific impact on Estonian product markets is particularly<br />
important has increased significantly– this accounts for 73% of the total number of notified<br />
concentrations. The proportion of concentration between foreign undertakings has fallen and it<br />
15
now accounts for only 13,5% of the total number of the notified concentrations. Foreign<br />
investors continue to have an interest in the acquisition of Estonian enterprises (incl private<br />
capital funds), because the intensity of such concentrations was 13,5%.<br />
In <strong>2011</strong> concentrations took place in the following goods markets:<br />
Sale and production of heat and energy;<br />
Real estate development and rental;<br />
Sale of developed real estate;<br />
Sale of passenger cars;<br />
Road maintenance;<br />
Security services;<br />
Postal services;<br />
Publishing and sales of newspapers and magazines;<br />
Wholesale and retail trade of LPG;<br />
Raw milk production, storage and sales;<br />
Pharmacy services;<br />
Ferry lines;<br />
Agent activity and railway transportation.<br />
Prohibition of the concentration of AS Eesti Post and AS<br />
Express Post<br />
In September <strong>2011</strong>, the Competition Authority forbade the concentration of AS Eesti Post<br />
(hereinafter Eesti Post) and AS Express Post (hereinafter Express Post), which became the<br />
second decision prohibiting concentration in the history of the Competition Authority.<br />
Both parties to the concentration operate in the sphere of postal services. Eesti Post is a<br />
commercial undertaking owned by the state and providing multi-purpose postal services, express<br />
mail delivery service, direct mail delivery service, letter delivery service and other postal services<br />
(incl. home delivery of periodicals). Express Post is jointly controlled by Aktsiaselts Ekspress<br />
Grupp and AS Eesti Meedia and provides the service for the home delivery of periodicals, direct<br />
16
mail service and letter delivery service. Eesti Post wanted to acquire control over Express Post<br />
and if the above concentration had been permitted, there would be only one undertaking in<br />
Estonia to provide postal services (apart from express mail services). The Competition Authority<br />
analysed the competition situation in the sphere of postal services, and the information about the<br />
functioning of competition was also gathered from the customers of the parties to the<br />
concentration. Undertakings expressed the opinion that competition in the above sphere (incl.<br />
the delivery of letters and direct mail) was functioning and customers had a choice. The<br />
competition pressure of Express Post imposed on Eesti Post had been beneficial for the<br />
competition. Customers could choose the best of the two service providers on the basis of<br />
prices, quality and other criteria. Concentration would eliminate Express Post’s competition<br />
pressure on Eesti post.<br />
Customers, including final consumers, benefit from intense competition in the market in the<br />
form of lower prices, higher quality, a wider choice of products and services and innovation.<br />
Under the conditions of competition, undertakings are motivated to develop products, be flexible<br />
and customer-friendly and offer products at lower prices. Control over concentrations will allow<br />
such concentrations that would increase the market power of an undertaking and evidently leave<br />
consumers without the benefits from functioning competition to be prevented.<br />
Express Post has secured a position of a competitor for Eesti Post that is to be reckoned with. If<br />
the only competitor that could impose competition pressure were to be overtaken, Eesti Post,<br />
having secured the position of the sole service provider, would apparently not have to make any<br />
substantial effort for customer satisfaction as customers in need of postal services would have no<br />
alternative to the services of Eesti Post.<br />
The analysis of the competition situation resulted in the Competition Authority forming the<br />
conclusion that the concentration of Eesti Post and Express Post would significantly hinder the<br />
competition in the goods markets of the home delivery of periodicals, direct mail delivery and<br />
letter delivery as Eesti Post would secure the position of the sole service provider, and<br />
competition in the sphere of postal services (apart from express mail services) would disappear.<br />
The Competition Authority presented the relevant assessment to Eesti Post for the undertaking<br />
to present its objections and the suggestion that obligations be assumed. Namely, according to<br />
the provisions of the Competition Act, the Competition Authority can grant permission for<br />
concentration provided that the parties to the concentration fulfil the obligations they assume to<br />
prevent damage to competition. In certain cases concentration can also be permitted if it is<br />
accompanied by a significant increase in efficiency. This is usually the case when evidential<br />
material proves that the increase in efficiency will apparently broaden the undertaking’s<br />
17
opportunities and motivation to act in the interest of consumers and to promote competition<br />
thus providing leverage for the negative effects that the concentration would otherwise cause.<br />
The Competition Authority found that the obligations Eesti Post offered to assume did not<br />
clarify how the damage to competition as the result of the concentration would be repaired. The<br />
cost saving claimed by Eesti Post would not compensate for the loss of competition resulting<br />
from the concentration or outbalance it.<br />
According to clause 1 of section 22 of the Competition Act, the Competition Authority’s<br />
appraisal of a concentration shall be based on the need to maintain and develop competition.<br />
Thus a concentration that would entirely eliminate competition in the sphere of postal services<br />
(apart from express mail services) could not be allowed due to the following reasons:<br />
1. As the result of the concentration, Eesti Post would remain the sole provider of postal<br />
services (apart from express mail delivery services), which means that customers would<br />
have no choice whatsoever.<br />
2. The undertaking in the dominant position (in this case, the sole provider) in the market<br />
would have an opportunity to increase the prices of services and decrease flexibility and<br />
innovation as competition pressure would be non-existent.<br />
3. Postal services (incl. letter delivery and direct mail delivery) are still extremely important<br />
and necessary for customers and cannot be avoided. As a result of the concentration, this<br />
would allow Eesti Post to choose its course of action regardless of customers’ interests.<br />
18
<strong>2011</strong> IN THE AREAS OF ENERGY AND WATER<br />
REGULATION<br />
In <strong>2011</strong>, there were around 340 undertakings or network areas that were under regulation of the<br />
Energy and Water Regulatory division of the Competition Authority. The amounts of the<br />
generation and export of electricity showed an increase in volumes as a result of the actual<br />
opening of the electricity market in 2010. The most significant proceedings of the year<br />
concerning the pricing of network charges were related to the applications of AS Elering and<br />
Eesti Energia Jaotusvõrk OÜ concerning network charges.<br />
The Competition Authority exercised supervision over the facilities of AS Narva Elektrijaamad,<br />
which showed that Estonia would be able to cover the forecast capacity until the year 2020,<br />
taking into consideration the existing facilities and those that were being constructed. Compared<br />
to the previous year, the consumption of natural gas decreased by 9.7% in <strong>2011</strong>. The reason for<br />
such a significant decrease in consumption lies in the increase of natural gas prices in recent<br />
years. Small-scale heating undertakings, with fuel costs amounting to 70% or more in the<br />
structure of their expenses, which had been under the regulation of local governments so far,<br />
became particularly active in applying for the approval of heating limit prices due to the<br />
significant increase in fuel prices, especially the changes in the prices of natural gas and shale oil.<br />
Electricity market<br />
The amounts of the generation and export of electricity in <strong>2011</strong> showed that the trends resulting<br />
from the actual opening of the electricity market in 2010 continued, which is demonstrated by<br />
Figure 2 (source: Statistics Estonia).<br />
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FIGURE 2. Electricity generation, import and export<br />
The figure shows that the amount of generated electricity increased by 0.8% in <strong>2011</strong> in<br />
comparison with 2010, and the export of electricity increased by 53.8%. The significant growth<br />
of electricity export shows the increase of the demand for electricity in the markets of<br />
neighbouring countries. According to forecasts, the amount of generated electricity will decrease<br />
by 13% as the emission standard for the generation of electricity from oil shale will become<br />
stricter, and Eesti Energia Narva Elektrijaamad AS will have to decrease production.<br />
Figure 3 shows the indicators of electricity consumption broken down by years (source: Statistics<br />
Estonia).<br />
20
FIGURE 3. Electricity consumption in Estonia<br />
In <strong>2011</strong>, the total electricity consumption in Estonia decreased by 2.1% mainly due to the<br />
decrease in the electricity consumption of undertakings by 3.7%, while residential electricity<br />
consumption increased by 2.9%.<br />
The forecast for 2012 shows no significant changes as far as electricity consumption trends are<br />
concerned. More dramatic changes are to be expected in 2013, when the whole electricity market<br />
of Estonia will open, and forecasts expect the price of electricity to increase considerably.<br />
Pursuant to subsection 3 of section 73 of the Electricity Market Act, a network operator has the<br />
right to submit requests to the Competition Authority for approval of different network charges<br />
both collectively and separately. Pursuant to clause 8 of section 94 subsection 1 of the Electricity<br />
Market Act, the Competition Authority shall approve the network charges of a network operator<br />
except for transmission charges for the transit of electricity. The criteria taken by a network<br />
operator as the basis for establishing network charges must be transparent and in compliance<br />
with the principle of equal treatment and the necessity of ensuring security of supply and<br />
efficiency must be taken into account upon setting network charges. Pursuant to subsection 4 of<br />
section 72 of the Electricity Market Act, the Competition Authority has prepared and published<br />
the “Uniform methodology for the calculation of electricity network charges” (hereinafter the<br />
21
Methodology) to become the basis for the approval of electricity network charges. Pursuant to<br />
subsection 5 of section 71 of the Electricity Market Act, and the Methodology prepared by the<br />
Competition Authority, network charges are to be calculated on a cost basis.<br />
For AS Elering, the second period of the three-year regulation period was approved, starting<br />
from 01/01/2012 and ending on 31/12/2012. Changes in network charges were mainly caused<br />
by price components related to investments. The major investments include the construction of<br />
the second high voltage direct current connection Estlink2 between Estonia and Finland and two<br />
quick-starting emergency reserve power plants with power output capacity of 100 MW and 150<br />
MW. In addition, AS Elering is to build numerous new connections and distribution boards to<br />
increase the transmission capacity of electricity networks and decrease network losses.<br />
For Eesti Energia Jaotusvõrk OÜ, a new three-year regulation period was established, starting on<br />
01/08/<strong>2011</strong> and ending on 31/07/2014. Changes in network charges were mainly caused by<br />
price components related to maintenance and repairs as well as investments. The total volume of<br />
investments and maintenance and repairs in the following three years amounts to around 310<br />
million euros. Eesti Energia Jaotusvõrk OÜ will use this amount to repair the existing<br />
connections and distribution boards and build numerous new ones in order to increase the<br />
reliability of the supply of electricity networks and decrease network losses.<br />
In addition, the Competition Authority processed the application of Eesti Energia Kaevandused<br />
AS for the approval of the oil shale limit price and the application of Eesti Energia Narva<br />
Elektrijaamad AS and Eesti Energia AS for the approval of the weighted average limit price of<br />
electricity, which culminated in the above undertakings withdrawing their applications.<br />
Competition Authority’s assessment of the condition of the<br />
security of electricity supply in Estonia<br />
The Competition Authority analysed the condition of the security of electricity supply in Estonia<br />
from a 2016 and 2020 perspective, taking into consideration the production facilities in operation<br />
at the moment or under construction and the apparent decrease in the volume of production<br />
facilities by 2020.<br />
As of <strong>2011</strong>, the Eesti power plant (hereinafter Eesti PP) and the Balti power plant (hereinafter<br />
Balti PP) of AS Narva Elektrijaamad had a total of twelve electricity generating units with the<br />
total installed output capacity reaching 2013 MW. Units no. 8 and no. 11 have been upgraded to<br />
fully comply with environmental requirements and now use the fluidized bed technology, their<br />
22
output capacities reaching 194 MW and 192 (170) 1 MW respectively. However, numerous<br />
environmental requirements are to come into force, which will restrict the opportunity of using<br />
the existing units of AS Narva Elektrijaamad to generate electricity to the fullest extent.<br />
After 01/01/2012 the total maximum allowable amount of emissions of sulphur dioxide<br />
(SO 2 ) into the air by major combustion plants fuelled by oil shale may not exceed 25,000<br />
tonnes per calendar year.<br />
After 01/01/2016, the NO x content of flue gases emitted into the air by major combustion<br />
plants may not exceed 200 mg/nm 3 .<br />
After 01/01/2016, the 95% level of sulphur capture on all the major combustion plants<br />
fuelled by oil shale must be ensured instead of the 65–70% level required before that date.<br />
This is a mitigation of the requirements of the Industrial Emissions Directive (IED) for the<br />
existing combustion plants using local high-sulphur solid fuels, which also applies to oil<br />
shale and its use on the Balti and Eesti power plants.<br />
After 01/01/2016, the particulate load i.e. the fly ash content of flue gases emitted into the<br />
air by major combustion plants may not exceed 30 mg/nm 3 .<br />
To upgrade the units necessary for electricity generation to a sufficient extent for generating<br />
electricity in compliance with the environmental requirements, AS Narva Elektrijaamad has made<br />
/ is making the relevant investments.<br />
Desulphurization (DeSO x ) equipment to considerably decrease the level of SO 2 emissions<br />
will be installed on generating units 3, 4, 5 and 6 of the Eesti PP. Investments in the<br />
upgrading of these units will also be made in 2012–2015 to ensure that the NO x content of<br />
flue gases emitted into the air by these units does not exceed 200 mg/nm 3 after 1 January,<br />
2016.<br />
No investments will be made in the upgrading of generating units 1, 2 and 7 of the Eesti<br />
PP, and their use for the generation of electricity will not be allowed since the beginning of<br />
2016 due to their non-compliance with environmental requirements. The mitigation<br />
measures established in the new IED effective as of January <strong>2011</strong> allow AS Narva<br />
Elektrijaamad to use the production facilities for a limited number of hours in addition to<br />
the production facilities in permanent use. Pursuant to the IED, generating units 1, 2 and 7,<br />
1 170 The 170 MW output capacity refers to situations where the plant is functioning in the maximum<br />
combined heat and power generation mode to cater for the heating needs of Narva City.<br />
23
which do not comply with the requirements for major combustion plants, may be used for<br />
a maximum of 17,500 hours in the period between 01/01/2016 and 01/01/2023. Their<br />
output capacity in the 7 years will reach around 400 GWh per generating unit.<br />
No investments in the upgrading of generating units 9, 10 and 12 of the Balti PP have been<br />
planned, so the above units will be suspended for the period between 1 January, 2012, and<br />
31 December, 2015, and decommissioned completely in 2016, so the above units will not<br />
be recorded in the output capacity <strong>report</strong> (-462 MW).<br />
The decision on investing in at least one new generation unit with the net output capacity<br />
of 270 MW was made in June <strong>2011</strong>, and the unit is to be completed in 2015. The decision<br />
on whether the second new generating unit will be built will be taken in 2012.<br />
As can be seen from the above, the information available to the Competition Authority implies<br />
that the following facilities can be used in Narva after the beginning of 2016:<br />
the generating units (no. 3, 4, 5, and 6) that are to be upgraded and fitted with<br />
DeSOx/DeNOx filters by 2015: net output capacity of 666 MW;<br />
the existing upgraded fluidized bed units (no. 8 and 11): net output capacity of 364 MW;<br />
the generating units with a restriction on the number of hours of use (no. 1, 2, and 7)<br />
pursuant to the IED: net output capacity of 501 MW;<br />
the new generating unit under construction in accordance with the taken decision: net<br />
output capacity of 270 MW.<br />
According to the system administrator’s forecast, the peak demand for electricity will reach 1,501<br />
MW in <strong>2011</strong> and 1,767 in 2020, so there is no lack of production facilities in Estonia at the<br />
moment. The available data does not imply a lack of production facilities in 2020 either. If the<br />
production facilities are combined with the capacity provided by the connections with Finland<br />
and Russia in the amount of 750 MW (taking into consideration the likeliness of a decrease in<br />
capacity depending on the situation), the capacity of the facilities used in Estonia can be increased<br />
to a total of 2,897 MW (2,147 MW + 750 MW = 2,897 MW).<br />
24
Developments in the natural gas sector<br />
The changes in natural gas consumption in recent years are shown in Figure 4 (source: Statistics<br />
Estonia and Eesti Gaas AS).<br />
FIGURE 4. Natural gas consumption broken down by years.<br />
Compared to the previous year, the consumption of natural gas in Estonia decreased by 9,7% in<br />
<strong>2011</strong>. Such a significant decrease in consumption resulted from the increase of prices. The high<br />
price of natural gas was also one of the reasons that fuel-free heat (heat pumps) and heat<br />
produced from renewable sources (wood chips, peat) started replacing natural gas in local and<br />
district heating systems. The share of natural gas in the energy balance of Estonia has not<br />
changed significantly in recent years and still accounts for 10.1% of the primary energy supply<br />
(see Figure 5).<br />
25
FIGURE 5. Primary energy balance of Estonia.<br />
Compared to the nearest neighbours, one distinctive characteristic of the use of natural gas in<br />
Estonia is that a mere 4% of it is used to generate electricity. The main sphere of application of<br />
natural gas is heat production (district heating (48%) + local heating (25%) = 73%). The trend<br />
towards a decrease in heat consumption results from the implementation of the energy<br />
conservation programme of the European Union and the Government of the Republic of<br />
Estonia.<br />
Security of supply of natural gas. In 2008, the European Council and the European<br />
Commission initiated the Baltic Energy Market Interconnection Plan (BEMIP). The BEMIP<br />
covers the electricity market as well as the natural gas market. The part of the BEMIP concerning<br />
the natural gas market implies connecting the Baltic States and Finland to the European Union’s<br />
natural gas market and the construction of the regional liquefied petroleum gas terminal (LPG<br />
terminal) in Finland or one of the Baltic States as well as the connection of the Estonian gas grid<br />
and Finnish gas grid with a subsea pipeline at the seabed of the Gulf of Finland<br />
(Balticconnector). The Balticconnector project is spearheaded by the Finnish natural gas<br />
undertaking Gasum OY. In <strong>2011</strong>, the final <strong>report</strong> of the Balticconnector research project ordered<br />
by Gasum OY was completed. As the economic feasibility of the Balticconnector construction is<br />
connected to the appearance of new gas suppliers in the region [the LNG terminal(s) in the first<br />
place], the making of the decision as to the implementation of the project has been postponed.<br />
26
According to Regulation 944/2010 of the European Parliament and European Council, the<br />
member states are obliged to prepare risk analyses concerning the natural gas supply. As the gas<br />
grids of the Baltic States are closely linked, Estonia, Latvia and Lithuania prepared a joint risk<br />
analysis. According to Regulation 944/2010, a preventive measure plan must be prepared on the<br />
basis of the risk analysis in 2012, and an emergency situations plan in 2013.<br />
Price regulation of heating undertakings<br />
Pursuant to the District Heating Act, a local government is entitled to establish district heating<br />
regions within the boundaries of its administrative territory. The only permitted heating option to<br />
be used in district heating regions is district heating (except for persons who did not use district<br />
heating at the time district heating regions were established), so consumers cannot choose<br />
alternative heating methods and the heating undertaking obtains a monopoly status. Pursuant to<br />
the Establishment of Price Limitations to Monopolies Act, only the Competition Authority has<br />
the rights and obligations to carry out supervision of the District Heating Act and approve the<br />
maximum prices of heat sold by heating undertakings. The main objective of the amendments to<br />
the District Heating Act was to ensure more comprehensive and intensive supervision of the<br />
district heating sector in order to contribute to a more uniform regulation and equal treatment of<br />
undertakings in the entire sector.<br />
The maximum prices of sold heat are approved for district heating regions, the number of which<br />
in Estonia is around 200. The economic prosperity and efficiency of undertakings depend, above<br />
all, on the volume of sales in these regions, the fuel used, technical efficiency (the efficiency<br />
coefficient of heat production and heating pipeline losses) and the undertaking’s ability to make<br />
investments to ensure the higher efficiency and sustainability of district heating. As the prices of<br />
fuel, especially natural gas and oil shale have increased considerably, small-scale heating<br />
undertakings, with fuel costs amounting to 70% or more in the structure of their expenses, which<br />
had been under the regulation of local governments so far, became especially active in applying<br />
for the approval of heating limit prices.<br />
Small district heating regions with the volume of sales below 3,000 MWh, where district heating<br />
sustainability in the future cannot be ensured even if reasonable investments are made, have<br />
become clearly distinguishable, and it would be more feasible to stop price regulation in such<br />
regions and provide consumers with an opportunity to choose from cheaper alternative heating<br />
options.<br />
27
Heat procurement organisation<br />
Section 141 of the District Heating Act allows heat producers and network operators to conclude<br />
contracts with the duration of up to 12 years from the beginning of production with certain<br />
production equipment to ensure investment security. For the conclusion of such contracts,<br />
network operators must first organise procurement tenders in case there is a need for new<br />
production facilities and/or several heat producers have provided the network operator with a<br />
written declaration of their interest in concluding a contract. The Minister of Economic Affairs<br />
and Communications has prepared a procedure for the organisation of a procurement tender and<br />
the assessment of the bids submitted in course of the tender, which network operators must<br />
comply with in the process of organising heat procurement and tenders. The following can be<br />
highlighted as the basic procurement tender principles:<br />
1. a network operator shall inform the Competition Authority of the former’s intention to<br />
conclude a contract for the purchase of heat in writing and publish a notice containing the<br />
relevant conditions of the contract the network operator is aware of at the moment of<br />
publication on its web page and in at least one national daily newspaper print edition;<br />
2. if several heat producers have provided the network operator with a written declaration of<br />
their interest in concluding the contract, the network operator shall inform them in writing<br />
about the preparations for a procurement tender;<br />
3. in case there is a need for a procurement tender, the network operator shall prepare a<br />
tender notice and a call for tenders and submit these to the Competition Authority for<br />
approval within 60 days from the date of the publication of the relevant notice in a national<br />
daily newspaper pursuant to subsection 1 of section 2 of the relevant regulation;<br />
4. the Competition Authority shall make a decision concerning the approval of the tender<br />
conditions submitted by the network operator pursuant to the procedure stated in<br />
subsection 5 of section 9 of the District Heating Act, i.e. normally within 30 days (the<br />
Competition Authority is entitled to extend the above period to 90 days);<br />
5. the network operator shall call for the tender and publish the call for tenders on its web<br />
page and in at least one daily newspaper print edition within 30 days after the approval of<br />
the tender conditions by the Competition Authority;<br />
6. all heat producers can submit a bid for the tender regardless of whether they have provided<br />
the network operator with a written declaration of their interest in concluding the contract<br />
pursuant to the provisions of subsection 2 of section 2 of the relevant regulation.<br />
28
In <strong>2011</strong>, network operators such as OÜ Pogi (Paide City district heating region), AS Tallinna<br />
Küte (Tallinn City district heating region) and AS Rakvere Soojus (Rakvere City district heating<br />
region) declared their interest in purchasing heat. No other heat producers declared an interest in<br />
heat production/sales in case of OÜ Pogi, so the undertaking did not actually have to organise a<br />
tender. Four different heat producers declared their interest in selling heat to AS Tallinna Küte<br />
after the preliminary notice was published, so AS Tallinna Küte organised the required tender,<br />
having submitted the tender conditions to the Competition Authority before publishing the call<br />
for tenders. AS Tallinna Küte and the Competition Authority held repeated meetings in the<br />
course of approval proceedings, in addition, the exchange of relevant opinions of the parties took<br />
place in writing. As a result, the Competition Authority granted a complete approval of AS<br />
Tallinna Küte’s tender conditions, and the undertaking called for the relevant tender. AS Rakvere<br />
Soojus has by now notified the Competition Authority and published the relevant notifications<br />
on its web page and in a national daily newspaper.<br />
To sum up, it may be said that the regulation is functioning and network operators have become<br />
more active in using the above opportunities. The Competition Authority has by now supervised<br />
one tender of major importance (the AS Tallinna Küte tender) from its very beginning, which<br />
provided the Competition Authority with valuable experience and applicable knowledge about<br />
the nuances that must receive special attention in the process of organising and conducting a<br />
tender.<br />
Complaints of consumers and judicial practice<br />
While there had been changes in the regulation of the energy sector that had contributed to some<br />
ambiguity and arguable issues in legislation in the previous years (for instance, the partial opening<br />
of the electricity market on 01/04/2010), there were no changes in regulation in <strong>2011</strong>, so there<br />
were somewhat fewer complaints and disputes. The disputes in the energy sector mainly<br />
concerned the following issues: the interruption of a network connection by the network<br />
operator, the identification of the illegal use of electricity and network services (and the checking<br />
of the bills issued to customers as a result), the implementation of standard terms and conditions<br />
and the checking of connection charges. To summarise, it may be noted that none of the<br />
complaints processed by the Competition Authority became a so-called precedent case where the<br />
matter or the nature of the dispute would significantly contribute to a more literal interpretation<br />
of legal acts in the energy sector (incl. the interpretation in the course of legal proceedings).<br />
However, some cases indicated the imperfection of certain legal acts of the energy sector. For<br />
29
instance, there was a case where a tenant, having been granted the apartment owner’s permission<br />
and authorisation, had concluded a sale of electricity and network services contract with a<br />
network operator and an electricity seller. Although the residential lease relation was terminated,<br />
the former tenant refused to terminate the sale of electricity and network services contract. The<br />
owner of the apartment filed a complaint to the Competition Authority for the latter to compel<br />
the network operator and the electricity seller to terminate the contract concluded with the tenant<br />
as the tenant had no legal basis for the further use of the apartment, so it was essentially<br />
impossible for the tenant to use electricity and the network service. In the dispute, the<br />
Competition Authority formed the opinion that the Electricity Market Act did not provide a legal<br />
basis for the network operator and the electricity seller to unilaterally terminate the power and<br />
network services contract in such a case. However, the Competition Authority stated that the<br />
above was a major drawback of the regulation, so the Competition Authority cooperated with<br />
network operators and electricity sellers to suggest that the Ministry of Economic Affairs and<br />
Communication initiate a relevant amendment to the Electricity Market Act. By now the relevant<br />
amendment has been included in the package of amendments to the Electricity Market Act and<br />
hopefully the above problem will be solved.<br />
In <strong>2011</strong> the lawsuits to resolve consumers’ complaints were settled in favour of the Competition<br />
Authority (there were 7 lawsuits concerning customers’ complaints). In all cases the court agreed<br />
with the opinion of the Competition Authority. It is essential to note that the Competition<br />
Authority’s opinion that although apartment owners’ associations or the persons providing<br />
administrative services to apartment buildings do not generally regard themselves as network<br />
operators in the context of the Electricity Market Act, the Competition Authority and the court<br />
are clearly convinced that the above persons still must literally and uniformly comply with the<br />
regulation provided by section 90 of the Electricity Market Act in case they wish to interrupt the<br />
network connection of an apartment (for being in arrears on bills) despite the fact they do not<br />
hold a network operator’s license in the context of the Electricity Market Act.<br />
Public water supply and sewerage system<br />
Since the beginning of November 2010, the Competition Authority has been the regulator of<br />
prices in the sector of public water supply and sewerage (hereinafter PWSS) services pursuant to<br />
the Public Water Supply and Sewerage Act (hereinafter PWSSA). The responsibilities of the<br />
Competition Authority include approving the price of the service i.e. the price of water supply<br />
30
services, the coordination of the calculation methods of the accession fee and the supervision of<br />
the prices of water supply services and the amounts of accession fees.<br />
In <strong>2011</strong>, the Competition Authority approved the prices of water supply services of nine water<br />
supply undertakings, AS Tartu Veevärk and AS Haapsalu Veevärk being the largest. The main<br />
reason for the prices of water supply services having changed were the extensive investments in<br />
the provision of PWSSS in connection with the allocation of the Cohesion Fund support by the<br />
Environmental Investment Centre (hereinafter the EIC). Numerous undertakings lacked an<br />
efficient water and/or wastewater treatment system. The support of the Cohesion Fund allocated<br />
by the EIC allows adequately treated water to be consumed and the wastewater exported into the<br />
environment to be purified to ensure a better and cleaner environment while the renovation of<br />
pipelines allows water resources to be used sparingly. Regardless of the support allocated by the<br />
EIC, the investments made in water resources management are still one of the major reasons of<br />
the increase in water supply service prices. Namely, investments made in water resources<br />
management require cost-sharing from the undertaking. Even if the cost-sharing amounts to<br />
30%, it results in a remarkable increase in the price of the water supply service. Taking into use<br />
water/wastewater treatment plants implies an increase in electricity consumption and chemical<br />
agents’ consumption. In case the undertaking has not exactly taken water and wastewater<br />
treatment seriously in the previous periods and investments in pipelines were non-existent, the<br />
consumer price may increase significantly. Water supply undertakings can make the increase in<br />
prices smoother for consumers by not applying for the approval of the whole reasonable cost<br />
benefit. The Competition Authority can also regard the smaller than allowed cost benefit in the<br />
price of water supply services as feasible in case the financial obligations and costs of the water<br />
supply undertaking are covered.<br />
The PWSS development plan is to be approved by the local government council. In the process<br />
of the preparation of the plans, it is essential to thoroughly consider whether offering PWSS<br />
services to all potential customers in any situation is reasonable. The provision of leak-tight<br />
collecting tanks or biological wastewater treatment plants, i.e. local solutions, should be<br />
considered for wastewater collection areas, where the construction of the PWSS system will result<br />
in unreasonably large costs. It is often the unconsidered development of PWSS (especially in<br />
areas located in wastewater collection areas with population equivalent below 2,000) that is one<br />
of the reasons of a considerable increase in the price of water supply services, and 100% of the<br />
infrastructure created with the support of the Cohesion Fund will have to be replaced by using<br />
the finances obtained from the price of water supply services. This means that the price of water<br />
31
supply services will increase several times in areas where PWSS has been constructed on a basis<br />
that is unreasonable.<br />
In <strong>2011</strong>, the Competition Authority did not approve AS Tallinna Vesi’s (hereinafter Tallinna<br />
Vesi) application for the price of water supply services. The main reason for not granting<br />
approval to the price was the reasonable cost benefit that did not comply with the law. Pursuant<br />
to the PWSSA, the price of the water supply service must allow the water supply operator to earn<br />
income from the invested capital, i.e. the investments in the maintenance and development of the<br />
public water supply and sewerage services actually made by Tallinna Vesi. The amount of the<br />
investments in PWSS actually made by Tallinna Vesi i.e. the value of the fixed assets <strong>report</strong>ed in<br />
the accounting was around 2.6 times smaller than the amount the undertaking used for the cost<br />
benefit application, so the Competition Authority could not approve the price applied for.<br />
In cooperation with the Estonian Water Works Association, the Competition Authority<br />
developed the advisory calculation methodology of connection charges that water supply<br />
operators can use as a basis for the development of their own calculation methodology of<br />
connection charges.<br />
The Competition Authority performed the supervision procedure concerning three undertakings,<br />
Tallinna Vesi, AS Elveso and AS Viimsi Vesi, to assess the compliance of the price of water<br />
supply services to the law. The Competition Authority found that the above water supply<br />
operators should submit a new application for the approval of prices. AS Elveso and AS Viimsi<br />
Vesi did submit their new applications. The Competition Authority approved the new price of<br />
the service of AS Viimsi Vesi, which did not contain the basic fee and the weighted average price<br />
of the water supply service decreased by approximately 9%.<br />
The Competition Authority did not grant approval for the water supply service price applied for<br />
by AS Elveso as it contained the investments in the fixed assets purchased with the financing<br />
allocated by the EIC. The Competition Authority holds the opinion that consumers are not to<br />
pay for investments in fixed assets purchased by the water supply operator without using its own<br />
funds by means of the price of water supply services, so the Competition Authority did not<br />
approve the price of water supply services applied for by AS Elveso.<br />
The price of water supply services is not to incorporate the investments in fixed assets made with<br />
the financial support obtained from the Cohesion Fund, which is why water supply operators<br />
believe they have been deprived of an opportunity to accumulate assets for the investments to be<br />
made in the future. The Competition Authority holds the opinion that the price of water supply<br />
services is only to incorporate the investments made with the water supply operator’s own funds<br />
32
and obligations. The money allegedly collected from consumers for the purpose of future<br />
investments does not give any guarantees to the consumer that it will not be divested as sweat<br />
equity, invested carelessly or used to pay off other costs, claims or encumbrances. As there is no<br />
legislative regulation for the state to bind water supply operators to store the money for the<br />
purpose of the investments to be made in the future, consumers must not make obligatory noninterest-bearing<br />
investments in a water supply operator’s undertaking. When there is a need for<br />
investments, a water supply operator can apply to the Competition Authority for the approval of<br />
the price incorporating the necessary investments. In the course of processing the application for<br />
the price approval, the Competition Authority will thoroughly assess the undertaking’s<br />
sustainability and investment ability as well as its ability to pay back its loans.<br />
Water supply operators must also take into consideration the efficiency of the investments they<br />
make. Experience has demonstrated that water supply operators tend to forecast a significant<br />
degradation of the performance of a water treatment plant after the extensive investment of the<br />
Cohesion Fund support in a water treatment plant and in the extensive chemical agents<br />
consumption it implies, which increases the pollution amounts and, consequently, the amount of<br />
environmental charges.<br />
Activation of the Agency for the Cooperation of Energy<br />
Regulators<br />
The Agency for the Cooperation of Energy Regulators (ACER), with its headquarters<br />
located in Ljubljana, became operational on 3 March, <strong>2011</strong>. The ACER cooperates with national<br />
regulatory authorities, European Union (EU) institutions, and market participants, especially the<br />
ENTSO-E and ENTSO-G, the associations of European network of transmission system<br />
operators. One of ACER’s objectives lies in making a contribution to the functioning of crossborder<br />
energy trading and to eliminating the obstacles that might emerge in the process as well as<br />
in helping national regulatory authorities fulfil their regulation tasks on the EU level and<br />
coordinate the activities of such authorities if necessary. To fulfil the above objectives, the ACER<br />
provides opinions and recommendations to the network of transmission system operators,<br />
national regulatory authorities and EU institutions, and makes particular decisions and prepares<br />
framework guidelines.<br />
33
The following tasks performed by the ACER are related to the ENTSOs:<br />
participation in the development of network rules;<br />
forming opinions about network regulations, work programmes, and EU network<br />
development plan drafts;<br />
monitoring that the ENTSOs fulfil their tasks and network regulations;<br />
monitoring that the EU network development plan is implemented and providing<br />
recommendations to the network of transmission system operators and national regulatory<br />
authorities if necessary;<br />
monitoring the regional cooperation of the network of transmission system operators.<br />
The following tasks performed by the ACER are related to national regulatory authorities:<br />
development of the framework for the cooperation of regulatory authorities;<br />
providing regulatory authorities with opinions about fulfilling the guidelines of the 3rd<br />
Energy Package directive or regulation;<br />
upon the request of regulatory authorities or the European Commission, providing its<br />
opinion about the compliance of the decisions made by national regulatory authorities with<br />
the directive or regulation or other relevant provisions;<br />
certification of the network of transmission system operators.<br />
The following tasks performed by the ACER are related to the cross-border infrastructure:<br />
making decisions concerning the issues of the regulation of the cross-border infrastructure<br />
that are otherwise in the sphere of national regulatory authorities’ competence and can<br />
concern the conditions of access and security of activities (procedures for the capacity<br />
allocation, allocation schedule, the distribution of profits obtained from congestion<br />
management, etc.);<br />
making decisions as far as relieving a cross-border infrastructure from the obligation to<br />
fulfil the requirements of the 3 rd Energy Package directive and regulation is concerned.<br />
The ACER’s tasks also include the monitoring of the functioning of internal electricity and gas<br />
markets (retail prices, network access, and provision of the consumer rights pursuant to<br />
directives) and the preparation of <strong>annual</strong> <strong>report</strong>s concerning the above.<br />
On 28/12/<strong>2011</strong> Regulation No 1227/<strong>2011</strong> of the European Parliament and of the Council<br />
on wholesale energy market integrity and transparency (REMIT) entered into force.<br />
The regulation aims to prevent market abuse in wholesale energy markets and thus protect final<br />
consumers. The regulation establishes the rules to prohibit market manipulating abuse, insider<br />
34
trading and market manipulation in wholesale energy markets. The supervision over the<br />
compliance with the regulation requirements will be executed by the ACER in cooperation with<br />
national regulatory authorities.<br />
Some of the requirements included in the regulation will become effective immediately, and<br />
others will enter into force in the future. As the regulation entered into force, the following took<br />
immediate effect:<br />
the prohibition of insider trading (Article 3);<br />
the obligation to publish inside information (Article 4);<br />
the prohibition of market manipulation (Article 5);<br />
the obligation of certain persons to notify the national regulatory authority in case of<br />
suspicion that a transaction may breach the provisions of Article 3 or Article 5 of the<br />
regulation and establish effective arrangements and procedures to identify such breaches<br />
(Article 15).<br />
The timing of the entry into force of the remaining provisions depends on the timing of the<br />
adoption of the Implementing Acts by the European Commission. By June 2013 at the latest,<br />
member states must ensure that national regulatory authorities have been assigned the<br />
investigatory and sanctioning powers to fulfil the tasks pursuant to the regulation. Inter alia,<br />
member states must establish the rules concerning the punishments for breaches of the<br />
regulation by the said time.<br />
35
DEVELOPMENTS IN THE ELECTRONIC<br />
COMMUNICATIONS MARKET IN <strong>2011</strong><br />
Electronic communications sector<br />
In <strong>2011</strong>, turnover of the electronic communications sector increased for the first time in<br />
four years and was only 0.3% lower compared to the record-breaking year of 2007. At the<br />
same time, the turnover in the sphere of major communication services (voice services)<br />
kept decreasing due to the increasing intensity of competition (as prices of<br />
communication services decrease, so does the turnover). The turnover in the sector<br />
mainly increased due to the increase in the income earned by communication<br />
undertakings from providing other services.<br />
It is important to support the sustainability and development potential of the electronic<br />
communications sector in a complicated economic situation by ensuring efficient competition.<br />
The regulatory intervention of the Competition Authority must be well reasoned and motivated,<br />
as excessive measures may have a negative effect on the development of the sector.<br />
However, the data of the year <strong>2011</strong> indicates that regulatory intervention is still necessary in<br />
several electronic communications markets, and the sector-specific measures applied to<br />
communication undertakings have contributed to the improvement of the competitive situation<br />
and supported the price stability of communication services in the retail market.<br />
36
FIGURE 6. Changes in price indices.<br />
The electronic communications market of the year <strong>2011</strong> was predominantly characterised by:<br />
turnover decrease of the interconnection, telephone and mobile telephone voice service;<br />
growth of income of the mobile data communication service and other incomes;<br />
stabilisation of cable television and data communication service incomes.<br />
At the same time, as far as the above turnovers are concerned, it must be noted that the<br />
distribution of the turnovers broken down by particular services provided within a bundled<br />
services could have been estimated as end-users consume bundled services (70–80%, depending<br />
on the service).<br />
The estimated turnover of the provision of communication services by the undertakings<br />
operating in the electronic communications market amounted to 740 million euros, which<br />
corresponds to a 6% increase compared to the year 2010. The turnover was influenced by a<br />
decrease in the turnover of the interconnection service as well as the telephone and mobile<br />
telephone voice service. At the same time, the growth in the volumes of the cable television and<br />
additional electronic communications service had a positive effect on the turnover of the whole<br />
sector.<br />
Conditionally, the electronic communications market can be divided into eight market segments:<br />
telephone, mobile telephone, data communication, leased line, interconnection, access, cable<br />
television and other services (incl. broadcasting and radio communications).<br />
37
00%<br />
02%<br />
03%<br />
28% Mobile telephone<br />
33%<br />
13%<br />
10%<br />
11%<br />
Telephone<br />
Interconnection<br />
Data communication<br />
Cable television<br />
Leased line<br />
Access<br />
Other services<br />
FIGURE 7. Distribution of the total turnover of the electronic communications sector in <strong>2011</strong><br />
broken down by services.<br />
40%<br />
35%<br />
30%<br />
25%<br />
20%<br />
15%<br />
10%<br />
5%<br />
0%<br />
2010<br />
<strong>2011</strong><br />
FIGURE 8. Distribution of the total turnover of the electronic communications sector in 2010 and<br />
<strong>2011</strong> broken down by services.<br />
In <strong>2011</strong>, the share of the total turnover of the telephone service in the electronic communications<br />
market decreased by 4.2% compared to 2010. The largest service providers in the market of<br />
telephone services were Elion Ettevõtted AS (hereinafter Elion), Telefant AS (hereinafter<br />
Telefant), STV AS (hereinafter STV) and AS Starman (hereinafter Starman). The number of end<br />
users of the telephone service decreased by approximately 27 thousand consumers.<br />
38
The retail market of the mobile telephone service was characterised by a decrease in turnover in<br />
<strong>2011</strong>. However, the number of end-users (regarded as active according to the use of SIM cards)<br />
increased by approximately 13.1%.<br />
The mobile telephone service market has reached the matured market stage where the existing<br />
customer base is being redistributed among service providers. The share of the mobile telephone<br />
service within the total turnover of the electronic communications market decreased by 2%<br />
compared to 2010. The growth of the number of customers using the fast mobile broadband<br />
connection service and of the volumes of data communication used by customers had a positive<br />
effect on the turnover.<br />
The market of the interconnection service incorporates the interconnection service on the basis<br />
of fixed telephone networks as well as mobile telephone networks. The share of the<br />
interconnection service within the total turnover of the electronic communications market<br />
decreased by 1.4% whereas the turnover of the interconnection service decreased by 7%. The<br />
decrease of the turnover of the interconnection service in <strong>2011</strong> was influenced by the decrease in<br />
call termination charges in mobile telephone networks and the decrease of terminated call<br />
volumes in fixed communication networks, which amounted to 14% compared to 2010.<br />
The turnover of the access service amounted only to a minimum share of the total turnover of<br />
the electronic communications market in <strong>2011</strong>, reaching a mere 0.1%, and remained almost the<br />
same compared to 2010.<br />
The number of end-users of the fixed broadband service in the data communications market<br />
remained in the same range as it was in 2010 whereas the turnover of the service decreased by<br />
1%. Compared to earlier years, the growth of the number of end-users has ceased, which may be<br />
related to the economic recession. At the same time, the developing mobile broadband<br />
technology provides more and more intensive competition for the fixed broadband service. The<br />
use of broadband services providing a higher speed of data connection has become wider.<br />
Judging by the turnover of services, the market of the leased line service forms the smallest<br />
market in the electronic communications sector with a slight decrease in the consumption of<br />
services and turnovers in <strong>2011</strong>. At the same time, the turnover of the cable television service<br />
increased by 5% whereas the number of consumers increased by 4% in <strong>2011</strong>, which mainly<br />
resulted from the growth in the numbers of the consumers of the IPTV service provided by<br />
Elion.<br />
39
(thousand)<br />
Data communications<br />
The data communications market is still rapidly growing and developing. As of the end of <strong>2011</strong>,<br />
there were 44 active service providers in the data communications retail market, with Elion,<br />
Starman and STV being the largest. The number of end users of the fixed broadband service<br />
increased by 0.3% compared to 2010, and the total number of the broadband service users<br />
including the mobile broadband connection service increased by 18%.<br />
400<br />
350<br />
300<br />
250<br />
200<br />
150<br />
100<br />
Others STV Starman Elion<br />
50<br />
0<br />
2004 2005 2006 2007 2008 2009 2010 <strong>2011</strong><br />
FIGURE 9. Number of fixed broadband service end-users broken down by service providers in<br />
2004–<strong>2011</strong>.<br />
Competition in the broadband service market mostly increased among the undertakings that own<br />
the network infrastructure.<br />
One of the largest service providers, Elion mainly provided the ADSL service, and cable<br />
television undertakings Starman and STV provided the fixed broadband service by means of<br />
cable modems or fibre optic networks. The broadband services provided by Elion, Starman and<br />
STV were consumed by 83% of end users, and the total volume of the market share of these<br />
service providers increased very little during the year.<br />
The mobile broadband connection provides more and more fierce competition to the fixed<br />
broadband service as the service prices and speeds of connection of the mobile broadband<br />
connection are comparable with those of the fixed broadband connection and sometimes even<br />
more favourable. However, the fixed data connection service has not yet entirely been substituted<br />
by the mobile broadband connection service as the limitations of the volumes of data and efforts<br />
to ensure the quality of the connection speed hinder such substitution.<br />
40
(thousands<br />
As mobile broadband service packages are comparable with fixed broadband service packages,<br />
the former are compared to the broadband connection products provided through the fixed<br />
communications network.<br />
By the end of <strong>2011</strong>, the number of end users of the mobile broadband connection amounted to<br />
143 thousand. The number of the mobile broadband connection consumers increased twofold<br />
during the year, and the number of end-users was more than four times larger than the end users<br />
of the services provided by means of the radio communications technology (WLL). Compared to<br />
2010, the number of xDSL end-users decreased by 5%, and the number of cable modem endusers<br />
decreased by 3%. At the same time, the number of mobile broadband connection end-users<br />
increased by 12%.<br />
Having decreased by 28% in 2008, the number of end-users of the broadband service provided<br />
by means of WLL saw a decrease of 12% in <strong>2011</strong>. The share of the end-users of the broadband<br />
service on the basis of xDSL, cable modems and fibre optic cable amounted to 63% in <strong>2011</strong>, and<br />
the share of the users of services on the basis of the mobile broadband connection amounted to<br />
29%.<br />
500<br />
450<br />
400<br />
350<br />
300<br />
250<br />
200<br />
150<br />
100<br />
50<br />
0<br />
2004 2005 2006 2007 2008 2009 2010 <strong>2011</strong><br />
Mobile Broadband Other solutions WLL Fibre optic Kable modem xDSL<br />
FIGURE 10. Changes in the numbers of end-users of various broadband technologies in 2004-<br />
<strong>2011</strong>.<br />
As of the end of <strong>2011</strong>, an estimated 55% of Estonian households were using the fixed broadband<br />
service.<br />
End-users of communication services use more and more bundled services (the broadband<br />
service, the telephone service, the mobile telephone service), which is why bundled<br />
communications services where at least two communications services can be used for a monthly<br />
41
fee are becoming increasingly popular. As of the end of <strong>2011</strong>, an estimated 74% of broadband<br />
service end-users were using one of such bundled solutions: the pricing and conditions of<br />
bundled solutions offered by service providers are generally more attractive than separate<br />
solutions.<br />
Figure 11 shows the average speeds of the fixed broadband service consumed by end-users. The<br />
share of the slowest service segment keeps decreasing constantly, and the speeds of mediumspeed<br />
connections have essentially remained the same. The number of the users of connections<br />
over 10 Mbit/s has increased significantly in <strong>2011</strong> to reach as much as 15.4% of all the<br />
connections due to new service packages providing fast data communication being launched on<br />
the market.<br />
70%<br />
60%<br />
50%<br />
40%<br />
30%<br />
20%<br />
10%<br />
00%<br />
58%<br />
54% 54%<br />
44% 43%<br />
50% 51% 51% 52% 53%<br />
38% 39% 39%<br />
36% 34% 32%<br />
11%<br />
13% 14% 15%<br />
10%<br />
02% 02% 04%<br />
1q 2010 2q 2010 3q 2010 4q 2010 1q <strong>2011</strong> 2q <strong>2011</strong> 3q<strong>2011</strong> 4q <strong>2011</strong><br />
from 144 Kbit/s to 2 Mbit/s from 2 to 10 Mbit/s 10 Mbit/s and faster<br />
FIGURE 11. Average speed of connection used by broadband service end-users.<br />
In addition to the mobile broadband service described above (the so-called Data SIM), mobile<br />
telephone network operators also provide broadband services to be used at mobile terminals.<br />
Consumers fall into two different categories: the consumers who have entered into a contract for<br />
the use of the mobile broadband service (SIM with data) and the consumers who use a mobile<br />
broadband service in addition to voice services and pay for the broadband service used in<br />
accordance with the used amount of the used data communication (SIM small data). The first<br />
type of the mobile broadband service described above was used by approximately 150 thousand<br />
consumers at the end of <strong>2011</strong>, and approximately 268 thousand consumers were using the<br />
second type of the mobile broadband service. Thus, an estimated 562 thousand people were<br />
using the mobile broadband service in <strong>2011</strong>, but this number might also include the consumers<br />
who were using the different mobile broadband service products at the same time.<br />
42
(thousands)<br />
350<br />
300<br />
250<br />
SIM small data<br />
SIM with data<br />
Data SIM<br />
200<br />
150<br />
100<br />
50<br />
0<br />
EMT Tele2 Elisa<br />
FIGURE 12. Number of mobile broadband service end-users broken down by providers and<br />
services.<br />
Wholesale market: access to communications networks offering the<br />
prospect of broadband connection<br />
The wholesale data communications markets can be divided into two segments: the wholesale<br />
market of copper pair access and broadband access. A sector-specific regulation established by<br />
the Competition Authority in 2009 applies to the above wholesale markets and declares Elion an<br />
undertaking with significant market power on these markets, binding it to comply with the<br />
obligations of ensuring access, equal treatment, transparency and price regulation.<br />
In <strong>2011</strong>, the number of access lines allocated for the use of other service providers kept<br />
decreasing (-12%). The number of broadband access links allocated for the use of other service<br />
providers (bit stream access) remained the same compared to 2010. The turnover of broadband<br />
access services decreased by 18% whereas the monthly fee for copper pair access and for selected<br />
copper pair access decreased by 5% and 4.9% respectively. Depending on the speed of the<br />
connection, the monthly fees for bit stream access decreased by up to 30% (except for the 4<br />
Mbit/s DSLAM access service, where the fee increased by 10.85%).<br />
On average, broadband access service fees decreased by 28% on the national level, by 30% on<br />
the local level, and by 16% on the regional level (DSLAM).<br />
43
(thousand)<br />
9 000<br />
8 000<br />
7 000<br />
6 000<br />
5 000<br />
4 000<br />
3 000<br />
2 000<br />
Other Elion<br />
1 000<br />
0<br />
2004 2005 2006 2007 2008 2009 2010 <strong>2011</strong><br />
FIGURE 13. Number of full access lines allocated for the use of other service providers in 2004–<br />
<strong>2011</strong>.<br />
Cable television<br />
In <strong>2011</strong>, twelve operators were actively operating in the cable television service market (including<br />
the IPTV service), Starman, STV and Elion being the largest.<br />
In 2005, Elion’s market entry triggered the increase in the number of end-users and the overall<br />
development of the otherwise stable market, and the trend continued in <strong>2011</strong> as well in relation<br />
to the transition to digital television. Compared to 2010, the number of end-users of the cable<br />
television service increased by approximately 12 thousand (3.6%). Consequently, the market<br />
shares of service providers somewhat changed.<br />
400<br />
300<br />
200<br />
100<br />
Other Elion STV Starman<br />
0<br />
2004 2005 2006 2007 2008 2009 2010 <strong>2011</strong><br />
FIGURE 14. Distribution of market shares of the cable television service providers based on the<br />
number of end-users in 2004–<strong>2011</strong>.<br />
Elion has significantly improved and increased the availability of the cable television service<br />
through its communications network.<br />
44
(thousand)<br />
Mobile telephone service<br />
The mobile telephone service market displayed relative stability in <strong>2011</strong>. However, the mobile<br />
telephone service market is also characterised by fierce competition among three major operators.<br />
Three network operators operated in the mobile telephone service market in <strong>2011</strong>: AS EMT<br />
(hereinafter EMT), Tele2 Eesti AS (hereinafter Tele2) and Elisa Eesti AS (hereinafter Elisa); there<br />
was also a virtual mobile service provider Top Connect OÜ (hereinafter Top Connect).<br />
Compared to 2010, the total number of the mobile telephone service end-users increased by<br />
13%, and the penetration of end-users among the population increased to 139% whereas the<br />
number of the prepaid calling cards issued by Top Connect has not been taken into consideration<br />
here as the operator had no overview of the share of these cards that had been activated and<br />
were actually being used in Estonia. The number of post-paid end-users increased by 15.7%, and<br />
the number of prepaid end-users increased by 8.1% (see the figure below).<br />
1400<br />
1200<br />
1000<br />
800<br />
600<br />
400<br />
200<br />
0<br />
Post-paid<br />
Prepaid<br />
2004 2005 2006 2007 2008 2009 2010 <strong>2011</strong><br />
FIGURE 15. Changes in the numbers of post-paid and prepaid end-users of the mobile telephone<br />
service in 2004–<strong>2011</strong>.<br />
160%<br />
140%<br />
120%<br />
100%<br />
80%<br />
60%<br />
40%<br />
20%<br />
0%<br />
139%<br />
121%<br />
123%<br />
117% 119%<br />
107%<br />
117%<br />
93%<br />
Penetartion<br />
2004 2005 2006 2007 2008 2009 2010 <strong>2011</strong><br />
FIGURE 16. The mobile telephone penetration in 2004–<strong>2011</strong>.<br />
The number of call minutes started by end-users in a mobile telephone network increased by 8%<br />
in <strong>2011</strong>, whereas the number of call minutes initiated in a telephone network decreased by 10%.<br />
45
Therefore, end-users still prefer the mobile telephone service as the way of consuming the voice<br />
service. The calls initiated in a mobile telephone network amount to 77.5% of all calls, and a mere<br />
22.5% of calls are initiated in a telephone network.<br />
In <strong>2011</strong>, the development of mobile data communication services and 3G/3.5G/4G networks<br />
contributed to the on-going rapid growth of the consumption of data communication services<br />
provided through GPRS and 3G/3.5G networks that started in 2009. Compared to 2010, the<br />
total amount of the consumption of data communication services increased almost four-fold.<br />
Significant developments in the provision of mobile telephone services<br />
In <strong>2011</strong>, the turnover of the mobile telephone services increased due to the increasing data<br />
communication volumes and numbers of customers using the mobile internet connection service.<br />
The rapid development of technology and the changing needs of people allow new business<br />
spheres to be developed. Thus the so-called “smart home” service which allows a home to be<br />
remotely controlled by means of a mobile telephone or computer (for instance, electronic<br />
devices, including surveillance equipment, or heating appliances to be switched on or off as<br />
necessary) are gaining popularity. Such systems also allow surveillance cameras to monitor what is<br />
happening in the home.<br />
One can use the mobile telephone service to make a choice from more than 500 e-books in<br />
Estonian published by approximately 50 publishers in an online book shop and download them.<br />
E-books can be read by means of a 3G-supporting mobile telephone, a tablet computer, an e-<br />
book reader or a computer. Paying for the service has also been made comfortable: the cost of<br />
the e-book will be added to the customer’s mobile telephone service bill. An e-book is generally<br />
1/3 cheaper than the same work as a printed book while buying and receiving such a book will<br />
only require a couple of minutes.<br />
The new revision of the Identity Documents Act entered into force in February <strong>2011</strong> declaring<br />
the Mobiil-ID solution a digital identity document with a state guarantee as of 1 February, <strong>2011</strong>.<br />
In addition to being an identity document and a tool for providing a digital signature, the Mobiil-<br />
ID solution also allows users to participate in elections, and Estonia was the first country in the<br />
world where people could vote in the Parliament elections using their mobile telephones.<br />
In addition to the construction of 3.5G networks, operators keep expanding 2G and 3.5G<br />
networks in the cities and rural areas and adding new base stations. By now 47 Estonian cities<br />
and towns have been covered with high-quality 3.5G (up to 21.2 Mbit/s) networks. Mobile<br />
internet connection has also found its way to all the counties of Estonia.<br />
46
In <strong>2011</strong>, the construction of the 4G network started, and old base stations were taken down and<br />
replaced with new ones. The superfast 4G mobile internet connection allows data to be<br />
downloaded at a speed of up to 100 Mbit/s. At the moment the actual download speed ranges<br />
between 20 and 60 Mbit/s, and the upload speed can reach 50 Mbit/s.<br />
Wholesale market: mobile telephone network interconnection<br />
In the mobile telephone network markets, market shares of the interconnection service are<br />
distributed among the operators in a more homogenous way than in the interconnection markets<br />
of telephone networks, which can be explained by the intense competition in the retail mobile<br />
telephone service market.<br />
Compared to 2010, the number of call minutes terminated in mobile telephone networks<br />
increased by 7.4% in <strong>2011</strong>. Since July <strong>2011</strong>, the upper limit of the termination price of calls<br />
established by the Competition Authority for Estonian mobile telephone network operators has<br />
amounted to 0.0702 EUR/min (the upper limit amounted to 0.078 EUR/min in 2010).<br />
0 000 €<br />
0 000 €<br />
0 000 €<br />
0 000 €<br />
0 000 €<br />
0 000 €<br />
0 000 €<br />
- €<br />
CY SE AT FR PL LT SK FI RO HU UK ES DK NL PT EL SK CZ LV DE EE IE IT LU MT BE BG<br />
1.07.2009 1.07.2010 1.07.<strong>2011</strong> 01.07 2010 EL avarage 01.07. <strong>2011</strong> EL avarage<br />
Source: BoR (10) 45 MTR benchmark snapshot_100921, BoR (11) 27 MTR benchmark snapshot_110516<br />
FIGURE 17. Prices of mobile telephone networks interconnection services in the EU, EUR/min.<br />
Telephone service<br />
In <strong>2011</strong>, the largest service providers in the telephone service market were Elion, STV and<br />
Starman, and the year was characterised by a decrease in the number of end-users by 7.6%,<br />
whereas the number of subscriber lines in use also decreased by 2.4%.<br />
47
(million min.)<br />
(thousand)<br />
The telephone service market has been decreasing in the long term. Thus the number of call<br />
minutes initiated in telephone networks decreased by approximately 10% in <strong>2011</strong>.<br />
500<br />
400<br />
300<br />
200<br />
100<br />
Other Starman Elisa Tele2 Elion<br />
0<br />
2004 2005 2006 2007 2008 2009 2010 <strong>2011</strong><br />
FIGURE 18. Changes in the numbers of the telephone service end-users in 2004–<strong>2011</strong>.<br />
Telephone service wholesale market: interconnection in the fixed<br />
communication networks market<br />
The notion of the fixed communication networks’ interconnection service market stands for the<br />
(telephone) networks that are used to provide the interconnection service necessary for the voice<br />
communication service to function. In <strong>2011</strong> there were ten active undertakings with significant<br />
market power in the interconnection service market, and the Competition Authority’s decision<br />
made in 2009 binds these undertakings to comply with sector-specific obligations (including the<br />
obligation of ensuring access to the interconnection service and price regulation). The largest<br />
undertakings operating in the market in <strong>2011</strong> were Elion, Starman and STV. The total number of<br />
call minutes terminated in a fixed communications network decreased by 11% in <strong>2011</strong> (see Figure<br />
19).<br />
400<br />
300<br />
200<br />
100<br />
Other Elisa Starman Elion<br />
0<br />
2004 2005 2006 2007 2008 2009 2010 <strong>2011</strong><br />
FIGURE 19 Changes in the volume of call minutes terminated between fixed communications<br />
networks in 2004–<strong>2011</strong>.<br />
48
Compared to 2010, the prices of the origination and termination of a call in Elion’s telephone<br />
network increased by approximately 3.5% on the national level and approximately 8.5% on the<br />
local level. The prices of other communication undertakings did not change.<br />
Leased line service market<br />
As far as the volume is concerned, the leased line service market is among the smallest of all<br />
electronic communications markets. In <strong>2011</strong>, the turnover of the fixed line service decreased by<br />
8.7%, and the number of fixed lines decreased by 13%. Thirteen operators provided the service<br />
in the market, with Elion and Televõrgu AS being the largest. In <strong>2011</strong>, monthly network point<br />
access fees decreased by 10%, but the decrease in prices only concerned low speed fixed line<br />
services (64 Kbit/s to 2 Mbit/s). The prices of 34 Mbit/s and 155 Mbit/s fixed line services<br />
(both monthly fees and transport) remained the same.<br />
5 000<br />
4 000<br />
3 000<br />
2 000<br />
1 000<br />
Other Televõrgu Elion<br />
0<br />
2004 2005 2006 2007 2008 2009 2010 <strong>2011</strong><br />
FIGURE 20. Changes in the number of leased lines in 2004–<strong>2011</strong>.<br />
Universal service<br />
The universal service comprises a set of services complying with the technical and quality<br />
requirements established by the European Union legislation and provided uniformly, at an<br />
affordable price and with the established quality to all end-users requesting it regardless of their<br />
geographical location. The universal service includes the following:<br />
1. connection to a fixed communication network at a location where the telephone service is<br />
available;<br />
2. the public pay-phone service or other publicly available communication service that allows<br />
a call to be made;<br />
3. the availability of a universal electronic Public Directory and directory inquiry services.<br />
49
Pursuant to the contract concluded between the state and Elisa on 07/11/2006, Elisa was the<br />
sole provider of the universal service between 01/01/2007 and 31/12/<strong>2011</strong>. As the need for the<br />
consumption of the universal service was virtually non-existent (5–11 consumers per year), and<br />
the market keeps providing alternative services to substitute for the universal service, there has<br />
been no established sole provider of the universal service after 31/12/<strong>2011</strong>.<br />
Market analyses and supervision over the electronic<br />
communications sector<br />
Pursuant to sections 41 and 44 of the Electronic Communications Act, the Competition<br />
Authority analyses the competitive situation in the specified communications services markets<br />
regularly in accordance with the principles of the competition law of the European Union and in<br />
compliance with the recommendations of the European Commission and rulings of the<br />
European Court of Justice.<br />
The Competition Authority is entitled to determine the<br />
undertaking(s) with significant market power in these markets and apply to them the regulatory<br />
measures established by the ECA.<br />
To determine the list of the markets to be analysed, the Competition Authority proceeds from<br />
the 2007 recommendation of the European Commission on relevant product and service markets<br />
of the electronic communications sector susceptible to Ex ante regulation (hereinafter the<br />
recommendation) 2 , the annex to which defines seven electronic communications markets.<br />
In the spring of <strong>2011</strong>, the Competition Authority completed the second stage of the market<br />
analyses initiated in 2008 (the first stage of the market analyses took place in 2005–2007), in the<br />
course of which the last market, the broadcasting service market, was analysed. The Competition<br />
Authority found that further implementation of sector-specific regulation in the broadcasting<br />
service market was justified and once more declared AS Levira an undertaking with significant<br />
market power. The Competition Authority bound AS Levira to comply with the obligations of<br />
ensuring access, equal treatment, transparency and price regulation.<br />
2 Commission Recommendation of 17 December 2007 on relevant product and service markets within the electronic<br />
communications sector susceptible to ex ante regulation in accordance with Directive 2002/21/EC of the European<br />
Parliament and of the Council on a common regulatory framework for electronic communications networks and services. OJ L<br />
344, 28.12.2007 P. 0065 – 0069.<br />
50
In <strong>2011</strong>, the Competition Authority started the third stage of the market analyses, which analysed<br />
the market of voice call termination in a mobile telephone network. The Competition Authority<br />
found that competition did not function in the said market, and has proposed to declare EMT,<br />
Elisa, Tele2 and ProGroup Holding undertakings with significant market power. The<br />
Competition Authority also finds that sector-specific obligations (including price regulation) are<br />
to be applied to the above undertakings in order to reduce the negative effect of the competition<br />
issues in the market.<br />
In the establishment of the price obligation in the market of call termination in a mobile<br />
telephone network, the Competition Authority proceeds from the principle of efficient and<br />
symmetrical prices established for the service of call termination in a mobile telephone network<br />
by the Commission Recommendation of 07/05/2009 on the Regulatory Treatment of Fixed and<br />
Mobile Termination rates in the EU. According to this principle, all undertakings with significant<br />
market power operating in the market of call termination in a mobile telephone network must<br />
apply identical prices for the service of call termination in a mobile telephone network, which is<br />
not to exceed the average price for the service of call termination in a mobile telephone network<br />
calculated on the basis of the technique established by the recommendation of the European<br />
commission (the BU LRIC CCA cost accounting model) and approved by the regulatory<br />
authorities of the European states.<br />
As a result of implementing the established cost accounting technique, call termination prices in<br />
the mobile telephone networks of EMT, Elisa, Tele2 and ProGroup Holding, the undertakings<br />
with significant market power, will drop remarkably.<br />
The draft decision on the market of call termination in a mobile telephone network was sent to<br />
national consultations in January 2012.<br />
The Competition Authority is planning to complete the analyses of three electronic<br />
communications markets in 2012.<br />
The Competition Authority conducted the proceedings concerning the complaints filed by three<br />
communication undertakings whereas two were related to the infrastructure access system and<br />
one to the system of conditional access to digital television and radio service. Seven price and<br />
cost accounting supervision proceedings relating to undertakings with significant market power<br />
were conducted. Six of these supervision proceedings concerned the communication services of<br />
Elion, and one concerned the communication services of AS Levira.<br />
51
RAILWAY SERVICES<br />
Pursuant to the amendments to the Railways Act effective as of February 2010, the Competition<br />
Authority monitors the competitive situation in the railway services market and applies legal<br />
measures to eliminate discrimination or in any other way unequal treatment in this market.<br />
In addition to monitoring and ensuring the functioning of the competition in the railway services<br />
market, the Railways Act sets such tasks as the performance of the proceedings related to<br />
operation licences of railway undertakings and exercising supervision over the costs and incomes<br />
of the railway infrastructure managers as well as their compliance with the requirements of the<br />
separate accounting principle.<br />
One of the other major responsibilities of the Competition Authority is the performance of<br />
proceedings related to the complaints filed by railway undertakings. If a railway undertaking finds<br />
that the railway infrastructure manager has treated the undertaking in a discriminating or<br />
otherwise unfair manner in the course of distribution of capacity, regarding capacity as depleted,<br />
the implementation of the coordination procedure, the approval of a notice concerning the<br />
railway network, the provision of the timetable or the establishment of the fee for the use, the<br />
undertaking can file a complaint to the Competition Authority. A railway undertaking can also<br />
file a complaint to the Competition Authority if treated in a discriminating or otherwise unfair<br />
manner by the Technical Surveillance Authority in the proceedings related to the distribution of<br />
capacity or safety certificates.<br />
There are two public railway infrastructure managers in Estonia: AS EVR Infra (hereinafter<br />
EVR) and Edelaraudtee Infrastruktuuri AS (hereinafter EDR). The following provide railway<br />
transport services for passengers: AS GoRail, Elektriraudtee AS and Edelaraudtee AS. Railway<br />
transportation of goods is performed by the following: Maardu Raudtee AS, AS Railservis, AS<br />
Kunda Trans, AS Sillamäe Sadam, Westgate Transport OÜ, Dekoil OÜ, AS ERS, Vesta Terminal<br />
Tallinn OÜ, AS EVR Cargo, Edelaraudtee AS, AS Alexela Terminal and Eesti Energia<br />
Kaevandused AS. The following perform the repairs of the rolling stock in use: Raudteeveeremi<br />
AS, Volkerrail RTE, AS Ühinenud Depood, Elektriraudtee AS, AS Skinest Rail, Maardu Raudtee<br />
AS, Valga Depoo, OÜ Aeston, Dekoil OÜ, AS EVR CARGO, AS E.R.S., Eesti Energia<br />
Kaevandused AS, and RVTest OÜ. The maintenance of railways is still performed by Eesti<br />
Energia Kaevandused AS. The operation licences of Petromaks Stividor AS and Helbeveski OÜ<br />
(Aeston OÜ) were deemed invalid in <strong>2011</strong>.<br />
52
In <strong>2011</strong>, the Competition Authority also performed a proceeding related to the competitive<br />
situation in the railway services market, analysing, inter alia, the public availability of the<br />
conditions of access to the railway infrastructure, the capacity timetable and coordination<br />
procedure and the establishment of the fee for the use of the railway infrastructure. The<br />
Competition Authority found that interested persons were, on the basis of transparency,<br />
provided with an opportunity to study the EVR’s and EDR’s conditions of access to the railway<br />
infrastructure and that the capacity timetable and the fee for the use of the railway infrastructure<br />
were established on the basis of consistency and equal treatment.<br />
53
POSTAL SERVICES<br />
As far as regulation is concerned, <strong>2011</strong> did not bring any major changes in the postal services<br />
market. Similarly to 2010, there were two providers of postal services holding operation licences:<br />
AS Eesti Post (hereinafter Eesti Post) that has received five operation licences from the<br />
Competition Authority (the licence for the provision of the universal postal service, the licence<br />
for the delivery of domestic and international items of correspondence, and the licences for the<br />
delivery of domestic and international postal parcels) and AS Express Post which has received<br />
one licence from the Competition Authority (delivery of domestic items of correspondence).<br />
As of the end of <strong>2011</strong>, 33 undertakings were registered as providers of postal services (several<br />
undertakings were registered as providers of more than one postal service). The registration<br />
covers the provision of courier services, the direct mail service and the delivery of periodicals.<br />
Compared to 2010, the number of the registered undertakings decreased by five, so in addition to<br />
the two postal service providers that held operation licences, there were 31 providers of courier<br />
service, 7 providers of the direct mail service and 6 forwarders of periodicals registered Estonia in<br />
<strong>2011</strong>, but not all of these actually provided postal services.<br />
Unfairly burdensome costs<br />
The proceedings concerning the unfairly burdensome costs arising from Eesti Post’s obligation<br />
to provide the universal postal service (hereinafter the UPS) that were initiated in 2010 were<br />
completed in <strong>2011</strong>. Eesti Post’s final application for the compensation for the unfairly<br />
burdensome costs incurred due to the provision of the UPS in 2010 stated the amount of<br />
5,166,466 euros. As Eesti Post also had to pay the UPS charge on the volume of postal services<br />
provided on the basis of the operation licence in the total amount of 4,318,758 euros, and the net<br />
compensation (the UPS compensation - the UPS charge) applied for by Eesti post amounted to<br />
847,708 euros.<br />
The Competition Authority checked the compliance of the data provided by Eesti Post and the<br />
distribution of costs with the requirements of the Postal Act and the Competition Authority’s<br />
methodology for the distribution of costs and found that the founded net compensation for 2010<br />
amounted to 91,945.09 euros, which was 755,763 euros less than the amount applied for. The<br />
Competition Authority made a payment to Eesti Post in the above amount (91,945.09 euros).<br />
Eesti Post filed a challenge to the Competition Authority’s decision, claiming additional<br />
compensation for the unfairly burdensome costs incurred due to the provision of the UPS in<br />
54
2010 in the amount of 504,400.70 euros. The Competition Authority analysed the provisions of<br />
the challenge and found that Eesti Post was entitled to additional compensation in the amount of<br />
13,623.73 euros, which was 490,776.97 euros less than the challenge had applied for. The<br />
Competition Authority made a payment to Eesti Post in the above amount (13,623.73 euros).<br />
Eesti Post filed a complaint to the Tallinn Administrative Court for the decision of the<br />
Competition Authority concerning the challenge to be discharged and a ruling that the<br />
Competition Authority reconsider Eesti Post’s challenge to be made, but withdrew its complaint<br />
before the hearing.<br />
Affordable prices<br />
Having sustained losses that amounted to almost 4.1 million euros in 2010 due to the provision<br />
of the UPS, in <strong>2011</strong> Eesti Post submitted the calculations of cost-based UPS prices and the<br />
application for the UPS prices to be increased to the Competition Authority. As UPS prices must<br />
remain within the limits of affordable prices established by a regulation of the Minister of<br />
Economic Affairs and Communications, the regulation on affordable prices would have to be<br />
amended for UPS prices to be increased.<br />
Having performed an analysis, the Competition Authority found that Eesti Post’s suggestion was<br />
reasonable and UPS prices would still remain affordable. It must be noted that the more costbased<br />
the affordable UPS prices are, the less compensation for the losses incurred due to the<br />
provision of the UPS Eesti Post will be required. As the money for the compensation is collected<br />
from the postal service providers holding an operation licence, it would contribute to fair<br />
competition if as much of the UPS costs as possible were covered by the user of a particular<br />
service and not a postal service provider holding an operation licence.<br />
Proceeding from the above, in <strong>2011</strong> the Competition Authority made a suggestion to the<br />
Ministry of Economic Affairs and Communications that affordable UPS prices be increased. The<br />
regulation on affordable UPS prices was amended as of 1 November, <strong>2011</strong>. As a result, Eesti<br />
Post increased the prices for the domestic UPS items of correspondence by an average of 31%;<br />
the prices for the international UPS items of correspondence, by an average of 44%; and the<br />
prices for international UPS postal parcels, by an average of 44%. The majority prices had not<br />
changed for 4–10 years, depending on the service.<br />
55
Test mailing<br />
At the end of <strong>2011</strong>, the Competition Authority performed an independent study to check the<br />
quality of the UPS provided by Eesti Post. The purpose of the check was to observe how the<br />
collection and delivery of ordinary letters in cities and rural areas was functioning and how much<br />
time the delivery took.<br />
Pursuant to section 37 of the Postal Act, a UPS provider must ensure the collection of postal<br />
items and the delivery of postal items to the addressees on all working days and not less than five<br />
days a week and once a day throughout the whole territory of Estonia. At least 90% of items of<br />
correspondence forwarded as ordinary items which, for the provision of domestic postal services,<br />
are deposited with the UPS provider through a letterbox or post office before the latest<br />
prescribed collection time must be delivered to the addressee during the working day after<br />
deposit.<br />
In the course of its study, the Competition Authority mailed 1,300 ordinary items of<br />
correspondence in rural municipalities and cities, including the cities without a municipal status.<br />
The test mailing resulted in eight items of correspondence still being undelivered to addressees,<br />
meaning that the said items were lost. To determine the quality of the delivery of items of<br />
correspondence, 1,236 items could be used. The date of the delivery of 64 items could not be<br />
determined.<br />
Of the 1,236 letters used for the purpose of the test of delivery, 1,063 letters were delivered to<br />
the addressee in due time, meaning that the share of the items delivered on time amounted to<br />
86.0% of all the letters accounted for (see Figure 21).<br />
0,022 0,006<br />
0,112<br />
Items of correspondence<br />
delivered on time<br />
0,86<br />
Items of correspondence<br />
delivered with a delay of 1<br />
day<br />
Items of correspondence<br />
delivered with a delay of 2<br />
or more days<br />
Items of correspondence<br />
not delivered<br />
FIGURE 21. Quality of delivery of items of correspondence<br />
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11.2% or 138 letters reached the mailboxes of the addressees with a delay of one day. 2.2% or 27<br />
letters reached the mailboxes of the addressees with a delay of two or more days. By now 0.6% of<br />
the mailed letters have not been delivered.<br />
Supervision<br />
The most important conclusions made on the basis of the proceedings performed in <strong>2011</strong> are<br />
listed below.<br />
In case a postal item is lost or damaged, the provider of postal services cannot ex post<br />
facto attribute any flaws to a postal item that were not identified upon its receipt.<br />
The provider of postal services cannot be held liable for the loss or damage of an ordinary<br />
letter. As the route of an ordinary letter is not registered, an ordinary letter cannot be traced<br />
or tracked; it is also impossible to identify the location where the ordinary letter might have<br />
been lost.<br />
The postal service user is responsible for the content and packaging of their postal item.<br />
The notice about the arrival of a postal item is not an item of correspondence and whether<br />
the notice has been delivered to the mailbox or not cannot be identified later.<br />
The postal service provider pays the compensation to the sender who can authorise the<br />
addressee to receive the compensation by informing the postal service provider about the<br />
intention to do so in writing. The sender or the addressee can authorise a third person to<br />
receive the compensation.<br />
Postal network<br />
On 07/10/<strong>2011</strong>, Eesti Post applied to the Competition Authority for decreasing the minimum<br />
number of UPS operation licensed postal offices by 24 and for decreasing the number of<br />
letterboxes by 361. The application concerned postal offices of 18 local governments and<br />
letterboxes all around Estonia.<br />
The Competition Authority requested the opinion of the local governments in whose<br />
administrative territory the postal offices featuring in Eesti Post’s application for decreasing the<br />
minimum number of postal offices were located. In addition to the opinions of Eesti Post and<br />
the local governments, the Competition Authority analysed the availability of the UPS in low<br />
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density areas. In relation to the above, the Competition Authority performed the monitoring of<br />
the motorised delivery service in all the local governments the proceedings in question<br />
concerned.<br />
As far as decreasing the minimum number of letterboxes was concerned, the Competition<br />
Authority analysed their location and the distance between the letterboxes and the potential users<br />
of the postal service. The Competition Authority proceeded from the requirement in section 6 of<br />
regulation no. 67 on the Requirements to the Access Points for the Provision of the Universal<br />
Postal Service and their Location. The above requirements provide that a letterbox must be<br />
placed in a location accessible for postal service users around the clock and the location of<br />
letterboxes must meet the following conditions:<br />
there must be at least two letterboxes in each city and rural municipality;<br />
the average distance between the letterbox and a postal service user located or residing in<br />
the city must not exceed 0.5 km;<br />
the distance between the letterbox and a postal service user located or residing in the rural<br />
municipality must not exceed 2 km.<br />
The proceedings related to decreasing the minimum number of postal offices and letterboxes<br />
prescribed by the conditions of the UPS operation licence will continue in 2012.<br />
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