ANNUAL REPORT 2010 - Konkurentsiamet

ANNUAL
REPORT
Estonian
Competition
Authority 2010

CONTACT
Auna 6
10317 Tallinn
Phone: (+372) 667 2400
Fax: (+372) 667 2401
E-mail: info@konkurentsiamet.ee
Homepage: www.konkurentsiamet.ee
Director General
Märt Ots
E-mail: mart.ots@konkurentsiamet.ee
Head of the Competition Division – Deputy Director General
Kristel Rõõmusaar
E-mail: kristel.roomusaar@konkurentsiamet.ee
Head of the Energy and Water Regulatory Division
Külli Haab
E-mail: kylli.haab@konkurentsiamet.ee
Head of the Railway and Communications Division – Deputy Director General
Margus Kasepalu
E-mail: margus.kasepalu@konkurentsiamet.ee
Head of the External and Public Relations Department
Maarja Uulits
E-mail: maarja.uulits@konkurentsiamet.ee

CONTENTS
FOREWORD ....................................................................................................... 3
HIGHLIGHTS ..................................................................................................... 5
ORGANISATION ................................................................................................. 6
STRUCTURE 6
PERSONNEL AND BUDGET 7
EXTERNAL AND PUBLIC RELATIONS .................................................................. 8
CHANGES IN LEGISLATION .............................................................................. 10
ESTABLISHMENT OF PRICE RESTRICTIONS ON THE MONOPOLIES ACT 10
LENIENCY PROGRAMME 15
BLOCK EXEMPTIONS 17
YEAR 2010 IN THE COMPETITION DIVISION ...................................................... 19
COMPETITION SUPERVISION 19
RECOMMENDATION OF THE COMPETITION AUTHORITY RELATED TO THE ISSUING OF
LINE PERMITS 23
PROPOSAL FOR AMENDMENT OF THE FUNDED PENSIONS ACT 25
RECOMMENDATION TO THE TALLINN CITY GOVERNMENT FOR THE IMPROVEMENT OF
THE COMPETITION SITUATION IN THE FIELD OF WASTE HANDLING 26
ANALYSIS OF THE COMPETITION AUTHORITY OF THE SUPPORT FOR RENEWABLE
ENERGY SOURCES 28
CONTROL OF CONCENTRATIONS 31
YEAR 2010 IN THE ENERGY AND WATER REGULATORY DIVISION ..................... 33
OPENING OF THE ELECTRICITY MARKET 34
ACTIVATION OF THE POWER EXCHANGE AND OVERVIEW OF TRADING 37
REGULATION OF ELECTRICITY NETWORK OPERATORS 39
SUPPLY DEPENDABILITY OF NATURAL GAS 40
PRICE REGULATION OF HEATING UNDERTAKINGS 45
SUPERVISION PROCEEDINGS RELATING TO STORAGE OF RESERVE FUEL 46
DISPUTES OF MARKET PARTICIPANTS 47
PUBLIC WATER SUPPLY AND SEWERAGE SYSTEM 49
DEVELOPMENTS IN THE ELECTRONIC COMMUNICATIONS MARKET IN THE YEAR
2010 ................................................................................................................. 51
DEVELOPMENTS IN THE DATA COMMUNICATIONS MARKET 53
DEVELOPMENTS IN THE CABLE TELEVISION SERVICE MARKET 55
DEVELOPMENTS IN THE PUBLIC MOBILE TELEPHONE SERVICE MARKET 56
DEVELOPMENTS IN THE MARKET OF TELEPHONE SERVICES 59
UNIVERSAL SERVICE 61
FIXED LINE SERVICE MARKET 61
ANALYSES OF THE COMMUNICATIONS MARKET CONDUCTED IN THE YEAR 2010 62
AMENDMENT OF THE ELECTRONIC COMMUNICATIONS ACT 65
POSTAL SERVICES ............................................................................................ 66

FOREWORD
Dear Reader,
The year 2010 was the third year of activity for the new Competition Authority. The general
economic development in 2010 can be characterised by the preparation for adopting the
euro, the end of the economic depression and the first signs of economic recovery, but also
continually high unemployment and accelerating inflation.
Adopting the European single currency undoubtedly has a significant meaning. Besides being
the means of payment, the Estonian kroon was the symbol of our independence, freedom and
cultural self-awareness. It is a little sad that we can no longer keep banknotes with pictures of
our luminaries – Jakobson, Koidula, Tobias, Tammsaare, Hurt, Keres, Baer, Raud - in our
wallets. Nevertheless, I am still convinced that our cultural memory is strong enough and
important people from our history will not become less significant.
At the same time, adopting the euro and becoming a full member of the OECD are essential
for integration. Now we are in a position to state that the more than a century-old dream of
Mr Gustav Suits: “Let us remain Estonians, but let us also become Europeans!” has been
fulfilled. I am convinced that our national security is also more stable today than ever before.
Being a member of NATO, the EU as well as the OECD and having a global currency as the
means of payment raises the question as to what is next. It seems that we have accomplished
all and one may doubt if we have any destinations remaining. There is an answer to the last
question. We do have many high goals to follow – economic welfare, wealth, and higher
Human Development Index, just to name a few. Estonia is not among the wealthiest countries
in the EU, GDP per capita is remarkably lower than the EU´s average, and thus it is important
not to rest on your laurels, but keep on moving forward.
The Estonian Competition Authority plays a certain role in order to achieve previously
mentioned goals and to promote economic development and a better business environment.
Here we can review some critical subjects in 2010. Let us take the price increase of foodstuff as
an example. Estonia is a country with a small and open economy and the price increase on
world markets shortly carries over to our prices. That instantly raises a question if the state and
government have specific means for repressing price increases, and there are not very many
direct options. The turnover tax could be lowered, but that would only provide a short-term
effect, because it is not possible to cut it to zero and below that it would already be direct
subsidising. What the state can do is creating a better business environment. It means that
equal rules apply to all market participants, market barriers for possible new entrants have
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een removed and the market is not divided with prohibited agreements. It seems somewhat
similar to sports competition. It is not acceptable if an athlete achieves results with the help of
prohibited substances. In the circumstances of free enterprise there should also be fair rules
applied to all. A cartel agreement concluded in order to share a market is the same as doping
in a sports contest and economic results achieved with the help of prohibited agreements are
not accepted. Strengthening the fight against cartels was one of the main accomplishments of
the last year.
In addition, last year will be remembered by the new tasks entrusted to the Competition
Authority for price regulation of larger water companies and all heating companies. We have
always stressed that the best way to reach economic welfare is promoting free competition,
but there are sectors where it is not possible and the monopoly status is inevitably the only
option. Considering the technical development today it is unthinkable for each consumer to
build an individual bore well or establish an individual power station. Therefore the price
regulation of monopoly undertakings is necessary to ensure balance between the interests of
undertakings and consumers. We will also do our best in that area to ensure the development
of undertakings from one side, but from the other side to guarantee the high quality service
for an acceptable price for the consumers.
We hope that the year 2011 will be as successful and the Estonian Competition Authority can
assist the economic development and the growth of consumer welfare.
With best wishes
Märt Ots
Director General
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HIGHLIGHTS
February 4 - 5
European Regulators Group/Independent Regulators Group
(IRG/ERG) Contact Network Meeting in Tallinn
February 27
An Amendment Act to the Penal Code, Code of Criminal
Procedure and Competition Act entered into force which
introduces a leniency programme.
April 1
Partial electricity market opening in Estonia
June 2 - 3 7 th Regional Competition Conference – the annual meeting
between the competition authorities of the Baltic States, Finland
and Poland in Pärnu
June 4
10 th Baltic Electricity Market Mini-Forum in Kuressaare
November 1
Establishment of Price Restrictions on Monopolies Act entered into
force
November 11
Estonian Competition Day 2010 in Tallinn
December 9
Estonia became the full member of the Organisation for Economic
Co-operation and Development. The Estonian Competition
Authority participates in the work of the OECD Competition
Committee.
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ORGANISATION
Structure
In 2010 the Competition Authority underwent structural changes, which also meant
changing the names of structural units and to some extent the reallocation of tasks. The
Establishment of Price Restrictions on Monopolies Act that entered into force on November
1, 2010, brought along additional tasks to the Authority and therefore it was expedient to
implement the certain re-allocation of tasks between structural units. Basically the Authority
continued to operate under the effective function-based structure that enables the units to
closely co-operate by changing expertise concerning specific fields.
According to the statutes of the Competition Authority, the Authority includes three filedbased
divisions, which since 01.11.2010 are the Competition Division, the Energy and
Water Regulatory Division and the Railway and Communications Regulatory Division. In
addition to the divisions, there is an administrative unit, previously named as the General
Administration Department which is responsible for ensuring effective support services.
Since November 2010 the administrative department has been named the External and
Public Relations Department. The Director General is at the head of the Authority (Figure
1). Structural divisions are directed by the Heads of Divisions, who are at the same time the
Deputy Directors General.
FIGURE 1. Structure of the Competition Authority since 01.11.2010
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According to the statutes, the functions of the Authority are divided between structural units
or divisions as follows:
The main functions of the Competition Division are: conducting the proceedings of
complaints and concentration notifications submitted by undertakings; conducting
proceedings of cases on its own initiative; replying to inquiries of undertakings and their
representatives; counselling and raising competition related awareness of the public.
The main functions of the Energy and Water Regulatory Division are: price regulation;
activity licences; market supervision; security of supply and quality control in energy and
water sectors.
The main functions of the Railway and Communications Regulatory Division are
regulating the communications market; monitoring the performance of imposed measures;
monitoring developments on the markets of electronic communications; settlement of
competition and electronic communications related disputes regarding communications
services and networks; regulating the postal market; organising the provision and exercising
the supervision of the universal service; settlement of applications, inquiries and complaints
regarding postal services, perform duties regarding railway regulation.
The main functions of the External and Public Relations Department are: coordination of
the relations between the Authority and the general public; organisation of international
relations; ensuring administrative organisation; organisation of state assets and means in the
possession of the Authority and organising public procurement; ensuring the existence of
tools and inventory; organisation of personnel work and training; preparation of a draft
budget and performance of financial monitoring; organisation of customer service,
document management and administration of archives.
Personnel and budget
The Competition Authority employed 52 persons as of the end of 2010, 5 new employees
joined the Authority and 2 people left the organisation during the year. The division of
personnel between the structural units was as follows:
External and Public Relations Department
6 persons
Competition Division
19 persons
Energy and Water Regulatory Division
18 persons
Railway and Communications Regulatory Division 16 persons
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Officials with up to 10 years of public service were the majority. Most staff members have
higher education in economics (business administration, business management, finance,
economics, etc) or in law. The third group of officials consisted of officials with higher
education in other disciplines, such as radio electronics, telecommunications, thermal
energy, public administration or other.
In 2010 the budget of the Competition Authority was approximately 28.6 million Estonian
kroons (approx 1.83 million euros).
EXTERNAL AND PUBLIC RELATIONS
As regards external and public relations, 2010 was as busy as usual. Besides the everyday
work in working groups of international organisations, the Estonian Competition
Authority hosted many important events promoting international co-operation. In
addition many officials gave talks or presentations at various Estonian or international
events and responded to numerous inquiries from undertakings and organisations in
Estonia and other states.
The Competition Authority participates in the work of competition, energy,
communications and railway related working groups and unions. During 2010 the officials
of the Competition Division attended meetings and discussions of the ECN (European
Competition Network), the ECA (European Competition Authorities) and the ICN
(International Competition Network) working groups and subgroups. Officials of the
Energy and Water Regulatory Division participated in the meetings of the CEER (Council
of European Energy Regulators) and the ERRA (Energy Regulators Regional Association).
The Railway and Communications Regulatory Division was actively involved in the
organisation comprising European national communications regulators – IRG/ERG
(European Regulators Group/Independent Regulators Group) by taking part in the working
groups of mobile and fixed termination rates, cost accounting, transparency and designation
of undertaking with significant market power.
On the 4 th - 5 th of February the Estonian Competition Authority hosted the IRG/ERG
Contact Network meeting, bringing together representatives from 31 IRG/ERG member
states.
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The annual meeting between competition authorities from the Baltic States, Finland and
Poland took place in Pärnu on June 2 nd -3 rd . The Regional Competition Conference was
organised for the 7 th time and it has appeared to be a mutually effective format of cooperation,
helping the exchange of experience and know-how in the competition area. Until
2010 the conference had been divided into two parts – day one was dedicated to a general
panel discussion and the second day focused on the sectoral working groups. However as
the participants have stated that the main value of the conference is rather the exchange of
practical experience on the case handlers level and therefore it was decided to slightly
change the format this year by dedicating most of the time to the discussions in a working
group. In addition, the heads of the competition authorities introduced the latest
developments in legislation and in organisations.
On the 4 th of June the Authority hosted an international Electricity Market Forum in
Kuressaare, which brings together the energy market regulators, undertakings,
representatives from the European Commission and other interested parties to discuss
creating and developing a single electricity market in the Baltic States twice a year. This
year the forum´s core attention was focused on creating a single electricity power exchange
in Estonia and Lithuania, which is a leap towards a single Baltic electricity market. The
Nordic countries presented their experiences in market supervision, overviews of markets
and work done to date was given.
The year can be described by various international lectures in the framework of
development aid projects. The officials of the Authority provided expert advice in Albania,
Georgia, Namibia, Turkey and Ukraine.
Becoming a full member of the OECD in December was a significant milestone for the
Estonian foreign policy in general. The Competition Authority has developed relations with
the OECD Competition Committee, which has over the years actively contributed to the
training of Estonian competition officials.
2010 was a remarkable year for the Competition Authority, because the public interest
towards the Authority´s work grew to a great extent in connection with the establishment of
various legislative acts and many specific cases attracted extraordinary attention. The
Authority has knowingly made efforts to raise competition related awareness in the society
and the first steps in that area have provided a remarkable result. The Estonian
Competition Day was organised for the second time, which brought together entrepreneurs
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from different sectors and competition experts. Practitioners from different sectors focused
on subjects that have gained the most attention during the year. The Competition Authority
is glad to realise that tradition initiated in 2009 has justified itself, therefore the intention is
to continue organising this annual event. The Authority tested hosting a so-called regional
competition day in Tartu, but found it more expedient to organize a one pan-Estonian event
that gladly also welcomes entrepreneurs outside Tallinn.
CHANGES IN LEGISLATION
Establishment of Price Restrictions on the Monopolies Act
On 1 November 2010, the Establishment of Price Restrictions on the Monopolies Act
(further MHKS) 1 entered into force, which is commonly known as the monopolies
control act. This is essentially a package including amendments to several existing acts,
mainly the amendments to the Public Water Supply and Sewerage Act (further ÜVVKS)
and the District Heating Act (further KKütS).
In the stage of legislative proceeding, MHKS was much discussed in the media,
concentrating largely on the critics against the profit margin of AS Tallinna Vesi and related
political statements. Furthermore, the President of the Republic first refused to proclaim the
draft Act due to the insufficiency of the implemented provisions. The implementation side
of the act has been much less discussed and it can be asserted on the basis of feedback
received by the Competition Authority that the parties of the market have rather different
opinions of its legal effects, regulation principles and other aspects of practical importance.
This does not mean that the act would be weak, because all parties do not understand all
details unambiguously. Taking into account the character of the regulation limiting business
freedom, as specified in the act, some disputes will inevitably arise during implementation
of the act, part of which shall be resolved in court.
Below we shall discuss some issues that help to explain the objectives of the amendments
and implementation problems. For a more detailed overview it is also recommended to read
1 http://www.riigiteataja.ee/ert/act.jsp?id=13348610
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the explanatory report of the draft 597 SE, annexed to the text of the draft and taking into
account the later amendments 2 .
Compared to the initial text of the draft, MHKS has totally changed in the final version. The
part of ÜVVKS was amended, joining the ideas of the initial text of the draft submitted by
parties with the provisions related to the economic regulation of the draft prepared in the
Ministry of the Environment and taking into account the proposals of the Competition
Authority. The draft was also specified in parts of the Penal Code and KKütS.
In case of the latter a completely new amendment was added to the draft, regulating the
access of a third party to the district heating network, while formerly these issues were not at
all regulated in the District Heating Act. Thus the general regulation of an operator
possessing the dominant position in the market specified in the Competition Act also
extended to network operators. Pursuant to this, a network operator (e.g. AS Tallinna Küte)
had to also enable other heat operators to access the network, i.e. to enable the sale of the
heat produced by them to the network, avoiding discrimination of different heat operators
on any basis. Unequal treatment of other heat operators by a network operator can be
caused by various considerations. For example, preference of one producer may take place
due to the used fuel, its security of provision, production technology, etc. In several cases,
special treatment can be considered justified. However, discrimination can be caused by the
interests of the network operator related to mutual competition of the producers for access
to the district heating network. This is especially probable in a situation where the network
operator or an operator belongs to the same group of companies also operating as a heat
producer. In such case he can actually sell heat to the network under the conditions set by
himself and reject any other offers, which could be more favourable for the end consumer,
but will not ensure similar profitability for the heat operator. A monopoly heat operator is
interested in excluding the access of competing producers to the district heating network or
the provision of unfavourable conditions for the competitors, not enabling them to actually
compete for the access to the district heating network. The method used in practice has been
a conclusion of long-term bilateral supply contracts, restricting or excluding access of a third
party to the district heating network. During the proceeding of the draft in the Riigikogu a
proposal was made to enter clearly into the act not only the obligatory approval of long-term
supply contracts by the Competition Authority, but also the basis for the refusal of the
2 http://riigikogu.ee/?page=en_etapid&op=ems&eid=790420&u=20100818135806
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approval to easily exclude simple disputes regarding the refusal in the course of
implementation. Unfortunately this proposal was not taken into account.
An amendment to the act provides for the preference of heat purchased to the district
heating network depending on the energy sources used for production, facilitating the use of
renewable energy sources, cogeneration of electricity and heat and other environmentally
sustainable technologies. The preference takes place mainly on the account of the use of
fossil fuels, such as natural gas.
As a central amendment, MHKS assigns to the Competition Authority the tasks of a price
regulator for all district heating operators and major water operators. The tasks of a
regulator differ from the regular public supervision first and foremost with the fact that the
price applied by the operator shall first pass the stage of approval. This is an important
restriction of business freedom, which is justified, proceeding from the economic interests of
the consumers and public interest related to competition. In the fields of the services of
general interest such as the sale of gas and electricity, district heating and water services, the
general competition supervision has not been considered sufficient and the price formation
of a monopoly operator has been subjected to the preliminary control of a regulator with
special competency. This is the case in the USA and in most EU member states. Thereby
the price regulation of power and gas networks is obligatory for all member states. In the
price regulation procedure the operator shall submit a price application to a competent
regulator, who shall assess the compliance of the application with predetermined
methodology. Sale with a non-approved price is prohibited. Preliminary regulation is the
most suitable guarantee for controlling the cost-orientation and reasonable cost benefit of
the service provider in a situation where the provision of a service of general interest has
been privatised and the operator is not directly subordinated to the control of public
authorities.
In many cases the price formation of water operators has not functioned as necessary in
Estonia. Although the earlier act also limited the price of the water service with the
requirements of cost-orientation and reasonable cost benefit, the following of these
requirements was questionable. The act provided only general principles of price formation
and their following was completely subordinated to local governments, who were often
simultaneously in the role of the controller and the controlled, as water operators are
partially or completely in municipal ownership. The conflict of interests prevented the
realisation of an efficient economic regulation and therefore the inclusion of the
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Competition Authority as an independent regulator was necessary. An essential
development compared to the former situation takes place in the procedural stage. While in
the past the local government established the price with its regulation, then according to the
new act the price of a water service shall be established by the water operator, who shall be
completely responsible for the compliance of the price with legal requirements. Before the
price takes force, he shall obtain the approval of a competent regulator, i.e. the Competition
Authority in case of approximately 70 major water operators and local government in case
of smaller operators. The amendment to KKütS also brings under the regulation of the
Competition Authority all smaller heat operators, whose price limit was formerly approved
by the local government. In addition to the preliminary control, the new act entitles the
Competition Authority to control the prices of the water service and subscription fees
through supervision.
In the past, when the prices of water services were established by the local governments,
there was no possibility to ensure the legality of price formation with the means of
competition supervision. Price formation of a water operator could be analysed on the basis
of the Competition Act, but price regulations of local governments remained valid anyway.
Regulations can be disputed in the constitutional review proceedings, which is outside the
competence of the Competition Authority. In case of AS Tallinna Vesi, the Competition
Authority submitted its economic analysis to the Chancellor of Justice. The latter took it
forward to the Supreme Court, which assumed the opinion that the regulation was a general
order, while disputing it is also outside the competence of the Chancellor of Justice. Thus
the former practice of administrative courts, where price regulations had been treated as
regulations and therefore did not proceed, was considered wrong. In conclusion the problem
is fortunately rather theoretical, as the indicated weakness in the supervision system was
corrected with MHKS, according to which prices are not established with an act of public
authority, but by the water operator himself. Before implementation of the price the water
operator shall obtain approval for the price, which shall be effected as a resolution of the
regulator. The new act is undoubtedly a major step forward towards an operative and
transparent economic regulation, even if it will not bring along the expected decrease of
prices immediately. The regulation will start to function proactively and some disputed
issues shall be first clarified, before starting to take extreme coercive measures such as an
establishment of temporary prices, etc.
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Price regulation conducted on the basis of specific law, including supervision, is
methodologically much more precise, leaving less space for disputes than the general
competition supervision. In the price regulation procedure the operator is an actively
involved party interested in a positive result. He shall coordinate his prices with the
regulator pursuant to the law and, for example, delay tactics cannot provide any expected
result here. As the operator is interested in a fast procedure, he is also ready to participate
actively in the information exchange needed for approval. The practice of heat price
regulation based on KKütS shows that approval procedures usually end without any timeconsuming
court disputes. If a water operator still decides not to follow the price regulation,
the law has specified a possibility to apply a penalty payment, necessary elements of
misdemeanour, criminal punishment and as an extreme measure the establishment of
temporary prices by the Competition Authority. It should be noted that the former ÜVVKS
did not specify any punishments applicable to water operators at all. As the regulator of
price formation and the subscription fee, the local government often acted in a situation
where there was a conflict of interests, being a controller from one side and the owner of a
water operator from the other side.
Punishment provisions specified in MHKS are divided into two – necessary elements of
misdemeanour in ÜVVKS (similarly the violation of the rules of price regulation is
punishable on the basis of KKütS, the Electricity Market Act and the Natural Gas Act) and
necessary elements of a criminal offence criminalising illegal price formation in the Penal
Code. For the latter it has been said that when proceeding from the priority of criminal law,
a criminal procedure should always be initiated, and therefore relevant necessary elements
of misdemeanour become unnecessary (R. Rüütel „Kommunaalettevõtjatest
kommunaalkurjategijateks“, 16.08.2010, raamatupidaja.ee). However, from the text of
provisions it becomes obvious that necessary elements of misdemeanour are not identical
with the necessary elements of a criminal offence, but cover various violations of the rules of
price formation. Thus the necessary elements of misdemeanour are not unnecessary. For
example, they can be applied in case when an operator subordinated to the price regulation
pursuant to the law is violating the rules, but at the same time his activities are not qualified
as a distortion of competition according to the Penal Code § 399 (1 1 ). The referred
punishment norm belongs to the offences related to competition, and the attribute is an
abuse of a dominant position. Necessary elements are applicable only in case of specific
subjects, such as monopoly operators listed in the provision who are also subordinated to
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egional price regulation. In case of doubt it should first be clarified if the rules of price
regulation have been violated. Then it should be assessed if it is simultaneously a crime
related to competition described in the Penal Code § 399 (1 1 ). In case of a violation of the
rules of price regulation specified in the law, where the Competition Authority does not find
an abuse of a dominant position, a procedure can be initiated on the basis of the necessary
elements of misdemeanour specified in the relevant specific law. Upon detection of a crime
related to competition the main task of the body conducting proceedings is not the
determination of a relevant market (as it is generally indisputable in case of a network
monopoly), but an assessment of the possible abuse of a dominant position. Any minor
violation of rules cannot be qualified as a crime related to competition, for which a fine up
to 250 million EEK has been prescribed.
Leniency Programme
On 27 February 2010, an amendment (Amendment Act) to the Penal Code, Code of
Criminal Procedure and Competition Act entered into force which introduces a specific
leniency programme. It means that a person that is involved in anti-competitive
agreements, concerted practices or decisions of association of undertakings set out as
punishable in § 400 of the Penal Code will have a chance to be released from liability or
obtain a remarkable penalty reduction if the person will be the first to submit a leniency
application to the Competition Authority and will meet other conditions stipulated in
the Competition Act.
Similar leniency programmes exist in almost all EU member states and are also used by the
European Commission. Upon detection of an anti-competitive cooperation of operators
(especially cartels) the major problems are verifiability of the act and a low amount of
information available to the body conducting proceedings. Therefore the confession of a
party itself and the submission of evidences will provide essential assistance in the detection
and further verification of cartels. At the same time the party is motivated to cooperate with
the Competition Authority and the Prosecutor’s Office due to the opportunity to be
exempted from liability or achieve an essential reduction of the punishment, first and
foremost in a case when the operator is actually wishing to stop participation in the anticompetitive
cooperation.
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A participant in anti-competitive agreements, concerted practices or decisions of association
of undertakings may submit a leniency application to the Competition Authority in the form
enabling written reproduction. This can be done by a natural person on behalf of himself or
a representative of a legal person on behalf of the legal person. Implementation of leniency
and the fulfilment of the necessary terms and conditions shall be decided by the Public
Prosecutor’s Office, whose regulation shall terminate the criminal procedure against the
compliant applicant for leniency, who has first submitted the relevant application, if the
information included in the application enables to initiate the criminal procedure. If the
criminal procedure related to anti-competitive cooperation has already been initiated, the
criminal procedure shall be terminated for the applicant who has first submitted a leniency
application together with the evidences providing essential assistance to the prosecution in
the opinion of the Prosecutor’s Office. Against an applicant for leniency, who meets the
conditions of leniency, but has not submitted the leniency application first, a reduction of
punishment can be applied in proportion with the support received from this person in the
criminal procedure.
In addition to the due submission of a leniency application the person shall also meet other
conditions specified in the Competition Act. Among other things, the applicant for leniency
may not have induced other persons to commit the crime specified in the Penal Code §400
or organised its preparation or commission. The applicant for leniency shall also fulfil a
cooperation obligation during the procedure, making all evidences concerning the crime
mentioned in the Penal Code §400 disclosed to him available in full, openly and without
distortions, as much as possible, and may not destroy or remove any relevant evidences in
the procedure of the relevant crime in bad faith before or after the submission of the
leniency application. The applicant for leniency may not disclose the circumstances of
leniency application or criminal procedure without the permission of the Prosecutor’s
Office. The applicant for leniency shall follow the condition specified in the law seriously,
because even if after the order is issued for the termination of the criminal procedure against
the applicant for leniency, any circumstances are identified which do not allow to
implement leniency, the Public Prosecutor’s Office may renew the procedure against the
applicant for leniency with its order.
Based on the experiences gained from the implementation of the 2010 leniency programme,
the Competition Authority can say that the new regulation has generally met its main
objectives. Several leniency applications were submitted to the authority in 2010 and on
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their basis criminal procedures were also initiated to investigate relevant anti-competitive
cooperation, which has also increased the number of criminal proceedings handled by the
authority. Operators as well as their lawyers have had a positive attitude towards the
programme and the interest in it has been remarkably high. Although the work for a better
introduction and implementation of the leniency programme and development of related
practice will continue for a longer period, the initial application of the programme can be
considered successful at the moment.
Block exemptions
Similarly to the European Commission, the regulation applicable to vertical
agreements was renewed in 2010. From June 1 the new Regulation No. 60 of the
Government of the Republic adopted on May 27, 2010 “Granting of permission for the
conclusion of anti-competitive or potentially anti-competitive vertical agreements
(block exemption)“ took force, regulating resale relations restricted to the territory of
Estonia.
From June 1 the resale agreements related to the trade between member states are
subjected to the Commission Regulation (EU) No 330/2010 of 20 April 2010 on the
application of Article 101 (3) of the Treaty on the Functioning of the European Union to
categories of vertical agreements and concerted practices. A 1-year transfer period is valid
for the agreements having been in force at the moment of enforcement of the regulation.
The Estonian national regulation of block exemption is based almost entirely on the
abovementioned relevant regulation of the European Commission. Thus the major
amendment of both regulations means that while being in accordance with the formerly
valid regulation of block exemption in the application of a block exemption, the main
attention is paid to the market share of a supplier, which may not exceed 30%. Then in
accordance with the new regulation the market share of the purchaser on the purchase
market is also important, which similarly may not exceed 30%.
The mentioned Regulation No. 60 of the Government of the Republic also includes the
regulation of the agreements related to the repair and maintenance services of motor
vehicles and the sale of spare parts. Marketing agreements of motor vehicles are subjected
to the Regulation No. 66 of the Government of the Republic from 03.06.2010 “Granting
of permission for the conclusion of anti-competitive or potentially anti-competitive
17

vertical agreements related to the marketing of motor vehicles (block exemption)“, which
is similar to the former block exemption of motor vehicles 3 . The latter regulation will be
valid until May 31, 2013, after which the general vertical block exemption (i.e. Regulation
No 60) shall also be applied to the marketing agreements of motor vehicles. Marketing
agreements of motor vehicles affecting the trade between member states are subjected
from June 1, 2010 to the Commission Regulation (EU) No 461/2010 of 27 May 2010 on
the application of Article 101 (3) of the Treaty on the Functioning of the European Union
to categories of vertical agreements and concerted practices in the motor vehicle sector.
The mentioned regulation specifies that the period of application of the provisions of
Regulation (EC) No 1400/2002 relating to vertical agreements for the purchase, sale and
resale of new motor vehicles shall be extended until May 31, 2013. The agreements
related to the secondary market of motor vehicles shall be subjected to the general vertical
block exemption or the Commission Regulation (EU) No 330/2010 and also the
provisions of the Commission Regulation (EU) No 461/2010.
In addition to the regulations applied to vertical agreements, the regulations also applied
to horizontal agreements amended at the end of 2010. From the beginning of 2011 a new
group exemption will take force for research and development agreements 4 and
specialisation agreements 5 . As in the development of practice, the Competition Authority
is also proceeding from the relevant guidelines of the European Commission, and the
guidelines for horizontal cooperation 6 will provide good instructions for operators for the
assessment of information exchange between competing operators, establishment of
standards, purchase agreements and trade agreements.
3 Regulation No 195 of the Government of the Republic from June 18, 2002 “Granting of permission for
the conclusion of anti-competitive or potentially anti-competitive vertical agreements (block exemption).“
4 Regulation No 9 of the Government of the Republic from January 13, 2011 "Granting of permission for
the conclusion of anti-competitive or potentially anti-competitive research and development agreements
(block exemption)" ( RT I, 19.01.2011, 3)
5 Regulation No 197 of the Government of the Republic from December 30, 2010 "Granting of
permission for the conclusion of anti-competitive or potentially anti-competitive specialisation
agreements (block exemption)" ( RT I, 04.01.2011, 11)
6
Commission communication – Guidelines for applicability of Article 101 of the Treaty on the
Functioning of the European Union to the horizontal cooperation agreements in EEA, applicable text
Official Journal C 011 , 14/01/2011
18

YEAR 2010 IN THE COMPETITION DIVISION
Competition supervision
In 2010 special attention was continuously paid to the fight against hard core cartels.
Since the reorganisation of the Competition Authority at the beginning of 2008, the
Authority has considered criminal proceedings to be one of its priority fields. The
number of criminal proceedings increased, as well as their complicacy. Extensive cases
and analyses should also be highlighted, which have observed the organisation of some
business sectors as a whole. In several cases the Competition Authority submitted
proposals for the amendment of acts.
In the supervision department the characteristic feature of the year 2010 was a significant
increase of the number of criminal proceedings. While in 2009 the number of criminal
proceedings was 8, then only a year later the relevant figure was 14. Such development
brought along an extremely high load for the staff overseeing the criminal matters and
furthermore several employees inside the division were involved in the assistance. At the
end of the year the recruitment of new employees started due to the increased workload.
One major factor causing an increase of the load of criminal proceedings was the
enforcement of the leniency programme. In global practice leniency programmes are
extensively used for the detection of cartels. According to the programme, the person having
first informed the law enforcement authority of a cartel or cooperated essentially with the
authority shall be exempted from liability. Before the enforcement of the leniency
programme, Estonia was one of the few developed countries lacking this programme in a
clear form. During the year several applications were submitted to the Competition
Authority, on which basis criminal procedures were initiated. Although the experiences of
several countries have shown that launching a leniency programme could be rather difficult,
the Estonian experience should be considered successful. It is good to say that various
leading law offices dealing with competition law have understood that a leniency
programme is a serious instrument and its use should be recommended to the clients.
In the beginning of 2010 the criminal case concerning timber transportation public
procurement procedures organised by the State Forest Management Centre (RMK) was
handed over to the Prosecutor’s Office, which developed into the largest charge of a socalled
cartel crime in Estonia until now. RMK carried out several public procurement
19

procedures for timber transportation services at the end of the summer of 2008, where
according to the accusation the tenderers were involved in extensive cooperation. As a
result, the price of the timber transportation service purchased by RMK under public
procurement increased by 41 million EEK. The court has not yet made a judgement in this
criminal case.
The year 2010 also included the main part of the procedure of an extensive criminal case
related to the Estonian flour producers, investigating the agreement concluded between AS
Tartu Veski and AS Stahlhut in 2006, according to which the latter terminated flour
production. The Competition Authority passed the materials of the case to the Prosecutor’s
Office in the beginning of 2011.
The procedure was also initiated in several criminal cases drawing the excessive attention of
the public. In August the Competition Authority conducted the first procedural acts in the
so-called cases of milk and bread cartels. These are extremely large criminal cases, where
the final result will not be reached very quickly.
In 2010 the court passed judgements in two competition-related criminal cases, which have
been enforced by now. The Supreme Court decided not to proceed with the appeals in
cassation submitted in the so-called cartel case of ready-made shelf companies, and
therefore the judgement of the Tallinn Circuit Court from 17.12.2010 took force, keeping in
force the judgement of the Harju County Court from 24.09.2010 convicting several
undertakings and natural persons dealing with the sale of ready-made shelf companies and
were found guilty according to the conclusion of the anti-competitive agreement. In summer
2009 the persons and undertakings agreed to raise the price of their provided service which
was the foundation of companies. According to the judgement of the Harju County Court
the convicted persons were punished with pecuniary punishments in the range from 10 000-
150 000 EEK, in total 464 500 EEK, part of which was not enforced immediately. Another
important judgement was the judgement of the Supreme Court of 07.05.2010, annulling the
judgement of the Circuit Court, which held that the persons submitting tenders in the public
procurement procedure of the Jõgeva County development strategy were guilty in a
competition restricting agreement. The Supreme Court admitted that both the agreement as
well as the concerted practice was present in the drafting of tenders, but after consideration
of the specific circumstances of the case it was decided that this was not an agreement or
concerted practice between the undertakings. In this case the Supreme Court provided
20

several important interpretations of competition provisions, and therefore this was a
judgement of crucial importance.
In the field of administrative proceedings the Competition Authority conducted several
major researches and analyses, which influenced further operation of the relevant business
sectors. The examples could be the proceedings conducted in the district heating sector, in
which the Riigikogu amended the District Heating Act. The first of these concerned the
conditions under which AS Tallinna Küte (further Tallinna Küte) purchased heat from the
Iru Cogeneration Plant belonging to AS Eesti Energia (further Eesti Energia). In some
periods the latter offered heat for a lower price than the Väo Cogeneration Plant belonging
to the same concern as Tallinna Küte. The second case concerned AS Kohtla-Järve Soojus
(further KJ Soojus), which did not provide any clear answer to the sales offer of heat
submitted by AS VKG (further VKG) for a long time. According to all assessments and the
available district heating practice, the heat of VKG produced from retort gas and offered for
sale is significantly cheaper than the heat produced from natural gas and would enable to
provide heat for a more favourable price to the end consumers connected to the Ahtme-
Jõhvi heat network of KJ Soojus. In both cases the Competition Authority issued a precept
warning both operators of the district heating network, stating its clear suspicion that these
operators could have abused their dominant position. A warning is the last action before
issuing a precept, where the objective is to provide to the operator a possibility for the
submission of any possible objections. First and foremost in the result of the case of Tallinna
Küte a political resolution was adopted to regulate the conditions of access to the district
heating network more in detail in the District Heating Act. In result of the amendments that
took force from 01.11.2010 a globally unique system was implemented in Estonia, where
some heat producers are entitled to a certain advantage in the sale of heat in order to protect
investments, but at the same time the owner of a heat network is obliged to organise a
transparent competition for the purchase of heat under certain conditions.
In addition to the aspects related to district heating the interests of homeowners were also
undoubtedly affected by the disputes raised by the Competition Authority in the field of
waste handling. Although traditionally the waste has been taken to one certain waste
management facility in many local governments, several new possibilities to choose waste
management facilities have arisen recently in connection with technical and business-related
development. In the opinion of the Competition Authority such development has been
positive, creating preconditions for investments into new and more progressive waste
21

management facilities. However, many local governments have still tried to send waste to a
certain waste management facility, thus excluding the competition. The Competition
Authority finds that first it is not clear if such activities comply with the law, and second,
the restriction of competition in waste handling is lacking any sense. The issue culminated
in the beginning of 2010, when the Tallinn City Government considered a possibility to
direct all municipal waste generated in Tallinn to one certain facility. The Competition
Authority issued a recommendation to the Tallinn City Government, which was essentially
fulfilled. The discussion over waste management facilities will undoubtedly continue in
2011, whereby it is very likely that the results of several court proceedings held under similar
circumstances will affect the market. The Competition Authority does not exclude the
submission of any necessary proposals for the initiation of legal amendments.
Throughout the year the Competition Authority also conducted various important
procedures in the postal sector. The postal market was opened to competition from April 1,
2009. In 2010 AS Express Post was the only licensed postal service provider operating on
the open postal market beside AS Eesti Post. To enable the development of functioning
competition in the provision of postal services it is inevitable that AS Eesti Post as a
historical owner of the largest postal network covering the whole of Estonia would enable
the competitors to access its postal network. In particular, it is unrealistic that smaller
competitors would establish a network duplicating the postal network of AS Eesti Post in
sparsely populated areas. The Competitive Authority found that AS Eesti Post has not
fulfilled its obligation to enable a non-discriminating access of another postal service
provider to its postal network for the provision of a postal service and issued a prescript for
the termination of a relevant violation in the beginning of 2011.
These are just a few examples of the activities of the Competition Authority in various
business sectors. In 2011 the supervision department of the Competition Authority will
continue the following of formerly undertaken lines of activity. The end of the economic
depression will inevitably also change the competitive situation in several fields of activity,
which will also mean new challenges for the public supervision. In parallel to the increase of
prices on the global market and the recovery of domestic demand for various goods,
pressure can be expected to increase prices. Such a situation will also cause an increase of
the risk of illegal cooperation between the operators. The competition division with its
limited resources is considering it essential to concentrate on the most essential and highpriority
competition problems, which often require making difficult and complicated
22

choices. Furthermore, the updating of the Competition Act is planned for the year 2011, in
which the competition division has high expectations. First and foremost, the reformation of
the proceeding principles of the abuse of a dominant position is necessary in order to make
the supervision more efficient. Currently it is based on the misdemeanour procedure in
Estonia. This is a very exceptional method in global practice, which was initially meant
rather for the simple and rapid proceeding of minor violations (such as driving without a
seat belt). The proceeding of complex economic violations in a misdemeanour procedure is
unnecessarily (not to say impossibly) complicated for several reasons and therefore also
rather inefficient, compared to other countries. The competition division hopes that the year
2011 will bring a positive development in this aspect, to facilitate the intensification of
supervision in the future.
Recommendation of the Competition Authority related to the issuing of
line permits
On 18.02.2010 the Competition Authority submitted to the Ministry of Economic Affairs
and Communications and on 22.04.2010 to the Economic Commission of the Riigikogu
its opinions of the competition restrictions found in the Public Transport Act. In the
opinion of the Competition Authority there are no public interests that would justify the
restriction of the appearance of new carriers to the market and an extension of the
companies already operating on the market.
In the last seven years the main aspect assessed upon granting permits for a long-distance
regular service has been the issue of whether the line permit would interfere with the
currently provided regular services in economic terms. In the opinion of the Competition
Authority the provisions of the Public Transport Act § 41 (2)(2) constitute a very exceptional
mechanism, which has not been specified in any other fields of business. In other fields
usually no restrictions are set for the new operators, regardless of whether it interferes with
the business of the existing active operators. The restriction included in the Public Transport
Act limits business freedom and causes damage to competition as a public interest. Market
concentration of some lines is very high, causing modest competition. However, according
to the Constitution the business freedom may be restricted only if it is in a reasonable
relationship with the objective. In this case the proportionality of restriction may not be
ensured in the situation where the law grants to the administrative body a potentially
unlimited right to refuse to grant a line permit, if the entry of a competitor would interfere
23

with the operation of the operator already possessing the line permit and established on the
market. In practice, this ensures a dominating position, excluding entry of competitors to
the market and enabling a permanent advantage to one operator.
The results of the analysis conducted by the Competition Authority allow us to conclude
that economically it would be most practical to open the market of long-distance regular
services completely to competition. Hereby it is important to notice that for example on the
long-distance lines Tallinn-Tartu, Tallinn-Narva and Tallinn-Pärnu the carriage takes place
fully on commercial bases and without the implementation of any public subsidies. As
competition restrictions may essentially harm the interests of the consumers, they can be
applied only in case of major public interests and if a similar result cannot be achieved with
other measures less harmful to competition. In this case there are no public interests for
which the protection of business freedom should be restricted in such a way. To ensure
security and convenience in the markets of long-distance regular services the use of
competition restrictions is not a suitable measure, on the contrary – in this context it would
be the most non-transparent and irrelevant. Security should be ensured through technical
supervision and for ensuring convenience various standards can be set for the carriers,
without damaging their competition. The buses should be technically in good repair, but
upon the fulfilment of the established requirements any operator should have a possibility to
participate in the market. Furthermore, the competition restriction has been justified with
the claim that it enables the carrier to keep less profitable lines on account of the profitable
ones. Although many carriers are protected from competition on several lines, there is no
legal mechanism that would enable to demand from them the operation on less profitable
lines. It is also not clear, if and how much there are actually such lines. Furthermore, the
currently operating carriers have not reached the market in result of a transparent
competition, but for various historical reasons. As said above, the Competition Authority
considers it justified to open the market completely to competition, but if the main
remaining problem would be the possible lack of interest of the operators to provide services
on less profitable lines, then the use of the so-called controlled competition model could also
be considered, where line permits or groups of line permits are put for competition. In such
case it should be ensured that there is actually a relevant need and that it would not
unnecessarily increase the administrative burden of the state or set limits to free
competition.
24

The Competition Authority has the opinion that public interests do not justify the serious
competition restriction included in the Public Transport Act §41 (2) (2). An authority
granting the line permits should only have the right to demand that long-distance lines
would not depart from a bus station with such a small interval that it would be mutually
obstructive physically. Proceeding from the above, the Competition Authority
recommended that the Ministry of Economic Affairs and Communications initiate the
relevant amendment to remove the restriction specified in the Public Transport Act § 41
(2)(2) and also submitted its opinions to the Economic Commission of the Riigikogu.
Proposal for amendment of the Funded Pensions Act
On 21.07.2010 the Competition Authority submitted to the Ministry of Finance the
amendment proposals of the draft for the amendment of the Funded Pensions Act and
related acts. The Authority had already before repeatedly stressed the need to make the
regulation of a mandatory funded pension more flexible for the consumers and more
efficient from the standpoint of competition between trustees.
On July 2, 2010 the Ministry of Finance submitted the draft for amendment of the Funded
Pensions Act and related acts to the ministries for approval. Pursuant to the Funded
Pensions Act valid at that moment the units of a pension fund could be changed only once a
year. In the opinion of the Competition Authority this was a serious restriction of the
freedom of choice of the consumers and thus also of the competition between the trustees
and the entry of new service providers to the market was difficult. Pursuant to the draft
submitted by the Ministry of Finance the consumers would have had the possibility to
change the existing units of a mandatory pension fund three times a year and channel new
payments to another fund in three business days. The Competition Authority has the
opinion that even the possibility to change a mandatory pension funds three times in a year
still restricts the freedom of choice of the consumers and efficient competition. It would be
difficult for new service providers to enter the market in a situation where it is possible only
three times a year to compete efficiently for the clients.
The restriction of the change of pension funds has been mainly explained by the fact that
permission of more frequent change would incline the investment policy of trustees to
orientate towards an undesirably short-term benefit and would send the wrong signal to the
unit owner, whose knowledge of investment is probably not too high. On the other hand,
25

estrictions may cause a decrease of competition and welfare of consumers through an
increase of the price level and/or a deterioration of quality. In this case the restriction of the
change of pension funds did not directly oblige the pension funds to develop their
investment policy in a certain direction. Therefore it should have been considered if it would
be possible and practical to regulate the investment policy of trustees with other, more
suitable means. It is doubtful if the restriction of the freedom of choice would improve the
investment decisions of the consumers.
In the opinion of the Competition Authority a system should be created, where a unit owner
would have a right to change his units against the units of another pension fund in a
reasonably short period of time and without any restrictions. The establishment of such a
system should in turn have a positive effect on the activities of trustees and make their
competition more efficient. Therefore the Competition Authority is supporting the
cancellation of the restrictions applied against the change of pension funds in the largest
extent possible and submitted a proposal to the Ministry of Finance to enable a unit owner
to change the pension fund after 30 days from the submission of the relevant application.
The Competition Authority also found that the draft should make remuneration of trustees
more transparent, specifying in the Funded Pensions Act the specific requirements for the
disclosure of service charges. In the situation of the former regulation it was often difficult
for the consumers to understand how much they had actually paid service charges to the
trustee.
On January 10, 2011 the Riigikogu adopted the Act on Amendment of the Funded Pensions
Act and Related Acts, supplementing the requirements set to the trustees and amending the
procedure of reporting and disclosure related to pension funds with the objective to make
activities of the funds more transparent and better understandable for the owner of the unit
of the pension fund. The rules of change of mandatory pension funds became more flexible
and the change of funds once a year was replaced by the possibility to change the funds
three times in a year. The act will take force from August 1, 2011.
Recommendation to the Tallinn City Government for the improvement of
the competition situation in the field of waste handling
On 10.02.2010 the Competition Authority submitted an assessment for the possible plan
of the Tallinn City Government to direct all waste generated on the administrative
26

territory of Tallinn to a waste incineration plant established by a single operator. The
relevant resolution of the City Government may affect the competition situation for
district heating as well as the electricity market. The Competition Authority submitted
to the Tallinn City Government a recommendation to avoid granting the sole right or
any other advantage to a single waste management facility.
The Competition Authority received information (mainly through media) that the City of
Tallinn was intending to conclude a contract for the directing of all municipal waste
generated in the city of Tallinn to a single operator for handling, whereby the selection
probably would have been made from among waste incineration plants. The Competition
Authority is a national regulator in the field of district heating and electricity markets,
whose one task is the provision of opinion to the administrative restrictions established in
the mentioned fields. Therefore the Competition Authority initiated the supervision
procedure in order to assess the situation.
The Competition Authority found that the Waste Act does not oblige a local government to
choose only one waste management facility, but there can be several such facilities. In
addition to the issue, if a local government was obliged to choose one waste management
facility, it is also important in this case if it still has the competency to make such a choice
notwithstanding the lack of direct obligation. The Waste Act does not specify directly any
such competency. The Tallinn City Government did not explain to the Competition
Authority which legal acts provide its competency to conclude a contract, according to
which all municipal waste generated in the city would be directed to a single waste
management facility. It is important to note that the Competition Authority does not
dispute the competency of a local government to establish various legal requirements to
waste management facilities, which has also been specified in the Waste Act. For example,
a local government may restrict the number of waste management facilities proceeding from
the geographic criterion. However, this does not allow limiting the choice of waste
management facilities to only one operator, and the possibility to provide the service must
remain open to all operators meeting the legal criteria.
The answer sent from the Tallinn City Government to the Competition Authority did not
provide a clear explanation as to what is the advantage of the reservation of waste to a
single operator, compared to the situation where all operators meeting certain criteria would
compete for the waste. Thus it also remained vague as to which public interests are served
by the decision of the city government to grant the sole right to a single operator, while
27

several operators would like to provide a similar service. Granting of any sole right by the
state or local government is a serious restriction to competition and it can only be justified
with dominant public interest.
Proceeding from the above, the Competition Authority recommended that the Tallinn City
Government was not to grant the sole right or any other advantage to any waste
management facility. If the city government still finds that granting of the relevant sole right
would serve public interests, it should organise a relevant transparent competition in
compliance with the Competition Act §14. Therefore other operators providing the service
could also make their offer under transparent conditions.
Analysis of the Competition Authority of the support for renewable energy
sources
In May 2010 the Competition Authority conducted an analysis of the impact of the
support paid on the basis of the Electricity Market Act § 59 on the competitive situation,
justification of the economic burden set on the electricity consumers as a renewable
energy fee and the support rates.
The support scheme of the Electricity Market Act § 59 has been developed, taking into
account the objectives and indicators specified in the development plan “Development Plan
of the Estonian Electricity Sector until 2018”:
The percentage of renewable electricity in gross consumption has an increasing trend
and will form at least 5,1% by 2010; at least 15% by 2015.
By 2020 the electric energy produced in a cogeneration regime will form at least 20% of
the gross consumption.
To achieve the objectives set in the development plan, the provisions related to support in
the Electricity Market Act adopted by the Riigikogu in 2003 have been essentially improved
and amended. From 27.02.2010 the electricity producers are entitled to the following
support pursuant to the Electricity Market Act § 59:
From July 1, 2010 for the electricity produced from a renewable energy source, except
biomass, 84 cents/kWh;
From July 1, 2010 for the electricity produced from biomass in cogeneration regime 84
cents/kWh;
support shall be paid;
if electricity is produced from biomass in a condensation regime, no
28

For electricity produced in an efficient cogeneration regime if waste within the meaning
of the Waste Act, peat or oil-shale processing retort gas is used as a source of energy, 50
cents/kWh;
For electricity produced in an efficient cogeneration regime with a cogeneration
installation which has an electric capacity not exceeding 10 MW, 50 cents/kWh;
For usability of the installed net power of a production installation operating with oil
shale, if the production installation has been commissioned in the period from January
1, 2013 to January 1, 2016, 22-25 cents/kWh depending on the price of CO 2 quota.
FIGURE 2. Renewable energy support in the period 2007-2010
Figure 2 shows that the consumers paid 2,18 s/kWh for the support of renewable energy in
2007, 3,03 s/kWh in 2008, 6,07 s/kWh in 2009 and 12,64 s/kWh in 2010. Thus the support
has increased from 2,18 s/kWh to 12,64 s/kWh or approximately 6-fold.
While in 2009 the total sum of support paid for 619 GWh of electricity was 405 million
EEK, the estimated total sum of support of 2010 for the produced 1202 GWh of electricity
is 962 million EEK. Thus in 2009 support was paid to 7,9% of the produced electricity (the
total amount of electricity produced in Estonia in 2009 was 7 884 GWh). In the situation
where the number of applicants for support is constantly increasing in Estonia, their
29

percentage on the electricity invoice issued to the consumers has achieved an essential
degree.
Production price of electricity of the major electricity producer of Estonia (Eesti Energia
Narva Elektrijaamad AS) sold to the closed market is 46,01 s/kWh. As the support sum of
12,64 s/kWh was added in 2010 to the production price paid by the consumer, the actual
consumer price was 58,65 s/kWh. Thus the percentage of support in the consumer price
was almost 22%. Taking into account the planned support for the new wind parks (the
support limit was increased from 400 MW to 600 MW) and the addition of new electricity
producers, the percentage of the support of a renewable energy fee in the final price of
electricity will still increase.
Proceeding from the above, the Competition Authority analysed if the support paid on the
basis of the Electricity Market Act § 59 are economically justified from the standpoint of the
producer as well as the consumer and what is the impact of the support on the competitive
situation. The Competition Authority has the opinion that in case of the valid support
scheme the addition of new cogeneration plants, wind parks and hydroelectric stations will
be achieved, but due to a distorted market situation, should be avoided. Due to the support
an investor would not proceed from the price formed on the basis of the actual offer-demand
ratio, but the entire business project would be built up on as short a payback period as
possible, based on the support. An example would be cogeneration plants, as thermal
capacity exceeds the actual heat needed in the relevant area, because the target is to achieve
as high a power capacity as possible, in order to get the support. Thereby the produced
electricity is sold to the open electricity market, where the producers of other countries
(Finland, Latvia, Lithuania) are also participating in the conditions, where the market price
is essentially exceeding the subsidized production price. The investor will earn a
groundlessly high profit, which shall be paid by the consumer through the renewable energy
fee. Thus some producers have a significant competitive advantage guaranteed by the state
and much lower economic risks compared to the producers who do not receive the support.
Therefore the situation, where new production capacities are established only due to various
support schemes, is causing problems. With such consistency most of the producers will
soon receive support and subsidised electricity production will increase in Estonia. Thereby
the consumer will pay, in addition to the renewable energy fee, also for the electricity, a
price that has developed on the open market. The Competition Authority reached the
conclusion that the consumer is constantly more forced to pay for the financing of the
30

support specified in the Electricity Market Act §59. Although the fulfilment of objectives set
in the “Development Plan of the Estonian Electricity Sector until 2018” is important, the
consumers would still expect to fulfil the mentioned objectives with reasonable costs,
thereby not incurring any groundless economic burden. The support system based on the
Electricity Market Act does not guarantee the fulfilment of legal expectations of the
consumers, as the support will ensure an unreasonably high profit to some producers and
unreasonable expenses for the consumers. Another essential disadvantage of the existing
scheme is the fact that the paid support does not take into account the actual market price of
electricity and the higher the market price, the higher the profitability will be of the
producer. The Competition Authority submitted the summary of the analysis to the
Minister of Economic Affairs and Communications, and also made the proposal that the
established support scheme is not sustainable in a longer perspective from the point of view
of the electricity market and the support rates specified in the Electricity Market Act § 59
should be revised, correcting them in accordance with the actual situation. The proposal
was driven by the intention to improve the competitive situation on the Estonian electricity
market and reduce the unreasonably high economic burden of the electricity consumers.
Control of Concentrations
For the market economy to operate optimally, there exist certain rules in the competition
law, which enable to preserve effective competition in a goods market through the
control of concentrations. In the last year the number of concentrations between
undertakings has decreased significantly.
In 2010, 10 notices of concentration were submitted to the Competition Authority, and 1
case was brought over from 2009. Thus the Authority proceeded with 11 cases and made 10
decisions to grant permission to concentration. In one case the proceedings and decision
were postponed until 2011. All 10 decisions to grant permission to concentration were made
in the first phase of the proceedings, i.e. during the 30 calendar days prescribed by law; in
three cases the proceedings were suspended due to the requirement to eliminate the
deficiencies contained in a notice of concentration. The actual average length of proceedings
of the first phase was 18 days.
31

The breakdown by types of concentration was as follows:
an undertaking acquired control of the whole or a part of another undertaking in the
case of 8 concentrations (§ 19 (1) p 2));
undertakings jointly acquired control of the whole or a part of another undertaking in
the case of 3 concentrations (§ 19 (1) p 3));
Four concentrations took place among Estonian undertakings; in two concentrations both
parties were foreign undertakings and in seven cases parties involved an undertaking
registered abroad and an undertaking registered in Estonia.
The number of notified concentrations in 2010 was significantly lower compared to
previous years, mostly due to the slowing down of market mechanisms and stricter
financing conditions. Due to their weak economic situation, Estonian undertakings were
not particularly active in increasing their competitiveness through mergers and acquisitions.
Foreign investors including private capital funds were more active in acquiring Estonian
undertakings.
In 2010 concentrations took place in the following goods markets:
Production and sale of concentrated feed and fertilisers;
Sale of tobacco products, food and consumer goods, alcohol;
Confectionery;
Concrete products;
Building material;
Services.
32

YEAR 2010 IN THE ENERGY AND WATER REGULATORY DIVISION
The year 2010 was significant for the Energy and Water Regulatory Division in several
respects. On 1 November, the Establishment of Price Limitations to Monopolies Act
entered into force, adding approximately 70 water operators and all heat operators
which were previously under the jurisdiction of local governments to the area of
regulation of the division. As a result of organisational restructuring the former Railway
and Energy Regulatory Division was renamed to the Energy and Water Regulatory
Division.
One of the pivotal tasks of the Energy and Water Regulatory Division is to ensure stable
conditions to consumers in the sectors of electricity, district heating, natural gas as well as
public water supply and sewerage systems. The activities of the Energy and Water
Regulatory Division are predominantly guided by the Electricity Market Act, the Natural
Gas Act, the District Heating Act, the Liquid Fuel Act and the Public Water Supply and
Sewerage Act. The Division made 212 decisions and one injunction during the year 2010.
The number of decisions was affected mainly by changes in fuel and electricity prices. The
most work intensive were price approval proceedings. As of 31 October, one electricity
transmission network operator, 39 electricity distribution network operators, one natural gas
transmission network operator, 27 natural gas distribution network operators, 50 heating
operators in various network sections, three electricity and heat producers and oil shale
miners were under regulation in the energy sector.
Electricity, natural gas, district heating as well as public water supply and sewerage services
reach the consumers via a corresponding infrastructure. As the infrastructure consists of
natural monopolies, their price regulation falls into the area of regulation of the
Competition Authority. In case of the infrastructure of electricity and natural gas, the
network usage fees do not depend on fluctuations of crude oil prices in the global market but
rather on local economic circumstances involving investment needs, changes of product and
service prices based on internal inflation and technical efficiency.
Pursuant to the electricity and natural gas directive of the European Union, all electricity
and natural gas consumers are provided with free access to the network. Therefore,
consumers are entitled to choose their electricity or natural gas providers and change the
providers when they so desire. Regarding the opening of the electricity market, Estonia has
a transition period until the year 2013. By the year 2010, Estonia had to open its electricity
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market to the extent of 35%, meaning that major consumers were given a possibility to
select their own providers or producers of electricity. In January 2010, amendments to the
Electricity Market Act were passed, which, among other things, prescribed the separation of
ownership of system operators and transmission network operators. The amendments also
laid down the following steps towards the opening of the market. Namely, eligible
consumers cannot buy electricity for a regulated price from 1 April; instead they have to do
it for the market price. In April, the power exchange of Nordic countries Nord Pool Spot
(NSP) extended to Estonia by creating the NSP Estlink price area.
The Competition Authority initiated proceedings relating to Eesti Energia Jaotusvõrk OÜ in
order to verify the compliance of its activities with the Electricity Market Act. § 67 of the
Electricity Market Act requires network operators to ensure that measurement data are
collected and then processed by means of metering devices conforming to the technical
requirements.
In August 2010, Eesti Energia Jaotusvõrk OÜ (Jaotusvõrk) served the Competition
Authority with an overview of how the operator carried out the Competition Authority’s
injunction. Jaotusvõrk explained that it managed to replace most of the problematic and
unverified metering devices during the time period prescribed by the Competition
Authority. At the same time, the operator declared that it was unable to replace 2 000
metering units because of the failure to reach the owners of the respective properties, refusal
of the owners to allow the replacement of metering equipment or due to other
complications. Jaotusvõrk confirmed to the Competition Authority that these problems are
continuously being addressed and the company hopes to replace the metering equipment
soon. In that respect, the Competition Authority plans to carry out another inspection of
Eesti Energia Jaotusvõrk OÜ during the year 2011.
Opening of the electricity market
On 01.04.2010 the Estonian electricity market opened up to the extent of 35% (it will
fully open in Estonia on 01.01.2013). For the partial opening of the electricity market,
the Electricity Market Act prescribes that it is mandatory to purchase electricity from the
free market for persons (a person is deemed to be an eligible consumer) who use
electricity in such fixed consumption sites where the consumption volume is at least 2
GWh of electricity per calendar year.
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In addition to the above, legislations prescribe that a consumption site is recognised as a
connection point or a collection of connection points, electrically interconnected by the
electrical installation of the eligible consumer, and of the electrical installation of an eligible
consumer.
From the position of passing and entry into force of legislations, the opening of the
electricity market was relatively urgent, for which reason it can be concluded in retrospect
that the parties were left with little time for thorough preparation, as the Riigikogu only
passed the amendments to the Act on 28.01.2010, and that made the opening of the
electricity market possible (the amendments entered into force on 27.02.2010). As the
electricity market was supposed to open on 01.04.2010, distribution network operators
already commenced identifying and informing eligible consumers in February 2010 when
the respective amendments to the Electricity Market Act had not yet entered into force.
Before the actual entry into force of the amendments, the sellers of electricity also informed
the eligible consumers of the cancellation of the electricity contracts. It was necessary for
distribution network operators and sellers of electricity to identify and inform eligible
consumers to ensure that eligible consumers would be able to choose from which provider
and for what price they will buy electricity starting from 01.04.2010.
The activities of distribution network operators and sellers of electricity encouraged eligible
consumers to ask questions and many of them turned to the Competition Authority for
answers.
Several persons submitted complains to the Competition Authority regarding their
identification as an eligible consumer. The reasons for non-qualification as an eligible
consumer were numerous. Conflict of the activities of distribution network operators and
electricity sellers with the Electricity Market Act was mentioned among the major reasons.
Several eligible consumers found that distribution network operators and sellers of
electricity lacked legal grounds for the identification of persons as eligible consumers and
the cancellation of electricity contracts prior to entry into force of the respective
amendments of the Electricity Market Act. Many eligible consumers also found that they
have not consumed electricity for their own purposes in the amount of 2 GWh in a calendar
year, but rather partially or fully sold it on to third parties (in case of shopping centres, for
example, to lessees, in case of industrial parks to other properties). In several cases a
question also arose as to whether a distribution network operator has identified the
consumption site of the eligible consumer pursuant to the Electricity Market Act, as
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according to the eligible consumer the distribution network operator should not have
summed two different connection points and the electricity consumed through them, as
these connection points were not electrically connected by an electrical installation of the
eligible consumer. Therefore, it should not have been possible to define them as one
consumption site. The Competition Authority explained its position in each case to the
eligible consumer as well as to the distribution network operator based on the respective
instance and recommended that the parties find a common understanding based on the
Electricity Market Act.
From the statistical point of view, it is important to mention that the Competition Authority
only once settled a complaint in favour of the identified eligible consumer. In all other cases
the distribution network operator and the seller of electricity acted in accordance with the
Electricity Market Act when identifying a person as an eligible consumer and cancelling a
contract. One eligible consumer challenged the decision of the Competition Authority in the
Tallinn Administrative Court and they ruled in favour of the Competition Authority. The
court decided that regardless of the fact that relevant amendments to the Electricity Market
Act had not entered into force, the distribution network operators and sellers of electricity
had legal grounds to identify persons as eligible consumers and cancel their electricity
contracts. The Tallinn Administrative Court considered it significant that the person became
an eligible consumer, meaning that the rights and obligations of the eligible consumer were
applied to the person on 01.04.2010, as the reason is the fact that a distribution network
operator sent out notices to eligible consumers before that time and could not bring about
any obligations to the new eligible consumers. As contracts for the sale of electricity were
cancelled starting from 01.04.2010, the sending of early notices could not have violated the
rights of new eligible consumers. Another significant conclusion was that the Tallinn
Administrative Court found that in case a person resold electricity on its own property, for
example to lessees (shopping centres, office buildings, etc), then the entire resold quantity of
resold electricity was to be considered as consumed by the person for their own purposes
and the person was to be deemed an eligible consumer. The reason for this is the fact that
for the distribution network operator the consumer was still the eligible consumer, and not
its lessees with whom the distribution network operator had no legal relations whatsoever.
The Competition Authority believes that in case the person of the consumer has changed
during the course of the consumption year, the distribution network operator, upon
identification of the eligible consumer, is not allowed to add the electricity quantities
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consumed by the previous consumer to the consumption of the new one. Additionally, in
case a consumption site has two or more different connection points that are not electrically
interconnected by an electrical installation of the person then the distribution network
operator is not entitled to interpret these connection points as a single consumption site. In
such case the distribution network operator should have considered each particular
connection point as a separate consumption site and calculated the electricity quantities
consumed in the previous calendar year separately. As a result of the explanation of the
Competition Authority, the distribution network operators partially reviewed their activities
and in several cases the identified eligible consumers were exempt from their statuses and
redirected back to the closed market.
Although the partial opening of the Estonian electricity market brought about some
problems and the associated information was occasionally insufficient, the Competition
Authority still considers the process relatively quick and successful. The experience of the
partial opening of the electricity market helps to avoid similar problems in the full opening
of the market on 01.01.2013.
Activation of the Power Exchange and overview of trading
The Power Exchange became operational in Elektribörs on 01.04.2010 when Nord Pool
Spot AS (NPS) opened the Estlink bidding area. The name of NPS Estlink bidding area is
now NPS Eesti. For Estonian producers, sellers and eligible consumers of electricity, this
created a trading spot for buying and selling electricity under free market conditions.
Market participants from Latvia, Lithuania and third (non-EU) countries can also trade
electricity in the NPS Eesti bidding area.
An amendment to the Electricity Market Act entered into force on 01.04.2010, forbidding
eligible consumers to purchase electricity for regulated prices, and offers an alternative to
purchase electricity from the Power Exchange. In conjunction with the activation of the
Power Exchange, a new market participant was added to the Electricity Market Act – the
organiser of the Power Exchange. The organiser of the Power Exchange is NPS whose
activities are supervised by a Norwegian regulator (Norwegian Water Resources and Energy
Directorate). In order to commence trading in the NPS Eesti bidding area, a previous entry
into a corresponding contract is necessary.
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Activation of the NPS Eesti bidding area can predominantly be regarded as a success. The
volume of traded electricity exceeded the limits of 1 TWh already during the first four
months of operation. The average exchange price was 46.31 €/MWh in the year 2010. The
lower monthly average price 34.81 €/MWh was in May and the highest average price 56.62
€/MWh was in August. In total, electricity was purchased and sold in the NPS Eesti
bidding area during the year 2010 in the amount of 6,660,195 MWh.
However, the activation of the Power Exchange did not go without setbacks. Namely, on
24.08.2010, for five hours the price of electricity in the NPS Eesti bidding area was on the
level of 2000 €/MWh, which was also the highest possible price. In order to investigate the
situation, the Competition Division of the Competition Authority instituted proceedings.
On 19 October, the intra-day market of NPS Elbas was opened in Estonia, allowing intraday
trading in electricity in a bidding area covering all countries that have joined the NPS
Power Exchange – from the Nordic countries to Germany. If the day-ahead spot market
Elspot is predominantly meant and usable for the purchasing and sale of electricity, then the
intra-day market grants the market participants a possibility to sell or buy surplus or deficit
electricity during the same day based on predetermined rules.
As of today, the NPS Eesti bidding area allows trading on Elspot (one day ahead) as well as
Elbas (intra-day) markets, indicating that the electricity market of Estonia is successfully
integrating with the electricity market of the Nordic countries. As of the moment of
publishing the annual report, 16 market participants traded in the Elspot market and 4 in the
Elbas market of the NPS Eesti bidding area. The list of market participants is available on
the website of NPS. 7 Monthly average electricity price level in NSP Eesti area in 2010 are
presented in figure 3.
7 http://www.nordpoolspot.com/about/Participant-list---Elspot2/ (02.03.2011)
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FIGURE 3. Monthly average electricity price in NPS Eesti in 2010
Regulation of electricity network operators
Pursuant to § 73 subsection 3 of the Electricity Market Act, a network operator has the
right to submit requests to the Competition Authority for the approval of different
network charges both collectively and separately. Pursuant to § 94 subsection 1 clause 8,
the Competition Authority must establish network charges of network operators, except
transmission charges for the transit of electricity.
Pursuant to the law, the criteria used as the basis upon the establishment of network charges
must be transparent and follow the principles of equal treatment. The price formation of
network charges must take into account the requirement to ensure supply dependability and
efficiency, allow network operators to carry out the obligations arising from legislations and
the conditions of activity licences, and allow a reasoned return on the invested capital.
Pursuant to on § 72 subsection 4 of the Electricity Market Act, the Competition Authority
has prepared and published “uniform methods for the calculation of electricity network
charges” (hereinafter referred to as the Methods), based on which the electricity network
charges are approved. The Methods are applied for the purposes of avoiding unequal
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treatment in a similar and uniform manner and for the approval of the network charges of
all network operators. The prices of network charges are formed as cost-based.
In the year 2010, the Competition Authority made 39 decisions about the weighted average
price and network charges of electricity, whereas 2 price applications were left unapproved.
The most significant of the proceedings involved the prices of network charges of AS
Elering and Eesti Energia Jaotusvõrk OÜ.
For AS Elering a new 3-year regulation period was established, starting from 01.01.2011
and ending on 31.12.2013. Changes in network charges were only caused by price
components relating to investments, whereas the operating expenses of the operator
decreased in the year 2010 by 4.6 million € (72 million kroons) and they will also not
increase in the year 2011. The total volume of investments during the following three years
is 0.447 billion €, i.e. 7 billion kroons. The most significant investments were the buyout of
Estlink1, and construction of the second high voltage direct current connection Estlink2 and
two rapidly starting emergency reserve power stations (with power outputs of 100 MW and
150 MW). In addition, AS Elering will build numerous new connections and distribution
hubs in order to increase the transmission capacity of power networks and decrease network
costs.
On 26 August the Competition Authority submitted its opinions about the price
applications of network charges to Eesti Energia Jaotusvõrk OÜ. The operator applied for
an average of 18.8% increase, including an 11.3% increase of operating expenses, compared
to the current network charges. Pursuant to the Electricity Market Act, the network charges
must be cost-based and reasoned, for which reason the Authority did not consider the
network charges’ price application of the operator reasoned. At a time when companies
operating under free market conditions have started to cut their costs, such course is also
expected from monopolies, and the Competition Authority cannot tolerate significant
increases of operating expenses under the current circumstances. On 12.10.2010, Eesti
Energia Jaotusvõrk OÜ withdrew its application of approval of network charges.
Supply dependability of natural gas
A regulation passed by the European Parliament and the Council on 20.10.2010 laid
down the procedures for the proper and consistent functioning of the internal market of
natural gas, allowing the use of extraordinary measures in case the market is no longer
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capable of supplying the required gas quantities. The regulation prescribes creating a
preventive action plan and an emergency plan in the future.
The share of natural gas in the primary energy supply of Estonia is 10.7% (see figure 4),
whereas the share of natural gas in the production of electricity only amounts to 4.0% and
as Estonia is an exporter of electricity, it is possible to cover the entire electricity demand
without the use of natural gas.
FIGURE 4. Share of primary energy by fuel types
From the perspective of supply dependability, natural gas bears great significance in the
production of heat where the share of natural gas reaches 48.1%. Of the biggest cities,
district heating is 100% dependant on natural gas in Rakvere, Jõgeva, Rapla, Põlva, etc. The
share of gas is significant, for example, in the production of heat in Tallinn, Viljandi,
Sillamäe and Narva. In the year 2010, AS Kohtla-Järve Soojus started to produce heat
partially from natural gas in its gas boiler house with a 100 MW thermal output that was
built a year earlier.
Compared to Western Europe, local natural gas heating is relatively unpopular in Estonia.
Smaller gas networks were actively developed mostly in real estate development areas until
the economic crisis of the year 2008. The gas quantity that AS Eesti Gaas, the biggest
natural gas retailer, sold to homeowners in the year 2009 only amounted to 9.3% of total gas
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sales. If in most district heating systems it is possible to use alternative fuels besides natural
gas, then in case of local gas heating there are no such alternative solutions and the
consumers would be left without heat upon possible supply disturbances.
AS Eesti Gaas has entered into a natural gas supply contract with AS Gazprom that will be
valid until the end of the year 2015, specifying a total supply quantity of 7 million m³/a day
(guaranteed pressure 35 bar), which exceeds the previous maximum daily consumption
volume by 11%. Therefore the above mentioned gas quantity is sufficient for ensuring a
strategically necessary gas supply to Estonia. AS Gazprom stores natural gas in the
Inčukalns gas storage facility (which has an active storage capacity of 2,300 million m³),
ensuring a gas supply sufficient to Estonia and Latvia and partially sufficient to Russia and
Lithuania.
The gas storage facility is refilled from April to October and the refilling process is
monitored by AS Eesti Gaas. In case the refilling of the facility does not take place, it
indicates a possible risk for the gas supply, as the supply for the winter peak consumption
period is ensured from the facility. In such case, system operators have sufficient time to
take measures for covering the winter peak consumption period from other sources.
In terms of gas supply dependability, Estonia fully depends on Russia’s gas supply. Estonia
has two transmission connections with Russia: one in Narva (Eastern direction) and the
other in Värska (South-Eastern direction), as well as a connection with Latvia in Karksi.
Under normal circumstances, only the connection with Latvia is open and the connection
with Russia is organised through Värska. The transmission capacity of the Narva
connection is limited by the transmission limit on the Russian side and the connection is
opened only under special circumstances.
Theoretically, Estonia has sufficient infrastructure and connections to ensure a steady gas
supply and thus Estonia has no problems with the depletion of transmission capacity.
Problems may arise with gas deliveries in conjunction with peak consumption periods on
the Russian side. Namely, disturbances in the gas supply may occur during peak
consumption periods in case the Karksi connection between Estonia and Latvia breaks
down or if the Latvian Inčukalns storage facility is depleted. For transmission capacity, the
Narva and Värska connections between Estonia and Russia are sufficient for ensuring the
supply of gas needed by Estonia, but the transmission capacity of the Narva connection is
limited by a transmission limit on the Russian side. Even if the Narva connection is opened
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under special circumstances, ensuring sufficient pressure may prove problematic for
ensuring the supply of gas quantities required by Estonia. Therefore the Competition
Authority considers the situation a risk to supply dependability, as the entire gas supply is
provided by only one source.
At the same time the supply channels from the Latvian gas storage facility through the
Karksi connection and from Russia through the Värska and Narva connections can be
considered independent. Namely, the gas storage facility is located on the territory of the
EU and its refills can be monitored by AS EG Võrguteenus. The supply dependability could
be significantly improved by the construction of a liquefied natural gas storage facility in the
Baltic-Finland area, but only if that would be accompanied by the construction of a natural
gas pipeline system that would connect the Baltic countries and Finland. The Natural Gas
Act provides several methods for the improvement of supply dependability. Gas supply to a
household customer may not be suspended or restricted during the period from 1 October to
1 May. Gas supply to undertakings who produce heat for the heating of residential spaces
and who have no possibility to use fuel other than gas for fuel may not be suspended or
restricted during the above mentioned period. Gas supply may be suspended in cases of
danger to the life, health or property of persons or to the environment, or by agreement of
the parties. A heat producing undertaking whose estimated annual production volume
exceeds 500,000 MWh per network area is required to ensure a reserve fuel capability for
the production of heat starting from 01.07.2008, guaranteeing the heat supply for a period of
three days. Upon the emergence of a factor that constitutes a threat to supply dependability,
life or the health of persons or preservation of a network, the system operator immediately
notifies the Ministry of Economic Affairs and Communications and the Competition
Authority and makes a proposal for taking measures to ensure the supply dependability.
The Ministry cooperates with the Competition Authority to analyse the proposal received
from the system operator and, if necessary, makes a proposal to the Government of the
Republic for taking the following measures in ensuring the supply dependability:
To limit gas supply to persons who use gas for any other purpose except the production
of heat;
To allow limitation of the gas supply to undertakings producing heat;
To allow decreasing of the temperature of the heat carrier used for the heating of
residential spaces;
To require the heat producing undertakings to use reserve fuel as fuel.
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As the primary concern in Estonia is to ensure gas supply to heat producing undertakings
and residential consumers, limitation of the gas supply to heat producers of Tallinn and
Narva is seen as the primary means for overcoming supply interruptions. Principally, the
legislative amendment prescribes that the district heating undertakings that supply heat to
Tallinn and Narva are required to ensure means for the use of reserve fuel and switch to the
reserve fuel upon gas supply interruptions. In Iru Power Plant, it is possible to switch from
co-production mode to the production of heat in order to decrease the gas consumption.
This is possible in Estonia, since the share of natural gas in the production of electricity is
minute and the necessary electrical power can be ensured by the oil shale burning power
plants of AS Narva Elektrijaamad. It is also important to take into account that power
plants that use gas add up to less than 10% of the entire installed capacity. Pursuant to the
legislative amendments that have entered into force, the system operator (AS EG
Võrguteenus) is required to draw up a description of emergencies constituting a threat to the
functionality of the gas system, and an emergency management plan which must be
submitted to the Ministry of Economic Affairs and Communications. The plan is
implemented in a situation when the activities of the balance provider no longer allow
ensuring the balance and it is necessary to limit the consumption of a certain consumer
group.
The Competition Authority is of the opinion that the risks of the gas supply are related to
the supply from one source – Russia. Considering the estimates of consumption and
transmission capacity, prepared by AS EG Võrguteenus, there will not be any deficiency of
transmission capacity until the year 2016 and probably even in the farthest future. In terms
of natural gas supply, the risks associated with supply dependability can be significantly
lowered by the fact that during wintertime, gas supply is predominantly organised from the
Latvian gas storage facility. As the latter is located on the territory of the European Union,
it can be considered an independent supply source in addition to the direct link from Russia.
The risk lies in the fact that refilling of the Latvian gas storage facility is organised through
Russia. At the same time we cannot ignore such possible risks relating to the supply
dependability of natural gas that would mostly jeopardise the gas-dependant heat supply.
For possible emergencies, a plan has been drawn in Estonia, allowing to significantly
decrease the consumption of gas and to switch the district heating system over to alternative
fuel.
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Price regulation of heating undertakings
Pursuant to the District Heating Act, a local government has the right to determine
district heating regions within the boundaries of its administrative territory. The only
permitted heating alternative in district heating regions is district heating (except for
persons who did not use district heating at the time of determination of the district
heating region), due to which reason the consumers cannot choose an alternative heating
method and the heating undertaking enjoys a monopoly status.
Based on the Establishment of Price Limitations to Monopolies Act, significant
amendments to the District Heating Act entered into force on 01.11.2010. If at earlier times
the Competition Authority and local governments carried out supervision of the District
Heating Act and approved the maximum prices of heat sold by heat undertakings in parallel
(both according to jurisdiction arising from the District Heating Act), then starting from
01.11.2010, only the Competition Authority has the respective rights and obligations. The
major objective of the amendments to the District Heating Act was to ensure more
comprehensive and intensive supervision of the district heating sector, as compared to local
governments the Competition Authority has significantly greater experience in the
regulation and supervision of the district heating sector, thus contributing to a more
homogeneous regulation and equal treatment of undertakings in the entire sector of district
heating.
In addition to the above, the approval principles of the maximum price of sold heat were
changed so that the heating undertakings had more obligations to ensure the sale of heat to
consumers for fair and reasoned prices. For this reason, a principle has been provided in the
District Heating Act that a heat undertaking is required to monitor such circumstances,
independent of its activities, that affect the price of heat to consumers, and submit a new
limit price approval application to the Competition Authority within 30 days from the
emergence of such circumstance that can affect the price of heat to consumers by more than
5 per cent. Hence, a heat undertaking is required to harmonise a new limit price of heat with
the Competition Authority, for example in case of a decrease of the purchasing price of fuel.
Among the most significant amendments, the Competition Authority was given the right to
invalidate a current approval of the maximum price of heat and establish a temporary sales
price of heat to a heat undertaking if the heat undertaking sells heat for a price that does not
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correspond to the conditions provided in § 8 subsection 3 of the District Heating Act and
has failed to carry out an injunction of the Competition Authority.
In addition, the regulation of § 14 1 of the District Heating Act deserves special attention, as
it allows heat producers and network operators in the future to enter into contracts with
validity periods of up to 12 years from the beginning of production with certain production
equipment in order to ensure investment security. It is important that the entry into such
contracts requires the organisation of a competition, the winners of which are awarded with
the contracts. This ensures that heat producers or network operators enter into contracts for
ensuring investment security with the best price, in order to guarantee a safe, reliable,
efficient, reasonably priced heat supply that matches the environmental requirements and
the needs of the consumers.
Supervision proceedings relating to storage of reserve fuel
Based on § 28 subsection 1 of the District Heating Act, the Competition Authority
instituted supervision proceedings in December 2009 relating to the performance of § 7
subsections 3 and 4 and § 41 1 of the District Heating Act. Based on § 7 subsection 3 of the
District Heating Act, a heat producing undertaking whose estimated annual production
volume exceeds 500,000 MWh per network area is a provider of a vital service in the
meaning of the Emergency Act and therefore required to ensure a reserve fuel capability
for the production of heat, guaranteeing the heat supply for a period of three days.
Pursuant to the District Heating Act, calculation of the reserve fuel quantity is based on the
maximum daily consumption of the previous year. The heating undertaking must have
ensured a reserve fuel capability for the production of heat starting from 1 July 2008. The
objective of the instituted supervision proceedings was to identify whether the heating
undertaking mentioned in § 7 subsection 3 of the District Heating Act carry out their duties
arising from the District Heating Act.
Pursuant to § 7 subsection 3 of the District Heating Act, there are three heating undertaking
in Estonia (AS Tallinna Küte, Eesti Energia AS Iru Elektrijaam and Eesti Energia Narva
Elektrijaamad AS) whose annual heat production volume exceeds 500,000 MWh per
network area. Therefore, these undertakings are required to ensure the existence of reserve
fuel and the capability of its use for the production of heat.
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During the course of the supervision proceedings, the Competition Authority came to
the following conclusions:
1. AS Tallinna Küte has ensured the performance of the requirements set forth in § 7
subsection 3 and 4 and § 411 in the Lääne district of its network area (heat supply is
organised from Mustamäe and Kadaka boiler plants), but in the Kesklinn-Lasnamäe-
Maardu district (heat supply is organised from Ülemiste boiler plant, Tallinn Power
Plant and the power plant Eesti Energia AS Iru Elektrijaam) the reserve fuel amount
required by § 7 subsection 3, 4, § 411 of the District Heating Act is absent.
2. Eesti Energia Narva Elektrijaamad AS-s has properly carried out its obligations
arising from § 7 subsection 3 and 4 and § 41 1 of the District Heating Act.
3. Eesti Energia AS-s Iru Elektrijaam has ensured the existence of reserve fuel pursuant
to the requirements of § 7 subsection 4 and § 41 1 of the District Heating Act, but the
heating undertaking does not guarantee the performance of obligations arising from
§ 7 subsection 3 of the District Heating Act in the meaning of § 34 subsection 1 of the
Emergency Act, as an undertaking that supplies heat to the network and provides a
vital service and is not able to ensure the consistent functioning of a vital service or
resuming of the vital service after its suspension. Iru Elektrijaam has on its own side
defined the period of transition to reserve fuel to be 24 hours which is too short and thus
cannot be considered reasonable in an emergency situation.
The Competition Authority ended the supervision proceedings relating to Eesti Energia
Narva Elektrijaamad AS in the year 2010, but continued the proceedings relating to AS
Tallinna Küte and Eesti Energia AS Iru Elektrijaam.
Disputes of market participants
Resolution of disputes between market participants has been provided by the Electricity
Market Act as well as in the Natural Gas Act. In the district heating sector, the
Competition Authority can institute supervision proceedings in case a violation of the
law by a heating undertaking is discovered. One of the major problems in the year 2010
was the suspension of a consumer’s network connection by a network operator.
Suspension of the electricity supply has been regulated in great detail. It is the opinion of the
Competition Authority that the protection of socially sensitive consumers upon the
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emergence of solvency problems has been sufficiently ensured. A network operator may
suspend a consumer’s network connection if the consumer has failed to pay the monetary
amount due based on a contract entered into with the network operator or a contract
entered into with a seller appointed by the network operator for the purposes of carrying out
the sales obligation of the network operator, or if the consumer has otherwise severely
violated an obligation laid down in the above mentioned contracts. Before the suspension of
the network connection, the network operator is required to send a notice of the planned
suspension. The notice must identify the reason for the suspension of the network
connection as well as the planned time of the suspension. A consumer’s network connection
may be suspended when at least 15 days have passed from the sending of the above
mentioned notice and during that time the consumer has not removed the circumstance that
constitutes the grounds for the suspension and informed the network operator
correspondingly.
If the network connection is suspended due to the reason that a consumer who is a natural
person has failed to pay in due time for the consumed electricity as a result of severe illness
or temporary insolvency caused by becoming unemployed, the consumer may submit a
respective written notice of such circumstances to the network operator. The notice must be
accompanied by a certificate substantiating the above mentioned circumstance. A network
operator who has received a written notice and the substantiating evidence may suspend the
network connection of a consumer who is a natural person when at least 30 days have
passed from the moment of sending a notice to the consumer and during that time the
consumer has not removed the circumstance that constitutes the grounds for the suspension
of the network connection and informed the network operator correspondingly.
If the network connection is suspended due to the reason that a consumer has failed to pay
in due time for the consumed electricity, then the network connection may be suspended
during the period from 1 October to 30 April in a building or a part thereof that is a
dwelling, and that is used as a permanent residence and heated fully or predominantly by
means of electricity only after at least 90 days have passed from the moment of sending the
notice to the consumer and during that time the consumer has not removed the
circumstance that constitutes the grounds for the suspension of the network connection and
informed the network operator or the seller correspondingly. If a consumer has failed to pay
for electricity in due time, the network operator is entitled to limit the capacity of the
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network connection. A prior notice of limitation of the capacity must be given to the
consumer at least 15 days in advance.
A network operator has the right to suspend a consumer’s network connection immediately
if the consumer increases the limited capacity without authorisation, uses electricity or the
network service illegally or uses electrical installations that do not correspond to established
requirements, are dangerous or disturb the function of the entire network or threaten the
supply dependability.
All market participants, including the operators and the consumers, have the right to turn to
the Competition Authority as the body conducting extra-judicial proceedings. A market
participant may submit a written complaint to the Competition Authority against another
market participant’s activities or lack of activity that violates the Electricity Market Act or
legislations enacted based on the Electricity Market Act. A total of 33 decisions (including
decisions on challenges) were made in the year 2010 about the solving of complaints. 256
answers to inquiries and requests for information were made (incl. relating to the Public
Water Supply and Sewerage Act). In order to ensure the rights granted to energy consumers
by law, the Competition Authority continuously monitors the accession fee methods,
standard terms and other matters provided by the law. In the year 2010, 23 decisions were
heard and made relating to the approval of accession fee methods (3) and general terms (20).
Public water supply and sewerage system
In August 2010, the Riigikogu passed the Establishment of Price Limitations to
Monopolies Act, which among other things amended the Public Water Supply and
Sewerage Act (hereinafter referred to as PWSSA) since 01.11.2010. Arising from the law
amendment, the water undertakings whose territory is located on a sewerage collection
area with a pollution load of 2,000 population equivalents or more are required to coordinate
the price of the water service and the calculation methods of the accession fee
with the Competition Authority.
Pursuant to the law amendment, the Competition Authority had to prepare and publish on
its website an instruction material “Recommended principles of calculating the price of the
water service” (hereinafter referred to as the Instructions). The creators of the Instructions
were guided by the regulation principles of monopoly undertakings (electricity, district
heating, and natural gas) that were already in place in Estonia. The Instructions are applied
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to the approval of water service prices similarly and homogenously upon the analysis and
approval of the activities of all water undertakings that are under the area of regulation of
the Competition Authority. The said Instructions may also be used upon the approval of
prices of the water service by local governments. While preparing the Instructions, the
Competition Authority asked for the opinion of different institutions and water
undertakings, and during the process more than 200 opinions and questions were submitted
to the Competition Authority. The Competition Authority has provided its answers to the
submitted opinions and the generated discussion in a document “Explanations of the
Competition Authority on Instructions to water undertakings “Recommended principles of
calculating the price of the water service”” that the Competition Authority has published on
its website.
Pursuant to the Administrative Procedure Act, the Competition Authority has the right to
determine the form of procedural acts based on the right of discretion, based on which the
price application forms (hereinafter referred to as the Questionnaires) “Detailed
questionnaire to water undertakings” and “Simplified questionnaire to water undertakings”
have been prepared and published. Upon filling out the Questionnaires, a water undertaking
can be guided by the “Instructions for the submission of a price application”.
If a lower price of the water service has been established for natural persons than to legal
persons, then pursuant to the requirements of equal treatment the water undertaking is
required to start minimising the price difference, but not faster than during a period of 15
years. The Competition Authority has prepared the “Model for minimisation of the price
difference of the water service” and published the document on its website. In the year 2010
the Competition Authority did not receive any properly formed price applications of the
water service or applications for the approval of calculation methods of accession fees.
Nevertheless, there were numerous inquiries from water undertakings and consumers
regarding the new wording of the Public Water Supply and Sewerage Act.
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DEVELOPMENTS IN THE ELECTRONIC COMMUNICATIONS MARKET IN
THE YEAR 2010
Similar to earlier years, the developments occurring in the Estonian market of electronic
communications were also affected by global processes in the year 2010. For the third
year in a row, the turnover of electronic communications decreased, but compared to the
record braking year of 2007, the decrease was only 3.9%. At the same time, the decrease
was not only caused by the economic recession, but also by intense competition and
market regulation.
It is possible to support the sustainability of the electronic communications sector by
ensuring efficient competition, and any regulatory intervention of the Competition
Authority must be well reasoned, as excessive measures may have a negative effect on the
development of the sector. Data of the year 2010 indicates that regulatory intervention is
still necessary in several electronic communications markets and the applied measures have
contributed to an improvement of the competition situation. Regulatory intervention also
supported the price stability in the retail market during rapid economic growth and when
the consumer price index was quickly increasing.
The electronic communications market of the year 2010 was predominantly characterised
by:
turnover decrease of the interconnection service;
continuous but minimum growth of the data communication service and mobile data
communications;
stabilisation of cable television service volumes.
The estimated turnover of telecommunication services provided by the companies operating
in the market in the year 2010 was approximately 709.4 million euros (11.1 billion kroons),
which corresponds to only a 1% decrease compared to the year 2009. Although the
turnovers of interconnection and mobile communication services decreased, an increase in
the volumes of telephone and other services had an overall positive effect on the total
turnover of the sector. Conditionally, the electronic communications sector can be divided
into eight market segments: telephone, mobile telephone, data communications, fixed line,
interconnection, access, cable television and other services, incl. broadcasting and radio
communications.
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FIGURE 5 Division of the total turnover of the electronic communications sector in the years
2009 and 2010 by services.
Compared to the year 2009, the share of the total turnover of telephone services increased in
the market of electronic communications from 12% to 14%. The biggest providers of the
telephone service were Elion Ettevõtted Aktsiaselts (hereinafter referred to as Elion),
Telefant AS (hereinafter referred to as Telefant), STV AS (hereinafter referred to as STV)
and AS Starman (hereinafter referred to as Starman). The number of end-users of the
telephone service decreased during the year by 22,000 consumers. The retail market of the
mobile telephone service was characterised by a slight decrease in turnover, but the
number of end-users of the service increased by approximately 5.1%. The service market
had reached the developed market state where the existing client base is being redistributed
between service providers. Within the total turnover of the electronic communications
market, the market of the mobile telephone service decreased by 1% compared to the year
2009. The market of the interconnection service involves the interconnection services of
the fixed telephone networks as well as mobile telephone networks. The share of the
above mentioned market in the total turnover of the electronic communications market
decreased compared to the previous year by 1.5%, whereas the turnover of the
interconnection service decreased over the course of the year by 11.9%. The decrease of
turnover was greatly affected by a continuous decrease of call termination charges that
originated from a regulatory intervention of the Competition Authority. The turnover of
the access service decreased and added up to only a minimum share of the total turnover
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of the electronic communications market, reaching a mere 0.1%. The number of end-users
of fixed broadband service in the data communications market continued to increase,
growing during the course of the year by 3.5%, however the service turnover decreased by
2.2% at the same time. Compared to earlier years, the growth of the number of end-users
has slowed down and the reasons for such a decrease in growth may be related to the
economic recession. At the same time, the fixed broadband service segment suffers from
increasing competition from the mobile broadband technology. The market of the fixed
line service in the electronic communications sector has one of the smallest volumes
where the consumption remained on the same level compared to the year 2009. The
turnover of the cable television service also remained on the same level. Nevertheless,
undertakings continuously invest in cable television networks to widen their coverage area
and offer the consumers new and high-quality package services.
Developments in the data communications market
The data communications retail market is a rapidly growing and developing market with 79
active service providers as of 31.12.2010, of which Elion, Starman, STV and Televõrgu AS
are the biggest. The number of end-users of the broadband service increased compared to
the year 2009 by 3.5% (without taking into account the mobile broadband connection).
FIGURE 6 Use of the broadband service by technologies in 2004-2010.
Competition increased in the said market mostly between the undertakings that own
network infrastructure. Of the biggest service providers, Elion mostly provided the ADSL
service and cable television undertakings Starman and STV provided fixed broadband
service over cable modems or fibre optic networks. 81% of the end-users consumed the
broadband services of Elion, Starman and STV and the total volume of the market share of
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these market participants has decreased minimally over the year. Since the year 2009, the
Competition Authority also started to collect data on the number of such users of the mobile
broadband service who use the service predominantly for accessing the Internet from their
computers (over data communication terminals, USB modems, etc.). The mobile broadband
connection offers increasing competition to fixed data communications, as the service prices
and connection speeds are comparable and sometimes even more favourable compared to
the prices of fixed data connections. Total substitution is yet hindered by volume limitations
and ensuring of the speed of connection. The number of users of the mobile broadband
service increased over the course of the year more than three-fold, reaching 70,000 by the
end of the year 2010.
On the broadband market, services were mostly provided over the telephone network, fibre
optic network and cable television networks. Compared to the year 2009, the number of
xDSL end-users increased by 11% and the number of end-users of fibre optics increased by
4%, whereas the number of users of cable modems decreased by 3%. Although so far, the
number of end-users of the broadband service provided over radio communications has
increased rapidly since the year 2008 (38% increase in 2008 and 8% in 2009), the year 2010
brought about a 5% decrease in this segment. The number of end-users of xDSL, cable
modem and fibre optic based broadband services amounted to 84% of all broadband users
by the end of the year 2010. As of the end of the year, the estimated number of users of the
broadband service amounted to 55% of all households.
FIGURE 7 Change of the number of users of the broadband service over the years 2004–2010.
The end-users increasingly use different services in a parallel manner (the broadband,
telephone, cable television and mobile telephone services), which also increases the
popularity of Bundled communication services where one monthly fee allows a consumer to
use at least two communications services. As of the end of the year 2010, a similar Bundled
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services was used by approximately 70% of consumers. The Bundled services are often more
attractively priced than the broadband service separately.
The data communications wholesale markets can be divided into two segments: markets of
copper pair access and broadband access. On these markets, the Competition Authority has
declared Elion an undertaking with significant market power and the services of this
company have been subject to access, equal treatment, transparency and price obligations
since the year 2007. In the year 2010, the number of access lines given to the use of other
service providers started to decrease, shrinking by 4.5% during the year. By the end of the
year 2010, the supply of the broadband access service had also decreased by 19%. The
turnover of access services was practically equal to the level of the year 2009. Compared to
the year 2009, the monthly fee for the copper pair access increased by 15% and the monthly
fee for the selected copper pair access increased by 3%. Depending on the speed of the
broadband connection, the monthly fees for broadband access decreased by up to 50%.
FIGURE 8 Number of access lines given to the use of other service providers in the years
2004-2010.
Developments in the cable television service market
In the year 2010, 15 operators were active in the cable television service market (including
the IPTV service), of which Starman, STV and Elion were the biggest. Elion’s market entry
in the year 2005 quickened the increase of the number of end-users and the overall
development in the otherwise relatively stable market, while trends also continued in the
year 2010 in relation to the transition to digital television. Compared to the year 2009, the
number of end-users of the cable television service increased by 5.3% or approximately
17,000 consumers. Accordingly, the market shares of service providers changed to some
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degree. Elion has significantly increased the availability of the IPTV service through its
communications network.
FIGURE 9 Division of market shares of providers of cable television services based on the
number of end-users, 2004-2010
Developments in the public mobile telephone service market
The consolidated data of the retail market of the public mobile telephone service indicated
relative stability in the year 2010. Nevertheless, this market is the most competitive in the
electronic communications sector, as three of the biggest operators are vigorously competing
against each other for clients. During the year, three network operators operated in the
public mobile telephone service market: AS EMT (hereinafter referred to as EMT), Tele2
Eesti AS (hereinafter referred to as Tele2) and Elisa Eesti AS (hereinafter referred to as
Elisa); there were also two virtual providers of the public mobile telephone service:
ProGroup Holding OÜ and Top Connect OÜ. ProGroup Holding OÜ ended the provision
of services to GSM consumers on1 November, and delivered all of its clients to Elisa. The
number of end-users did not increase significantly in the year 2010, remaining on the level
of a 5.2% increase.
The number of contractual end-users increased compared to the year 2009 by 2.5% and the
number of end-users of prepaid calling cards increased during the same period by 10.6% (see
figure 10).
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FIGURE 10 Change of the number of contractual end-users and end-users of prepaid calling
cards of the public mobile telephone service during the years 2004–2010
FIGURE 11 Density of end-users of the public mobile telephone service per 100 residents during
the years 2001-2010
The number of end-users’ started minutes in a public mobile telephone network increased in
the year 2010 by 10%. At the same time, the number of calling minutes initiated in a
telephone network decreased by 4%. Therefore, end-users still consider the public mobile
telephone service as the preferred way of consuming voice services, however the decrease of
the number of minutes initiated from a telephone network has slowed down. Calls initiated
from mobile telephone networks make up 74% of all initiated calls and only 26% of calls are
initiated from a telephone network.
Development of mobile data communication services and 3G/3.5G networks resulted in a
rapid growth of the consumption of data communication services provided through GPRS
and 3G/3.5G networks also in the year 2010. Compared to the total volumes of the year
2009, the total volume of the year 2010 increased four-fold.
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The following significant developments in the provision of the service deserve mentioning:
1) the operators significantly expanded the coverage area of their 3.5G networks where endusers
can use broadband services with speeds comparable to the fixed connection (2-42
Mbit/s), providing the broadband service also to residents of areas which are beyond the
reach of fixed network connections. Starting from 30 December, EMT increased the
download speed in its 3.5G network to 42 Mbit/s. Starting from the beginning of the year
2011, Tele2 increased the maximum download speed in its network to 21.6 Mbit/s;
2) all operators opened their fourth generation LTE (Long Term Evolution) 2.6GHz test
networks that are particularly suitable for covering densely populated areas, as they
provide five-fold faster download speeds compared to the current 3G+ technology. On 16
December 2010, EMT opened Estonia’s first 4G mobile communications network,
making Estonia the eleventh country in the world where the 4G network is open for endusers.
3) operators organised a joint campaign to increase the users’ awareness of the necessity and
simplicity of the use of the mobiil-ID solution. This solution allows the same transactions
as the ID-card – digitally sign various contracts; log onto internet banking systems and
participate in elections. Mobiil-ID has been used in Estonia since the year 2007 and has
been used for making over four million transactions.
Estonia is fifth in the world on the Broadband Quality Score and fourteenth place on the
broadband service quality score, outscoring close neighbours such as Finland (27th place),
Lithuania (38th place) and Latvia (51st place).
On the mobile telephone networks interconnection market, market shares are divided
between operators in a more uniform manner than in the interconnection markets of
telephone networks, which is a phenomenon that can be explained by a more intense
competition in the public mobile telephone service retail market.
Compared to the year 2009, the number of call minutes terminated in mobile telephone
networks (including calls made from fixed telephone networks, international, inter and intra
network calls) increased in the year 2010 by 2.5%.
Since July 2010, the upper limit of the termination price of voice calls, established to
Estonian public mobile telephone network operators by the Competition Authority, is 0.078
EUR/min (1.22 kroons/min), which will decrease by 10% from July 2011.
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FIGURE 12 Prices of mobile telephone network interconnection services in the EU,
kroons/min. Source: ERG
Developments in the market of telephone services
In the year 2010, the biggest service providers in the telephone service market were Elion,
Tele2 and Starman.
The year was characterised by a decrease of the number of end-users of the telephone
service market (5.8%), whereas the number of customer lines used also decreased by 2%.
The telephone service market is a market which is decreasing in the long-term. In the year
2010, the number of calls initiated from telephone networks decreased by approximately
4%.
FIGURE 13 Change of the number of users of the telephone service over the years 2004-2010.
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In the year 2010, Elion was an undertaking with significant market power (hereinafter
referred to as USMP) in the interconnection service market. Accordingly, the company was
also subject to special obligations, incl. the obligations of providing the interconnection, call
origination and termination services. Elion was also subject to price control of the above
listed services (obligation to follow the cost-oriented principle). The other service providers
are USMP-s (a total of 10 communication undertakings) in the call termination market.
The fixed communications networks’ interconnection market is deemed to consist of
(telephone) networks that are used to provide the interconnection service that is necessary
for the function of the voice communications service. The biggest companies operating in
this market are Elion, Elisa, Starman and Top Connect. The total number of call minutes
terminated in a fixed communications network decreased in the year 2010 by 3% (see figure
14).
FIGURE 14 Change of the volume of call minutes terminated between fixed communications
networks of Estonia in the years 2004-2010
In the year 2010, the prices of initiation and termination of calls in a fixed location of the
telephone network of Elion decreased by approximately 5% on the national level and
approximately 20% on the local level. Prices of other communication undertakings did not
change.
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Universal service
Universal service is a set of services which conforms to the technical and quality
requirements established by the EU law, which is of a specified quality and available to all
end-users requesting it, regardless of their geographical location, uniformly and at an
affordable price. The universal service includes the following:
1) connection to the public telephone network;
2) public pay-phone service;
3) accessibility of a universal electronic Public Number Directory and directory enquiry
services.
31. As of 31 December 2010, there was one company in Estonia that was required to
provide the universal service – Elisa – and there were 11 end-users of the universal service.
The universal service must enable originating and receiving national and international calls,
sending and receipt of faxes and a data communication service with a download speed of up
to 556kbit/s. Elion ended provision of the public pay-phone service on 1 December.
There is a well-functioning competition in Estonia relating to universal electronic Public
Number Directory and directory enquiry services. There are various databases of telephone
and mobile telephone users freely available on the Internet. These services are reasonably
available on the entire territory of Estonia and the needs of end-users are sufficiently
covered. For this reason, there is no need to dedicate a provider of the universal service for
the public pay-phone service and/or universal electronic Public Number Directory and
directory enquiry services.
Fixed line service market
The fixed line service market is volume-wise among the smallest of all electronic
communications markets. The turnover of the service has decreased by 5% over the last
year. The number of fixed lines decreased in the year 2010 by 9%.
In the year 2010, the fixed line service was provided by 10 operators, of which Elion and
Televõrgu AS were the biggest.
Regulated prices did not change in the fixed line market during the year.
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FIGURE 15 Change of the number of fixed lines in the years 2004–2010.
Analyses of the communications market conducted in the year 2010
Pursuant to § 41 and 44 of the Electronic Communications Act (hereinafter referred to as
ECA) the Competition Authority analyses regularly, but not less frequently than once
every three years, the competitive situation in the communications services markets,
being guided by the directions of the European Commission and rulings of the European
Court of Justice. The Competition Authority has the right to determine undertakings
with significant market power in these markets and apply to them regulatory measures
prescribed by law.
In the year 2010, the Competition Authority conducted market analyses in the markets of
communications services, being guided by the Commission Recommendation of 17.12.2007
on relevant product and service markets within the electronic communications sector
susceptible to Ex ante regulation 8 (hereinafter referred to as the recommendation), the annex
to which defines seven electronic communications markets.
In March 2010, decisions of the Competition Authority entered into force in the markets of
initiation and termination of calls in a telephone network. The Competition Authority
identified Elion as an undertaking with significant market power in the market of initiation
of calls in a telephone network, and Elioni, Elisa, Eleks Telefon OÜ, Starman, STV,
Televõrk, Linxtelecom Estonia OÜ, Top Connect, State Infocommunication Foundation
and ProGroup Holding in the market of termination of calls in a telephone network.
8 Commission Recommendation of 17 December 2007 on relevant product and service markets within
the electronic communications sector susceptible to ex ante regulation in accordance with Directive
2002/21/EC of the European Parliament and of the Council on a common regulatory framework for
electronic communications networks and services. OJ L 344, 28.12.2007 P. 0065 – 0069.
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Upon the establishment of price obligation in the market of termination of calls in a
telephone network, the Competition Authority was guided also by the principle of efficiency
and symmetrical prices which has been provided for the service of termination of calls in a
telephone network by the Commission Recommendation of 07.05.2009 on the Regulatory
Treatment of Fixed and Mobile Termination Rates in the EU. Pursuant to this principle, all
undertakings with significant market power operating in this market must apply an identical
price which is the call termination price in the telephone network of Elion, calculated based
on the cost accounting methodology established by the Competition Authority. As a result
of the established cost accounting methodology, call termination prices significantly
dropped in the networks of Elisa and ProGroup Holding, whereas the prices of other
communication undertakings remained on the same level.
In March 2010, a decision of the Competition Authority entered into force relating to
private and business customers on the market of access to a telephone network in a fixed
location. The Competition Authority found that it is not necessary to prescribe obligations
which are significantly more encumbering than the existing obligations to Elion. Pursuant
to the decision, Elion must allow end-users to access the services of a telephone service
provider interconnected to its network through dialling a carrier access code and using the
preselection of the telephone service provider. At the same time, the end-user must be able
to cancel a previous selection separately for each call when using the carrier access code.
With a decision of the Competition Authority, Elion was declared an undertaking with
significant market power in the wholesale market of fixed line terminating segments and
access, non-discrimination, transparency and price obligations of an undertaking with
significant market power were prescribed.
In the trunk segment wholesale market, Elion was not deemed an undertaking with
significant market power, because the results of the carried-out market analysis indicated
that the competition situation has significantly improved in the fixed line trunk segment
wholesale market. For this reason, continuation with sector specific regulations in this
market was not reasoned and Elion’s obligations of an undertaking with significant market
power were deemed invalid in this market.
In the year 2010, a market analysis was also started in the broadcasting service market and a
respective draft decision corresponding to the analysis was sent to national consultations in
November 2010. As a result of the conducted market analysis, the Competition Authority
found that AS Levira has significant market power in the said market. The Competition
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Authority has proposed to declare AS Levira an undertaking with significant market power
to which the obligations of an undertaking with significant market power were prescribed.
In the year 2011, the Competition Authority continues to conduct market analyses. The
next market analysis will be conducted in the market of call termination in the public mobile
telephone network. Consultations with communication undertakings for the acquisition of
data necessary for market analyses will also continue.
Supervision in the sector of electronic communications
Although communication undertakings submitted several complaints regarding enabling of
access to Elion’s Cable ducts in the years 2008 – 2009, there were no such disputes in the
year 2010. There were also no other disputes relating to access to communication networks.
At the same time, the Competition Authority participated as a conciliator in several disputes
arisen between communication undertakings that were mostly caused by insufficient
communication between the companies. As a final result, the disputes reached solutions
that satisfied all parties.
The Competition Authority conducted six price and cost accounting supervision
proceedings relating to undertakings with significant market power. Three of these
proceedings related to Elion, one to ProGroup Holding, one to Starman and one to the
communication services of Levira.
Conflicts with the established methodology were identified in the price and cost accounting
procedures of Elion's copper pair access service, relating to the fact an injunction was made
in October 2010. Elion challenged the said injunction in the administrative court. The
challenge constitutes a dispute whether the calculation principles of the total volume of the
service used under a unit of a monthly fee of the copper pair access service comply with the
established methodology. The court proceedings will continue in the year 2011.
A final solution was achieved by court proceedings relating to Elisa’s complaints regarding
the price obligation established to it in the mobile telephone termination market and
regarding its prescribed status as an undertaking with significant market power in the
telephone network’s call termination market. Pursuant to a ruling of the Tallinn
Administrative Court of 18 August 2010, the complaint of Elisa regarding its price
obligation established in the mobile telephone termination market was unsatisfied. Elisa
waived its complaint on its prescribed status as an undertaking with significant market
power in the telephone network’s call termination market and the case was deemed closed
with the decision of the Tallinn Administrative Court of 12 October 2010.
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Amendment of the Electronic Communications Act
In the year 2010, a process of preparation of the draft Act to Amend Electronic
Communications Act was started due to a need to ensure compliance of the ECA with the
amendment package of the year 2009 to the internal market directives of the European
Parliament and the Council. The need of amending the act also originated from the general
development of the electronic communications sector, aiming to ensure the smooth and
flawless regulation of the sector.
To facilitate preparation of the draft Act, specialists from the Competition Authority were
also included in the workgroup established by the Ministry of Economic Affairs and
Communications.
As an exceptional measure, a possibility is provided with the draft to establish an obligation
to an undertaking with significant market power to ensure function-based separation only if
the obligations previously prescribed to that undertaking have not yielded desired results.
Function-based separation allows improvement of competition in several relevant markets,
significantly decreasing discrimination causes and simplifying the verification and ensuring
the obligation of equal treatment.
The draft introduces a requirement for the Competition Authority to consult with the Body
of European Regulators for Electronic Communications. The Competition Authority is also
required to advance the investments of communications undertakings into next generation
communications networks (Next Generation Network – NGN), contributing to increasing the
availability of broadband (data communications) to end-users. The draft also prescribes the
right of the Competition Authority to provide statistical information to interested parties
based on their requests about the number of clients of public electronic communications
services provided on the retail level by communications undertakings, and about the market
shares calculated based on the number of clients of the communications undertaking
providing the service. It is significant that although it is not possible to reveal these data
based on the current ECA, the draft no longer interprets the said information as a business
secret.
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POSTAL SERVICES
The year 2010 did not bring about any significant changes in the postal services market.
The universal postal service (hereinafter referred to as UPS) was provided for affordable
fees defined by the Minister of Economic Affairs and Communications. In order to
compensate for any possible unreasonably encumbering costs that the providers of UPS
may bear, the funding obligation was borne by the companies providing postal services
based on activity licences.
D2D terminated its activities in the year 2010 and therefore there were two providers of
postal services with a financing obligation in 2010 (AS Eesti Post hereinafter referred to as
Eesti Post and AS Express Post hereinafter referred to as Express Post). No activity licence
applications were submitted for the provision of postal services.
There were also no significant changes in the market of such postal services that do not
require an activity licence in the year 2010. Similar to previous years, a few providers of
courier services were removed from the register of economic activities, because they no
longer provided the service. At the same time, five new providers of courier services, two
direct mailing service providers and one forwarder of periodicals were registered in the year
2010.
As of 31 December 2010, there were 38 providers of one or more postal services registered
in the register of economic activities. There was one provider of UPS (pursuant to the Postal
Act there can only be one such provider), two licensed forwarders of items of
correspondence, one licensed forwarder of postal parcels, 35 providers of courier services,
10 providers of the direct mail service and six forwarders of periodicals. However, not all of
the above mentioned undertakings provided postal services in reality.
Pursuant to its five-year activity licence, Eesti Post was also the provider of UPS in the year
2010. Eesti Post used its right, arising from the Postal Act, to send quarterly applications to
the Competition Authority for receiving compensation for unreasonably encumbering costs
arising from the obligation to provide UPS. Proceedings relating to the applications of the
year 2010 are still not completed, because the company has failed to explain the emergence
of unreasonably encumbering costs (throughout different quarters, the company has
continuously changed its cost allocation principles, it has failed to take into account the
Competition Authority’s “Methodology of valuation of costs of the provider of universal
postal service”, and upon finding a reserve volume, the company has not been guided by
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egulation No. 20 of the Minister of Economic Affairs and Communications of 06.03.2009
“Requirements to revenue and cost accounting of the provider of universal postal service”).
Pursuant to the Postal Act, at least 90 per cent of items of correspondence forwarded as
ordinary items which are deposited with the UPS provider shall be delivered to the
addressee during the day after deposit. A UPS provider ensures that a person independent of
the service provider inspects compliance of the UPS with the quality requirements. In
addition, the Competition Authority carries out annual verification. A verification mailing
carried out in the year 2010 from July to October identified that the delivery quality of items
of correspondence complies with the provisions of § 37 subsection 5 of the Postal Act.
FIGURE 16 Quality of delivery of items of correspondence in the year 2010.
Upon verification of delivery, 826 of the total 900 mailed items of correspondence that were
being accounted for were delivered to the addressee in due time, meaning that the share of
mailed items delivered in time equalled to 91.8%. 6.5% or 59 items of correspondence were
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delivered to the addressee a day later. 1.1% or 10 items of correspondence reached the
mailboxes of their addressees with a delay of two days or more (see figure 16).
As mentioned, two undertakings were licensed to provide different postal services in the
year 2010 – Eesti Post and Express Post. The activity licence prescribes the minimum
number of access points of the provider of postal services. It means that a provider of postal
services may have more access points, but in order to decrease the minimum supply, it must
submit a respective reasoned application to the Competition Authority. A prerequisite of
satisfying the application is compliance with the requirements of the Postal Act. As of 31
December 2010, the minimum number of access points prescribed by the activity licences
was 3447, of which 347 were postal offices and 3100 mailboxes. Only Eesti Post had
mailboxes. Pursuant to activity licences, postal offices were divided between Eesti Post and
Express Post correspondingly – 344 and 3.
No postal offices were being used jointly by the licensed providers of postal services in the
year 2010. The minimum number of postal offices of the companies as prescribed by activity
licences is shown in table 1.
Tabel 1 Minimum number of postal offices of companies possessing activity licences
Provider of postal services As of 31.12.2009 As of 31.12.2010
Eesti Post 351 344
Express Post 3 3
In the year 2010, proceedings continued regarding applications submitted by Eesti Post on
04.08.2009, whereby Eesti Post wished to establish the minimum number of UPS postal
offices to equal 344. Eesti Post reasoned the proposal with modernisation of the postal
network and added that it would allow Eesti Post to choose more flexible open hours,
contributing thereby to finding franchise partners and decreasing losses.
In its application, Eesti Post mentioned that during the course of preparation for the
decrease in the minimum number of postal offices it had analysed the postal offices’
locations, demand for postal services and service profitability, and as a result of the analysis
the company had prepared a list of possible postal offices where Eesti Post would have to
find alternative means of presence in the future.
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The vision of Eesti Post, the tasks of the stationary postal office will be carried out in the
areas referred to in the application by a franchise partner and the so called motorised
delivery is handled by Eesti Post. In case of motorised delivery, an employee of Eesti Post is
sent to the place of residence or work of the user of postal services, where UPS is provided
to the client.
In the year 2010, the Competition Authority continued proceedings relating to seven postal
offices mentioned in the application of Eesti Post. The proceedings were delayed due to the
failure of the motorised delivery service of Eesti Post to function in low density areas. Eesti
Post failed to comply with the requirements established to the provision of UPS by means of
the motorised delivery service. The motorised delivery service did not allow postal parcels to
be accurately weighed. In the year 2010, the Competition Authority repeatedly audited the
provision of UPS by means of motorised delivery, and it became evident that the quality of
the service has improved considerably. Hence, the Competition Authority satisfied the
application of Eesti Post and the minimum number of UPS postal offices was decreased to
344.
As of 31 December 2010, the Competition Authority lacked information about possible
deterioration or obstruction of UPS as a result of the reorganisation of the postal network by
the provider of UPS.
The number of complaints submitted on postal services increased mostly in relation to
Internet shopping. Various problems were associated with international postal
consignments, returning of postal consignments to the sender due to expiry of storage time,
tracing in foreign countries, improper addressing of consignments, sending of forbidden
items, etc.
The main conclusions drawn from the complaints:
the provider of postal services cannot ex post facto attribute any such flaws to a postal
consignment upon its loss or damage that were not identified upon its receipt;
the provider of postal services cannot be held liable upon the loss or damage of an
ordinary letter. As the path of an ordinary letter is not registered, an ordinary letter
cannot be traced or tracked, and identification of the location where the ordinary letter
might have been lost is impossible;
the Postal Act does not regulate forwarding of unaddressed advertisements.
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