Johan Keetelaar Issue: EMEA 2011
Article no.: 2
Topic: Continuous digitisation results in new insight into the Dutch television market
Author: Johan Keetelaar
Title: Head of Markets & Competition
Organisation: OPTA, Netherlands
PDF size: 264KB

About author

Johan Keetelaar is the Head of Markets and Competition, Netherlands Independent Post and Telecommunications Authority (OPTA).

Before joining OPTA, Mr Keetelaar held various positions at KLM Airlines and at the mobile internet (start-up) company Adobe Mobile. By the end of 2001 Mr Keetelaar continued his career at OPTA, first as a senior adviser and since 2005 in various management positions, including the position of Deputy Director Markets. Currently Mr Keetelaar is director of the Markets department and is also a member of the Board of OPTA.
Johan Keetelaar studied Econometrics at the University of Amsterdam.


Article abstract

The Dutch regulator has decided that there is no need to regulate their television market. This decision was based on a test of three criteria: high entry barriers, ineffective competitive market forces, and inefficiency of normal competition law. These criteria have not been met, due to the faster-than-forecast consumers’ transition to digitisation, the increasing numbers of DSL-based alternatives to cable TV delivery, the increasing penetration of OTT Internet-based TV and the growing range of new Video services.

Full Article

Last June the Dutch telecommunications regulator (OPTA) published its draft assessment of the Dutch television market for the period 2012 to 2014 and presented it to the market for consultation. The most important underlying question was whether remedies should be imposed on the two largest cable providers in the Netherlands, namely UPC and Ziggo, with regard to the reselling of their television packages. Partly due to the accelerated digitisation and the increased competition, OPTA is of the opinion that it is no longer justified to regulate the Dutch television market. Moreover, regulation may have a negative effect on future investments and on market innovation i.e. OTT (Over-The-Top). This article provides an insight into how OPTA reached this conclusion.
European regulations
The television market is not automatically subject to regulation because the television market is not included in the Commission Recommendation on relevant product and service markets within the electronic communications sector. In accordance with Section 6a (1) (2) of the Dutch Telecommunications Act, OPTA may nevertheless regulate this market if it sees cause for this. It follows from the Commission Recommendation that markets which are not included in the Recommendation qualify for regulation only if these markets meet the three criteria:
i) High barriers to entry do exist which are not of a temporary nature;
ii) The market is not governed by effective competition;
iii) Application of general competition law is not sufficient.

OPTA’s research therefore focused on whether the television market meets the three criteria and, if so, whether UPC and Ziggo will have Significant Market Power (SMP) on this market.
Relevant market developments
Accelerated transition from analogue to digital television services
The first development which gave OPTA cause to draw this conclusion is that the importance of analogue transmission of television services has decreased sharply in the Netherlands in recent years and will decrease even further in importance in the coming years. The advantage which UPC and Ziggo have relative to their competitors on the basis of their analogue television offering has decreased as a result.
In mid-2008, 55 per cent of households only purchased an analogue television service and at that time it was expected that this percentage would fall to 39 per cent of households in 2012. It now appears that this happened two years earlier (at the beginning of 2010) and by the end of 2010 it fell further to 33per cent. The process of digitisation has occurred more rapidly than had been expected several years ago.
An increasing number of consumers purchase digital television services for at least one television set in their house. Where 45 per cent of households purchased a digital television service in mid-2008, this percentage had risen to 67 per cent by the end of 2010 and is expected to increase further to between 88 per cent and 96 per cent by the end of 2014. An increasing number of consumers are also purchasing digital television services for a second or third television set. The further growth in the number of HD television channels offered and the further penetration of HD television sets are expected to result in a further growth in digital television services. In addition, an increasing number of television sets with built-in decoders are being marketed.
Competition will increase due to investments in copper and fibre-optic networks

In recent years, UPC and Ziggo have invested in their networks and television platforms which enabled them to expand their product ranges. However the competition is increasing, as evident from the recently announced network investments by the Dutch incumbent telecommunications company (KPN), and the entrant Tele2 (who operates unbundled access to KPN’s network). These investments will enable delivery of diverse and high quality competitive television services over copper line (DSL). An increased capacity of the DSL network will also allow digital television services for more than one television set per household (a.k.a. multi-room). Alternative providers which purchase unbundled access or wholesale television services from KPN (e.g. Tele2) will be able to make similar multi-room offers. In addition, KPN (through the joint venture with the fibre-optics company Reggefiber) is investing in rolling out a fibre-optic network. These investments in the copper and fibre-optic networks will result in a situation where KPN expects to be able to provide 76 per cent of households in the Netherlands with a bandwidth of at least 40 Mbit/s. Such transmission speed is certainly sufficient to provide two simultaneous HD television channels and a fast Internet connection.
Competitors of UPC and Ziggo offer an increasing range of television services
The competitors of UPC and Ziggo, such as KPN, Tele2 and Glashart Media, have improved and expanded their offering of television services in recent years. Alternative providers have been successful in entering into contracts for the provision of the most important television channels. As a result, they are able to offer a standard package which is the equivalent of that offered by UPC and Ziggo. In addition, they are increasingly offering additional television services, such as theme channels and access to missed programmes or video on demand. Finally, competitors have also developed triple-play bundles so that customers can purchase television services as part of a bundle which includes Internet and telephony.
Television via the Internet is a possible future competitor
A further development which has contributed to OPTA’s conclusion is the emergence of television directly via the internet on the television set (OTT). This development may result in a situation in the future where new providers may enter the market and barriers to entry may be lowered. In the United States, the entry of such parties has resulted in consumers cancelling their cable television subscriptions and this development is also expected to occur in the Netherlands.
Market shares trends
The above developments combined have resulted in a reduction in the market shares of UPC and Ziggo. The market share of KPN, the largest competitor, has grown. The market shares of other competitors, such as Tele2 and the providers of television through fibre-optic networks, have also grown in recent years. These trends are expected to continue.
OPTA has tested the market developments against the three criteria which have to be met if a market is to qualify for regulation. In relation to the first criterion, OPTA concludes that high barriers to entry still appear to exist, but at the same time they seem to have been lowered. As a result, it is by no means clear whether these barriers are more than transient. Consequently it is not possible to ascertain whether the first criterion has been met or not.
In OPTA’s opinion, the second criterion has definitely not been met. Competition is developing faster than OPTA assumed in its analysis of 2009. OPTA expects the television market to develop further in the direction of competition without regulation. The most important reasons which contribute to these conclusions are:
i) the strong decrease in analogue television as an advantage to cable companies due to accelerated digitisation;
ii) the presence of five infrastructures, of which three infrastructures for the provision of television services are relatively new and of which two infrastructures are receiving considerable investment;
iii) the expansion of the range of products on offer by competitors;
iv) the potential pressure of competition resulting from the arrival of OTT television.

OPTA therefore concludes that under present circumstances and in the light of the expected market developments, regulation of the television market is not justified.