annual report 2011 - Konkurentsiamet

ANNUAL REPORT
ESTONIAN COMPETITION AUTHORITY
2011

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 – Deputy Director General
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 ................................................................................................................................. 1
ORGANISATION ........................................................................................................................ 3
Structure ........................................................................................................................................................ 3
Personnel and budget ................................................................................................................................. 4
EXTERNAL AND PUBLIC RELATIONS .............................................................................. 5
COMPETITION SUPERVISION IN 2011 ............................................................................. 7
Direction of waste by local governments ............................................................................................... 8
AS Levira earned inequitably large profit .............................................................................................. 9
Fines imposed on AS Eesti Post for abusing its dominant position in the market ................... 12
CONTROL OF CONCENTRATIONS ................................................................................... 15
Prohibition of the concentration of AS Eesti Post and AS Express Post .................................... 16
2011 IN THE AREAS OF ENERGY AND WATER REGULATION ............................. 19
Electricity market ..................................................................................................................................... 19
Competition Authority’s assessment of the condition of the security of electricity supply in
Estonia ...................................................................................................................................................... 22
Developments in the natural gas sector .............................................................................................. 25
Price regulation of heating undertakings ............................................................................................ 27
Heat procurement organisation ............................................................................................................. 28
Complaints of consumers and judicial practice .................................................................................. 29
Public water supply and sewerage system .......................................................................................... 30
Activation of the Agency for the Cooperation of Energy Regulators .......................................... 33
DEVELOPMENTS IN THE ELECTRONIC COMMUNICATIONS MARKET IN
2011 ............................................................................................................................................... 36
Electronic communications sector ........................................................................................................ 36
Market analyses and supervision over the electronic communications sector ........................... 50
RAILWAY SERVICES .............................................................................................................. 52
POSTAL SERVICES .................................................................................................................. 54
Unreasonably encumbering costs ......................................................................................................... 54
Affordable fees ........................................................................................................................................... 55
Verification mailing .................................................................................................................................. 56
Supervision ................................................................................................................................................. 57
Postal network ........................................................................................................................................... 57
0

FOREWORD
Dear reader,
Once again it is a pleasure to present the overview of the activities of the Estonian
Competition Authority in 2011. Highlights from the previous year come to mind when
writing this foreword. The first that is remembered is, of course, adopting the euro – as a
year ago we automatically calculated the prices in Estonian kroons, and now more than a
year later this habit has gradually started to disappear. Surely, the decision made by Estonia
has caused many discussions and raised questions about whether we are in a position to help
those in need that are in fact richer than us. 2011 has been equally important in terms of the
development of the European integration. It has been seriously discussed if in the future the
European Union will be more like the United States of America, and if we are heading
towards deeper integration or not. These are difficult choices and there are no clear answers.
In Europe, we are united by the Christian cultural background, at the same time we are
faced with language barriers. Considering the economic power of the rest of the world and
the English language being the lingua franca more and more nowadays, integration seems to
be more inevitable than ever.
However, without the bad, there would be no good – the global economic crisis is indeed
unpleasant and we all hope it would end sooner; however, such an intensive European
integration would have probably not taken place without it. In addition it has pointed out
the weaknesses in the world economy. Increasingly, it is stated, that economic growth is
ensured by the competitiveness of the country and various restrictive factors of competition
hinder economic development. It is, of course, impossible to achieve the ideal model of
market economy, where the state is collecting taxes, ensuring the security and social
protection of citizens, but the market barriers should be critically analysed. That is the
reason why it is also one of the main aims of the Competition Authority to draw attention to
possible bottlenecks and offer solutions for the promotion of competition. Although Estonia
is an open, liberal economy, there are areas where things could be organized in a better way.
An example of this is the restriction of the establishment of pharmacies. Seemingly it is
nobly aimed at maintaining the pharmacies in the countryside, but there are cases where it
has resulted in the fact that there are no pharmacies existing neither in the countryside nor
in the densely populated areas. An activity licence is not granted to an undertaking that
would be prepared for the free competition and to meet the strict quality requirements, but
to whom that gains the licence in the form of drawing lots.
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The subject, which also ties in with the Authority´s daily work are different subsidies for the
generation of electricity. If in 2007 the subject was of minor importance, then today we are
dealing with a significant part of our electricity bill. It is difficult to find producers who are
not subsidised - starting with the largest power station in Estonia Narva Elektrijaam and
ending with a few hundred kilowatt watermills. I do not dispute that it is the task of the
state administration to guide the production towards environmentally friendly ways, but it
must be conducted by a tax policy, not by wide subsidies. Tax policy gives equal conditions
for everyone and the winners are those who are more effective and use better technology.
The winners through subsidies are the best deal makers. The EU´s system of excise duties
on motor fuels that has driven the producers to more effective models may be brought as an
example here. Twenty years ago no one would have believed that a properly equipped
comfortable passenger car only consumes on average 4 litres of fuel per 100 kilometres, but
today it is reality. It would have hardly been achieved by other means than through the high
fuel price, which has driven the producers towards innovation.
For the first year the Authority approved the prices both to all district heating as well as
water undertakings. It has been widely discussed whether this step was right or not, but it is
clear that in a small country like Estonia it is more effective to have one price regulator
rather than many. It is also positive that prices for all undertakings shall be approved on the
same basis. Now all the heating prices are comparable. It is also good to clear the problems –
with today´s high prices for oil and gas there is no place for a heat supply where nearly half
of the energy does not reach the consumers, but vanishes somewhere halfway. And once
again we end up with competition matters; namely, the local self-governments have the
right to designate district heating network areas, where this type of heating is the only
possibility. Seemingly this is aimed at consumer protection, but regrettably, as a result the
consumer lacks the money as well as the possibility to choose an alternative type of heating.
Fortunately, however the previously mentioned areas are rare examples, where free
competition should be implemented more effectively. As mentioned above, Estonia may
certainly be used as an example of a country where the emphasis is on promoting free and
fair competition. This trend must undoubtedly continue in the future and the Estonian
Competition Authority is responsible for making every effort to contribute to the goal.
With best wishes,
Märt Ots
Director General
2

ORGANISATION
Structure
According to the statutes of the Competition Authority, the Authority includes three field-based
divisions, which are the Competition Division, the Energy and Water Regulatory Division and
the Railway and Communications Regulatory Division. In addition to the divisions, there is the
External and Public Relations Department which is responsible for ensuring effective support
services. 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
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.
3

The main functions of the Energy and Water Regulatory Division are: price regulation;
activity licences; market supervision; security of supply and quality control in the 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 communication 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; ensuring the existence of tools and inventory; organisation of personnel work and
training; organisation of customer service, document management and administration of archives.
Personnel and budget
The Competition Authority employed 62 persons as of the end of 2011, 8 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
Competition Division
Energy and Water Regulatory Division
Railway and Communications Regulatory Division
6 persons
21 persons
20 persons
15 persons
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 those with higher education in other
disciplines, such as radio electronics, telecommunications, thermal energy, public administration
or other.
In 2011 the budget of the Competition Authority was 1,83 million euros.
4

EXTERNAL AND PUBLIC RELATIONS
In 2011 the Estonian Competition Authority hosted the Annual Baltic Electronic
Communications and Postal Services Regulators Meeting in Kuressaare, and in addition
the everyday work in working groups of international organisations continued. Many
officials gave lectures or presentations at various Estonian or international events and
responded to numerous inquiries from undertakings and organisations in Estonia and
other countries.
The Competition Authority participates in the work of competition, energy, communications and
railway related working groups and unions. During 2011 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. For the first time a representative of the Estonian Competition Authority
acted as the rapporteur for the EC Advisory Committee on restrictive practices and dominant
position. 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 - BEREC by taking part
in the working groups of mobile and fixed termination rates, cost accounting, transparency and
the designation of undertaking with significant market power. Furthermore, the Authority has to
also report the developments on the railways market, supervisory activities, and co-operation with
other regulators and organisations at the meetings of regulators working groups. The
Competition Authority is also involved in the work of IRG-Rail (Independent Regulators´ Group
– Rail)
On March 3, 2011 the Agency for the Cooperation of Energy Regulators (ACER) began to
operate. The ACER was established by the regulation (EC) No 713/2009 of the European
Parliament and of the Council because the need was identified for a partner that has the right to
adopt legally binding decisions. One of the objectives of the ACER is to contribute to the
functioning of cross-border energy trade and the removal of obstacles, as well as to contribute to
the national regulatory authorities fulfilling the regulatory tasks at the EU level and, if necessary,
to coordinate the activities of these bodies.
The Annual Baltic Electronic Communications and Postal Services Regulators Meeting was held
in Kuressaare on August 25 th -26 th . The annually organised roundtable provides an opportunity to
introduce the previous years´ developments in the legislation and on the organisational level, and
5

also to discuss the possibilities of implementing single practices. Traditionally the first day is
dedicated to general panel discussions and the second day focuses on the postal services and
electronic communications working groups.
Raising the competition related awareness was also one of the Authority´s priorities in 2011. One
of the most visible events of these activities is the Estonian Competition Day, organised once a
year. The third Competition Day brought together entrepreneurs from different sectors and
competition experts who debated on these subjects and economic sectors that gained the most
attention during the year. The main keywords of the Competition Day 2011 were electronic
communications, banking, health care, food processing, aviation, tourism and water services.
6

COMPETITION SUPERVISION IN 2011
The Supervisory Department of the Competition Authority deals with solving all competition
related matters, which are not covered by other economic sector specific regulatory units of the
Authority. Therefore the field of activity of the Supervisory Department is extremely varied,
ranging from extensive criminal cases to, for example, analyses of legal acts that may affect the
competitive situation. The year 2011 brought along the first procedural act carried out in
cooperation with the European Commission, namely the inspection of AS Eesti Gaas (Estonian
Gas Company).
In 2011 the emphasis of the Supervisory Department was on several substantial and complex
proceedings. Many of the supervisory proceedings were related to different infrastructure
undertakings. For example the pricing of AS Levira was examined and it was found that its
profitability was too high in 2007/2008 – 2009/2010. Such proceedings targeted directly at
controlling the profitability of an undertaking in a dominant position are relatively rare both in
Estonia as well as internationally, because these are fairly complex legal disputes. The
Competition Authority, however, holds the development of competition law´s approach to the
pricing of incumbent undertakings as a matter of priority. Therefore the pricing control of the
Eesti Interneti Sihtasutus (Estonian Internet Foundation) was also started in 2011.
Cases concerning the activities carried out by AS Eesti Post (Estonian Postal Operator) appeared
to be the most considerable of the infringements committed by the undertakings in a dominant
position. Historically AS Eesti Post is the only postal service provider operating the postal
network covering the whole of Estonia and according to the Postal Act as well as to the
Competition Act it has to enable other undertakings to access its postal network on nondiscriminating
conditions. The Competition Authority found on several occasions that AS Eesti
Post had not done so and therefore incurred a fine on several occasions. The misdemeanour
procedure conducted concerning AS Eesti Post also showed more clearly that such type of
procedure is foremost meant rather for the simple and rapid proceeding of violations and is
therefore inappropriate for the proceedings of complex economic violations. Compared to other
countries the fines are very small and limitation periods are too short. The Competition Authority
regards the ineffectiveness of sanctioning the incumbents as one of the biggest shortfalls in the
supervisory activities.
Estonia is one of the few countries in Europe where agreements restricting competition are
investigated as criminal matters. In 2011 the Competition Authority passed the materials of the
criminal case of the competition restricting agreements concluded between AS Pristis and
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Securitas Eesti AS to the Prosecutor’s Office. In April 2012 the parties to the agreement were
found guilty by compromise procedure. The second significant case that was forwarded to the
Prosecutor´s Office was the one that accused AS Tartu Mill and its representatives of having
participated in concluding the anti-competitive agreement. The court has not yet made a
judgment in this criminal case. The decision made by the Supreme Court No. 3-1-1-12-11 of
04.05.2011 where AS KPK Teedeehitus and the member of its Board were acquitted of the
charges in concluding an anti-competitive agreement must be considered as most substantial
from the viewpoint of the interpretation of competition law. Under that decision the Supreme
Court gave an important explanation, in particular, to the provisions of § 6 of the Competition
Act containing the so-called exception to the rule in criminal proceedings.
Direction of waste by local governments
In previous years the Competition Authority has presented views to local governments
condemning discretionary direction of waste to waste management facilities (mostly municipal).
For example, such recommendations have been submitted to Tallinn and Narva City
Governments. In 2011 the discussion concerning the determination of waste management
facilities by the local governments continued. The Competition Authority doubts if local
governments even have the competency to direct waste as the Waste Act does not include
provisions that would clearly regulate this matter.
Of course, the final answer to this question will be given by the court. It is important that the
market would remain open to other eligible undertakings – this means that the waste transport
provider must have a choice of operators meeting the legal criteria. If the waste management
facilities are limited to one, the market will be closed for other alternative, potentially eligible
desired locations. Maintaining free competition is particularly important with respect to
investments made in the waste management that have already created new environmentally
friendly solutions.
In addition, the Competition Authority highlights that giving a competitive advantage to certain
undertakings must always be justified by indicating which public interests or requirements of the
law it serves. Thus, when granting a special or exclusive right the local government has to clearly
indicate the reasons why the free competition would lead to non-desirable consequences and why
the interference to effective competition would lead to a better outcome. The decision taken by
the local government has to be justified particularly in the light of consumer´s interests.
8

In 2011 the Competition Authority was informed that Võru Town Government wants to
conclude an agreement which obliges the waste transporter Ragn-Sells AS to direct all mixed
municipal waste which is collected in the framework of organised waste transport in the town of
Võru to be handled by one undertaking – the waste management facility of MTÜ Võru
Jäätmekeskus in Umbsaare, although Ragn-Sells AS had informed that it would be remunerative
for the consumers if municipal waste will be driven to competing waste management facilities. At
the same time, the new competition for waste shipment was being organised by the Võru Town
Government. In the Competition Authority´s view a remarkable advantage had been given to the
waste management facility in Umbsaare. It remained unclear from the information collected in
the course of the procedure which public interests does the intention of Võru Town
Government to prefer Umbsaare waste management facility serve, if many undertakings wish to
provide a similar service and some of them allegedly at a cheaper price. The environmental
objectives named by the Town Government may also be obtained by other means and are not
actually related to the exclusive right.
The Competition Authority took the view that the activity of the Võru Town Government has
restricted competition, undermining the interests of consumers. On May 31 st the Authority issued
a recommendation to the Võru Town Government not to grant MTÜ Võru Jäätmekeskus waste
management facility located in Umbsaare either directly or through public procurement
conditions an exclusive right or other competitive advantages in the handling of waste collected
through organised municipal waste transport in Võru. Võru Town Government informed the
Authority of complying with the recommendation.
AS Levira earned inequitably large profit
On 16/09/2011, the Competition Authority made a decision according to which AS Levira
(hereinafter Levira) had earned an inequitably large profit in the financial years 2007/2008
through 2009/2010 due to the dominant position in the market. The undertaking’s profitability
decreased back to a reasonable level in the course of the proceedings.
The Competition Authority found that Levira held the dominant position on the television
broadcasting market due to its above-ground broadcasting network, which means that the prices
of its services should have been calculated on a cost basis. The most important factor for the
assessment of Levira’s market power was the fact that the only above-ground broadcasting
network covering the whole of Estonia was at the undertaking’s disposal. The network consists
9

of above-ground masts and transmitters conveying the signals that can be received with a
standard TV antenna.
Although the Technical Surveillance Authority announced Starman to have won the tender for
the issue of three multiplex frequency authorisations organised in January 2011, Starman made an
agreement with Levira about the construction of the networks on the basis of the latter’s masts
after winning the tender. Thus Levira essentially remained the only undertaking in Estonia to
provide above-ground broadcasting services. The fact the Starman did not construct its network
independently of Levira confirms the conclusion that prospective competitors would find that
extremely expensive. The main reason there is no competition for Levira as far as the above
services are concerned lies in the fact that it is the tall masts over a hundred meters high that are
suitable for the above-ground transmission of television programmes, and the majority of these
belong to Levira. In addition, these masts are located to cover the whole territory of Estonia. The
masts belonging to other companies do not cover the whole country.
The Competition Authority regards the construction of a television network covering the whole
territory of Estonia on the basis of low, so-called mobile communication masts and the use of the
same frequency transmitters so financially and technically complicated that it would not exert
much notable competition pressure on Levira. Low masts have been designed and constructed to
provide mobile communication, and the needs of broadcasting have not been taken into
consideration, especially as far as powerful transmitters, including energy supply, the antenna and
the permanent connection, are concerned. In addition, consumers will have to buy
supplementary antennas if such a network is constructed. The existing antennas can be
redirected, but one would not be able receive the signal of the free channels transmitted by Levira
with the same antenna, which would make entering the market with a new network even more
complicated.
Other types of television programme transmission such as cable broadcasting, satellite
broadcasting and broadband networks (IPTV) are not of much competition to Levira’s services
either. The reason for that lies in the limited availability of various technical solutions and
strikingly different price formation. For instance, the fact that cable broadcasting and broadband
networks only allow densely populated areas to be covered with a television signal must be taken
into consideration. In such case television shows and programmes would not find their way to
more sparsely populated places and the expansion of the broadcasting area in the coming years
would be out of the question. In consumers’ opinion, those various technical solutions are not
interchangeable in this particular instance. As opposed to Levira’ above-ground network services,
fees are charged for cable broadcasting and broadband network services, which changes the state
10

of competition drastically. As far as satellite networks are concerned, price formation is similar,
but these can cover the whole territory of Estonia as opposed to cable broadcasting and
broadband networks. It turns out that while the services provided through Levira’s above-ground
network are free of charge for consumers as far as free channels are concerned, a fee is charged
for the services provided through the satellite network, and consumers must buy parabolic
antennas to receive the signal. The free channels include, for example, ETV, ETV2, Kanal3 and
TV3. The Competition Authority finds that the large price difference supports the positioning of
these two services in different goods markets from the consumers’ point of view. Having
switched from the above-ground broadcasting service to the satellite service, consumers do not
replace one type of service with the other, but change their consumption habits by starting to
consume a more expensive and considerably more extensive service.
In the process of the assessment of Levira’s price formation, the Competition Authority
proceeded from the determination of whether the ratio of the profitability and the economic
merit of the service provided by Levira were reasonable. According to section 16 of the
Competition Act, any direct or indirect abuse by an undertaking or several undertakings of the
dominant position in the goods market is prohibited. Clause 1 of section 16 of the same act
forbids an undertaking of the dominant position in the goods market to impose unfair purchase
or selling prices or other unfair trading conditions directly or indirectly.
It was found that Levira had earned profits higher than usual in the financial years 2007/2008
through 2009/2010 as it simultaneously provided both analogue and digital signal broadcasting
services in 2007–2010 and received fees for both services. The situation at the moment was
different from other periods. The Competition Authority believes that a period of three years
should have been sufficient for a market-dominant undertaking to have adjusted its price
formation to the changed circumstances. Prices in a competitive market would certainly have
decreased significantly within that period due to the pressure of competition.
Levira ceased broadcasting the analogue signal on 01/07/2007, which resulted in a decrease in
both sales proceeds and profitability. However, Levira’s expenses did not decrease in the amount
proportional to the decrease in returns after the broadcasting of the analogue signal was ceased.
By the end of the proceedings, the Competition Authority was convinced that the profit earned
by Levira was not unreasonably high any more as the result of the changes introduced by Levira.
As Levira had stopped violating the law, the Competition Authority ended the proceedings
without issuing a precept.
11

Fines imposed on AS Eesti Post for abusing its dominant
position in the market
By the decision dated 16/11/2011, the Competition Authority imposed fines for a total amount
of 36,000 euros on AS Eesti Post (hereinafter Eesti Post) for the infringement of the
Competition Act committed in September 2010. The Competition Authority found that Eesti
Post, holding the dominant position in the market, discriminated against AS Itella Information
(hereinafter Itella) on two separate occasions having offered postal services to the latter under
unfair trading conditions.
AS Eesti Post’s first infringement
In September 2010, the Ministry of Finance conducted simplified public procurement
proceedings for the “Provision of postal services” service to be purchased; the service included
the storage of information materials about the adoption of the euro in Estonia and euro
calculators and assembling them in sets, the production of envelopes, placing the sets in
envelopes and delivering them as unaddressed direct mail (so-called blind mail) to the post boxes
of all private persons. The bidders for this public procurement were Itella and Eesti Post jointly
with its subsidiary undertaking AS Eesti Elektronpost (hereinafter Eesti Elektronpost).
Both Itella and Eesti Elektronpost offer the services of printing materials or letters and placing
them in envelopes as well as personalisation and set-assembling services (so-called preparation
services). None of the above companies deliver mail, and they have to use the services of a postal
operator. Eesti Post is by far the largest postal operator in Estonia and the only holder of the
nation-wide postal network. Eesti Post uses the above postal network for providing a variety of
postal services and other services including the delivery of direct mail (for instance, blind mail
services). Thus Itella must usually use Eesti Post’s services for completing large-scale orders
which imply the delivery of mail in addition to the services provided by Itella itself.
The Competition Authority found that in its joint bid with its subsidiary undertaking Eesti
Elektronpost, Eesti Post had offered the delivery of the materials of the Ministry of Finance at a
significantly lower price than the price Eesti Post had quoted to Itella on the basis of the price
lists of the former for the purpose of Itella taking part in the public procurement announced by
the Ministry of Finance. Considering the fact that Itella and Eesti Elektronpost would have
equally prepared the materials of the Ministry of Finance to be forwarded to Eesti Post for
delivery, the cost of the delivery incurred by Eesti Post could not have varied significantly
12

depending on whether the materials of the Ministry of Finance were prepared by Eesti
Elektronpost or Itella.
According to clause 3 of section 16 of the Competition Act, an undertaking of the dominant
position in the goods market is forbidden to offer or apply dissimilar conditions to equivalent
agreements with other trading parties, thereby placing some of them at a competitive
disadvantage.
The Competition Authority confined the relevant goods market to the provision of blind mail
(unaddressed direct mail) services in the Republic of Estonia and found that Eesti Post held a
dominant position in the above market.
By quoting a significantly lower price for the delivery of the materials of the Ministry of Finance
to be prepared by its subsidiary undertaking Eesti Elektronpost than the price for the delivery of
equally prepared materials quoted by Eesti Post to Itella, Eesti Post placed Itella at a competitive
disadvantage in the process of bidding for the provision of the preparation services. In a situation
where the customer (the Ministry of Finance) wished to purchase a complex service which
included both the preparation services and the delivery service, Eesti Post created an advantage
for its subsidiary undertaking Eesti Elektronpost, thus limiting competition in the bidding for the
provision of the preparation services. The Competition Authority found that the activity of Eesti
Post described above had violated the prohibition for a undertaking of the dominant position in
the goods market established by clause 3 of section 16 of the Competition Act, which qualifies as
the abuse of the dominant position in the market.
According to clause 1 of section 73 5 of the Competition Act, the establishment of unfair trading
conditions, or the limitation of production, services, market, technical development or
investments, or engaging in activities involving abuse of the dominant position in the market
shall be punished by a fine of up to 300 fine units or by detention. The same act, if committed by
a legal person, is punishable by a fine of up to 32,000 euros (clause 2 of section 73 5 of the
Competition Act).
The Competition Authority found that the activity of Eesti Post met the criteria of a violation
described in clause 2 of section 73 5 of the Competition Act and imposed a fine in the amount of
18,000 euro on Eesti Post.
AS Eesti Post’s second infringement
In September 2010, Eesti Energia AS conducted a tender procedure for the printing of letters
about the replacement of the information system and delivering them to the customers of Eesti
13

Energia AS. The bidders for the above public procurement were Itella and Eesti Post jointly with
its subsidiary undertaking Eesti Elektronpost.
The Competition Authority found that in its joint bid with its subsidiary undertaking Eesti
Elektronpost for the purpose of the tender of Eesti Energia AS, Eesti Post had offered the
delivery of the letters of Eesti Energia AS at a significantly lower price than the price Eesti Post
had quoted to Itella on the basis of the price lists of the former. Considering the fact that Itella
and Eesti Elektronpost would have equally prepared the letters to be forwarded to Eesti Post for
delivery, the cost of the delivery of Eesti Energia AS’s letters incurred by Eesti Post could not
have varied significantly depending on whether the letters were prepared by Eesti Elektronpost
or Itella.
The Competition Authority confined the relevant goods market to the provision of direct mail
(i.e. addressed direct mail) services in the Republic of Estonia and found that Eesti Post held a
dominant position on the above market.
The Competition Authority found that by quoting a significantly lower price for the delivery of
the Eesti Energia AS’s letters to be prepared by its subsidiary undertaking Eesti Elektronpost
than the price for the delivery of equally prepared letters quoted by Eesti Post to Itella, Eesti Post
placed Itella at a competitive disadvantage in the process of bidding for the provision of the
preparation services. In a situation where the customer (Eesti Energia AS) wished to purchase a
complex service which included both the preparation services and the delivery service (provided
neither by Eesti Electronpost nor Itella on their own), Eesti Post created an advantage for its
subsidiary undertaking Eesti Elektronpost, thus limiting competition in the bidding for the
provision of the preparation services. The Competition Authority found that the activity of Eesti
Post described above had violated the prohibition for a undertaking of the dominant position in
the goods market established by clause 3 of section 16 of the Competition Act, which qualifies as
the abuse of the dominant position in the market. As the activity of Eesti Post met the criteria of
a violation described in clause 2 of section 73 5 of the Competition Act, the Competition
Authority imposed a fine in the amount of 18,000 euro on Eesti Post.
AS Eesti Post filed a complaint to Harju County Court concerning the Competition Authority’s
decision of 16/11/2011. On 27/04/2012, Harju County Court made a judgement according to
which the Competition Authority’s decision of 16/11/2011 concerning AS Eesti Post having
violated the Competition Act was to remain in force, but the fine imposed on AS Eesti Post on
the basis of clause 2 of section 73 5 of the Competition Act was to be decreased to 18,000 euros.
14

CONTROL OF CONCENTRATIONS
The control of concentration is designed to assess its effects of the competition law and to
prevent the creation or strengthening of a market dominant position which may impede effective
competition in the market.
In 2011, 21 notices of concentration were submitted to the Competition Authority and one case
was brought over from 2010. Thus the Authority proceeded with 22 cases and made 17 decisions
to grant permission to concentration, one decision to prohibit concentration and in one case the
proceeding was ended because the parties to the concentration decided not to concentrate. In
three cases the decision was postponed to 2012. In two cases a decision was made to initiate
supplementary proceedings.
16 out of 17 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. One decision to grant permission
and one decision to prohibit concentration were made in the second phase of the proceedings i.e.
during the five months prescribed by law. Thereby the running of the term was suspended in
four cases in connection with the elimination of deficiencies in the notice. The actual average
length of proceedings of the first phase was 21 days and the length of the supplementary
proceedings was 130 days.
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 16 concentrations (§ 19 (1) p 2);
Undertakings jointly acquired control of the whole or a part of another undertaking in the
case of 5 concentrations (§ 19 (1) p 3);
A natural person already controlling at least one undertaking acquired control of the
whole or a part of another undertaking or parts thereof in 1 case (§ 19 (1) p 4)
Majority of the concentrations (16) took place among Estonian undertakings; in three cases both
of the parties to the concentration were foreign undertakings and also in three cases the parties to
the concentration were both domestic and foreign undertakings.
In conclusion, it may be observed that the intensity of the concentrations between those
Estonian undertakings whose specific impact on Estonian product markets is particularly
important has increased significantly– this accounts for 73% of the total number of notified
concentrations. The proportion of concentration between foreign undertakings has fallen and it
15

now accounts for only 13,5% of the total number of the notified concentrations. Foreign
investors continue to have an interest in the acquisition of Estonian enterprises (incl private
capital funds), because the intensity of such concentrations was 13,5%.
In 2011 concentrations took place in the following goods markets:
Sale and production of heat and energy;
Real estate development and rental;
Sale of developed real estate;
Sale of passenger cars;
Road maintenance;
Security services;
Postal services;
Publishing and sales of newspapers and magazines;
Wholesale and retail trade of LPG;
Raw milk production, storage and sales;
Pharmacy services;
Ferry lines;
Agent activity and railway transportation.
Prohibition of the concentration of AS Eesti Post and AS
Express Post
In September 2011, the Competition Authority forbade the concentration of AS Eesti Post
(hereinafter Eesti Post) and AS Express Post (hereinafter Express Post), which became the
second decision prohibiting concentration in the history of the Competition Authority.
Both parties to the concentration operate in the sphere of postal services. Eesti Post is a
commercial undertaking owned by the state and providing multi-purpose postal services, express
mail delivery service, direct mail delivery service, letter delivery service and other postal services
(incl. home delivery of periodicals). Express Post is jointly controlled by Aktsiaselts Ekspress
Grupp and AS Eesti Meedia and provides the service for the home delivery of periodicals, direct
16

mail service and letter delivery service. Eesti Post wanted to acquire control over Express Post
and if the above concentration had been permitted, there would be only one undertaking in
Estonia to provide postal services (apart from express mail services). The Competition Authority
analysed the competition situation in the sphere of postal services, and the information about the
functioning of competition was also gathered from the customers of the parties to the
concentration. Undertakings expressed the opinion that competition in the above sphere (incl.
the delivery of letters and direct mail) was functioning and customers had a choice. The
competition pressure of Express Post imposed on Eesti Post had been beneficial for the
competition. Customers could choose the best of the two service providers on the basis of
prices, quality and other criteria. Concentration would eliminate Express Post’s competition
pressure on Eesti post.
Customers, including final consumers, benefit from intense competition in the market in the
form of lower prices, higher quality, a wider choice of products and services and innovation.
Under the conditions of competition, undertakings are motivated to develop products, be flexible
and customer-friendly and offer products at lower prices. Control over concentrations will allow
such concentrations that would increase the market power of an undertaking and evidently leave
consumers without the benefits from functioning competition to be prevented.
Express Post has secured a position of a competitor for Eesti Post that is to be reckoned with. If
the only competitor that could impose competition pressure were to be overtaken, Eesti Post,
having secured the position of the sole service provider, would apparently not have to make any
substantial effort for customer satisfaction as customers in need of postal services would have no
alternative to the services of Eesti Post.
The analysis of the competition situation resulted in the Competition Authority forming the
conclusion that the concentration of Eesti Post and Express Post would significantly hinder the
competition in the goods markets of the home delivery of periodicals, direct mail delivery and
letter delivery as Eesti Post would secure the position of the sole service provider, and
competition in the sphere of postal services (apart from express mail services) would disappear.
The Competition Authority presented the relevant assessment to Eesti Post for the undertaking
to present its objections and the suggestion that obligations be assumed. Namely, according to
the provisions of the Competition Act, the Competition Authority can grant permission for
concentration provided that the parties to the concentration fulfil the obligations they assume to
prevent damage to competition. In certain cases concentration can also be permitted if it is
accompanied by a significant increase in efficiency. This is usually the case when evidential
material proves that the increase in efficiency will apparently broaden the undertaking’s
17

opportunities and motivation to act in the interest of consumers and to promote competition
thus providing leverage for the negative effects that the concentration would otherwise cause.
The Competition Authority found that the obligations Eesti Post offered to assume did not
clarify how the damage to competition as the result of the concentration would be repaired. The
cost saving claimed by Eesti Post would not compensate for the loss of competition resulting
from the concentration or outbalance it.
According to clause 1 of section 22 of the Competition Act, the Competition Authority’s
appraisal of a concentration shall be based on the need to maintain and develop competition.
Thus a concentration that would entirely eliminate competition in the sphere of postal services
(apart from express mail services) could not be allowed due to the following reasons:
1. As the result of the concentration, Eesti Post would remain the sole provider of postal
services (apart from express mail delivery services), which means that customers would
have no choice whatsoever.
2. The undertaking in the dominant position (in this case, the sole provider) in the market
would have an opportunity to increase the prices of services and decrease flexibility and
innovation as competition pressure would be non-existent.
3. Postal services (incl. letter delivery and direct mail delivery) are still extremely important
and necessary for customers and cannot be avoided. As a result of the concentration, this
would allow Eesti Post to choose its course of action regardless of customers’ interests.
18

2011 IN THE AREAS OF ENERGY AND WATER
REGULATION
In 2011, there were around 340 undertakings or network areas that were under regulation of the
Energy and Water Regulatory division of the Competition Authority. The amounts of the
generation and export of electricity showed an increase in volumes as a result of the actual
opening of the electricity market in 2010. The most significant proceedings of the year
concerning the pricing of network charges were related to the applications of AS Elering and
Eesti Energia Jaotusvõrk OÜ concerning network charges.
The Competition Authority exercised supervision over the facilities of AS Narva Elektrijaamad,
which showed that Estonia would be able to cover the forecast capacity until the year 2020,
taking into consideration the existing facilities and those that were being constructed. Compared
to the previous year, the consumption of natural gas decreased by 9.7% in 2011. The reason for
such a significant decrease in consumption lies in the increase of natural gas prices in recent
years. Small-scale heating undertakings, with fuel costs amounting to 70% or more in the
structure of their expenses, which had been under the regulation of local governments so far,
became particularly active in applying for the approval of heating limit prices due to the
significant increase in fuel prices, especially the changes in the prices of natural gas and shale oil.
Electricity market
The amounts of the generation and export of electricity in 2011 showed that the trends resulting
from the actual opening of the electricity market in 2010 continued, which is demonstrated by
Figure 2 (source: Statistics Estonia).
19

FIGURE 2. Electricity generation, import and export
The figure shows that the amount of generated electricity increased by 0.8% in 2011 in
comparison with 2010, and the export of electricity increased by 53.8%. The significant growth
of electricity export shows the increase of the demand for electricity in the markets of
neighbouring countries. According to forecasts, the amount of generated electricity will decrease
by 13% as the emission standard for the generation of electricity from oil shale will become
stricter, and Eesti Energia Narva Elektrijaamad AS will have to decrease production.
Figure 3 shows the indicators of electricity consumption broken down by years (source: Statistics
Estonia).
20

FIGURE 3. Electricity consumption in Estonia
In 2011, the total electricity consumption in Estonia decreased by 2.1% mainly due to the
decrease in the electricity consumption of undertakings by 3.7%, while residential electricity
consumption increased by 2.9%.
The forecast for 2012 shows no significant changes as far as electricity consumption trends are
concerned. More dramatic changes are to be expected in 2013, when the whole electricity market
of Estonia will open, and forecasts expect the price of electricity to increase considerably.
Pursuant to subsection 3 of section 73 of the Electricity Market Act, a network operator has the
right to submit requests to the Competition Authority for approval of different network charges
both collectively and separately. Pursuant to clause 8 of section 94 subsection 1 of the Electricity
Market Act, the Competition Authority shall approve the network charges of a network operator
except for transmission charges for the transit of electricity. The criteria taken by a network
operator as the basis for establishing network charges must be transparent and in compliance
with the principle of equal treatment and the necessity of ensuring security of supply and
efficiency must be taken into account upon setting network charges. Pursuant to subsection 4 of
section 72 of the Electricity Market Act, the Competition Authority has prepared and published
the “Uniform methodology for the calculation of electricity network charges” (hereinafter the
21

Methodology) to become the basis for the approval of electricity network charges. Pursuant to
subsection 5 of section 71 of the Electricity Market Act, and the Methodology prepared by the
Competition Authority, network charges are to be calculated on a cost basis.
For AS Elering, the second period of the three-year regulation period was approved, starting
from 01/01/2012 and ending on 31/12/2012. Changes in network charges were mainly caused
by price components related to investments. The major investments include the construction of
the second high voltage direct current connection Estlink2 between Estonia and Finland and two
quick-starting emergency reserve power plants with power output capacity of 100 MW and 150
MW. In addition, AS Elering is to build numerous new connections and distribution boards to
increase the transmission capacity of electricity networks and decrease network losses.
For Eesti Energia Jaotusvõrk OÜ, a new three-year regulation period was established, starting on
01/08/2011 and ending on 31/07/2014. Changes in network charges were mainly caused by
price components related to maintenance and repairs as well as investments. The total volume of
investments and maintenance and repairs in the following three years amounts to around 310
million euros. Eesti Energia Jaotusvõrk OÜ will use this amount to repair the existing
connections and distribution boards and build numerous new ones in order to increase the
reliability of the supply of electricity networks and decrease network losses.
In addition, the Competition Authority processed the application of Eesti Energia Kaevandused
AS for the approval of the oil shale limit price and the application of Eesti Energia Narva
Elektrijaamad AS and Eesti Energia AS for the approval of the weighted average limit price of
electricity, which culminated in the above undertakings withdrawing their applications.
Competition Authority’s assessment of the condition of the
security of electricity supply in Estonia
The Competition Authority analysed the condition of the security of electricity supply in Estonia
from a 2016 and 2020 perspective, taking into consideration the production facilities in operation
at the moment or under construction and the apparent decrease in the volume of production
facilities by 2020.
As of 2011, the Eesti power plant (hereinafter Eesti PP) and the Balti power plant (hereinafter
Balti PP) of AS Narva Elektrijaamad had a total of twelve electricity generating units with the
total installed output capacity reaching 2013 MW. Units no. 8 and no. 11 have been upgraded to
fully comply with environmental requirements and now use the fluidized bed technology, their
22

output capacities reaching 194 MW and 192 (170) 1 MW respectively. However, numerous
environmental requirements are to come into force, which will restrict the opportunity of using
the existing units of AS Narva Elektrijaamad to generate electricity to the fullest extent.
After 01/01/2012 the total maximum allowable amount of emissions of sulphur dioxide
(SO 2 ) into the air by major combustion plants fuelled by oil shale may not exceed 25,000
tonnes per calendar year.
After 01/01/2016, the NO x content of flue gases emitted into the air by major combustion
plants may not exceed 200 mg/nm 3 .
After 01/01/2016, the 95% level of sulphur capture on all the major combustion plants
fuelled by oil shale must be ensured instead of the 65–70% level required before that date.
This is a mitigation of the requirements of the Industrial Emissions Directive (IED) for the
existing combustion plants using local high-sulphur solid fuels, which also applies to oil
shale and its use on the Balti and Eesti power plants.
After 01/01/2016, the particulate load i.e. the fly ash content of flue gases emitted into the
air by major combustion plants may not exceed 30 mg/nm 3 .
To upgrade the units necessary for electricity generation to a sufficient extent for generating
electricity in compliance with the environmental requirements, AS Narva Elektrijaamad has made
/ is making the relevant investments.
Desulphurization (DeSO x ) equipment to considerably decrease the level of SO 2 emissions
will be installed on generating units 3, 4, 5 and 6 of the Eesti PP. Investments in the
upgrading of these units will also be made in 2012–2015 to ensure that the NO x content of
flue gases emitted into the air by these units does not exceed 200 mg/nm 3 after 1 January,
2016.
No investments will be made in the upgrading of generating units 1, 2 and 7 of the Eesti
PP, and their use for the generation of electricity will not be allowed since the beginning of
2016 due to their non-compliance with environmental requirements. The mitigation
measures established in the new IED effective as of January 2011 allow AS Narva
Elektrijaamad to use the production facilities for a limited number of hours in addition to
the production facilities in permanent use. Pursuant to the IED, generating units 1, 2 and 7,
1 170 The 170 MW output capacity refers to situations where the plant is functioning in the maximum
combined heat and power generation mode to cater for the heating needs of Narva City.
23

which do not comply with the requirements for major combustion plants, may be used for
a maximum of 17,500 hours in the period between 01/01/2016 and 01/01/2023. Their
output capacity in the 7 years will reach around 400 GWh per generating unit.
No investments in the upgrading of generating units 9, 10 and 12 of the Balti PP have been
planned, so the above units will be suspended for the period between 1 January, 2012, and
31 December, 2015, and decommissioned completely in 2016, so the above units will not
be recorded in the output capacity report (-462 MW).
The decision on investing in at least one new generation unit with the net output capacity
of 270 MW was made in June 2011, and the unit is to be completed in 2015. The decision
on whether the second new generating unit will be built will be taken in 2012.
As can be seen from the above, the information available to the Competition Authority implies
that the following facilities can be used in Narva after the beginning of 2016:
the generating units (no. 3, 4, 5, and 6) that are to be upgraded and fitted with
DeSOx/DeNOx filters by 2015: net output capacity of 666 MW;
the existing upgraded fluidized bed units (no. 8 and 11): net output capacity of 364 MW;
the generating units with a restriction on the number of hours of use (no. 1, 2, and 7)
pursuant to the IED: net output capacity of 501 MW;
the new generating unit under construction in accordance with the taken decision: net
output capacity of 270 MW.
According to the system administrator’s forecast, the peak demand for electricity will reach 1,501
MW in 2011 and 1,767 in 2020, so there is no lack of production facilities in Estonia at the
moment. The available data does not imply a lack of production facilities in 2020 either. If the
production facilities are combined with the capacity provided by the connections with Finland
and Russia in the amount of 750 MW (taking into consideration the likeliness of a decrease in
capacity depending on the situation), the capacity of the facilities used in Estonia can be increased
to a total of 2,897 MW (2,147 MW + 750 MW = 2,897 MW).
24

Developments in the natural gas sector
The changes in natural gas consumption in recent years are shown in Figure 4 (source: Statistics
Estonia and Eesti Gaas AS).
FIGURE 4. Natural gas consumption broken down by years.
Compared to the previous year, the consumption of natural gas in Estonia decreased by 9,7% in
2011. Such a significant decrease in consumption resulted from the increase of prices. The high
price of natural gas was also one of the reasons that fuel-free heat (heat pumps) and heat
produced from renewable sources (wood chips, peat) started replacing natural gas in local and
district heating systems. The share of natural gas in the energy balance of Estonia has not
changed significantly in recent years and still accounts for 10.1% of the primary energy supply
(see Figure 5).
25

FIGURE 5. Primary energy balance of Estonia.
Compared to the nearest neighbours, one distinctive characteristic of the use of natural gas in
Estonia is that a mere 4% of it is used to generate electricity. The main sphere of application of
natural gas is heat production (district heating (48%) + local heating (25%) = 73%). The trend
towards a decrease in heat consumption results from the implementation of the energy
conservation programme of the European Union and the Government of the Republic of
Estonia.
Security of supply of natural gas. In 2008, the European Council and the European
Commission initiated the Baltic Energy Market Interconnection Plan (BEMIP). The BEMIP
covers the electricity market as well as the natural gas market. The part of the BEMIP concerning
the natural gas market implies connecting the Baltic States and Finland to the European Union’s
natural gas market and the construction of the regional liquefied petroleum gas terminal (LPG
terminal) in Finland or one of the Baltic States as well as the connection of the Estonian gas grid
and Finnish gas grid with a subsea pipeline at the seabed of the Gulf of Finland
(Balticconnector). The Balticconnector project is spearheaded by the Finnish natural gas
undertaking Gasum OY. In 2011, the final report of the Balticconnector research project ordered
by Gasum OY was completed. As the economic feasibility of the Balticconnector construction is
connected to the appearance of new gas suppliers in the region [the LNG terminal(s) in the first
place], the making of the decision as to the implementation of the project has been postponed.
26

According to Regulation 944/2010 of the European Parliament and European Council, the
member states are obliged to prepare risk analyses concerning the natural gas supply. As the gas
grids of the Baltic States are closely linked, Estonia, Latvia and Lithuania prepared a joint risk
analysis. According to Regulation 944/2010, a preventive measure plan must be prepared on the
basis of the risk analysis in 2012, and an emergency situations plan in 2013.
Price regulation of heating undertakings
Pursuant to the District Heating Act, a local government is entitled to establish district heating
regions within the boundaries of its administrative territory. The only permitted heating option to
be used in district heating regions is district heating (except for persons who did not use district
heating at the time district heating regions were established), so consumers cannot choose
alternative heating methods and the heating undertaking obtains a monopoly status. Pursuant to
the Establishment of Price Limitations to Monopolies Act, only the Competition Authority has
the rights and obligations to carry out supervision of the District Heating Act and approve the
maximum prices of heat sold by heating undertakings. The main objective of the amendments to
the District Heating Act was to ensure more comprehensive and intensive supervision of the
district heating sector in order to contribute to a more uniform regulation and equal treatment of
undertakings in the entire sector.
The maximum prices of sold heat are approved for district heating regions, the number of which
in Estonia is around 200. The economic prosperity and efficiency of undertakings depend, above
all, on the volume of sales in these regions, the fuel used, technical efficiency (the efficiency
coefficient of heat production and heating pipeline losses) and the undertaking’s ability to make
investments to ensure the higher efficiency and sustainability of district heating. As the prices of
fuel, especially natural gas and oil shale have increased considerably, small-scale heating
undertakings, with fuel costs amounting to 70% or more in the structure of their expenses, which
had been under the regulation of local governments so far, became especially active in applying
for the approval of heating limit prices.
Small district heating regions with the volume of sales below 3,000 MWh, where district heating
sustainability in the future cannot be ensured even if reasonable investments are made, have
become clearly distinguishable, and it would be more feasible to stop price regulation in such
regions and provide consumers with an opportunity to choose from cheaper alternative heating
options.
27

Heat procurement organisation
Section 141 of the District Heating Act allows heat producers and network operators to conclude
contracts with the duration of up to 12 years from the beginning of production with certain
production equipment to ensure investment security. For the conclusion of such contracts,
network operators must first organise procurement tenders in case there is a need for new
production facilities and/or several heat producers have provided the network operator with a
written declaration of their interest in concluding a contract. The Minister of Economic Affairs
and Communications has prepared a procedure for the organisation of a procurement tender and
the assessment of the bids submitted in course of the tender, which network operators must
comply with in the process of organising heat procurement and tenders. The following can be
highlighted as the basic procurement tender principles:
1. a network operator shall inform the Competition Authority of the former’s intention to
conclude a contract for the purchase of heat in writing and publish a notice containing the
relevant conditions of the contract the network operator is aware of at the moment of
publication on its web page and in at least one national daily newspaper print edition;
2. if several heat producers have provided the network operator with a written declaration of
their interest in concluding the contract, the network operator shall inform them in writing
about the preparations for a procurement tender;
3. in case there is a need for a procurement tender, the network operator shall prepare a
tender notice and a call for tenders and submit these to the Competition Authority for
approval within 60 days from the date of the publication of the relevant notice in a national
daily newspaper pursuant to subsection 1 of section 2 of the relevant regulation;
4. the Competition Authority shall make a decision concerning the approval of the tender
conditions submitted by the network operator pursuant to the procedure stated in
subsection 5 of section 9 of the District Heating Act, i.e. normally within 30 days (the
Competition Authority is entitled to extend the above period to 90 days);
5. the network operator shall call for the tender and publish the call for tenders on its web
page and in at least one daily newspaper print edition within 30 days after the approval of
the tender conditions by the Competition Authority;
6. all heat producers can submit a bid for the tender regardless of whether they have provided
the network operator with a written declaration of their interest in concluding the contract
pursuant to the provisions of subsection 2 of section 2 of the relevant regulation.
28

In 2011, network operators such as OÜ Pogi (Paide City district heating region), AS Tallinna
Küte (Tallinn City district heating region) and AS Rakvere Soojus (Rakvere City district heating
region) declared their interest in purchasing heat. No other heat producers declared an interest in
heat production/sales in case of OÜ Pogi, so the undertaking did not actually have to organise a
tender. Four different heat producers declared their interest in selling heat to AS Tallinna Küte
after the preliminary notice was published, so AS Tallinna Küte organised the required tender,
having submitted the tender conditions to the Competition Authority before publishing the call
for tenders. AS Tallinna Küte and the Competition Authority held repeated meetings in the
course of approval proceedings, in addition, the exchange of relevant opinions of the parties took
place in writing. As a result, the Competition Authority granted a complete approval of AS
Tallinna Küte’s tender conditions, and the undertaking called for the relevant tender. AS Rakvere
Soojus has by now notified the Competition Authority and published the relevant notifications
on its web page and in a national daily newspaper.
To sum up, it may be said that the regulation is functioning and network operators have become
more active in using the above opportunities. The Competition Authority has by now supervised
one tender of major importance (the AS Tallinna Küte tender) from its very beginning, which
provided the Competition Authority with valuable experience and applicable knowledge about
the nuances that must receive special attention in the process of organising and conducting a
tender.
Complaints of consumers and judicial practice
While there had been changes in the regulation of the energy sector that had contributed to some
ambiguity and arguable issues in legislation in the previous years (for instance, the partial opening
of the electricity market on 01/04/2010), there were no changes in regulation in 2011, so there
were somewhat fewer complaints and disputes. The disputes in the energy sector mainly
concerned the following issues: the interruption of a network connection by the network
operator, the identification of the illegal use of electricity and network services (and the checking
of the bills issued to customers as a result), the implementation of standard terms and conditions
and the checking of connection charges. To summarise, it may be noted that none of the
complaints processed by the Competition Authority became a so-called precedent case where the
matter or the nature of the dispute would significantly contribute to a more literal interpretation
of legal acts in the energy sector (incl. the interpretation in the course of legal proceedings).
However, some cases indicated the imperfection of certain legal acts of the energy sector. For
29

instance, there was a case where a tenant, having been granted the apartment owner’s permission
and authorisation, had concluded a sale of electricity and network services contract with a
network operator and an electricity seller. Although the residential lease relation was terminated,
the former tenant refused to terminate the sale of electricity and network services contract. The
owner of the apartment filed a complaint to the Competition Authority for the latter to compel
the network operator and the electricity seller to terminate the contract concluded with the tenant
as the tenant had no legal basis for the further use of the apartment, so it was essentially
impossible for the tenant to use electricity and the network service. In the dispute, the
Competition Authority formed the opinion that the Electricity Market Act did not provide a legal
basis for the network operator and the electricity seller to unilaterally terminate the power and
network services contract in such a case. However, the Competition Authority stated that the
above was a major drawback of the regulation, so the Competition Authority cooperated with
network operators and electricity sellers to suggest that the Ministry of Economic Affairs and
Communication initiate a relevant amendment to the Electricity Market Act. By now the relevant
amendment has been included in the package of amendments to the Electricity Market Act and
hopefully the above problem will be solved.
In 2011 the lawsuits to resolve consumers’ complaints were settled in favour of the Competition
Authority (there were 7 lawsuits concerning customers’ complaints). In all cases the court agreed
with the opinion of the Competition Authority. It is essential to note that the Competition
Authority’s opinion that although apartment owners’ associations or the persons providing
administrative services to apartment buildings do not generally regard themselves as network
operators in the context of the Electricity Market Act, the Competition Authority and the court
are clearly convinced that the above persons still must literally and uniformly comply with the
regulation provided by section 90 of the Electricity Market Act in case they wish to interrupt the
network connection of an apartment (for being in arrears on bills) despite the fact they do not
hold a network operator’s license in the context of the Electricity Market Act.
Public water supply and sewerage system
Since the beginning of November 2010, the Competition Authority has been the regulator of
prices in the sector of public water supply and sewerage (hereinafter PWSS) services pursuant to
the Public Water Supply and Sewerage Act (hereinafter PWSSA). The responsibilities of the
Competition Authority include approving the price of the service i.e. the price of water supply
30

services, the coordination of the calculation methods of the accession fee and the supervision of
the prices of water supply services and the amounts of accession fees.
In 2011, the Competition Authority approved the prices of water supply services of nine water
supply undertakings, AS Tartu Veevärk and AS Haapsalu Veevärk being the largest. The main
reason for the prices of water supply services having changed were the extensive investments in
the provision of PWSSS in connection with the allocation of the Cohesion Fund support by the
Environmental Investment Centre (hereinafter the EIC). Numerous undertakings lacked an
efficient water and/or wastewater treatment system. The support of the Cohesion Fund allocated
by the EIC allows adequately treated water to be consumed and the wastewater exported into the
environment to be purified to ensure a better and cleaner environment while the renovation of
pipelines allows water resources to be used sparingly. Regardless of the support allocated by the
EIC, the investments made in water resources management are still one of the major reasons of
the increase in water supply service prices. Namely, investments made in water resources
management require cost-sharing from the undertaking. Even if the cost-sharing amounts to
30%, it results in a remarkable increase in the price of the water supply service. Taking into use
water/wastewater treatment plants implies an increase in electricity consumption and chemical
agents’ consumption. In case the undertaking has not exactly taken water and wastewater
treatment seriously in the previous periods and investments in pipelines were non-existent, the
consumer price may increase significantly. Water supply undertakings can make the increase in
prices smoother for consumers by not applying for the approval of the whole reasonable cost
benefit. The Competition Authority can also regard the smaller than allowed cost benefit in the
price of water supply services as feasible in case the financial obligations and costs of the water
supply undertaking are covered.
The PWSS development plan is to be approved by the local government council. In the process
of the preparation of the plans, it is essential to thoroughly consider whether offering PWSS
services to all potential customers in any situation is reasonable. The provision of leak-tight
collecting tanks or biological wastewater treatment plants, i.e. local solutions, should be
considered for wastewater collection areas, where the construction of the PWSS system will result
in unreasonably large costs. It is often the unconsidered development of PWSS (especially in
areas located in wastewater collection areas with population equivalent below 2,000) that is one
of the reasons of a considerable increase in the price of water supply services, and 100% of the
infrastructure created with the support of the Cohesion Fund will have to be replaced by using
the finances obtained from the price of water supply services. This means that the price of water
31

supply services will increase several times in areas where PWSS has been constructed on a basis
that is unreasonable.
In 2011, the Competition Authority did not approve AS Tallinna Vesi’s (hereinafter Tallinna
Vesi) application for the price of water supply services. The main reason for not granting
approval to the price was the reasonable cost benefit that did not comply with the law. Pursuant
to the PWSSA, the price of the water supply service must allow the water supply operator to earn
income from the invested capital, i.e. the investments in the maintenance and development of the
public water supply and sewerage services actually made by Tallinna Vesi. The amount of the
investments in PWSS actually made by Tallinna Vesi i.e. the value of the fixed assets reported in
the accounting was around 2.6 times smaller than the amount the undertaking used for the cost
benefit application, so the Competition Authority could not approve the price applied for.
In cooperation with the Estonian Water Works Association, the Competition Authority
developed the advisory calculation methodology of connection charges that water supply
operators can use as a basis for the development of their own calculation methodology of
connection charges.
The Competition Authority performed the supervision procedure concerning three undertakings,
Tallinna Vesi, AS Elveso and AS Viimsi Vesi, to assess the compliance of the price of water
supply services to the law. The Competition Authority found that the above water supply
operators should submit a new application for the approval of prices. AS Elveso and AS Viimsi
Vesi did submit their new applications. The Competition Authority approved the new price of
the service of AS Viimsi Vesi, which did not contain the basic fee and the weighted average price
of the water supply service decreased by approximately 9%.
The Competition Authority did not grant approval for the water supply service price applied for
by AS Elveso as it contained the investments in the fixed assets purchased with the financing
allocated by the EIC. The Competition Authority holds the opinion that consumers are not to
pay for investments in fixed assets purchased by the water supply operator without using its own
funds by means of the price of water supply services, so the Competition Authority did not
approve the price of water supply services applied for by AS Elveso.
The price of water supply services is not to incorporate the investments in fixed assets made with
the financial support obtained from the Cohesion Fund, which is why water supply operators
believe they have been deprived of an opportunity to accumulate assets for the investments to be
made in the future. The Competition Authority holds the opinion that the price of water supply
services is only to incorporate the investments made with the water supply operator’s own funds
32

and obligations. The money allegedly collected from consumers for the purpose of future
investments does not give any guarantees to the consumer that it will not be divested as sweat
equity, invested carelessly or used to pay off other costs, claims or encumbrances. As there is no
legislative regulation for the state to bind water supply operators to store the money for the
purpose of the investments to be made in the future, consumers must not make obligatory noninterest-bearing
investments in a water supply operator’s undertaking. When there is a need for
investments, a water supply operator can apply to the Competition Authority for the approval of
the price incorporating the necessary investments. In the course of processing the application for
the price approval, the Competition Authority will thoroughly assess the undertaking’s
sustainability and investment ability as well as its ability to pay back its loans.
Water supply operators must also take into consideration the efficiency of the investments they
make. Experience has demonstrated that water supply operators tend to forecast a significant
degradation of the performance of a water treatment plant after the extensive investment of the
Cohesion Fund support in a water treatment plant and in the extensive chemical agents
consumption it implies, which increases the pollution amounts and, consequently, the amount of
environmental charges.
Activation of the Agency for the Cooperation of Energy
Regulators
The Agency for the Cooperation of Energy Regulators (ACER), with its headquarters
located in Ljubljana, became operational on 3 March, 2011. The ACER cooperates with national
regulatory authorities, European Union (EU) institutions, and market participants, especially the
ENTSO-E and ENTSO-G, the associations of European network of transmission system
operators. One of ACER’s objectives lies in making a contribution to the functioning of crossborder
energy trading and to eliminating the obstacles that might emerge in the process as well as
in helping national regulatory authorities fulfil their regulation tasks on the EU level and
coordinate the activities of such authorities if necessary. To fulfil the above objectives, the ACER
provides opinions and recommendations to the network of transmission system operators,
national regulatory authorities and EU institutions, and makes particular decisions and prepares
framework guidelines.
33

The following tasks performed by the ACER are related to the ENTSOs:
participation in the development of network rules;
forming opinions about network regulations, work programmes, and EU network
development plan drafts;
monitoring that the ENTSOs fulfil their tasks and network regulations;
monitoring that the EU network development plan is implemented and providing
recommendations to the network of transmission system operators and national regulatory
authorities if necessary;
monitoring the regional cooperation of the network of transmission system operators.
The following tasks performed by the ACER are related to national regulatory authorities:
development of the framework for the cooperation of regulatory authorities;
providing regulatory authorities with opinions about fulfilling the guidelines of the 3rd
Energy Package directive or regulation;
upon the request of regulatory authorities or the European Commission, providing its
opinion about the compliance of the decisions made by national regulatory authorities with
the directive or regulation or other relevant provisions;
certification of the network of transmission system operators.
The following tasks performed by the ACER are related to the cross-border infrastructure:
making decisions concerning the issues of the regulation of the cross-border infrastructure
that are otherwise in the sphere of national regulatory authorities’ competence and can
concern the conditions of access and security of activities (procedures for the capacity
allocation, allocation schedule, the distribution of profits obtained from congestion
management, etc.);
making decisions as far as relieving a cross-border infrastructure from the obligation to
fulfil the requirements of the 3 rd Energy Package directive and regulation is concerned.
The ACER’s tasks also include the monitoring of the functioning of internal electricity and gas
markets (retail prices, network access, and provision of the consumer rights pursuant to
directives) and the preparation of annual reports concerning the above.
On 28/12/2011 Regulation No 1227/2011 of the European Parliament and of the Council
on wholesale energy market integrity and transparency (REMIT) entered into force.
The regulation aims to prevent market abuse in wholesale energy markets and thus protect final
consumers. The regulation establishes the rules to prohibit market manipulating abuse, insider
34

trading and market manipulation in wholesale energy markets. The supervision over the
compliance with the regulation requirements will be executed by the ACER in cooperation with
national regulatory authorities.
Some of the requirements included in the regulation will become effective immediately, and
others will enter into force in the future. As the regulation entered into force, the following took
immediate effect:
the prohibition of insider trading (Article 3);
the obligation to publish inside information (Article 4);
the prohibition of market manipulation (Article 5);
the obligation of certain persons to notify the national regulatory authority in case of
suspicion that a transaction may breach the provisions of Article 3 or Article 5 of the
regulation and establish effective arrangements and procedures to identify such breaches
(Article 15).
The timing of the entry into force of the remaining provisions depends on the timing of the
adoption of the Implementing Acts by the European Commission. By June 2013 at the latest,
member states must ensure that national regulatory authorities have been assigned the
investigatory and sanctioning powers to fulfil the tasks pursuant to the regulation. Inter alia,
member states must establish the rules concerning the punishments for breaches of the
regulation by the said time.
35

DEVELOPMENTS IN THE ELECTRONIC
COMMUNICATIONS MARKET IN 2011
Electronic communications sector
In 2011, turnover of the electronic communications sector increased for the first time in
four years and was only 0.3% lower compared to the record-breaking year of 2007. At the
same time, the turnover in the sphere of major communication services (voice services)
kept decreasing due to the increasing intensity of competition (as prices of
communication services decrease, so does the turnover). The turnover in the sector
mainly increased due to the increase in the income earned by communication
undertakings from providing other services.
It is important to support the sustainability and development potential of the electronic
communications sector in a complicated economic situation by ensuring efficient competition.
The regulatory intervention of the Competition Authority must be well reasoned and motivated,
as excessive measures may have a negative effect on the development of the sector.
However, the data of the year 2011 indicates that regulatory intervention is still necessary in
several electronic communications markets, and the sector-specific measures applied to
communication undertakings have contributed to the improvement of the competitive situation
and supported the price stability of communication services in the retail market.
36

FIGURE 6. Changes in price indices.
The electronic communications market of the year 2011 was predominantly characterised by:
turnover decrease of the interconnection, telephone and mobile telephone voice service;
growth of income of the mobile data communication service and other incomes;
stabilisation of cable television and data communication service incomes.
At the same time, as far as the above turnovers are concerned, it must be noted that the
distribution of the turnovers broken down by particular services provided within a bundled
services could have been estimated as end-users consume bundled services (70–80%, depending
on the service).
The estimated turnover of the provision of communication services by the undertakings
operating in the electronic communications market amounted to 740 million euros, which
corresponds to a 6% increase compared to the year 2010. The turnover was influenced by a
decrease in the turnover of the interconnection service as well as the telephone and mobile
telephone voice service. At the same time, the growth in the volumes of the cable television and
additional electronic communications service had a positive effect on the turnover of the whole
sector.
Conditionally, the electronic communications market can be divided into eight market segments:
telephone, mobile telephone, data communication, leased line, interconnection, access, cable
television and other services (incl. broadcasting and radio communications).
37

00%
02%
03%
28% Mobile telephone
33%
13%
10%
11%
Telephone
Interconnection
Data communication
Cable television
Leased line
Access
Other services
FIGURE 7. Distribution of the total turnover of the electronic communications sector in 2011
broken down by services.
40%
35%
30%
25%
20%
15%
10%
5%
0%
2010
2011
FIGURE 8. Distribution of the total turnover of the electronic communications sector in 2010 and
2011 broken down by services.
In 2011, the share of the total turnover of the telephone service in the electronic communications
market decreased by 4.2% compared to 2010. The largest service providers in the market of
telephone services were Elion Ettevõtted AS (hereinafter Elion), Telefant AS (hereinafter
Telefant), STV AS (hereinafter STV) and AS Starman (hereinafter Starman). The number of end
users of the telephone service decreased by approximately 27 thousand consumers.
38

The retail market of the mobile telephone service was characterised by a decrease in turnover in
2011. However, the number of end-users (regarded as active according to the use of SIM cards)
increased by approximately 13.1%.
The mobile telephone service market has reached the matured market stage where the existing
customer base is being redistributed among service providers. The share of the mobile telephone
service within the total turnover of the electronic communications market decreased by 2%
compared to 2010. The growth of the number of customers using the fast mobile broadband
connection service and of the volumes of data communication used by customers had a positive
effect on the turnover.
The market of the interconnection service incorporates the interconnection service on the basis
of fixed telephone networks as well as mobile telephone networks. The share of the
interconnection service within the total turnover of the electronic communications market
decreased by 1.4% whereas the turnover of the interconnection service decreased by 7%. The
decrease of the turnover of the interconnection service in 2011 was influenced by the decrease in
call termination charges in mobile telephone networks and the decrease of terminated call
volumes in fixed communication networks, which amounted to 14% compared to 2010.
The turnover of the access service amounted only to a minimum share of the total turnover of
the electronic communications market in 2011, reaching a mere 0.1%, and remained almost the
same compared to 2010.
The number of end-users of the fixed broadband service in the data communications market
remained in the same range as it was in 2010 whereas the turnover of the service decreased by
1%. Compared to earlier years, the growth of the number of end-users has ceased, which may be
related to the economic recession. At the same time, the developing mobile broadband
technology provides more and more intensive competition for the fixed broadband service. The
use of broadband services providing a higher speed of data connection has become wider.
Judging by the turnover of services, the market of the leased line service forms the smallest
market in the electronic communications sector with a slight decrease in the consumption of
services and turnovers in 2011. At the same time, the turnover of the cable television service
increased by 5% whereas the number of consumers increased by 4% in 2011, which mainly
resulted from the growth in the numbers of the consumers of the IPTV service provided by
Elion.
39

(thousand)
Data communications
The data communications market is still rapidly growing and developing. As of the end of 2011,
there were 44 active service providers in the data communications retail market, with Elion,
Starman and STV being the largest. The number of end users of the fixed broadband service
increased by 0.3% compared to 2010, and the total number of the broadband service users
including the mobile broadband connection service increased by 18%.
400
350
300
250
200
150
100
Others STV Starman Elion
50
0
2004 2005 2006 2007 2008 2009 2010 2011
FIGURE 9. Number of fixed broadband service end-users broken down by service providers in
2004–2011.
Competition in the broadband service market mostly increased among the undertakings that own
the network infrastructure.
One of the largest service providers, Elion mainly provided the ADSL service, and cable
television undertakings Starman and STV provided the fixed broadband service by means of
cable modems or fibre optic networks. The broadband services provided by Elion, Starman and
STV were consumed by 83% of end users, and the total volume of the market share of these
service providers increased very little during the year.
The mobile broadband connection provides more and more fierce competition to the fixed
broadband service as the service prices and speeds of connection of the mobile broadband
connection are comparable with those of the fixed broadband connection and sometimes even
more favourable. However, the fixed data connection service has not yet entirely been substituted
by the mobile broadband connection service as the limitations of the volumes of data and efforts
to ensure the quality of the connection speed hinder such substitution.
40

(thousands
As mobile broadband service packages are comparable with fixed broadband service packages,
the former are compared to the broadband connection products provided through the fixed
communications network.
By the end of 2011, the number of end users of the mobile broadband connection amounted to
143 thousand. The number of the mobile broadband connection consumers increased twofold
during the year, and the number of end-users was more than four times larger than the end users
of the services provided by means of the radio communications technology (WLL). Compared to
2010, the number of xDSL end-users decreased by 5%, and the number of cable modem endusers
decreased by 3%. At the same time, the number of mobile broadband connection end-users
increased by 12%.
Having decreased by 28% in 2008, the number of end-users of the broadband service provided
by means of WLL saw a decrease of 12% in 2011. The share of the end-users of the broadband
service on the basis of xDSL, cable modems and fibre optic cable amounted to 63% in 2011, and
the share of the users of services on the basis of the mobile broadband connection amounted to
29%.
500
450
400
350
300
250
200
150
100
50
0
2004 2005 2006 2007 2008 2009 2010 2011
Mobile Broadband Other solutions WLL Fibre optic Kable modem xDSL
FIGURE 10. Changes in the numbers of end-users of various broadband technologies in 2004-
2011.
As of the end of 2011, an estimated 55% of Estonian households were using the fixed broadband
service.
End-users of communication services use more and more bundled services (the broadband
service, the telephone service, the mobile telephone service), which is why bundled
communications services where at least two communications services can be used for a monthly
41

fee are becoming increasingly popular. As of the end of 2011, an estimated 74% of broadband
service end-users were using one of such bundled solutions: the pricing and conditions of
bundled solutions offered by service providers are generally more attractive than separate
solutions.
Figure 11 shows the average speeds of the fixed broadband service consumed by end-users. The
share of the slowest service segment keeps decreasing constantly, and the speeds of mediumspeed
connections have essentially remained the same. The number of the users of connections
over 10 Mbit/s has increased significantly in 2011 to reach as much as 15.4% of all the
connections due to new service packages providing fast data communication being launched on
the market.
70%
60%
50%
40%
30%
20%
10%
00%
58%
54% 54%
44% 43%
50% 51% 51% 52% 53%
38% 39% 39%
36% 34% 32%
11%
13% 14% 15%
10%
02% 02% 04%
1q 2010 2q 2010 3q 2010 4q 2010 1q 2011 2q 2011 3q2011 4q 2011
from 144 Kbit/s to 2 Mbit/s from 2 to 10 Mbit/s 10 Mbit/s and faster
FIGURE 11. Average speed of connection used by broadband service end-users.
In addition to the mobile broadband service described above (the so-called Data SIM), mobile
telephone network operators also provide broadband services to be used at mobile terminals.
Consumers fall into two different categories: the consumers who have entered into a contract for
the use of the mobile broadband service (SIM with data) and the consumers who use a mobile
broadband service in addition to voice services and pay for the broadband service used in
accordance with the used amount of the used data communication (SIM small data). The first
type of the mobile broadband service described above was used by approximately 150 thousand
consumers at the end of 2011, and approximately 268 thousand consumers were using the
second type of the mobile broadband service. Thus, an estimated 562 thousand people were
using the mobile broadband service in 2011, but this number might also include the consumers
who were using the different mobile broadband service products at the same time.
42

(thousands)
350
300
250
SIM small data
SIM with data
Data SIM
200
150
100
50
0
EMT Tele2 Elisa
FIGURE 12. Number of mobile broadband service end-users broken down by providers and
services.
Wholesale market: access to communications networks offering the
prospect of broadband connection
The wholesale data communications markets can be divided into two segments: the wholesale
market of copper pair access and broadband access. A sector-specific regulation established by
the Competition Authority in 2009 applies to the above wholesale markets and declares Elion an
undertaking with significant market power on these markets, binding it to comply with the
obligations of ensuring access, equal treatment, transparency and price regulation.
In 2011, the number of access lines allocated for the use of other service providers kept
decreasing (-12%). The number of broadband access links allocated for the use of other service
providers (bit stream access) remained the same compared to 2010. The turnover of broadband
access services decreased by 18% whereas the monthly fee for copper pair access and for selected
copper pair access decreased by 5% and 4.9% respectively. Depending on the speed of the
connection, the monthly fees for bit stream access decreased by up to 30% (except for the 4
Mbit/s DSLAM access service, where the fee increased by 10.85%).
On average, broadband access service fees decreased by 28% on the national level, by 30% on
the local level, and by 16% on the regional level (DSLAM).
43

(thousand)
9 000
8 000
7 000
6 000
5 000
4 000
3 000
2 000
Other Elion
1 000
0
2004 2005 2006 2007 2008 2009 2010 2011
FIGURE 13. Number of full access lines allocated for the use of other service providers in 2004–
2011.
Cable television
In 2011, twelve operators were actively operating in the cable television service market (including
the IPTV service), Starman, STV and Elion being the largest.
In 2005, Elion’s market entry triggered the increase in the number of end-users and the overall
development of the otherwise stable market, and the trend continued in 2011 as well in relation
to the transition to digital television. Compared to 2010, the number of end-users of the cable
television service increased by approximately 12 thousand (3.6%). Consequently, the market
shares of service providers somewhat changed.
400
300
200
100
Other Elion STV Starman
0
2004 2005 2006 2007 2008 2009 2010 2011
FIGURE 14. Distribution of market shares of the cable television service providers based on the
number of end-users in 2004–2011.
Elion has significantly improved and increased the availability of the cable television service
through its communications network.
44

(thousand)
Mobile telephone service
The mobile telephone service market displayed relative stability in 2011. However, the mobile
telephone service market is also characterised by fierce competition among three major operators.
Three network operators operated in the mobile telephone service market in 2011: AS EMT
(hereinafter EMT), Tele2 Eesti AS (hereinafter Tele2) and Elisa Eesti AS (hereinafter Elisa); there
was also a virtual mobile service provider Top Connect OÜ (hereinafter Top Connect).
Compared to 2010, the total number of the mobile telephone service end-users increased by
13%, and the penetration of end-users among the population increased to 139% whereas the
number of the prepaid calling cards issued by Top Connect has not been taken into consideration
here as the operator had no overview of the share of these cards that had been activated and
were actually being used in Estonia. The number of post-paid end-users increased by 15.7%, and
the number of prepaid end-users increased by 8.1% (see the figure below).
1400
1200
1000
800
600
400
200
0
Post-paid
Prepaid
2004 2005 2006 2007 2008 2009 2010 2011
FIGURE 15. Changes in the numbers of post-paid and prepaid end-users of the mobile telephone
service in 2004–2011.
160%
140%
120%
100%
80%
60%
40%
20%
0%
139%
121%
123%
117% 119%
107%
117%
93%
Penetartion
2004 2005 2006 2007 2008 2009 2010 2011
FIGURE 16. The mobile telephone penetration in 2004–2011.
The number of call minutes started by end-users in a mobile telephone network increased by 8%
in 2011, whereas the number of call minutes initiated in a telephone network decreased by 10%.
45

Therefore, end-users still prefer the mobile telephone service as the way of consuming the voice
service. The calls initiated in a mobile telephone network amount to 77.5% of all calls, and a mere
22.5% of calls are initiated in a telephone network.
In 2011, the development of mobile data communication services and 3G/3.5G/4G networks
contributed to the on-going rapid growth of the consumption of data communication services
provided through GPRS and 3G/3.5G networks that started in 2009. Compared to 2010, the
total amount of the consumption of data communication services increased almost four-fold.
Significant developments in the provision of mobile telephone services
In 2011, the turnover of the mobile telephone services increased due to the increasing data
communication volumes and numbers of customers using the mobile internet connection service.
The rapid development of technology and the changing needs of people allow new business
spheres to be developed. Thus the so-called “smart home” service which allows a home to be
remotely controlled by means of a mobile telephone or computer (for instance, electronic
devices, including surveillance equipment, or heating appliances to be switched on or off as
necessary) are gaining popularity. Such systems also allow surveillance cameras to monitor what is
happening in the home.
One can use the mobile telephone service to make a choice from more than 500 e-books in
Estonian published by approximately 50 publishers in an online book shop and download them.
E-books can be read by means of a 3G-supporting mobile telephone, a tablet computer, an e-
book reader or a computer. Paying for the service has also been made comfortable: the cost of
the e-book will be added to the customer’s mobile telephone service bill. An e-book is generally
1/3 cheaper than the same work as a printed book while buying and receiving such a book will
only require a couple of minutes.
The new revision of the Identity Documents Act entered into force in February 2011 declaring
the Mobiil-ID solution a digital identity document with a state guarantee as of 1 February, 2011.
In addition to being an identity document and a tool for providing a digital signature, the Mobiil-
ID solution also allows users to participate in elections, and Estonia was the first country in the
world where people could vote in the Parliament elections using their mobile telephones.
In addition to the construction of 3.5G networks, operators keep expanding 2G and 3.5G
networks in the cities and rural areas and adding new base stations. By now 47 Estonian cities
and towns have been covered with high-quality 3.5G (up to 21.2 Mbit/s) networks. Mobile
internet connection has also found its way to all the counties of Estonia.
46

In 2011, the construction of the 4G network started, and old base stations were taken down and
replaced with new ones. The superfast 4G mobile internet connection allows data to be
downloaded at a speed of up to 100 Mbit/s. At the moment the actual download speed ranges
between 20 and 60 Mbit/s, and the upload speed can reach 50 Mbit/s.
Wholesale market: mobile telephone network interconnection
In the mobile telephone network markets, market shares of the interconnection service are
distributed among the operators in a more homogenous way than in the interconnection markets
of telephone networks, which can be explained by the intense competition in the retail mobile
telephone service market.
Compared to 2010, the number of call minutes terminated in mobile telephone networks
increased by 7.4% in 2011. Since July 2011, the upper limit of the termination price of calls
established by the Competition Authority for Estonian mobile telephone network operators has
amounted to 0.0702 EUR/min (the upper limit amounted to 0.078 EUR/min in 2010).
0 000 €
0 000 €
0 000 €
0 000 €
0 000 €
0 000 €
0 000 €
- €
CY SE AT FR PL LT SK FI RO HU UK ES DK NL PT EL SK CZ LV DE EE IE IT LU MT BE BG
1.07.2009 1.07.2010 1.07.2011 01.07 2010 EL avarage 01.07. 2011 EL avarage
Source: BoR (10) 45 MTR benchmark snapshot_100921, BoR (11) 27 MTR benchmark snapshot_110516
FIGURE 17. Prices of mobile telephone networks interconnection services in the EU, EUR/min.
Telephone service
In 2011, the largest service providers in the telephone service market were Elion, STV and
Starman, and the year was characterised by a decrease in the number of end-users by 7.6%,
whereas the number of subscriber lines in use also decreased by 2.4%.
47

(million min.)
(thousand)
The telephone service market has been decreasing in the long term. Thus the number of call
minutes initiated in telephone networks decreased by approximately 10% in 2011.
500
400
300
200
100
Other Starman Elisa Tele2 Elion
0
2004 2005 2006 2007 2008 2009 2010 2011
FIGURE 18. Changes in the numbers of the telephone service end-users in 2004–2011.
Telephone service wholesale market: interconnection in the fixed
communication networks market
The notion of the fixed communication networks’ interconnection service market stands for the
(telephone) networks that are used to provide the interconnection service necessary for the voice
communication service to function. In 2011 there were ten active undertakings with significant
market power in the interconnection service market, and the Competition Authority’s decision
made in 2009 binds these undertakings to comply with sector-specific obligations (including the
obligation of ensuring access to the interconnection service and price regulation). The largest
undertakings operating in the market in 2011 were Elion, Starman and STV. The total number of
call minutes terminated in a fixed communications network decreased by 11% in 2011 (see Figure
19).
400
300
200
100
Other Elisa Starman Elion
0
2004 2005 2006 2007 2008 2009 2010 2011
FIGURE 19 Changes in the volume of call minutes terminated between fixed communications
networks in 2004–2011.
48

Compared to 2010, the prices of the origination and termination of a call in Elion’s telephone
network increased by approximately 3.5% on the national level and approximately 8.5% on the
local level. The prices of other communication undertakings did not change.
Leased line service market
As far as the volume is concerned, the leased line service market is among the smallest of all
electronic communications markets. In 2011, the turnover of the fixed line service decreased by
8.7%, and the number of fixed lines decreased by 13%. Thirteen operators provided the service
in the market, with Elion and Televõrgu AS being the largest. In 2011, monthly network point
access fees decreased by 10%, but the decrease in prices only concerned low speed fixed line
services (64 Kbit/s to 2 Mbit/s). The prices of 34 Mbit/s and 155 Mbit/s fixed line services
(both monthly fees and transport) remained the same.
5 000
4 000
3 000
2 000
1 000
Other Televõrgu Elion
0
2004 2005 2006 2007 2008 2009 2010 2011
FIGURE 20. Changes in the number of leased lines in 2004–2011.
Universal service
The universal service comprises a set of services complying with the technical and quality
requirements established by the European Union legislation and provided uniformly, at an
affordable price and with the established quality to all end-users requesting it regardless of their
geographical location. The universal service includes the following:
1. connection to a fixed communication network at a location where the telephone service is
available;
2. the public pay-phone service or other publicly available communication service that allows
a call to be made;
3. the availability of a universal electronic Public Directory and directory inquiry services.
49

Pursuant to the contract concluded between the state and Elisa on 07/11/2006, Elisa was the
sole provider of the universal service between 01/01/2007 and 31/12/2011. As the need for the
consumption of the universal service was virtually non-existent (5–11 consumers per year), and
the market keeps providing alternative services to substitute for the universal service, there has
been no established sole provider of the universal service after 31/12/2011.
Market analyses and supervision over the electronic
communications sector
Pursuant to sections 41 and 44 of the Electronic Communications Act, the Competition
Authority analyses the competitive situation in the specified communications services markets
regularly in accordance with the principles of the competition law of the European Union and in
compliance with the recommendations of the European Commission and rulings of the
European Court of Justice.
The Competition Authority is entitled to determine the
undertaking(s) with significant market power in these markets and apply to them the regulatory
measures established by the ECA.
To determine the list of the markets to be analysed, the Competition Authority proceeds from
the 2007 recommendation of the European Commission on relevant product and service markets
of the electronic communications sector susceptible to Ex ante regulation (hereinafter the
recommendation) 2 , the annex to which defines seven electronic communications markets.
In the spring of 2011, the Competition Authority completed the second stage of the market
analyses initiated in 2008 (the first stage of the market analyses took place in 2005–2007), in the
course of which the last market, the broadcasting service market, was analysed. The Competition
Authority found that further implementation of sector-specific regulation in the broadcasting
service market was justified and once more declared AS Levira an undertaking with significant
market power. The Competition Authority bound AS Levira to comply with the obligations of
ensuring access, equal treatment, transparency and price regulation.
2 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.
50

In 2011, the Competition Authority started the third stage of the market analyses, which analysed
the market of voice call termination in a mobile telephone network. The Competition Authority
found that competition did not function in the said market, and has proposed to declare EMT,
Elisa, Tele2 and ProGroup Holding undertakings with significant market power. The
Competition Authority also finds that sector-specific obligations (including price regulation) are
to be applied to the above undertakings in order to reduce the negative effect of the competition
issues in the market.
In the establishment of the price obligation in the market of call termination in a mobile
telephone network, the Competition Authority proceeds from the principle of efficient and
symmetrical prices established for the service of call termination in a mobile telephone network
by the Commission Recommendation of 07/05/2009 on the Regulatory Treatment of Fixed and
Mobile Termination rates in the EU. According to this principle, all undertakings with significant
market power operating in the market of call termination in a mobile telephone network must
apply identical prices for the service of call termination in a mobile telephone network, which is
not to exceed the average price for the service of call termination in a mobile telephone network
calculated on the basis of the technique established by the recommendation of the European
commission (the BU LRIC CCA cost accounting model) and approved by the regulatory
authorities of the European states.
As a result of implementing the established cost accounting technique, call termination prices in
the mobile telephone networks of EMT, Elisa, Tele2 and ProGroup Holding, the undertakings
with significant market power, will drop remarkably.
The draft decision on the market of call termination in a mobile telephone network was sent to
national consultations in January 2012.
The Competition Authority is planning to complete the analyses of three electronic
communications markets in 2012.
The Competition Authority conducted the proceedings concerning the complaints filed by three
communication undertakings whereas two were related to the infrastructure access system and
one to the system of conditional access to digital television and radio service. Seven price and
cost accounting supervision proceedings relating to undertakings with significant market power
were conducted. Six of these supervision proceedings concerned the communication services of
Elion, and one concerned the communication services of AS Levira.
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RAILWAY SERVICES
Pursuant to the amendments to the Railways Act effective as of February 2010, the Competition
Authority monitors the competitive situation in the railway services market and applies legal
measures to eliminate discrimination or in any other way unequal treatment in this market.
In addition to monitoring and ensuring the functioning of the competition in the railway services
market, the Railways Act sets such tasks as the performance of the proceedings related to
operation licences of railway undertakings and exercising supervision over the costs and incomes
of the railway infrastructure managers as well as their compliance with the requirements of the
separate accounting principle.
One of the other major responsibilities of the Competition Authority is the performance of
proceedings related to the complaints filed by railway undertakings. If a railway undertaking finds
that the railway infrastructure manager has treated the undertaking in a discriminating or
otherwise unfair manner in the course of distribution of capacity, regarding capacity as depleted,
the implementation of the coordination procedure, the approval of a notice concerning the
railway network, the provision of the timetable or the establishment of the fee for the use, the
undertaking can file a complaint to the Competition Authority. A railway undertaking can also
file a complaint to the Competition Authority if treated in a discriminating or otherwise unfair
manner by the Technical Surveillance Authority in the proceedings related to the distribution of
capacity or safety certificates.
There are two public railway infrastructure managers in Estonia: AS EVR Infra (hereinafter
EVR) and Edelaraudtee Infrastruktuuri AS (hereinafter EDR). The following provide railway
transport services for passengers: AS GoRail, Elektriraudtee AS and Edelaraudtee AS. Railway
transportation of goods is performed by the following: Maardu Raudtee AS, AS Railservis, AS
Kunda Trans, AS Sillamäe Sadam, Westgate Transport OÜ, Dekoil OÜ, AS ERS, Vesta Terminal
Tallinn OÜ, AS EVR Cargo, Edelaraudtee AS, AS Alexela Terminal and Eesti Energia
Kaevandused AS. The following perform the repairs of the rolling stock in use: Raudteeveeremi
AS, Volkerrail RTE, AS Ühinenud Depood, Elektriraudtee AS, AS Skinest Rail, Maardu Raudtee
AS, Valga Depoo, OÜ Aeston, Dekoil OÜ, AS EVR CARGO, AS E.R.S., Eesti Energia
Kaevandused AS, and RVTest OÜ. The maintenance of railways is still performed by Eesti
Energia Kaevandused AS. The operation licences of Petromaks Stividor AS and Helbeveski OÜ
(Aeston OÜ) were deemed invalid in 2011.
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In 2011, the Competition Authority also performed a proceeding related to the competitive
situation in the railway services market, analysing, inter alia, the public availability of the
conditions of access to the railway infrastructure, the capacity timetable and coordination
procedure and the establishment of the fee for the use of the railway infrastructure. The
Competition Authority found that interested persons were, on the basis of transparency,
provided with an opportunity to study the EVR’s and EDR’s conditions of access to the railway
infrastructure and that the capacity timetable and the fee for the use of the railway infrastructure
were established on the basis of consistency and equal treatment.
53

POSTAL SERVICES
As far as regulation is concerned, 2011 did not bring any major changes in the postal services
market. Similarly to 2010, there were two providers of postal services holding operation licences:
AS Eesti Post (hereinafter Eesti Post) that has received five operation licences from the
Competition Authority (the licence for the provision of the universal postal service, the licence
for the delivery of domestic and international items of correspondence, and the licences for the
delivery of domestic and international postal parcels) and AS Express Post which has received
one licence from the Competition Authority (delivery of domestic items of correspondence).
As of the end of 2011, 33 undertakings were registered as providers of postal services (several
undertakings were registered as providers of more than one postal service). The registration
covers the provision of courier services, the direct mail service and the delivery of periodicals.
Compared to 2010, the number of the registered undertakings decreased by five, so in addition to
the two postal service providers that held operation licences, there were 31 providers of courier
service, 7 providers of the direct mail service and 6 forwarders of periodicals registered Estonia in
2011, but not all of these actually provided postal services.
Unfairly burdensome costs
The proceedings concerning the unfairly burdensome costs arising from Eesti Post’s obligation
to provide the universal postal service (hereinafter the UPS) that were initiated in 2010 were
completed in 2011. Eesti Post’s final application for the compensation for the unfairly
burdensome costs incurred due to the provision of the UPS in 2010 stated the amount of
5,166,466 euros. As Eesti Post also had to pay the UPS charge on the volume of postal services
provided on the basis of the operation licence in the total amount of 4,318,758 euros, and the net
compensation (the UPS compensation - the UPS charge) applied for by Eesti post amounted to
847,708 euros.
The Competition Authority checked the compliance of the data provided by Eesti Post and the
distribution of costs with the requirements of the Postal Act and the Competition Authority’s
methodology for the distribution of costs and found that the founded net compensation for 2010
amounted to 91,945.09 euros, which was 755,763 euros less than the amount applied for. The
Competition Authority made a payment to Eesti Post in the above amount (91,945.09 euros).
Eesti Post filed a challenge to the Competition Authority’s decision, claiming additional
compensation for the unfairly burdensome costs incurred due to the provision of the UPS in
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2010 in the amount of 504,400.70 euros. The Competition Authority analysed the provisions of
the challenge and found that Eesti Post was entitled to additional compensation in the amount of
13,623.73 euros, which was 490,776.97 euros less than the challenge had applied for. The
Competition Authority made a payment to Eesti Post in the above amount (13,623.73 euros).
Eesti Post filed a complaint to the Tallinn Administrative Court for the decision of the
Competition Authority concerning the challenge to be discharged and a ruling that the
Competition Authority reconsider Eesti Post’s challenge to be made, but withdrew its complaint
before the hearing.
Affordable prices
Having sustained losses that amounted to almost 4.1 million euros in 2010 due to the provision
of the UPS, in 2011 Eesti Post submitted the calculations of cost-based UPS prices and the
application for the UPS prices to be increased to the Competition Authority. As UPS prices must
remain within the limits of affordable prices established by a regulation of the Minister of
Economic Affairs and Communications, the regulation on affordable prices would have to be
amended for UPS prices to be increased.
Having performed an analysis, the Competition Authority found that Eesti Post’s suggestion was
reasonable and UPS prices would still remain affordable. It must be noted that the more costbased
the affordable UPS prices are, the less compensation for the losses incurred due to the
provision of the UPS Eesti Post will be required. As the money for the compensation is collected
from the postal service providers holding an operation licence, it would contribute to fair
competition if as much of the UPS costs as possible were covered by the user of a particular
service and not a postal service provider holding an operation licence.
Proceeding from the above, in 2011 the Competition Authority made a suggestion to the
Ministry of Economic Affairs and Communications that affordable UPS prices be increased. The
regulation on affordable UPS prices was amended as of 1 November, 2011. As a result, Eesti
Post increased the prices for the domestic UPS items of correspondence by an average of 31%;
the prices for the international UPS items of correspondence, by an average of 44%; and the
prices for international UPS postal parcels, by an average of 44%. The majority prices had not
changed for 4–10 years, depending on the service.
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Test mailing
At the end of 2011, the Competition Authority performed an independent study to check the
quality of the UPS provided by Eesti Post. The purpose of the check was to observe how the
collection and delivery of ordinary letters in cities and rural areas was functioning and how much
time the delivery took.
Pursuant to section 37 of the Postal Act, a UPS provider must ensure the collection of postal
items and the delivery of postal items to the addressees on all working days and not less than five
days a week and once a day throughout the whole territory of Estonia. At least 90% of items of
correspondence forwarded as ordinary items which, for the provision of domestic postal services,
are deposited with the UPS provider through a letterbox or post office before the latest
prescribed collection time must be delivered to the addressee during the working day after
deposit.
In the course of its study, the Competition Authority mailed 1,300 ordinary items of
correspondence in rural municipalities and cities, including the cities without a municipal status.
The test mailing resulted in eight items of correspondence still being undelivered to addressees,
meaning that the said items were lost. To determine the quality of the delivery of items of
correspondence, 1,236 items could be used. The date of the delivery of 64 items could not be
determined.
Of the 1,236 letters used for the purpose of the test of delivery, 1,063 letters were delivered to
the addressee in due time, meaning that the share of the items delivered on time amounted to
86.0% of all the letters accounted for (see Figure 21).
0,022 0,006
0,112
Items of correspondence
delivered on time
0,86
Items of correspondence
delivered with a delay of 1
day
Items of correspondence
delivered with a delay of 2
or more days
Items of correspondence
not delivered
FIGURE 21. Quality of delivery of items of correspondence
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11.2% or 138 letters reached the mailboxes of the addressees with a delay of one day. 2.2% or 27
letters reached the mailboxes of the addressees with a delay of two or more days. By now 0.6% of
the mailed letters have not been delivered.
Supervision
The most important conclusions made on the basis of the proceedings performed in 2011 are
listed below.
In case a postal item is lost or damaged, the provider of postal services cannot ex post
facto attribute any flaws to a postal item that were not identified upon its receipt.
The provider of postal services cannot be held liable for the loss or damage of an ordinary
letter. As the route of an ordinary letter is not registered, an ordinary letter cannot be traced
or tracked; it is also impossible to identify the location where the ordinary letter might have
been lost.
The postal service user is responsible for the content and packaging of their postal item.
The notice about the arrival of a postal item is not an item of correspondence and whether
the notice has been delivered to the mailbox or not cannot be identified later.
The postal service provider pays the compensation to the sender who can authorise the
addressee to receive the compensation by informing the postal service provider about the
intention to do so in writing. The sender or the addressee can authorise a third person to
receive the compensation.
Postal network
On 07/10/2011, Eesti Post applied to the Competition Authority for decreasing the minimum
number of UPS operation licensed postal offices by 24 and for decreasing the number of
letterboxes by 361. The application concerned postal offices of 18 local governments and
letterboxes all around Estonia.
The Competition Authority requested the opinion of the local governments in whose
administrative territory the postal offices featuring in Eesti Post’s application for decreasing the
minimum number of postal offices were located. In addition to the opinions of Eesti Post and
the local governments, the Competition Authority analysed the availability of the UPS in low
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density areas. In relation to the above, the Competition Authority performed the monitoring of
the motorised delivery service in all the local governments the proceedings in question
concerned.
As far as decreasing the minimum number of letterboxes was concerned, the Competition
Authority analysed their location and the distance between the letterboxes and the potential users
of the postal service. The Competition Authority proceeded from the requirement in section 6 of
regulation no. 67 on the Requirements to the Access Points for the Provision of the Universal
Postal Service and their Location. The above requirements provide that a letterbox must be
placed in a location accessible for postal service users around the clock and the location of
letterboxes must meet the following conditions:
there must be at least two letterboxes in each city and rural municipality;
the average distance between the letterbox and a postal service user located or residing in
the city must not exceed 0.5 km;
the distance between the letterbox and a postal service user located or residing in the rural
municipality must not exceed 2 km.
The proceedings related to decreasing the minimum number of postal offices and letterboxes
prescribed by the conditions of the UPS operation licence will continue in 2012.
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