TELECOMMUNICATIONS: Decision on The Frequency Allocation Dispute

C.T.L.R., 1999, N-44
1999, January 1
Agnieszka Jacob


On 24 February 1999, the Austrian Supreme Constitutional Court (Verfassungsgerichtshof; "VfGH") upheld a decree of the Regulatory Authority whereby Mobilkom Austria AG ("Mobilkom") was allocated (additional) frequencies (2 x 5 MHz) from the spectrum reserved for DCS-1800, thereby turning down a respective complaint of Mobilkom´s competitor Connect Austria. For Mobilkom, this decision means access to additional frequency which is vital to its quality of service in the light of the fact that Mobilkom´s capacity in the GSM 900 spectrum has reached its limits with a customer base in excess of one million.

1. Background
Currently, three mobile operators are active on the Austrian market (a fourth license in the DCS-1800 range is about to be awarded):

  • Mobilkom, a subsidiary of Telekom Austria AG (with a strategic participation from Telecom Italia Mobile), was carved out of the former state monopoly in 1996. Since 1991, Mobilkom has operated in the analogue D-network (which currently has 205,000 customers). Since 1992, it has operated also in the area of GSM 900 (which currently has approximately 1.176 million customers). Mobilkom was allocated frequencies of 2 x 19 MHz in the analogue and 2 x 8 MHz in the GSM 900 area (for reasons of equal treatment with its competitor max.mobil, Mobilkom had to pay a fee of ATS 4 billion for frequency allocation in the 900 MHz range).

  • max.mobil, the first alternative mobile operator on the basis of a respective license, dated 25 January 1996, currently serves approximately 800,000 customers with mobile telecommunication services with 2 x 8 MHz in the 900 MHz frequency band.

  • Connect Austria AG operates the third mobile network ("One") based on a license decree dated 19 August 1997 (DCS-1800). It became operative in October 1998 with 2 x 16.8 MHz from the 1800 MHz spectrum (to be increased to 2 x 22.5 MHz following a roll-out of 75 % and a customer base in excess of 300,000). The license fee which Connect Austria had to pay amounted to ATS 2,3 billion.

2. The frequency allocation dispute
According to section 125 para 3 of the Austrian Telecommunications Act ("TKG") - which corresponds to section 20 a para 3 subpara b of its "predecessor", the Telecommunications Act of 1993 (still in force at the time of the tenders for the two alternative mobile licenses) - existing license holders are entitled to additional frequencies of 5 MHz each of the DCS-1800 spectrum in case of respective demand, provided that at least three years have passed since the license award to the first DCS-1800 operator (i.e., Connect Austria) in 1997. Prior to the lapse of this three year period, a license holder may only be allocated additional frequencies within the specified range if it can prove that its capacity to serve customers is exhausted taking into account all economically viable technical means.

Section 20, para 4 of the TKG provides that the allocation of further frequencies to a license holder for the purpose of the same services constitutes an extension of the existing license, to be effected primarily on the basis of the respective provisions in the license. Additional frequencies may be allocated on the basis of a proceeding pursuant to section 22 of the TKG, i.e. a public tender which includes an auction element (in the form of a license fee to be offered by the applicant) only if the license does not contain respective provisions.

In the light of the rapidly growing mobile market in Austria, Mobilkom filed for the allocation of additional 2 x 5 MHz from the DCS-1800 spectrum with the Regulatory Authority as early as November 1999. By decree, dated August 10, 1998, the Regulatory Authority granted Mobilkom´s application, entitling Mobilkom to use the requested frequencies in the of Vienna area from January 1, 1999. The Regulatory Authority considered the allocation of additional frequencies as an extension of Mobilkom´s existing license, which meant that no additional licence fee (corresponding to the "market value" of the frequencies) was charged to Mobilkom.

Connect Austria - which was at the time of the award in the middle of its ATS 12 billion roll-out - filed a complaint with the VfGH against the allocation of additional frequencies to Mobilkom. Connect Austria claimed that the preconditions for such an allocation (demand because of capacity shortage) had not been fulfilled and argued that in the light of the substantial investments Connect Austria had to make in addition to the license fee of ATS 2.3 billion, Mobilkom ought to have paid an (additional) license fee for the allocated frequencies.

The VfGH analysed the admissibility of the specific legal form in which the Regulatory Authority Telekom-Control-Kommission was instituted by the TKG as well as the effects of EC law on the Regulatory Authority, which emphases on rights of appeal. The Court´s comments on the legal status of the Regulatory Authority are of general interest well beyond the area of telecommunications law since they will to have repercussions on comparable authorities in other areas of law already existing or yet to be instituted.
Telekom-Control-Kommission is an independent body consisting of three members, one of whom must be a judge. One member must have experience in technical matters, another in law and economic. Members are appointed by the Federal Government for a period of five years (TKG, s 112, para 1). Telekom-Control-Kommission´s decisions are not subject to appeal, making the Kommission the sole authority in certain regulatory matters, particularly issues involving civil rights (see TKG, section 111). According to Article 133, para 4 of the Austrian Federal Constitution, the decisions of such a body are only subject to review by the Supreme Administrative Court where this is specifically provided by law, which is not the case in the TKG.

The VfGH raised concerns about the increase in number of authorities like the Telekom-Control-Kommission instituted by the legislature. On the one hand, the matters decided on by authorities of this kind tend to be important, with potentially far reaching effects; on the other, the decisions of these authorities are not subject to appeal (although an alleged violation of constitutional rights by a decision of such authority may be challenged before the VfGH, as in the present case). Yet despite its concerns, the VfGH concluded that Telekom-Control-Kommission was still within the range of what is constitutionally acceptable.
However, the VfGH made reference to Directive 97/51 which requires Member States to provide for adequate proceedings on the national level so that decisions of the national Regulatory Authority may be appealed against to an independent appellate authority (article 5a para 3). Since this provision of the directive had not been implemented under Austrian law by December 31, 1997 and since the cited provision was allegedly detailed enough to be directly applied on the national level, the VfGH concluded that this provision of the directive had priority over article 133 para 4 of the Austrian Constitution within the scope of the directive. Thus, the VfGH held that the decisions of the Telekom-Control-Kommission are subject to review by the Supreme Administrative Court.
The VfGH added that the standard of its review of cases (limited to potential violations of constitutional rights) is insufficient to quality as a review under article 5a, para 3 of the Directive. Since the standard of review on the level of the Supreme Administrative Court is the examination of potential violations of "subjective public rights" (which are "lower in rank" than constitutional rights). It is possible that a proceeding before the Supreme Administrative Court will yield a different result than the one before the VfGH.

One of the main arguments raised by Connect Austria in its complaint was that the allocation of additional frequencies to Telekom Austria would have had to have been effected on the basis of a public tender involving the payment of a license fee (auction element; section 22 TKG). Connect Austria argued that section 125 para 3 TKG constitutes a protective provision which benefits new market entrants by establishing a "protection period" of three years for new operators against established competitors. According to Connect Austria, the Regulatory Authority had incorrectly interpreted of this section as meaning the opposite in viewing it as a privilege for incumbent mobile operators (allocation of additional frequency in case of shortage for no separate consideration), thus violating the constitutional principle of equal treatment.
The VfGH refused to follow Connect Austria´s line of argument: Since Mobilkom´s license provided for the allocation of additional frequency spectrum, the Regulatory Authority was held not to have interpreted section 20 para 4 of the TKG in an arbitrary - and thus unconstitutional - manner in treating the allocation of additional frequencies as a mere extension of the license. A tender pursuant to section 22 of the TKG would only have been necessary if the license had failed to address the allocation at additional frequecies. With that in mind, the extension of the license (the allocation of additional frequencies) was already covered by the license fee of ATS 4 billion initially paid by Mobilkom.

Among Connect Austria´s other unsuccessful arguments, it complained that the Regulatory Authority had incorrectly (and in an unconstitutional manner) assumed that Mobilkom´s frequency capacity had been exhausted taking into account all economically viable technical means (section 125 para 3 TKG). Respective studies ordered by the Regulatory Authorities had allegedly been defective and the Regulatory Authority allegedly had omitted to materially assess in the course of the proceeding whether technically possible and economically viable alternatives existed.
The VfGH was bound to reject this argument because from a constitutional point of view the standard of examination by the Court is only whether the authority acted in an arbitrary manner (that is, in violation of the constitutional right of equal treatment) in omitting any material assessment (which was not the case). Thus, the VfGH was not in a position to answer whether the proceeding with the Regulatory Authority was entirely without defects (which is a standard only to be examined by the Supreme Administrative Court). However, since the VfGH cleared the way for a complaint to the Supreme Administrative Court for review of decisions by the Telekom-Control-Kommission, it will be interesting to see how the latter court will assess the issue at hand.


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