european commission inge bernaerts competition dg 1 competition law and electronic comunications...

EUROPEAN COMMISSION Inge BernaertsCompetition DG

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Competition Law and Electronic Comunications

Dominance and significant market power

12 January 2006Brussels


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Overview

1) Dominance under the Regulatory Framework (“signficant market power”)

– background

– criteria

– practical difficulties

2) Dominance in antitrust cases

– comparison with SMP assessment


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The Regulatory Framework – background (1)

New symbiosis between regulation and competition law

Markets defined on the basis of competition law

Old 25% market share threshold dominance


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The Regulatory Framework – procedure

Decentralisation: NRAs taking national circumstances into account

– central check by European Commission (Article 7 Consultation Mechanism)

» comments letter

» no comments letter

» veto decision


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The Regulatory Framework – checks and powers under Article 7

market definition

SMP assessment– single or collective dominance

regulatory remedies

VetoComments


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The Regulatory Framework - statistics

334 notifications received so far from 20 Member States 112 comments letters 6 second phase 4 veto decisions 71 no comments letters


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The Regulatory Framework – dominance test

Article 14(2) FD: « An undertaking shall be deemed to have significant market power if, either individually or jointly with others, it enjoys a position equivalent to dominance, that is to say a position of economic strength affording it the power to behave to an appreciable extent independently of competitors, customers and ultimately consumers »

Recital 27 FD:« An analysis of effective competition should include an analysis as to whether the market is prospectively competitive and thus whether any lack of effective competition is desirable »


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The Regulatory Framework – dominance test

Hence, NRAs should

– conduct a forward looking, structural evaluation based on existing market conditions

– take into account expected or foreseeable market developments over the course of a reasonable period

– take into account past data when such data are relevant to the development in that market in the foreseeable future

[Guidelines, para. 20]


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The Regulatory Framework – market shares a first line indicator of SMP

Market shares

– < 25%: no single dominance

– > 50%: presumption of single dominance

– market share trends

– volume/value

– merchant sales/captive sales


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The Regulatory Framework – other criteria to be taken into account

size of undertaking, economies of scale and scope

vertical integration and control over infrastructure that cannot easily be duplicated

technological advantages and financial resources

absence of law countervailing buying power

barriers to entry and expansion

absence of potential competition


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The Regulatory Framework – specific issues related to SMP

Greenfield approach:

– principle: taking existing regulation in the market under investigation into account may lead to circularity

– example: international calls in Finland (Cases FI/2003/0024 and FI/2003/0027)


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The Regulatory Framework – International Calls in Finland

Issue: must existing CS/CPS obligations be taken into account when analysing SMP on the international calls markets?

– “Ficora should make clear in its notified draft measures whether a finding of lack of SMP in a defined retail market relies principally on existing regulatory obligations”.

– “If this is the case, Ficora should make clear on which basis the existing regulatory obligations in the same or other closely related markets will continue to exist for the relevant period of forward-looking assessment”.

Follow-up: new notification in June 2005 (cases FI/2005/0201 and FI/2005/0202) providing further information on market shares and CS/CPS obligation – on this basis non SMP-finding was justified –

no comments letter


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Countervailing buyer power:

– principle: even an operator with very high or monopolistic market share may not have significant market power because of the strength of its customer(s)

– example: the position of smaller operators on the fixed and mobile termination markets


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The Regulatory Framework – fixed termination in Germany (1)

Issue: does the buyer power of DT outweigh the market power of the alternative operators selling termination on their network?

Veto decision: – “The Commission acknowledges that the market definition – call termination

on individual networks – does not automatically mean that every network operator has significant market power; this depends on the degree of any countervailing buyer power and other factors potentially limiting that market power. While small networks will normally face greater buyer power than large networks, the interconnection obligation will normally redress this imbalance of market power”.


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The Regulatory Framework – fixed termination in Germany (2)

– “It may still be easier for a large network than for a small network to initiate a price raise, but this risk is essentially removed if the large network operator’s termination rates are regulated”.

Follow-up: new notification in August 2005 – NRA changed SMP finding – No comments letter (case DE/2005/0239)


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Collective dominance: Principles are set out in the Guidelines

(1) market characteristics» similar market shares» mature market» low elasticity of demand» homogeneous product» similar cost structure» no excess capacity» high barriers to entry

(2) is tacit co-ordination sustainable?» incentive to collude – focal point» incentive to deviate and possibility to detect cheating and retaliate» fringe competitors


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The Regulatory Framework – Broadcasting transmission

services in the UK (Case UK/2004/0111):

first case of collective dominance

market concerned: terrestrial broadcasting transmission services (submarket of market 18)– upstream market(s) : access to masts and sites

– downstream market: managed transmission services (MTS)


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Case UK/2004/0111: SMP assessment

2 players: Crown Castle and ntl

access to masts and sites:– 2 separate product markets

– single dominance on each market

– Commission had no comments

MTS– one market

– Collective dominance Crown Castle and ntl

– Commission indicated preliminary concerns


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Case UK/2004/0111: Commission concerns

incentive to co-ordinate (check list)

lack of convincing evidence on sustainability of co-ordinated behaviour (no clear retaliation mechanism)

lack of analysis of past bidding processes/outcome


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Case UK/2004/0111: the outcome

Ofcom’s withdrawal of notification as far as MTS were concerned


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The Regulatory Framework – Mobile Access and Call Origination in Ireland

Case IE/2004/121

ComReg defined a wholesale market for access and call origination Critical for access of so called mobile virtual network operators (MVNO) Retail: high and stable market shares of Vodafone (54%) and O2 (40%) Fringe Competitor Meteor - 6% share of subscribers, 3% revenue Currently no MVNOs or service providers High Concentration – 4,550 High entry barriers (infrastructure investment) High ROCE – Over 35% for Vf and O2 and rising (well above EU average)

High ARPU - €47 per month (EU Average €31) and rising Pricing – Stable Minimum Monthly Bills (particularly post-paid) Pricing – well above EU average


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The Focal Point

The focal point is two-dimensional and transparent:– High and parallel retail prices

– Denial of access of wholesale airtime to Independent Service Providers

– Due to absolute size neither O2 or Vodafone has an incentive to grant access or lower prices to capture market share


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Credible Punishment

Deviation: granting of wholesale airtime access to Independent Service Provider

Punishment: the deterrent that exists is an identical action by the other – through time this would lower retail prices to the competitive level


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Actual/Potential Competition

Meteor – third operator– Entered February 2001 and until September

2004 lacked complete geographic coverage 3 – 3G operator owned by Hutchison

– Not yet launched


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Commission comments

Fringe competitors:– If competitors prove capable of gaining retail market

share rapidly and at the expense of Vodafone and O2, one of the criteria which currently imply collusive behaviour by these two operators may no longer be met

– evidence that companies act as credible access provider (at wholesale level) alternative to Vodafone and O2 would cast doubt on the sustainability of the collectively dominant position


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The Regulatory Framework – conclusions on SMP concept

Advantages of competition law based approach:

– more economic, less administrative approach towards regulation

– better targeted regulation tackling specifically enduring bottlenecks

– facilitates phasing out of regulation and transition to fully liberalised markets

– consistent approach throughout the EU


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Ex post application of competition law in electronic communications

Competition: law and sector-specific regulation are applied in parallel

(e.g. LLU regulation and price squeeze cases – Deutsche Telecom)

Sector-specific regulation is/should be gradually phased out

(upcoming review of the Recommendation).


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Competition law concept of dominance

In principle SMP = dominance

But:

– forward looking ↔ retrospective assessment

– Permanent re-evaluation ↔ “one shot” assessment

In electronic communciations, the most difficult part is generally to show the abuse (e.g. price squeeze, excessive pricing, predatory pricing, see next session)

Article 81 does not require dominance


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Conclusions

SMP/dominance assessment is a challenging exercise

Case law and thinking around SMP/dominance is evolving:

– more economic, less mechanical approach

– more emphasis on enduring bottlenecks

as regards regulation, is dominance the appropriate standard?


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Thank you

For more information

– http://europa.eu.int/comm/competition/index_en/html– http://europa.eu.int/information_society/policy/ecomm/article_7/inde

x en.htm– [email protected]

european commission inge bernaerts competition dg 1 competition law and electronic comunications...

Documents

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competition law n markets

comments letters n

power n barriers

regulatory framework

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