regulation and competition law in telecommunications and other network industries
DESCRIPTION
Regulación y Competencia en Telecomunicaciones y otras redesTRANSCRIPT
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Regulation and Competition Law in Telecommunications and Other NetworkIndustries
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PrintPublicationDate: Sep2010 Subject: BusinessandManagement,GovernmentandLaw,BusinessPolicyandStrategy
OnlinePublicationDate: Sep2010
DOI: 10.1093/oxfordhb/9780199560219.003.0020
RegulationandCompetitionLawinTelecommunicationsandOtherNetworkIndustries PeterAlexiadisandMartinCaveTheOxfordHandbookofRegulationEditedbyRobertBaldwin,MartinCave,andMartinLodge
OxfordHandbooksOnline
AbstractandKeywords
Thisarticleexamineshowregulationandcompetitionlawhavebeendeployedtocontrolthefirmsoperatinginthetelecommunicationssector,andhow,inparticular,regulationhasbeendesigned,particularlyintheEuropeanUnion,insuchawaythatitcanbewithdrawninfavourofthemorewidespreadapplicationofcompetitionlaw.Examplesareelectricitygeneration,sewagetreatment,longdistancetelecommunicationsservices,andretailing.Thequestionarisesastowhentraditionalpriceregulationcangivewaytorelianceoncompetitionlaw.Thetrendinmanycountries,andespeciallyintelecommunicationsinEurope,hasbeentomovetoderegulateinthisway.Thisarticleexamineshowsuchdecisionsaremadeandhowwellcompetitionlawworksinsuchcontexts.Keywords:regulation,competitionlaw,telecommunicationssector,EuropeanUnion,priceregulation
20.1IntroductionAlmostalleconomicactivityissubjecttotheapplicationofcompetitionrulesbutcertainsectorsaresingledoutfortheapplicationofspecificregulatoryregimes.Insomecases,forexamplefinancialservices,themotiveforregulationmaybeconsumerprotectionorthemaintenanceofmacroeconomicstability.Inthecaseofanothergroup,sometimesreferredtoasutilitiesornetworkindustries,themotivesarethecontrolofmarketpowerandtheequitybasedgoalofensuringthatallhouseholdsreceiveabasiclevelofaservicewhichisconsideredessentialtoexistence.(p.501)
Theregulationofnetworkindustriesthusinvolvesthepursuitofbotheconomicandsocialobjectives.Insectorssuchascommunications(postsandtelecommunications),energy,transport,andwater,itofteninvolvestheimpositionofpricecontrolobligationsandobligationstosupply.Wheretherelevantactivity,forexample,anenergylocaldistributionnetwork,isclearlyamonopoly,suchspecificregulationisprobablyunavoidable.However,networkindustriestypicallyhaveelementsintheirvaluechainwherecompetitionisquitefeasibleincludingbothretailingtoendusers,whichbasicallycomprisesmarketingandbilling,andothermorecapitalintensiveupstreamactivities,suchaselectricitygenerationorcollectingandsortingpost.Thismeansthatinmanysectors,whichstartedasacrosstheboardstatutorymonopolies,thecompetitiveelementsgaingroundovertime,therebyreducingtheneedforregulationwhichtypicallyoperatesexante,imposingspecificrestrictionsonfirms'conductinadvance,andrelyingincreasinglyoncompetitionlaw,whichtypicallyoperatesexpost,penalisinginfractionswhentheyhaveoccurred.
Thisraisestheissueofhowstrategicallytomanagethisprocessofderegulation.Inthecourseofsuchderegulation,itmaybeappropriatetoapplyregulationandcompetitionlawintandem,regulatingmonopolyelementsanddealingwiththegrowingcompetitiveelementsundercompetitionlaw.Thisimmediatelyraisesthe
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issuesofscope,complementarity,andtheextentofoverlapofthetwoapproaches.
Theseissuesareparticularlyacuteinthetelecommunicationssector,wherethelimitstocompetitionareparticularlyuncertainduetotheimpactoftechnology.Accordingly,thischapterexamineshowregulationandcompetitionlawhavebeendeployedtocontrolthefirmsoperatinginthesector,andhow,inparticular,regulationhasbeendesigned,particularlyintheEuropeanUnion,insuchawaythatitcanbewithdrawninfavourofthemorewidespreadapplicationofcompetitionlaw.
Section20.2describesthefeaturesofthetelecommunicationssectoranditstraditionalmeansofregulation.Section20.3illustratestheapplicationofaderegulatorystrategy,usedintheEuropeanUnion.Section20.4showshowcompetitionlawcanbeusedinparallelwithorinsuccessiontoregulation;Section20.5noteshowsimilarissuesariseinothernetworkindustries,andSection20.6summarisesthelessonsoftheseexperiences.
20.2TraditionalTelecommunicationsRegulation
20.2.1Whyregulate?Untilthe1980s,therewasoftenunthinkingacceptancethattelecommunicationsservicesrequiredregulationbecausetheywerebasedonanaturalmonopoly(p.502) infrastructure.Thismeantthattherewasroomforonenetworkonly.TheNorthAmericanmodelfordealingwiththissupposedattribute(aswithsimilarmoreconvincinglyidentifiedproblemsinenergy,transport,andwater)wasviaregulationofinvestorownedenterprises,usuallyonacostplus(rateofreturn)basis(Brock,2002).TheEuropeanmodel,widelyfollowedelsewhere,resteduponpublicownership,withservicesdeliveredthroughagovernmentdepartmentoracompanywhollyownedbythegovernmentinquestion.ItisalsopossiblesubsequentlytodetectarecentAsianmodel,restingonthoroughgoinggovernmentintervention(Ure,2008).
Intheabsenceofcompetition,arangeofregulatoryobjectivescouldbedeliveredrelatingtotheavailabilityofservicesandtothetermsandconditionsoftheirsupply.Therewasalsonodifficultyinprincipleinensuringthattheindustrycovereditscosts:themonopolyfirmcouldsimplyraisepricestodoso.TheUSmodelofrateofreturnorcostplusregulationsettingpricestoensurecostrecoveryhadpreciselythisobjectiveandeffect.
However,theintroductionofcompetitionintomanypartsoftheindustry,accompaniedbytheprivatisationprocessinEurope,compelledtheneedforamorerigorousanalysisofpotentialmarketfailuresandledtoaregulatoryresponsewhichhasbeenbasedonaclearerarticulationoftheobjectivesandinstrumentsofregulation,whichcanbeseenasaddressingtwotypesofproblems:
1.Marketfailure,associatedwithhighlevelsofmonopolisationderivingfrom: economiesofscale(unitcostsfallingasoutputincreases);economiesofdensity(associatedparticularlywiththelocalcopperaccessnetwork,whichconnectscustomers'premisestotheexchange);economiesofscope(whentwoservices,suchasvoicecallsandbroadband,ortelecommunicationsandbroadcasting,areprovidedmorecheaplyoverasinglenetwork);demandsidenetworkexternalities(wherecustomersderivegreaterbenefitsfrombelongingtoanetworkwithmore,ratherthanfewermembers).2.Noneconomicobjectives,notablyuniversalservice,ensuringthatserviceisavailableeverywhereatauniformprice,redistributiveobjectives,designedtoprotect,forexample,lowincomehouseholdsorpeoplewithdisabilities,andpoliticalinclusion.Thealternativetotheseoutcomesinthedigitalageisoftencapturedbythephrasethedigitaldivide.
Turningfirsttomarketfailuresduetomonopolisation,ithasproveddifficulttoreplicatethefixedaccessnetwork,exceptinareaswheretherearecableTVnetworkswhichcanbeupgradedalsotoprovidevoiceandbroadbandservices.Clearly,thedevelopmentofwirelessnetworks,whichnowhavemanymoresubscribersthanfixednetworks,isthemostimportantfeatureofthelasttwentyyears,butcallsonmobilenetworksarenotconsideredtocompetedirectlywith(fallwithinthesameproductmarketas)callsonfixednetworks.
However,otherformsoftelecommunicationsactivitiesarecapableofbeingreplicated.Experiencesuggeststhatretailing,orresellingtheincumbent'sproducts,(p.503) iseffectivelycompetitive;activitiessuchasbackhaulfromlocaltomainexchanges,andthehighcapacitytransportamongsuchmainexchanges(makingupthecore
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network)areallwidelyreplicated.
Itfollowsfromthisthat,ascompetitiondevelops,entrantsmayprogressivelyinstallsomecapacity,butwillrelyonthefixedincumbenttosupplytherest.Thus,theymaystartfromretailing,thatis,resellingthefixedincumbent'sservices,progressviatheinstallationofacorenetworkconnectingasmallnumberoftrunkswitches,andlaterextendintobackhaulandthereplicationoftheincumbent'slocalexchangeassets.Asimilarprogressionmayoccurinthesupplyoffixedbroadbandservices:acompetitormaymovethroughseveralintermediatesteps,fromactingasareselleroftheincumbent'sproduct,torelyingontheincumbentonlytoleasetheconnectionfromthelocalexchangetothecustomer'spremises(knownasanunbundledlocalloop).Thisprogressionisknownastheladderofinvestment,andmanyregulatorshaveencouragedcompetitorstomoveupthatladder(Cave,2006a).
Inthesecircumstances,thetermsuponwhichcompetitors'accesstotheincumbent'sfacilitiesarebasedbecomethekeyinstrumentsofregulation,replacingthecontrolofretailpricesasthemajorregulatoryintervention.Infixednetworks,thissocalledonewayaccessisasymmetric:competitorsneedaccesstotheincumbent'sfacilities,butnotviceversa.Thiscanbedistinguishedfromthekindoftwowayaccessobservedinroughlysymmetricmobilenetworks,whereeachoperatorusestheotheroperator'sterminationfacilities,butremainsotherwiseindependent.
Economiesofscopeplayanincreasingroleintelecommunicationsasaresultoftechnologicaldevelopments,especiallydigitisationorthetransportofinformationindigitalform.Whereasbroadcasting,voicetelecommunications,andcomputerbaseddatanetworksusedtoexistinseparateservicesilos,theyhavenowconvergedtechnologicallysothattherelevantinformationorbitsunderlyingeachserviceiscarriedindistinguishably.Thus,moderncablenetworksofferthetripleplayofvoice,broadband,andbroadcastservices.Existingcopperbasedtelecommunicationsnetworksnowprovidethesameservicerange,providedtheyhavebeenupgradedtohavethecapacitytoconveyvideoservices.Thisisthesameforfibrebasednextgenerationnetworksdescribedbelow.Increasingly,wirelessnetworks,whethertheybestatic,mobile,ornomadic,canoffersimilarcombinationsofservice.Asaresult,marketsarebeingbroadened,creatingthescopebothfornewcompetitiveopportunitiesandfornewpracticessuchasthebundlingofservicesbydominantoperatorsinwayswhichmaylimitordistortcompetition.
Thefinalpossiblesourceofmarketfailurenotedabovearisesfromthedemandsidenetworkeffectsassociatedwithelectroniccommunicationsnetworks.Thenumberofpotentialinterchangesbetweennetworkmembersgrowswiththesquareoftheirnumber. Clearly,withouttheinterconnectionofnetworks,therewouldbeatendencyeitherforcustomerstomultihome,namely,tosubscribeto(p.504)manynetworks(whichwouldbeexpensive)orforonenetwork(thelargest)todriveallothersout.However,thisdangercanbeaverted,andthebenefitsofanytoanyconnectivitycanbegained,bymandatinginterconnection.
Thenoneconomicobjectivesofregulationnotedaboverequireadifferentapproach(Wellenius,2008). Inessence,policymakershaveimposedonregulatorsthepursuitofpolicyobjectiveswhichgobeyondtheavoidanceofmarketfailureandthereplication,throughregulation,oftheoutcomeofacompetitivemarketprocess.Whentelecommunicationswasamonopoly,noneconomicobjectivescouldbepursuedbycrosssubsidy,forexample,bychargingthesamepricesinlow-costandhigh-costareas.However,whencompetitionispresent,nooperatorwillwanttoservehighcostcustomersiftheyareonlypermittedtochargeanaverageprice.Alloperatorswillseektocherrypicklow-costareas.Theresultingstressescreated,andthewaystoovercomethem,arediscussedbelow.
20.2.2ThesequenceofregulatoryreformsChronologically,threestagesofmarketstructurecanbedistinguished,characterisedasmonopoly,transition,andnormalisation(seeTable20.1).Thefirstisselfexplanatory.Thelastisastagewheremostmarkets,apartfromalimitednumberofbottlenecks,havebeensuccessfullyopeneduptocompetition.Transitionistheratherelasticperiodbetweenmonopolyandnormalisation.Astheaccountwhichfollowsmakesclear,thethirdstagehasprovedelusivetodate,butitremainsausefultargetforthedesignoftransitionalregulation.
Thefirstkeystructuralbreakoccurswhenentryintofixednetworksandservicesisliberalised.Thishastakenplaceatvariousdatesoverthepast2030yearsinmostcountries. Itshouldbepointedoutthatapparent
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liberalisationofentrycanbedeceptive,especiallyifthegovernmentorregulatoryauthorityisseekingtomaintainbarrierstoentrybyimposingunnecessarilyonerouslicensingobligations.
Asfarasbehaviouralregulationisconcerned,threeinstrumentsareusuallyrequiredinthetransitionalstage,asshowninTable20.1:
1.Controlofretailpricesisnecessarywherethedominantfirmexercisesmarketpowerattheretaillevel,sinceintheabsenceofretailpricecontrol,customerswillbesignificantlydisadvantaged.However,ascompetitiondevelopsattheretaillevel,possiblyfromfirmsrelyinglargelyoninfrastructurebelongingtotheincumbent,thenecessityforretailpricecontrolsineffectivelycompetitivemarketsmaydisappear,althoughaccesspricecontrolmaystillbenecessary.2.Inordertomaintainanytoanyconnectivityinthepresenceofcompetitivenetworks,operatorsrequireinterconnectiontooneanother'snetworksinordertocompletetheircustomers'calls.Thisrequirestheoperationofasystemofinteroperatorwholesaleornetworkaccesspricesnotedabove.Especiallyintheearlystagesofcompetition,entrantswillrequiresignificantaccesstothe(p.505) dominantincumbent'snetwork,andthisrelationshipwillalmostinevitablynecessitateregulatoryintervention.However,asinfrastructureisduplicated,theneedfordirectpriceregulationofcertainnetworkassetsdiminishes.Table20.1Stagesofregulation
Monopoly Transition Normalisation
Retailpricecontrol
Pricecontrolsonallservices
Relaxationofcontrols Nocontrols
Accesspricing
Notrelevant,orarbitrarypricingofsmallrangeofservices
Introductionofcostbasedpricesfordisaggregatedservices;otherpricesderegulated
Controlslimitedtosomelocalaccessandcalltermination
Universalserviceobligations
Bornebyincumbent Costedandshared(orignoredifnotmaterial)
Asintransition,withthepossibilityofacontesttobetheuniversalsupplier
3.Governmentshavetypicallyimposedauniversalserviceobligation(USO)onthehistorictelecommunicationsoperator,basedupontworequirements:anobligationtoprovideservicetoallpartsofthecountry,andtoprovideatauniformprice,despitethepresenceofsignificantcostdifferences.Entrantscomingintothemarketwithoutsuchanobligationhaveastrongincentivetofocusuponlowcost,profitablecustomers,therebyputtingtheUSOoperatoratadisadvantage.Pressuremaythereforebuilduptoequalisethesituation,perhapsbycalculatingthenetcostoftheUSObornebythedominantoperatorinservinglossmakingcustomersandthensharingthecostamongalloperators.Therehasbeenconcern,firstthatsuchanarrangementwouldbeusedasapretextfordelayingcompetition,andsecondthathighUSOcontributionsimposedonentrantswouldchokeoffcompetitors.Inpractice,mostregulatorsindevelopedcountrieshavemaintainedtheUSOasanobligationonthefixedincumbent,withoutintroducingcostsharingobligations.Manydevelopingcountrieshaveestablishedfunds,whichareoftenunderutilisedormisspent.
AstrategyformovingtowardsnormalisationisdiscussedinSection20.3below.
20.2.3TechnicaldevelopmentsCopperhasformedthebasisofthelocaldistributionnetworkforfixedtelecommunicationsformanydecades.Overthepastdecadeorso,technologicaldevelopmentshaverendereditcapableofprovidingcurrentgenerationbroadbandspeeds,(p.506) ofupto20megabitspersecond.However,copperhasitslimits,andincreasinglyoperatorsarelookingtoreplaceitwithnewsocalledNextGenerationAccessnetworks(NGAs),whichtakefibrerightupto,ormuchclosertocustomers'premises,andarecapableofachievingspeedsofanorderofmagnitude
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higherthancoppernetworksareabletoachieve.
Thecostsofinstallationarehuge.ItisestimatedthatthereplacementbyfibreoftheexistingubiquitouscoppernetworksineithertheUSortheEUwouldcostseveralhundredbilliondollars.Suchexpendituremayrequiregovernmentsubsidy,andinmanyjurisdictionspublicfundingfrombothlocalandnationalgovernmentsiscofundingfibredevelopments.
Fromaregulatorystandpoint,NGAspresentmanychallenges.Unlikecoppernetworks,theircostshavenotasyetbeensunk.Hence,absentcontractualobligationsresultingfromgovernmentfunding,investorownedoperatorshavetheoptionofdelayindeployingthem;bycontrast,inreturnfordeployingthem,theywillseekconcessionsfromtheregulator,certainlyintheformofsomekindofregulatorycertaintyandprobablyintheformofsomerelaxationoftheobligationstoprovideaccesstocompetitorswhichtheymaybesubjectinrespectoftheircoppernetworks(Lewin,Williamson,andCave,2009).
Itisimportanttonotethatveryhighspeedservicescanbeprovidedbynetworksotherthanthefibresuccessortoacoppertelecommunicationsnetwork.Upgradedcablesystemscanprovidebroadlythesamecapabilities.NewwirelesstechnologiesmayalsoposeacompetitiveconstraintontheservicesofNGAs.Customersofwirelessbroadbandserviceshavegrownverysharplyinrecentyears,andwirelesstechnologies3G,itslikelysuccessors,andWiMaxofferincreasinglyhighspeeds.Accordingly,oneregulatorystrategy,adoptedintheUnitedStates,istorelyoncompetitionbetweenoperatorswithNGAs(say,thecablecompanyComcastandthetelecommunicationsfirmVerizon),augmentedbyconstraintsofferedbywirelessnetworks,toprotectendusersfromabusesandcreateincentivesforfastdiffusion.InEurope,suchregulatoryforbearanceisunlikelytobeadopted,butlessintrusiveregulationmaybeemployedinordertoenhanceinvestmentincentives(see,forexample,Ofcom,2009).
20.3ImplementingaStrategyforHeavierRelianceonCompetitionLawTelecommunicationsregulators,facedwiththeopportunitiesforincreasingcompetitiondescribedabove,haveconvergedonastrategyforderegulationwhichseekstolimitregulationtocaseswherethereisasignificantriskofabuseofmarketpower.The(p.507)mostcomprehensiveoftheseistheoneadoptedintheEuropeanUnion,whichwenowdescribe.Othercountries,includingAustralia,Canada,NewZealand,andtheUnitedStates,adoptoraspiretoadoptbroadlythesameapproach,inthesensethatregulationisreducedovertimebymakingitsapplicationtoanyservicedependentinsomewayonademonstrationthatmarketpowerordominancewould,absentregulation,createcompetitionproblemsormarketfailures.
Afteratortuousandprolongedlegislativeprocess,thenewEuropeanregulatoryframeworkcameintoeffectinJuly2003,anditsfundamentalbasisemergedunchangedfromrevisedlegislationin2009.ItisbasedonfourDirectivesandanarrayofothersupportingdocumentationintheformofsoftlawlegalinstruments,whichlendthemselvestomodificationandrevisionrelativelyquicklyinresponsetotechnologicalandcommercialinnovation(Directives,2002).Atonelevel,thenewregimeisamajorstepdownthetransitionpathbetweenthestagesofmonopolyandnormalcompetition,tobegovernedalmostentirelybygenericcompetitionlaw.Itsprovisionsareappliedacrosstherangeofelectroniccommunicationsservices,ignoringpreconvergencedistinctions.ItrepresentsaningeniousattempttocorraltheregulatorsintheEU,thenationalregulatoryagenciesorNRAs,downthepathofnormalisationallowingthem,however,toproceedattheirownspeed(butwithintheuniformframeworknecessaryfortheEU'scommonorinternalmarket).Sincetheendstateissupposedtobeonethatisgovernedbycompetitionrules,theregimeisdesignedtoshifttowardssomethingthatisconsistentwiththoserules.Theserulesaretobeapplied(incertainmarkets)notinaresponsiveexpostfashion,butinapreemptiveexanteform.However,ascreeningmechanismisusedtolimitrecoursetosuchexanteregulation,insofarasitshouldonlybeappliedwhenthesocalledthreecriteriatesthasbeenfulfilledforanyparticularformofmarketbasedintervention.Thesecriteriaare:
(1)thepresenceofnontransientbarrierstoentry;(2)theabsenceofatendencytowardseffectivecompetitionbehindtheentrybarriers;(3)theinsufficiencyofcompetitionrulestobeabletoaddresstheidentifiedmarketfailuresarisingfromthemarketreviewprocess.
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Thenewregimethereforereliesonaspecialimplementationofthestandardcompetitiontriumvirateof:
(a)marketdefinition;(b)identifyingdominance;(c)formulatingappropriateremedies.
Accordingtotheunderlyinglogicofthisregime,alistofmarketswhereexanteregulationispermissibleisfirstestablished,themarketsbeingdefinedaccordingtostandardcompetitionlawprinciples.Thesemarketsareanalysedwiththeaimofidentifyingdominance(onaforwardlookingbasis,andknownasSignificantMarketPower).Wherenodominance(expressedasthelackofeffective(p.508) competition)isfoundtoexist,noremedycanbeapplied.Wheredominanceisfound,thechoiceofanappropriateremedycanbemadefromaspecifiedlistofprimaryandsecondaryremedieswhichisderivedfrombestpractices. Thepracticaleffectofthisistocreateaseriesofmarketbymarketsunsetclausesasthescopeofeffectivecompetitionexpands.
20.3.1MarketdefinitionIn2007,theCommissionissuedarevisedRecommendationlistingsevenrelevantproductmarketsforwhichNRAsmustconductamarketanalysis(EuropeanCommission,2007).Thiscutfrom18thenumberlistedinthe2003version,areductionwhichsupportstheclaimofderegulatorysuccess.Thelistnowcomprises:oneretailmarket(accesstoafixedline);theterminationofcallsonindividualmobileandfixednetworks;wholesaleaccesstophysicalinfrastructure,includingcopperloops,fibre,andducts;abroadbandaccesswholesaleproduct;andlocalsectionsofleasedlines.NRAscanalsoaddorsubtractrelevantmarkets,usingspecified(andquitecomplex)procedures.
EuropeanNRAs,aswellastheEuropeanCommissionandthecourts,haveundertakenmanymarketdefinitionexercisesalready,oftenusingthenowconventionalcompetitionpolicyapproach.Thisofteninvolvesapplying,ataconceptuallevel,thesocalledHypotheticalMonopolistTest,underwhichtheanalystsseektoidentifythesmallestsetofgoodsorserviceswiththecharacteristicthat,ifamonopolistgainedcontroloverthem,itwouldbeprofitabletoraisepricesby5to10percentoveraperiod,normallytakentobeaboutayear(O'DonoghueandPadilla,2006:6990).Themonopolist'sabilitytoforcethroughapriceincreaseobviouslydependsupontheextenttowhichconsumerscanswitchawayfromthegoodorserviceinquestion(demandsubstitution)andtheextenttowhichfirmscanquicklyadapttheirexistingproductivecapacitytoenhancesupply(supplysubstitution).Aconsequenceoftherelianceoftheproposednewregimeonexanteorpreemptiveregulationisthatitisnecessarytoadoptaforwardlookingperspective.
Amorecontroversialaspectofmarketdefinitionistheidentificationofthegeographicdimensionofarelevantwholesaleproductmarket(namely,thoseproductmarketsinrelationtowhichvariousformsofexanteaccessremedyareprescribed).Theconventionalwisdomhasbeenforallgeographicmarketsinthetelecommunicationssectortobeidentifiedasbeingnationalinscope,butfundamentalchangesovertimeinthecompetitiveconditionsfacedbyfixedincumbentoperatorsincertainregionsintheprovisionofbroadbandserviceshavemeantthatthecompetitiveenvironmentisnolongerthesameacrossthewholecountry.TheresponseofsomeNRAshasbeentodefinesubnationalgeographicmarkets,insomeofwhichregulationcanberemoved.OtherNRAs(p.509) haveoptedtoachievethesamenetresultbyadifferentmeansnamely,bycontinuingtodefineawholesalemarketasbeingnationalinscopewhileatthesametimetargetingremediesonlyatthosegeographicregionswhicharenotfacedwithanymeaningfulcompetition.Althoughbothapproachesaredesignedtoachievethesameresult(thatis,theliftingofexanteregulationinresponsetothecreationofeffectivecompetition),theformeristhemorepuristapproach,insofarasitismorecompatiblewiththeEuropeangoalofachievingamoreharmonisedanalyticalapproachtoregulation,asopposedtomerelyachievingasimilarendresult.
20.3.2DominanceTheCommissionproposed,andEuropeanlegislatorsacceptedtheclassicaldefinitionofdominance(definedastheabilityofafirmtobehavetoanappreciableeffectindependentlyofitscustomersandcompetitors)asathresholdtestforexanteintervention,usingthetermsignificantmarketpowerorSMPtoreflectitsparticularapplicationinanexanteenvironment.Thedominancecanbeexercisedeitherindividuallyorcollectivelybyoperators,orleveragedintoaverticallyrelatedmarket.
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Althoughsinglefirmdominancehascometobewellunderstood,jointdominance(ortacitcollusion)hasbeenoneofthemoreelusiveconceptsinEuropeancompetitionlaw.However,whatismorenoteworthyistherelativelackofcandidatesforjointdominanceinfixedtelecommunicationsmarkets.ThisarisesbecausefixedmarketsinEuropearesometimeseffectivelycompetitiveandsometimesdominated(singly)bythehistoricmonopolist.Jointdominancehas,however,beenattributedtomobilemarketsinsomecountries,whereasmallnumberofoperatorsshelterbehindbarrierstoentrycreatedbyspectrumassignmentprocedures.
Theregulatoryframeworkalsomakesprovisionforthosesituationsinwhichaverticallyintegratedfirmfindsitadvantageoustodistortcompetitiondownstreamasameansofbolsteringitsupstreammarketpower.Thisisachievedbyavarietyofmeansinvolvingtheinteractionofparticularfeaturesofeachmarket.Forexample,inonemarket(say,fordeliveryplatformssuchascableorsatellite),theremaybeconsumerswitchingcosts,becauseconsumersneedtomakesignificantinvestmentsinequipment.Thesecondmarketmayexhibitservicedifferentiation.Insuchcircumstances,makingthecontentexclusivetothedeliveryplatformmaystrengthenconsumerlockinandprovidethefirmwiththeabilitytodistortcompetition.Totakeanotherexample,adominantfirmintheprovisionofnetworkservicesforbroadbandmayseektoexploitthatmarketpowertoextenditsdominanceintotheretailbroadbandmarket,forexample,byobstructingcompetitorsintheireffortstouseunbundledlocalloopsrentedfromthefixedincumbenttoprovideanadequateservicetotheirownretailcustomers(seethediscussionofthefunctionalseparationremedybelow).Theexistenceofthe(p.510)leverageddominanceoptionhas,atleasttodate,notbeenutilisedbyNRAsinpractice.Instead,theyhavereliedonatraditionalanalysisofdominanceandhavetailoredtheensuingremediesaccordingly.Inothercases,instancesofleverageddominancehavebeenaddressedbycompetitionrules,whichacceptthenotionthatmarketpowercanbeabusedinamarketbeyondthespecificmarketinwhichthedominancehasbeenidentified.
20.3.3RemediesUndertheDirectives,NRAshavethepowertoimposeobligationsonfirmsfoundtoenjoySignificantMarketPowerinarelevantmarket.TheNRAsactwithinaframeworkofdutiessetoutinArticle8oftheFrameworkDirective.Themeasurestheytakeshallbeproportionatetothepolicyobjectivesidentified.Thiscanbeconstruedasmeaningthatinterventionisappropriatenomorethanatalevelthanisnecessary,and,byimplication,satisfiesacostbenefittest,inthesensethattheexpectedbenefitsfromtheinterventionexceedtheexpectedcosts.Policyobjectivesarealsospecified,includingpromotingcompetition,eliminatingdistortionsorrestrictionstocompetition,encouragingefficientinvestmentandinfrastructureandprotectingconsumers.
Themajorapprovedremediesaredescribedbelow:
Obligationofnondiscrimination.Thisrequirestheoperatortoprovideequivalentconditionsinequivalentcircumstancestootherundertakingsprovidingsimilarservices,andtoprovideservicesforitsownservices,orthoseofitssubsidiariesorpartners.Theformsofdiscriminationwhichareprohibitedhaveclosesimilaritieswiththosewhichareidentifiedundercompetitionrules.Obligationtomeetreasonablerequestsforaccessto,anduseofspecificnetworkfacilities.AnNRAmayimposeobligationsonoperatorstograntaccesstospecificfacilitiesorservices,includinginsituationswhenthedenialofaccesswouldhindertheemergenceofacompetitiveretailmarket,orwouldnotbeintheenduser'sinterests.Thisrepresentsanobligationtobeimplementedincircumstancessimilarto,butsignificantlybroaderthan,thoseinwhichtheessentialfacilitiesdoctrineisappliedundercompetitionrules.Theextensiontothetestliesinthereplacementofthepreconditionundercompetitionrulesformandatingaccess,thattheassetisessentialandcannotbereplicated,bythemuchbroaderconditionnotedabove.Theobligationissilentaboutthepricingofsuchaccess,excepttotheextentthatitprohibitsunreasonabletermsandconditionshavingasimilareffecttoanoutrightdenialofaccess.Therangeofpricingprinciplesmaythereforedepartfromsimplecostbasedpricestoincludeotherapproaches,suchasretailminuspricing.Pricecontrolandcostaccountingobligations.Thisimpliestheimpositionofacostorientedprice,whichislikelytobeappropriatewhendealingwithan(p.511) operatorwithSMPthatisbothpersistentandincapableofbeingdealtwithbyotherremedies,includingparticularlystructuralremedies.Proposedremedyinvolvingfunctionalseparation.Thistakeseffectfrom2010.ItpermitsanNRAtoimposeanobligationonanoperatordominantinseveralmarketstoplaceitsactivitiesrelatingtotheprovisionoflocal
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accesstocompetitorsinabusinessunitoperatingindependentlywithinthegroup.Thisisdesignedtopreventsystematicnonpricediscriminationbytheoperatorinfavourofitsaffiliatedunitsoperatingincompetitivemarkets.Itsapplicationwillbesubjecttocertainsafeguards.Thisremedyisproposedaspartoftelecommunicationsregulation.Butthisremedy,likeothers,bearsarelationshiptoactionwhichcanbeundertakenundercompetitionrules.Inalimitednumberofjurisdictions,thecompetitionauthoritycanrequirethedivestitureofsomeofadominantfirm'sassets,oritcanacceptundertakingsofferedbythatfirminlieuofseekingfulldivestiture.BT,thehistoricmonopolistintheUK,in2005offeredfunctionalseparationasanundertakingtoremedyapossibleadversecompetitionlawfindingunderthatcountry'sEnterpriseAct2002.Retailpriceregulation.UntilanNRAdeterminesthataretailmarketisnoteffectivelycompetitiveandthatothermeasureswillnotsufficetosolvetheproblem,itcanensurethatundertakingswithsignificantmarketpowerinthatmarketorienttheirtariffstowardscosts,avoidingexcessivepricing,predatorypricing,unduepreferencetospecificusers,ortheunreasonablebundlingofservices.Thismaybeachievedbytheuseofanappropriateretailpricecap.
Whathasbeenpresentedinthissectionisastrategyformovingasectorfromheavyrelianceonsectorspecificregulationtoreliancepredominantlyoncompetitionlaw.AfullappraisaloftheEuropeanprojectdescribedabovewillnotbepossibleforseveralyears.Earlysignsarepromising,buttheregimemustalsoovercomethechallengesassociatedwithNextGenerationNetworksdescribedintheprevioussection.
Thestrategywillonlysucceedifcompetitionrules,appliedinnetworkindustriessuchastelecommunications,caninfactservethelongterminterestofendusers.Wenowturntoconsiderthisissue.
20.4TheRoleofCompetitionRulesBywayofcomplementingsectorspecificregulation,horizontalcompetitionrulesalsoapplywithequalforcetoregulatednetworksectors.WithintheEuropeanUnion,itisnotaquestionofdecidingwhethertheexanteortheexpostregimewillapply,butmoreaquestionofdeterminingwhichregimeprovidesthemore(p.512)appropriateformoflegalredressinthecircumstances(intermsofspeed,breadthofremedy,natureofmarketfailuresaddressed)orwhetherbothtypesofregimecanapplyintandem(e.g.anexantetransparencyorcostingremedycanbeusedtoexposetheexistenceofamarginsqueezeorpredatorypricing,whereastheinfringementcanbeprosecutedexpost).
IntheEuropeanUnion,thekeyprovisionintheexpostregulationofmarketpower(andofteninrelationtoanexstatutorymonopolist)isArticle82oftheECTreaty.Article82ECdoesnotprohibittheexistenceofadominantposition.Rather,itaddressestheabuseofmarketpower.ThefollowingthreecumulativeelementsarerequiredtobeestablishedinordertofindthattherehasbeenaviolationofArticle82:
Theexistenceofadominantpositioninarelevantproductandgeographicmarket.Anabuseofthatdominantpositionintherelevantmarketorthroughtheleveragingofmarketpowerintoarelatedmarket.ResultinginaneffectontradebetweenMemberStates(inordertodetermineCommunity,asopposedtonational,jurisdiction).
Article82doesnotitselfprovideadefinitionofwhatconstitutesanabuse.Anabusehasbeendefinedastheuseofunjustifiedornoncommercial(inthesenseofnotbeingobjectivelyjustifiable)meanstopreventorinhibitcompetitioninthemarket.Somecommentatorstaketheviewthattheprohibitionshouldonlyapplytobehaviourthatreducesconsumerwelfare,whileothersviewitasprotectingtheprocessofcompetition.Article82itselflistsonlyfourspecificcategoriesofabuse,namely:
Directlyorindirectlyimposingunfairpurchaseorsellingpricesorotherunfairtradingconditions.Limitingproduction,marketsortechnicaldevelopmenttotheprejudiceofconsumers.Applyingdissimilarconditionstoequivalenttransactionswithothertradingparties,therebyplacingthematacompetitivedisadvantage.Makingtheconclusionofcontractssubjecttoacceptancebytheotherpartiesofsupplementaryobligations
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which,bytheirnatureoraccordingtocommercialusage,havenoconnectionwiththesubjectofsuchcontracts,i.e.tyingarrangements.
However,otherconductdesignedtostrengthenormaintainmarketpowermayalsoinfringeArticle82EC,particularlywhenonetakesintoaccountthataclearlydominantoperatorhasaspecialresponsibilitytothemarketintermsoftheacceptabilityofitscommercialactions,solelybyreasonoftheexistenceofitsmarketpower.Commentatorsoftencategoriseabusesasbeingeitherexclusionary(i.e.practicesthatseektoharmthecompetitivepositionofcompetitorsortodrive(p.513) themfromthemarket)orexploitative(i.e.directlyharmingcustomers,forexamplebyexcessiveprices).
Exclusionaryabusesincluderefusalstodeal,pricingpractices,crosssubsidisation,andstructuralabuses.Thesearethesortsofabuseswhichexanteregulationismostconcernedtoaddress.Abusesmustbeobjectivelyidentifiable,andmustbedistinguishedfromcompetitiononthemerits(whichis,orcourse,procompetitive).Exclusionaryabusesmusthavetheeffectofhinderingthemaintenanceofthedegreeofcompetitionexistinginamarket,orthegrowthofthatcompetition.
IntherecentappealinvolvingDeutscheTelekom, theCourtofFirstInstance(theCFI)madeitclearthatexpostcompetitionruleswillcontinuetoapplydespitetheexistenceofexanteregulation,unlessthesystemofsectorspecificregulationconfersuponthedominantfirmnomarginoffreedominwhichtopursueanindependentpricingpolicy.ThispositiondiffersquitemateriallyfromthattakenbytheUSSupremeCourtinTrinko, wheretheSupremeCourtruledthatsectorspecificregulationtrumpsantitrustrules,andallowslittleornoscopeforantitrustclaimswherethatregulationcoversthefield.TheCFI'sapproacharguablyreflectstheinstitutionalandpolicybalancesthathavebeenstrucksincetheintroductionofliberalisationmeasuresatEuropeanlevelintheearly1990s.NotonlydoesEUlevelregulationnotpurporttocoverthefield, butitisalsoadoptedinamannerthatenvisagestheexistenceofasymbioticrelationshipbetweenthetwodisciplines.InstrikingtheappropriatebalanceundertheCommunitylegalorder,itisinevitablethatcompetitionruleswillhavearesidualroletoplay,whichwillgrowastheroleofsectorspecificregulationdeclines.
Bycontrast,antitrustandregulatorypolicymakingintheUShavedevelopedalonglargelyindependentpaths.Thereisnooverallcoordinationbetweenthepolicygoalssoughttobeachievedundereitherdiscipline.ItthereforecomesaslessofasurpriseifaUScourtoflawanalysesanantitrustactiononitsowntermswithoutrecoursetothepolicygoalsofanotherinstitutionofthegovernment,whoseinterventionswillmorelikelythannotbeseentobemarketdistorting.SuchanapproachliesattheheartoftheTrinkodoctrinethatthereislittleornoroleforantitrustwheresectoralregulationeffectivelycoversthefieldinitsregulationofcommercialinteractionsbetweencompetitors.
TherecentLinkLine JudgmentoftheUSSupremeCourttakesthatthinkingonestepfurtherbyclarifyingthatanobligationtodeal,ifimposedbyaninstrumentotherthananantitrustorder,rulesouttheroleofanantitrustactionasregardsthatelementoftheoffence.Bythesametoken,theexistenceofregulationofsomesortatthewholesaleleveldoesnotmeanthatantitrusthasnoroletoplayasregardsapredationclaimattheretaillevel;indeed,thepredatorypricingclaimisstillbeingpursuedindependentlyoutsidethecaseheardbeforetheSupremeCourt.ManyUScommentatorsfeelthattheneteffectoftheLinkLineCasewillbetodrivemarginsqueezeactionsintothehandsoftheFCC(FederalCommunicationsCommittee),thefederalregulatoryagencyresponsiblefortelecommunications(p.514)matters(seeAlexiadis,2008andAlexiadisandShortall,2009).Otherthanthroughtheuseofthenondiscriminationremedyonanexantebasis,thatoptionisdifficulttoimplementintheEU,wherethelogicoftheregulatoryframeworkforelectroniccommunicationssuggeststhatexpostinterventionisthemostappropriateformofinterventionwheremorethanonefunctionallevelofcompetitionisaffected(i.e.wholesaleandretaillevels).
20.5ExperienceFromOtherNetworkIndustry/UtilitySectorsTheflexiblebalancebetweenexanteandexpostinterventionachievedinthetelecommunicationssectorhasnotbeenreplicatedinothernetworksectors,eventhoughitisseenasaparadigmofhowsectorspecificregulationshouldinteractwithcompetitionrules.
Partofthereasonstemsfromthefactthatothersectorsarelesspronetofundamentaldisruptionthroughthe
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forcesofinnovation,andhencelesslikelytobecapableofadaptationtomarketconditions.Inaddition,somesectorsrequirethatagreateremphasisbeplacedontheprovisionofuniversalserviceorthesecurityofsupply.Mostfundamentally,theeconomicsofothernetworksectorspermitaclearerandmorepermanentdistinctionbetweennaturalmonopolycomponents,suchasagasdistributionnetworkortraintracks,whichitisnaturaltodealwiththroughexanteregulation,andpotentiallycompetitiveactivitiessuchasretailing,inrelationtowhichexpostinterventionviacompetitionlawshouldbeadequate.Inwhatfollowsitisassumedthatnaturalmonopolyelementsareregulatedinthisway,andabriefoverviewisgivenofhowexpostdisciplinesareapplied.
Itisworthpointingoutthathowwellorbadlycompetitionlawandregulationinteractdependsonakeyinstitutionalfeatureofthearrangementswhetherthesameagencyisapplyingboth.Insomejurisdictions,thereareseparatecompetitionandregulatoryauthorities.Inothers,asinglebodywieldsbothpowers.Intheformercase,theremayberivalryandcoordinationfailures.Inthelatter,competitorsandendusershaverecoursetoonlyoneagencytoseekredressfortheircomplaints.
20.5.1EnergyEnergyiscurrentlythenetworksectorreceivingthemostattentionfromtheEuropeanCommission'scompetitionservices,withemphasisbeingplacedontheenforcementofArticle82infringementactionsandtheimplementationof(p.515) regulatorypoliciesthroughthemediumofmergerreviewundertheMergerRegulation. Thecompetitivedynamicintheenergysectorisheavilyinfluencedbytwocompetingpublicpolicygoals,namely,theneedtomakedifferentenergyproductsavailabletothepopulationatthecheapestpossibleprice,whileatthesametimebeingmindfuloftheimportanceofconservingenergy(i.e.restrictingproduction)andpromotingecologicallyfriendlyenergyproducts.Thecombinationofthesepolicydriversmeansthateconomiesofscalearecritical,asistheabilitytosecuresupplyoveralongperiodoftimeandwithrespecttoavariednumberofenergysources.Moreover,italsomeansthattheinternationalimpetusforcooperationamongNRAsisincreased,asenergyproductsareoftensourcedextraterritorially(therebyincreasingtheimportanceofcrossborderinterconnectionrelationships).
TheCommissionhasadoptedaseriesofliberalisationpackagesintendedtoopenupthegasandelectricitymarketsamongMemberStates.Thefirstliberalisationpackageentailedtheadoptionofdirectivesonpricetransparency.Thesecondliberalisationpackageencouragedinvestmentinordertobuildelectricityandgaslines,theunbundlingofdistributionoperations,andtheintroductionofaccesstotransmissionnetworks.Thethirdpackageprovidesfortheunbundlingofenergyinfrastructure(albeitprovidinganumberofalternativesincludingapproachesfallingshortoffullownershipunbundling),andlimitstheabilityofnonEuropeanentitiestoacquiretransmissionnetworks(asdistinctfromproducers).
Inparallelwiththeseregulatorymeasures,theCommissionwillusecompetitionrulestohelpachievethreeprincipalpolicygoals,namely:
(1)theintroductionandmaintenanceofasupplystructurefavourabletocompetition;(2)theintroductionofaneffective,transparent,andnondiscriminatoryaccessregimetotransmissionnetworks(allowingcustomerstobereachedbyalternativesuppliers);and(3)ensuringthatcustomersarenotpreventedfromswitchingsuppliers(throughlockinorlongtermexclusivesupplycontractswithincumbentsuppliers).
TheparallelapplicationoftheCommunitycompetitionrulesalongsidesectorspecificmeasurescanbeseenintheCommission'sinvestigationsofEdF,E.ON,RWEandanumberofothersectorparticipantsoverthecourseof2007and2008.
20.5.2TransportThereexistsafundamentallydifferentregulatorymodelforeachparticularmodeoftransport.ThisreflectsthehistoricalrolewhicheachmodeoftransporthasplayedinthehistoryofeachMemberState.
Forexample,aviationwasformanyyearsregulatedbilaterallybysovereignstatesinrelationtointernationalroutes,anddomesticrouteswereessentiallyclosedand(p.516) amatterofdomesticregulation.Maritimetransport,bycontrast,wasleftvirtuallyunregulatedforinternationalroutes,wasprogressivelyregulatedas
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regardsintraCommunityroutesandwassubjecttodomesticregulationasregardsdomesticferryservices.Inturn,commercialbarges,giventheirverylowratesofreturn,weresubjecttothetaxicabrule(i.e.nocompetitionforservicesbeyondacustomertakingthefirstbargethatarrives).Railwayregulationwashistoricallynational,wasimposedonanationalmonopolist,andwasdrivenprimarilybyconcernsaboutsecurityandtechnicalconsiderations.Roadtransportwas,inturn,regulatedbyreferencetohealthandsafetyconcernsonanationalbasis,withrightsoftransitprovidedforvehiclesfromothercountries.Thegrowthininternationaltradebymeansofstandardsizedcontainershasassistedinalleviatingatleastsomeofthedifferenttechnicalconsiderationsthatusedtodrivefundamentaltechnicaldifferencesinregulationacrossdifferentmeansoftransport,therebyallowinggreaterinteroperability(expressedpracticallyintheconceptofintermodaltransport).Beyondthispoint,however,therehasbeenwidespreadconflictbetweentheapplicationofcompetitionrulesandtheoperationofsectorspecificrules,asnationalMinistriesofTransportingeneralhavesoughttopreservetheirrightstoregulatealongnationallinesallaspectsofanindustryfallingwithinthescopeoftransport.
TheliberalisationofmarketshaseitheroccurredthroughtheadoptionofspecificEUDirectivesinsectorssuchasrail,whilerecoursetotheessentialfacilitiesdoctrinehasbeenusedastheinitialbasisuponwhichtheairportsandseaportshavebeenopeneduptocompetition. Inthisway,fundamentalquestionsofaccesshavebeengovernedbyArticle82oftheECTreaty,includingthechargingofexcessiveordiscriminatorypricesforaccessaswellastheactualorconstructivedenialofaccess.Unlikeothersectors,whicharecharacterisedpredominantlybymarketpowerissues,thetransportsectorseemstogeneratemoreformsofcartelisedbehaviour.Thisisbecausethemanagementofcapacity,theschedulingofpassage,theseasonalnatureofcertaintypesoftravelandhaulage,andthebilateral/multilateralnatureofmanyrelationshipsinthesesectors,resultincoordinatedbehaviourasregardspricing,timing,andavailabilitywhichisinpartnecessitatedbytheverynatureofthecooperationrequiredratherthanadesiretoengageinhardcoreinfringementscontrarytoArticle81oftheECTreaty(whichprohibitsmultilateralanticompetitivebehaviour).Accordingly,asignificantamountofleewayhasbeengrantedtooperatorsinthesesectorsonanArticle81analysis,andevenspecialProceduralRegulationshavebeenadoptedbytheEuropeanCounciltoensurethatsuchcompetitionclaimsareevaluatedintheirproperindustrycontext.
Inaddition,specificBlockExemptionshavebeenadoptedwhichgrantimmunityunderthecompetitionrulestocertaintypesofpracticesinthemaritimesector.Overtime,thefullforceofthecompetitionruleshasprogressivelyencroachedintothemaritimesector,tothepointwheretheBlockExemptions(p.517) previouslyadoptedhavebeenrepealed,tobereplacedbyCommissionGuidelinesin2008whichpurporttoimplementthecompetitionprinciplesoftheECTreaty.
Asregardsairtransport,aseriesofliberalisationpackageswereintroducedasearlyas1987andhavebeenintroducedatregularintervalssincethen,encroachingprogressivelyintomostsensitiveaspectsoftheaccessandtariffaspectsofairtransport.Duringthatperiod,anumberofimportantinfringementactionshavebeentakenunderArticle82againstvariousairlinesfordiscriminatorypricingandforfidelityrebates, aswellasaseriesofactionsagainstthemisuseofcomputerreservationsystemsandtheabuseofgroundhandlingmonopolies.Mostimportantly,theCommissionhasbeenveryactiveindevelopingregulatorypolicydefactothroughthemediumofmergerreviewundertheMergerRegulation,especiallygiventhelargenumberofacquisitionsandstrategicalliancesthathavetakenplaceinthesectoroverthepastfewyears.Inaddition,theCommissionhasbeenparticularlyactiveinensuringthatStateaidspackagestostrugglingnationalcarriersandtoregionalairportsarenotdistortiveofcompetition.Althoughmostnewentrantsofferpointtopointservices,therelativeimportanceofthehubandspokeaspectofcompetitioninthesectormeansthattheimplicationsoftheOpenSkiesAgreementwiththeEU'smajortradingpartnersstillneedtobeexploredintermsoftheirimpactonbroadercompetitiverelationships.
20.5.3PostalservicesThefundamentaldilemmafacingregulatorsentrustedwiththeliberalisationofthepostalsectorhasbeentheneedtostrikethecorrectbalancebetweenmaintaininganappropriatelevelofuniversalservicetocustomersandpromotinganeffectivelevelofcompetition.Thishasbeenachievedthroughtheprogressiveliberalisationofthesectorsince1991withtheopeningupofcourierservicesfirst,theprogressiveliberalisationofthereservedsectorbasedintheweightoflettersandparcels,theliberalisationofallcrossbordermailand,undercompetitionrules,theprohibitionofthecrosssubsidisationofcompetitiveservicesfromuniversalservicesreservedservices.
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Inthecontextofpostalservices,thiskindofcrosssubsidisationcouldleadtogreatercompetitiveproblemssuchaspredatorypricingandloyaltyrebates.
Theapplicationofcompetitionruleshastakenaccountofthespecialtasksofgeneralinterestinthesector,particularlywithregardtoArticle86(2)oftheECTreaty. Accordingly,asidefromtheprohibitionagainstcrosssubsidisation,emphasisisplacedontheimportanceofnotdiscriminatingbetweenlargecustomersandsmallusers.Bycontrast,thereisnothingtopreventthemfromchargingpostalrateswhicharenecessaryforthemtobeabletoprovidetheuniversalpostalserviceundereconomicallyviableconditions.(p.518)
Marketdefinitionincompetitioncasesdistinguishesbetweentheuniversal(orbasic)postalserviceontheonehand,andtheexpresspostalservicemarket:thislattercategoryincludesspecificservicessuchashomepackagecollection;personaldelivery;guaranteeddeliverytimes;packagetrackingservices,andsoforth.Despitetherelativeimportanceoftheuniversalpostalserviceobligation,theenforcementofcompetitionruleshasbeenparticularlyaggressiveovertheyears,withtheCommissionhavingbroughtanumberofArticle82actionsagainstdominantpostaloperatorsbecauseoftheirvariouspricingpractices,includingpredatorypricingandvariousbundlingpractices. Inaddition,MemberStateshavealsobeenprohibitedfromextendingtheincumbentpostaloperator'smonopolyinthereservedareaintoareasopentocompetition.
Bycontrast,theCommissionhasbeenkeentopromotethemarketintegrationgoal,bygrantingclearancetoanumberofjointventuresfortheprovisionofinternationalcourierservicesortheacquisitionofminorityshareholdingsinprivateexpresscourierservices.Inaddition,theCommissionhasgreateraseriesofexemptionsunderArticle81oftheECTreatytotheseriesofREIMSAgreementsenteredintobetweenmanynationalpostaloperatorsinconnectionwiththeirsystemofterminaldues(i.e.thefeespaidbypostaloperatorstooneanotherforthedeliveryofcrossbordermailinthecountryofdestination).Onbalance,thelossofcompetitioninfreedomtosetpricesforincomingcrossbordermailisconsideredtobemorethanoffsetbythecontributionstothequalityandspeedofdeliveryofcrossbordermaildeliveriesbytheadoptedterminalduesarrangements.
20.6RegulationandCompetitionLawinNetworkIndustriesNetworkindustriesfaceacuteproblemsofmarketfailure,andalsoprovideservicesofparticularsocialsignificance.Asaresult,theyaresubjecttohighlevelsofbotheconomicandsocialregulation.Economicregulationcanbeaccomplishedeitherthroughsectorspecificexanteinterventionorthroughapplicationofgenericexpostcompetitionlaw.Thetwoapproachescanbecombinedinseveralways.IntheUnitedStates,theSupremeCourtTrinkoJudgmentconcludedthattherewasnoroomforantitrustremedieswhensectorspecificregulationwasinplace.IntheEU,ontheotherhand,competitionlawoperatessidebysidewithregulation.
Whennetworkindustriesareliberalised,thedevelopmentofcompetitionoccursoveraperiod,inthecourseofwhichregulationofaccessbycompetitorstotheincumbent'snetworkislikelytoberequired.However,potentiallycompetitiveactivitiessuchasretailingcanbeturnedovertocompetitionlawquitesoon,and(p.519) intelecommunicationsinparticular,competitioncanpenetratefurtherandfurtherintothenetwork,allowingtheboundariesofregulationtoshrink.Manyregulatorsthusrequireamarkettoexhibitahighlevelofmarketpowerbeforeinterveningexante.ThemostelaborateregimeofthiskindfortransitioningfromregulationtorelianceoncompetitionlawisfoundintheEuropeanUnion,andisdescribedabove.
Inothernetworkindustriessuchasenergyandtransport,asimilarwithdrawalfromregulationishardertoaccomplish,althoughtherangeofprocompetitiveconcessionsofferedbyoperatorsinthoserespectivesectorsunderthemicroscopeofmergerreviewhasprovidedaveryfertilebasisfortheintroductionofgreatercompetition.Asaresult,themigrationfromexanteregulationtoexpostinterventionisbecomingincreasinglypossibleinothernetworksectorsbeyondtelecommunications. Themannerinwhichthatmigrationisoccurringismorecomplexthaninthecaseoftelecommunications,whichissufficientlyinnovativesoastojustifyuseofafullyfledgedmarketbasedapproachtoassesstheroleofexanteregulation.Othernetworksectors,forexampleenergy,haveoptedforsimplerapproaches,usuallyassociatedwiththemandatingaccessexantetoastablesetofnetworkcomponents.Insuchcasescompetitionrulestendtobecomefocusedparticularlyonexclusionarybehaviourwitharetaildimension,suchaspredationormarginsqueezes.
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ReferencesALEXIADIS,P.(2008).InformativeandInteresting:TheCFIRulesinDeutscheTelekomv.EuropeanCommission,GlobalCompetitionPolicy,May2008.
&SHORTALL,A.(2009).DivergingbutIncreasinglyConverging:TheU.S.SupremeCourtinLinkLine:AEuropeanPerspective,GlobalCompetitionPolicy,April2009.
BROCK,G.W.(2002).HistoricOverviewinM.Cave,S.Majumdar,andI.Vogelsang(eds.),HandbookofTelecommunicationsEconomics,VolumeI:Structure,Regulation,andCompetition,Amsterdam:Elsevier.
CAVE,M.(2006a).EncouragingInfrastructureCompetitionViatheLadderofInvestment,TelecommunicationsPolicy,30:22337.
(2006b).SixDegreesofSeparation:OperationalSeparationasaRemedyinEuropeanTelecommunicationsRegulation,CommunicationsandStrategy,64:89104.
DIRECTIVESOFTHEEUROPEANPARLIAMENTANDTHECOUNCIL(2002):2002/21/EC(FrameworkDirective);2002/20/EC(AuthorisationDirective);2002/19/EC(AccessDirective);2002/22/EC(UniversalServiceDirective).
EUROPEANCOMMISSION(2007).CommissionRecommendationofDecember172007onrelevantproductandservicemarketswithintheelectroniccommunicationssectorsusceptibletoexanteregulation.Brussels:EuropeanCommission(2007/879/EC).
FAULL,J.&NIKPAY,A.(eds.)(2007).TheECLawofCompetition(2ndedn.),Oxford:OxfordUniversityPress.
FUSS,M.A.&WAVERMAN,L.(2002).EconometricCostFunctionsinM.Cave,S.Majumbar,andI.Vogelsang(eds.),HandbookofTelecommunicationsEconomics,Vol.1,Amsterdam:Elsevier.
LEWIN,D.,WILLIAMSON,B.,&CAVE,M.(2009).RegulatingNextGenerationAccesstoFixedTelecommunicationsServices,INFO,July.
O'DONOGHUE,R.&PADILLA,A.J.(2006).TheLawandEconomicsofArticle82EC,Oxford:OxfordUniversityPress.
(p.522) OFFICEOFCOMMUNICATIONS(Ofcom)(2009).DeliveringSuperfastBroadbandintheUK:RegulatoryStatement.
SHARKEY,W.W.(2002).RepresentationofTechnologyandProduction,inM.Cave,S.Majumbar,andI.Vogelsang(eds.),HandbookofTelecommunicationsEconomics,Vol.1,Amsterdam:Elsevier.
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Notes:(1.)Forevidenceofthecostcharacteristicsoffixedtelecommunicationsnetworks,seeFussandWaverman(2002)andSharkey(2002).
(2.)SeeChapter19byHaugeandSappingtoninthisvolume.
(3.)Althoughthevalueofthoseinterchangesmaygrowmoreslowly,aswearelessinterestedintalkingtoperfectstrangersthantofriendsandrelations.
(4.)Thisconsequenceappliesnotonlytovoiceservices,butalsoto,forexample,instantmessagingandthesharingofcontentonnetworks,viacompaniessuchasMySpace.Thenetworkeffectsproblemhassurfacedin
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anotherforminmobilenetworks.Mobileoperatorstypicallyoffertheircustomerslowerpricesforonnetcalls(toamobilesubscriberonthesamenetwork)thanforoffnetcalls(toanothermobilenetwork).Thiscanenhancetheattractivenessofbelongingtothelargestnetworks,ortoonechosenbyone'speergroup.Therehasbeendebateaboutwhethersuchpricesarediscriminatoryoranticompetitive,butnoadverseregulatorydecisionaboutsuchsocalledtariffmediatednetworkexternalitieshassofarbeentaken.
(5.)Universalservicemay,ofcourse,haveeconomicaswellassocialobjectives,asthespreadofcommunicationsservicescanspilloverintotheeconomymorebroadly.
(6.)Entryintomobileservicesorwirelessservicesmoregenerallyhasbeenlimitedbytheavailabilityofspectrum.Mostlargermarketshavehadenoughlicencescreatedtoachievesomethingapproximatingworkablecompetition,althoughtheexistenceofbarrierstoentrydoesencouragetacitlycollusivepractices.
(7.)Becausetheprocessisforwardlooking,thereisnoneedtoprovethatabusivepracticesaretakingplace,althoughevidencethatsuchpracticeshaveoccurredinthepastprovidessupportfortheviewthatexanteregulatoryinterventionisnecessary.
(8.)SeethediscussiononaccesspricinginChapter19byHaugeandSappingtoninthisvolume.
(9.)DeutscheTelekomAGv.Commission(NYR)(JudgmentofCFIofApril10,2008).
(10.)VerizonCommunicationsInc.v.LawOfficesofCurtisv.Trinko,LLP,540U.S.398(13January2004).
(11.)Communitylawusuallyseekstocreateharmonisedregulatoryconditionsinnewlyliberalisedmarketsthroughtheadoptionofdirectives,whichleaveadegreeofdiscretioninthehandsoftheimplementingMemberStatesaboutthelevelofdetailandtheformwhichtheimplementinglawsandregulationswilltake.
(12.)PacificBellTelephoneCo.DBAAT&TCaliforniav.LinkLineCommunicationsInc.,28S.Ct.1109(25February2009).
(13.)TheUK'sOfcomandGreece'sEETT,forexample,arecapableofexercisingbothregulatoryandcompetitionpowersinthetelecommunicationssector.Thegreatmajorityofsectorspecificregulators,however,donotexercisecompetitionpowers.
(14.)Ontheregulationofaccesstoenergynetworks,seeChapter19inthisvolumebyHaugeandSappington.
(15.)ReviewundertheMergerRegulationhasbeenparticularlyhelpfulintheCommissionachievingitsmarketintegrationgoalbyallowingtheindustrytoachievepanEuropeanscale,whileatthesametimeobtainingconcessionsfromindustryasregardsaccesstonetworksbycompetitors.
(16.)Forexample,CommissionconfirmssendingStatementofObjectionstoEdFonFrenchelectricitymarket,29December2008,(MEMO/08/809);E.OnEnergieAGCaseCOMP/B1/39.326(30/01/2008);CommissionopensGermangasmarkettocompetitionbyacceptingcommitmentsfromRWEtodivesttransmissionnetwork,18March2009,(IP/09/410).
(17.)Forexample,refertoSeaContainers/StenaSealink,1994OJL15/8;cf.PortofRodby,1994OJL55/52.RefertoareviewoftheadministrativepracticeoftheCommissionandthejurisprudenceoftheEuropeanCourts,seeWhish(2008),chapter17.
(18.)RefertoCommissionRegulation(EC)No800/2008of6August2008declaringcertaincategoriesofaidcompatiblewiththecommonmarketinapplicationofArticles87and88oftheTreaty(GeneralblockexemptionRegulation)andreferalsotochapter12onTransportinTheECLawofCompetition(FaullandNikpay,2007).
(19.)SeerespectivelyBrusselsNationalAirport,1995OJL216/8,andVirginAirlines/BritishAirways,2000OJL30/1(confirmedonappeal).
(20.)TheOpenSkiescasein2002againsteightMemberStateswasthefirststepoftheEC'sexternalaviationpolicy.ThesecasesledtotheconclusionofbilateralagreementswiththeUS,Canada,Australia,andNewZealand.ThebilateralagreementwiththeUSallows,forthefirsttime,Europeanairlinestoflywithoutrestrictionsfromany
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pointwithintheEUtoanypointwithintheUS.TheUSisalsorequiredtorecogniseallEuropeanairlinesasCommunityaircarriersandtoprovidetherightforEUinvestorstoown,investin,orcontrolUSairlines.ThesecondstageofnegotiationsbetweentheUSandtheEUregardinginternationalaviationendedinMay2008.TheendgoalofOpenSkiesobjectivesistocreateasingleairtransportmarketbetweentheUSandtheEUwithnorestrictionsandthefreeflowinvestment.Sincethen,theCommissionhastakenanumberofstepstointroduceacohesiveSingleEuropeanSkyprogramme.
(21.)RefertoGermanPost,2002OJL247/27.
(22.)Servicesofgeneraleconomicinterestarethoseserviceswhereanundertakingisentrustedwiththeperformanceofspecifictasksbyalegislativeeconomicmeasure.Thiswouldincludetheserviceofbasicutilities.RefertodiscussioninWhish(2008),atpp.2339.
(23.)RefertoGermanPost,op.cit;,cf.BelgianPost,OJL61/32.
(24.)Forexample,seeDutchPTT,1990OJL10/47.
(25.)SeeREIMSI,1996OJC42/7;cf.REIMSII,1999OJL275/17(subsequentlyrenewed).
(26.)TheEuropeanCommission'spowerstoextractbehaviouralconcessionsorundertakingsfrommergingfirmsrelatingtoaccess,forexample,ismatchedbythesimilarpowersofaninstitutionsuchastheDepartmentofJusticeintheUStonegotiateaConsentDecreewiththepartiestoamerger.
PeterAlexiadisPeterAlexiadisisaPartnerintheBrusselsofficeofGibson,Dunn&CrutcheraswellasaLectureratKing'sCollegeLondon.MartinCaveMartinCaveisVisitingProfessoratImperialCollegeBusinessSchool.HewasamemberoftheU.K.CompetitionCommissionfrom1996-2002.Hehasauthorednumerousworksoneconomicregulation,andhasveryextensiveexperienceofadvisingregulatoryagencies,internationalinstitutions,andgovernments.