Transcript 'CEECs' and trade

Competition Law and Electronic Comunications
Dominance and significant market power
12 January 2006
Brussels
EUROPEAN COMMISSION
Inge Bernaerts
Competition DG
1
Overview

1) Dominance under the Regulatory
Framework
(“signficant market power”)
– background
– criteria
– practical difficulties

2) Dominance in antitrust cases
– comparison with SMP assessment
EUROPEAN COMMISSION
Inge Bernaerts
Competition DG
2
The Regulatory Framework – background (1)

New symbiosis between regulation and competition
law
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Markets defined on the basis of competition law
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Old 25% market share threshold  dominance
EUROPEAN COMMISSION
Inge Bernaerts
Competition DG
3
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
EUROPEAN COMMISSION
Inge Bernaerts
Competition DG
4
The Regulatory Framework – checks and
powers under Article 7

market definition

SMP assessment
Veto
Comments
– single or collective dominance

regulatory remedies
EUROPEAN COMMISSION
Inge Bernaerts
Competition DG
5
The Regulatory Framework - statistics
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334 notifications received so far
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from 20 Member States
112 comments letters
6 second phase
4 veto decisions
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71 no comments letters
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EUROPEAN COMMISSION
Inge Bernaerts
Competition DG
6
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 »
EUROPEAN COMMISSION
Inge Bernaerts
Competition DG
7
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]
EUROPEAN COMMISSION
Inge Bernaerts
Competition DG
8
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
EUROPEAN COMMISSION
Inge Bernaerts
Competition DG
9
The Regulatory Framework – other criteria to be
taken into account

size of undertaking, economies of scale and scope
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vertical integration and control over infrastructure that cannot
easily be duplicated
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technological advantages and financial resources
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absence of law countervailing buying power

barriers to entry and expansion

absence of potential competition
EUROPEAN COMMISSION
Inge Bernaerts
Competition DG
10
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)
EUROPEAN COMMISSION
Inge Bernaerts
Competition DG
11
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
EUROPEAN COMMISSION
Inge Bernaerts
Competition DG
12
The Regulatory Framework – specific issues
related to SMP

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
EUROPEAN COMMISSION
Inge Bernaerts
Competition DG
13
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”.
EUROPEAN COMMISSION
Inge Bernaerts
Competition DG
14
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)
EUROPEAN COMMISSION
Inge Bernaerts
Competition DG
15
The Regulatory Framework – specific issues
related to SMP
Collective dominance:

Principles are set out in the Guidelines
(1) market characteristics
»
»
»
»
»
»
»
(2)
similar market shares
mature market
low elasticity of demand
homogeneous product
similar cost structure
no excess capacity
high barriers to entry
is tacit co-ordination sustainable?
» incentive to collude – focal point
» incentive to deviate and possibility to detect cheating and retaliate
» fringe competitors
EUROPEAN COMMISSION
Inge Bernaerts
Competition DG
16
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)
EUROPEAN COMMISSION
Inge Bernaerts
Competition DG
17
Case UK/2004/0111: SMP assessment

2 players: Crown Castle and ntl
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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
EUROPEAN COMMISSION
Inge Bernaerts
Competition DG
18
Case UK/2004/0111: Commission concerns

incentive to co-ordinate (check list)

lack of convincing evidence on sustainability of coordinated behaviour (no clear retaliation mechanism)

lack of analysis of past bidding processes/outcome
EUROPEAN COMMISSION
Inge Bernaerts
Competition DG
19
Case UK/2004/0111: the outcome

Ofcom’s withdrawal of notification as far as MTS
were concerned
EUROPEAN COMMISSION
Inge Bernaerts
Competition DG
20
The Regulatory Framework – Mobile Access and
Call Origination in Ireland
Case IE/2004/121
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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
EUROPEAN COMMISSION
Inge Bernaerts
Competition DG
21
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
EUROPEAN COMMISSION
Inge Bernaerts
Competition DG
22
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
EUROPEAN COMMISSION
Inge Bernaerts
Competition DG
23
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
EUROPEAN COMMISSION
Inge Bernaerts
Competition DG
24
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
EUROPEAN COMMISSION
Inge Bernaerts
Competition DG
25
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
EUROPEAN COMMISSION
Inge Bernaerts
Competition DG
26
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).
EUROPEAN COMMISSION
Inge Bernaerts
Competition DG
27
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
EUROPEAN COMMISSION
Inge Bernaerts
Competition DG
28
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?
EUROPEAN COMMISSION
Inge Bernaerts
Competition DG
29
Thank you
For more information
– http://europa.eu.int/comm/competition/index_en/html
– http://europa.eu.int/information_society/policy/ecomm/article_7/index
en.htm
– [email protected]
EUROPEAN COMMISSION
Inge Bernaerts
Competition DG
30