Antitrust

1
Antitrust Sector Regulation Communications
sectorCento Veljanovskicento_at_casecon.comCase
Associates

• Expert Competition Law Workshop for National
  Judges,
• Sponsored by EC Commission
• Fondation Universitaire, Brussels
• 31 March 2005

Case Associates - Competition Regulatory
Economists www.casecon.com
2
Roadmap

• sectoral regulation of network industries based
  on antitrust principles i.e. EC communications
  regulation
• focus on application, similarities differences
• critical assessment

CASE ASSOCIATES
3
NRF Package

5 Directives market definition 3 dominance
concepts 18 pre-defined markets 27 competition
problems 7 remedies 4 principles

• Directives
• SMP guidelines
• Recommendation
• ERG Common Position on Remedies

CASE ASSOCIATES
4
National Implementation
market share
proportionality
Remedies
Market Definition
SMP
Market Analysis
SSNIP predefined markets
CASE ASSOCIATES
5
18 regulated markets
Wholesale Level Fixed call origination Fixed
call termination Fixed transit services Unbundled
access Broadband access Terminating segments of
leased lines Trunk segments of leased
lines Mobile access and call origination Mobile
voice call termination Mobile international
roaming Broadcast transmission services
Retail level Residential fixed telephony
networks Non-residential fixed telephony
networks Residential international fixed
telephony services Residential local/national
fixed telephony services Non-Residential
international fixed telephony services Non-residen
tial local/national fixed telephony
services Minimum set of leased lines
CASE ASSOCIATES
6
27 competition problems
Market constellation Competition problems 1.
vertical leveraging Refusal to
supply Discriminatory use/withholding
information Delay Bundling /tying Undue
requirements Quality discrimination Strategic
product design Undue use of information about
competitors Price discrimination Cross
subsidisation Predatory pricing 2. horizontal
leveraging Bundling/tying Cross-subsidisation
3. single market dominance Strategic product
design to raise consumers switching cost
costs Contract terms to raise consumers
switching costs Exclusive dealing Predatory
pricing lack of investment Excessive
costs/inefficiency Low quality 4.
termination Tacit collusion Excessive
pricing Price discrimination Refusal to
deal/denial of interconnection
CASE ASSOCIATES
7
Remedies (wholesale)
transparency non-discrimination accounting
separation access price control/cost
accounting these are the maximum set of
remedies
CASE ASSOCIATES
8
appropriate obligations are

• objective, transparent, proportionate and
  non-discriminatory
• specific to the problem, proportionate and
  maintained only for as long as necessary
• only in absence of effective competition
• only when competition rules insufficient

CASE ASSOCIATES
9
ERG remedy principles

1. reasoned decisions
2. non-relicable infrastructure - sufficient access
   to wholesale inputs to protect consumers
3. replicable infrastructure supporting feasible
   investment to assist transition to sustainable
   competition
4. incentive compatibility

CASE ASSOCIATES
10
Markets susceptible to regulation
three cumulative conditions high durable
barriers to entry, lack of dynamic competition,
insufficiency of competition law remedies.
criteria for identifying markets for the purpose
of the new regulatory framework should include an
overall assessment of the effectiveness of
competition law in addressing the market failures
concerned. Ex. Memo, 9. ERG claims that three
criteria used to identify 18 markets, and NOT
required in NRAs assessment NOT TRUE
CASE ASSOCIATES
11
Legal complementarity elsewhere?

• Telia/Telenor ECC says can ignore competition
  regulatory laws
• Tetra Laval CFI/ECJ says must take antitrust
  into account
• NRF must take antitrust into account and takes
  precedence over SR?
• Trenko US Supreme Crt takes hardline that no
  right to access in antitrust cf Magill, Bronner,
  IMS, Microsoft
• double jeopardy

CASE ASSOCIATES
12
Market definition issues

• cellophane fallacy
• fixed costs high fixed/low marginal/avoidable
  costs
• retail/wholesale distinction
• supply-side substitutability/endogenous sunk
  costs
• network effects
• aggregation/bundling

CASE ASSOCIATES
13
Emerging market exception
safe harbour where market leadership due to
FMA in emerging market Art 14(3) FD - leveraging
into non-regulated emerging market to be dealt
with by Art. 82 Emerging market immature,
innovation-driven, distinct from regulated market
CASE ASSOCIATES
14
Are the triggers different?

• SMP defined as lack of effective competition
• dominance ability to act independently to
  impede effective competition
• focus on leveraging defunct theory/exceptional
  use
• different concepts of effective competition
  protecting competitors, v dynamic
  competition/competition as efficiency However
  Access Notice
• passing ships in the night! modernisation

CASE ASSOCIATES
15
Failure of competition law access

• EC Telecommunication Notice Access Notice
• rise fall of essential facility
  doctrine/refusal to supply
• Bronner - ECJ slap down
• Commissions new economy theories
• protecting competitors (aka entry assistance) v
  protecting competition

CASE ASSOCIATES
16
Confusion over access/refusal to supply

• no conception of competitive harm competitor
  welfare vs consumer surplus or total surplus!
• no adequate concept of efficient access
• caselaw/regulatory decisions set out rudiments eg
  price squeeze cases Access Notice
• balance asset holders interests against consumers
  based on whether access generates incremental
  consumer gains investment (dis)incentive
  effects.

CASE ASSOCIATES
17
efficient obligations are

• regulation and remedies which minimise social
  costs
• the sum of primary regulatory costs (
  enforcement compliance error costs)
• no recognition of this consideration

CASE ASSOCIATES
18
Is there a real difference?

• legal convergence - one approach two laws!
• same objectives?
• same substantive evidentiary standards?
• same public enforcement?
• same remedies?
• same reviewability
• same outcome?

CASE ASSOCIATES
19
Possible rationale for sectoral regulation

• NRF has wider goals dynamic competition/efficien
  cy? but efficiency limited to investment
  spectrum use
• does ex ante/ex post distinction make sense?
• differences in enforcement costs/effectiveness
  NRF cheaper, easier and nastier (cite Oftel views
  that competition case too hard to mount)
• permanent problems require durable solutions
  but regulation in constant flux!
• or the distinction between reactive v proactive
  intervention

CASE ASSOCIATES
20
Are remedies different?

• with exception of price controls identical
• increasingly use of behavioural remedies by
  Commission under ECMR - what is difference
  between Vodafone/Mannesmann undertaking and NRF
  (despite EC Merger Remedies Guidelines)
• are there other considerations? verification,
  detectability

CASE ASSOCIATES
21
Further reading

• EC Antitrust in the New Economy Is the European
  Commissions View of the Network Economy Right?
  European Competition Law Review, 2001.
• Regulating with Competition Law Why the
  proposed use of dominance to trigger EC telecom
  regulation is flawed, LINK, 2001
  www.casecon.com/data/pdfs/regulatingwithcompetitio
  n.pdf
• Remedies under the New EU Regulation of the
  Communications Sector, Report prepared for ETNO,
  2003. www.casecon.com/data/pdfs/ETNOfinalreport
  .pdf
• Price Squeezes, Foreclosure and Competition Law -
  Principles and Guidelines, Journal of Network
  Industries (2003) www.casecon.com/data/pdfs/pri
  cesqueeze.pdf
• Regulation versus Antitrust - Gaps on the New EC
  Regulation of the Communications Sector , World
  Internet Law Report, 2004. www.casecon.com/data/
  pdfs/WILR2004.pdf

CASE ASSOCIATES
22
CASE - competition economists
Case Associates provide economic analysis in
competition law and regulatory investigations,
and act as expert witnesses in litigation and
arbitrations. Case use rigorous economic and
quantitative techniques to address the critical
issues and marshal evidence to define relevant
markets, respond to allegations of monopoly abuse
and anti-competitive practices, and evaluate the
competitive impact of mergers. Case, have
provided expert reports to regulatory bodies in
the UK, European Community, USA and Australia, on
a wide range of issues in many different
sectors.
market definition dominance/SMP vertical
restraints/price squeezes cartels/price fixing,
mergers litigation/arbitration sectoral
regulation
CASE ASSOCIATES