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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

2

3

4

5

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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.

URE,J.(ed.)(2008).TelecommunicationsDevelopmentinAsia,HongKong:HongKongUniversityPress.

WELLENIUS,B.(2008).TowardsUniversalService:Issues,GoodPracticeandChallenges,inJ.Ure(ed.),TelecommunicationsDevelopmentinAsia,HongKong:HongKongUniversityPress.

WHISH,R.(2008).CompetitionLaw(6thedn.),Oxford:OxfordUniversityPress.

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

Regulation and Competition Law in Telecommunications and Other NetworkIndustries

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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.