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The regulation of competition under the Austrian Telecommunications Act
2003 („TKG 2003“)by Stephan Polster
6th AIJA Winter SeminarJanuary 2005
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Content Principles Market definition Assessment of dominance (“SMP”) Imposition of remedies Case study: Mobile voice call
termination market
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I. Principles
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Principles
Market analysis (sec 35 to 37 TKG 2003)
The NRA analysis communications markets in three stages:
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Principles
Market definitionWhich markets are eligible for regulation?
Analysing the competitive structure of the defined markets. Effective competition versus operator(s) with significant market power.
Identifying possible competition constraints on the relevant markets;
Defining, evaluating and imposing proportionate and justified remedies.
Assessment of significant market
power (SMP)
Imposition of remedies
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Principles
Harmonisation with methodoligies under general competition law
Gradual adjustment of telecoms regulation to general competition law (for instance: definition of SMP)
But: Parallel applicability of sector specific regulation and competition law remains
– ex ante versus ex post assessment– different authorities (NRAs and competition authorities) – different (contradicting) decisions possible (for instance
Commission Decision COMP/C-1/37.451 et al, “Deutsche Telekom AG”)
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Principles
Principle of proportionality(sec 34 TKG 2003,
Art 8 para 1 Framework Directive)
Regulatory measures should be the minimum necessary to meet the policy objectives (“restore effective competition”)
Consequences– Regulation only if policy objectives can not be achieved by
market forces and competition law– Removal of existing obligations, if they are no longer necessary
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Principles
Supremacy of regulatory intervention on wholesale markets
Regulation of the retail level is only admissible, if the competition problem can not be solved through regulatory measures on the wholesale level
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Principles
Consultation and co-operation
Relationship between National Regulatory Authority (“NRA”) and European Commission
– Consultation procedure (Art 6, 7 Framework Directive; sec 129 TKG 2003)
Veto powers of European Commission– For Market definitions outside those listed in the Commission‘s
Recommendation or wrong assessment of SMP-status Effect upon trade between Member States, and Barrier to the single market or serious doubts as to the compatibility
with Community law
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II. Market definition
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Market definition
Legal Sources
Commission Recommendation of 11 February 2003
Austria: Telecommunication Markets Regulation 2003 of Regulator (TKMVO 2003)
In case of deviations: Veto power of the Commission
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Market definition
Criteria for defining the relevant markets
Competition law approach– Demand-side substitution – Supply-side substitution
But: ex ante-Assessment
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Market definition
Retail level Wholesale level
Fixed1. Access for residential customers2. Access for non-residential customers3. Local and/or national services for
residential customers4. International services for residential customers5. Local and/or national services for
non-residential customers6. International services for non-residential customers
Fixed8. Call orgination9. Call termination10. Transit services 11. Unbundled access12. Broadband access
Leased Lines13. Terminating segments14. Trunk segments
Mobile15. Access and call orgination16. Voice call termination17. International roaming Broadcasting18. Transmission services
Leased Lines7. Minimum sets
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Market definition
Example: Voice call termination on individual mobile networks
EC Commission and TKK: Every individual mobile network constitutes a separate market for voice call termination
Reason for narrow market definition:– Lack of alternatives (substitutes) to terminate calls to
subscribers of other networksConsequences: 100% market share of every network operatorstrong indication for SMP
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II. Assessing significant market power (SMP)
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Assessing significant market power
Objectives
Determination whether a defined market is characterised by effective competition or whether one or more undertaking(s) have significant market power, either individually or jointly with others.
If at least one undertaking has significant market power, a lack of effective competition is assumed.
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Assessing significant market power
Concept of signficant market power under section 35 TKG 2003
(Art 14 Framework Directive)
Competition law approach:
„An undertaking shall be deemed to have significant market power if, either individually or jointly with others, it enjoys a
position of economic strength affording it the power to behave to an appreciable extent independently of competitors,
customers and ultimately consumers.“
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Assessing significant market power
Forms of dominance
Single dominance Joint dominance Leveraging
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Assessing significant market powerCriteria for assessing dominance
Single dominance
Market shares Overall size of the undertaking Control of infrastructure not easily
duplicated Technological advantages Absence of or low countervailing
buying power Easy or privileged access to capital
markets / financial resources Economies of scale / scope Vertical integration Absence of potential competition
Joint dominance
Criteria as listed under single dominance
Maturity of market Stagnant or moderate growth on
the demand side Low elasticity of demand Homogenous product Similar cost structure Absence of excess capacity Retaliatory mechanisms Lack of technical innovation
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Assessing significant market power
Example: Assessment of SMP on the mobile voice call termination market
Austrian Telekom-Control-Kommission (TKK): Each mobile network operator holds a SMP position for terminating calls in its own network.
Main reasons– Monopoly position on the basis of the defined market (absolute
entry barriers) – Calling-Party-Pays-Principle (CPP)– Lack of countervailing market power
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Assessing significant market power
Criticism of the NRA´s decision
Insufficient consideration of market structure on retail level– Commission Recommendation on market definition: Narrow market
definition does not necessarily result in SMP; distinguishes between market power of large and small operators („...a small network operator may have very little market power relative to a larger one in respect of call termination“)
Wrong assessment of countervailing market power– Commission Recommendation: „...whether every operator then has
market power still depends on whether there is any countervailing market power, which would render any non-transitory price increase unprofitable.“
– Countervailing market power on the wholesale and retail level
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IV. Remedies
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Remedies
Potential results of market analysis (sec 37 TKG 2003)
Market analysis demonstrates that there is effective competition on the relevant market (no SMP undertaking)
TKK is not entitled to impose specific obligations (remedies)
Closing of proceedings
Market analysis demonstrates lack of effective competition (existence of undertaking(s) with SMP)
Imposition of (at least one) proportionate and justified remedie(s) as specified under sections 38-47 TKG 2003
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Remedies
Available remedies under the TKG 2003 („tool box“)
Wholesale markets- Obligation of non-discrimination- Obligation of transparency- Accounting separation- Access to network facilities and network
function- Price control and cost accounting for access
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Remedies
Retail markets– Price caps– Control of tarifs– Cost-oriented tarifs, benchmarks, etc– Provision of leased lines– Carrier selection and carrier pre-
selection
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Remedies
Example: Regulatory measures imposed in the market for voice call termination on individual mobile networks
Main competition problems identified by TKK1. Excessive pricing for termination of calls from fixed to
mobile networks („F 2 M“)2. Excessive pricing for termination of calls between mobile
networks („M 2 M“)3. Potential foreclosure-strategies against small network
operators4. Potential foreclosure-strategies against fixed operators in
the case of overlapping business segments
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Remedies
Imposed remedies: Obligation of non-discrimination (sec 38 TKG
2003) Obligation of transparency (sec 39 TKG 2003) Obligation for access to network facilities and
network function (sec 41 TKG 2003)
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Remedies
Price control (sec 42 TKG 2003)
– Cost-orientation based on Long Run Average Incremental Costs (LRAIC) of a hypothetical efficient operator
– Adjustment of so far different termination rates in „glide-path“
– Eventually reciprocal fees irrespective of market position on retail level
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Remedies
Criticism of NRA´s decision:
Infringement of principle of proportionality: Less burdensome measures available to ensure policy
objectives
Identical obligations for all operators, irrespective of market position on retail level (no consideration of late comer disadvantages for smaller operators)
Reciprocal termination rates only if similar market positions
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Remedies
Criticism of NRA´sdecision:
Failure to consider actual termination costs as opposed to costs of hypothetical provider
Differentiation between operators in decision on call termination in fixed networks
International comparisons
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Thank you!
DORDA BRUGGER JORDISRechtsanwälte GmbH
Tel: +43 1 533 47 95 35Email: [email protected]