SMP and dominance Pál Belényesi Verona 29 November November 2006
New regulatory framework July 2003 harmonised regulation across Europe –reducing entry barriers –fostering prospects for effective competition to the benefit of consumers
The Directives Directive 2002/21/EC ("the Framework Directive"); Directive 2002/19/EC ("the Access Directive"); Directive 2002/20/EC ("the Authorisation Directive"); Directive 2002/22/EC ("the Universal Service Directive”) Directive 2002/58/EC ("the Privacy Directive")
Recommendation on the relevant markets a set of markets in which ex ante regulation might be warranted NRAs NRAs are to define relevant markets appropriate to national circumstances Guidelines on market analysis and the assessment of SMP
Market analysis forward looking analysis Annex II to the Framework Directive SMP Guidelines BUT Other criteria and other factors could be taken into account
Cont’d Individual analysis To consider circumstances against the background of the respective market phase –concentration processes –the mixture of behavioural parameters and the resulting performance indicators –They are often different
Market review procedure a definition of the relevant market or markets; an assessment of competition in each market, in particular whether any companies have Significant Market Power ("SMP") in a given market; and an assessment of the appropriate regulatory obligations which should be imposed where there has been a finding of SMP
Definition of the rel. markets Art 15 + Annex I of the Framework Directive for ex-ante regulation NRAs to determine the geographical markets
„real” market definition Demand side substitution: Are consumers prepared to substitute other services for the relevant service? (SNIIP-test) – shift in demand? Supply side substitution: (speedy responses from competitors): Would a supplier of other services switch to “compete” immediately or in the short term without incurring significant additional costs Assessment of potential competition: lengthier time for competitors to respond consumer needs
Defining SMPs Art. 16 Framework Directive NRAs should carry out the market analysis as soon as the adoptation of the recommendation takes place or there is a modification of the recommendation NRAs have the obligation to decide whether there is effective competition on the given market
Results 1. Market is effectively competitive –No remedies –Existing remedies to be withdrawn 2. Market is NOT competitive
Market is NOT competitive SMP Article 14 of the Framework Directive and the NRA to impose appropriate specific regulatory obligations referred to in paragraph 2 of Article 16 or maintain or amend such obligations where they already exist. At least one available obligation should be imposed on identified SMPs
Principles for analyzing the markets Forward looking approach Structural evaluation of the markets Based on the existing market conditions (not hypothetical) Is the market prospectively competitive? Is any lack of competition durable? Expected market developments over a reasonable period
The criteria for being SMP 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 (Art. 14 FD)
Cont’d Guidelines are based on the relevant case law of the Court of First Instance and the Court of Justice and on the Commission's own decision- making practice See also: Guidelines recital 62 (A-B- C products – chain substitutability)
BUT (diff. in approach) –Different sets of assumptions and expectations –Lack of evidence of past behaviour –Prospective instead of retrospective approach
Implications finding of SMP does not mean that there is no competition on the market (Case 85/76, Hoffmann-La Roche v Commission)
Criteria can o be used to measure the power of a firm — overall size of the undertaking, — control of infrastructure not easily duplicated, — technological advantages or superiority, — absence of or low countervailing buying power, — easy or privileged access to capital markets/financial resources,
Cont’d — product/services diversification (e.g. bundled products or services), — economies of scale, — economies of scope, — vertical integration, — a highly developed distribution and sales network, — absence of potential competition, — barriers to expansion.
RESULT dominant position is the combination of the above criteria separately may not determinative market entry important market share is a proxy competitive constraints may also come from innovative threats from outside
Worth to mention Essential facilities LeveragingRemedies
Novelties in the new Framework with regard to SMP Old “definition” of SMP was based on 25% share of the relevant market + additional discretionary criteria. The “New” definition of SMP is based on the concept of dominant position (at least 40%). Transition to competition law methodology. In practical terms: Ex ante regulation will be applied to former monopolists and/or those who control essential facilities (se: Recital 20)
Cont’d SMP is not equal to dominance. Competition authorities are not bound by NRAs decisions. SMP is a ”limit” for application of several obligations (Remedies) and represents the limit for when NRAs can apply regulation. Ex-ante regulation shall only be applied in certain circumstances: i.e on operators with SMP Certain obligations (lighter) can be placed on all undertakings (se Access Directive Art. 4 and 5 and USO chapter IV.), but most of the obligations must be places on SMPs.
Thank you