1. EUROPEAN COMMISSION Inge Bernaerts Competition DG 1 Competition Law and Electronic Comunications Dominance and significant market power 12 January 2006 Brussels

2. EUROPEAN COMMISSION Inge Bernaerts Competition DG 2 Overview n 1) Dominance under the Regulatory Framework (“signficant market power”) –background –criteria –practical difficulties n 2)Dominance in antitrust cases –comparison with SMP assessment

3. EUROPEAN COMMISSION Inge Bernaerts Competition DG 3 The Regulatory Framework – background (1) n New symbiosis between regulation and competition law n Markets defined on the basis of competition law n Old 25% market share threshold  dominance

4. EUROPEAN COMMISSION Inge Bernaerts Competition DG 4 The Regulatory Framework – procedure n Decentralisation: NRAs taking national circumstances into account –central check by European Commission (Article 7 Consultation Mechanism) »comments letter »no comments letter »veto decision

5. EUROPEAN COMMISSION Inge Bernaerts Competition DG 5 The Regulatory Framework – checks and powers under Article 7 n market definition n SMP assessment –single or collective dominance n regulatory remedies Veto Comments

6. EUROPEAN COMMISSION Inge Bernaerts Competition DG 6 The Regulatory Framework - statistics n 334 notifications received so far n from 20 Member States n 112 comments letters n 6 second phase n 4 veto decisions n 71 no comments letters

7. EUROPEAN COMMISSION Inge Bernaerts Competition DG 7 The Regulatory Framework – dominance test n 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 » n 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 »

8. EUROPEAN COMMISSION Inge Bernaerts Competition DG 8 The Regulatory Framework – dominance test n 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]

9. EUROPEAN COMMISSION Inge Bernaerts Competition DG 9 The Regulatory Framework – market shares a first line indicator of SMP n Market shares –< 25%: no single dominance –> 50%: presumption of single dominance –market share trends –volume/value –merchant sales/captive sales

10. EUROPEAN COMMISSION Inge Bernaerts Competition DG 10 The Regulatory Framework – other criteria to be taken into account n size of undertaking, economies of scale and scope n vertical integration and control over infrastructure that cannot easily be duplicated n technological advantages and financial resources n absence of law countervailing buying power n barriers to entry and expansion n absence of potential competition

11. EUROPEAN COMMISSION Inge Bernaerts Competition DG 11 The Regulatory Framework – specific issues related to SMP n 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)

12. EUROPEAN COMMISSION Inge Bernaerts Competition DG 12 The Regulatory Framework – International Calls in Finland n 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”. n 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

13. EUROPEAN COMMISSION Inge Bernaerts Competition DG 13 The Regulatory Framework – specific issues related to SMP n 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

14. EUROPEAN COMMISSION Inge Bernaerts Competition DG 14 The Regulatory Framework – fixed termination in Germany (1) n Issue: does the buyer power of DT outweigh the market power of the alternative operators selling termination on their network? n 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”.

15. EUROPEAN COMMISSION Inge Bernaerts Competition DG 15 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”. n Follow-up: new notification in August 2005 – NRA changed SMP finding – No comments letter (case DE/2005/0239)

16. EUROPEAN COMMISSION Inge Bernaerts Competition DG 16 The Regulatory Framework – specific issues related to SMP Collective dominance: n Principles are set out in the Guidelines (1) market characteristics »similar market shares »mature market »low elasticity of demand »homogeneous product »similar cost structure »no excess capacity »high barriers to entry (2)is tacit co-ordination sustainable? »incentive to collude – focal point »incentive to deviate and possibility to detect cheating and retaliate »fringe competitors

17. EUROPEAN COMMISSION Inge Bernaerts Competition DG 17 The Regulatory Framework – Broadcasting transmission services in the UK (Case UK/2004/0111): n first case of collective dominance n market concerned: terrestrial broadcasting transmission services (submarket of market 18) –upstream market(s) : access to masts and sites –downstream market: managed transmission services (MTS)

18. EUROPEAN COMMISSION Inge Bernaerts Competition DG 18 Case UK/2004/0111: SMP assessment n 2 players: Crown Castle and ntl n access to masts and sites: –2 separate product markets –single dominance on each market –Commission had no comments n MTS –one market –Collective dominance Crown Castle and ntl –Commission indicated preliminary concerns

19. EUROPEAN COMMISSION Inge Bernaerts Competition DG 19 Case UK/2004/0111: Commission concerns n incentive to co-ordinate (check list) n lack of convincing evidence on sustainability of co- ordinated behaviour (no clear retaliation mechanism) n lack of analysis of past bidding processes/outcome

20. EUROPEAN COMMISSION Inge Bernaerts Competition DG 20 Case UK/2004/0111: the outcome n Ofcom’s withdrawal of notification as far as MTS were concerned

21. EUROPEAN COMMISSION Inge Bernaerts Competition DG 21 The Regulatory Framework – Mobile Access and Call Origination in Ireland Case IE/2004/121 n ComReg defined a wholesale market for access and call origination n Critical for access of so called mobile virtual network operators (MVNO) n Retail: high and stable market shares of Vodafone (54%) and O2 (40%) n Fringe Competitor Meteor - 6% share of subscribers, 3% revenue n Currently no MVNOs or service providers n High Concentration – 4,550 n High entry barriers (infrastructure investment) n High ROCE – Over 35% for Vf and O 2 and rising (well above EU average) n High ARPU - €47 per month (EU Average €31) and rising n Pricing – Stable Minimum Monthly Bills (particularly post-paid) n Pricing – well above EU average

22. EUROPEAN COMMISSION Inge Bernaerts Competition DG 22 The Focal Point n 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

23. EUROPEAN COMMISSION Inge Bernaerts Competition DG 23 Credible Punishment n Deviation: granting of wholesale airtime access to Independent Service Provider n Punishment: the deterrent that exists is an identical action by the other – through time this would lower retail prices to the competitive level

24. EUROPEAN COMMISSION Inge Bernaerts Competition DG 24 Actual/Potential Competition n Meteor – third operator –Entered February 2001 and until September 2004 lacked complete geographic coverage n 3 – 3G operator owned by Hutchison –Not yet launched

25. EUROPEAN COMMISSION Inge Bernaerts Competition DG 25 Commission comments n 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

26. EUROPEAN COMMISSION Inge Bernaerts Competition DG 26 The Regulatory Framework – conclusions on SMP concept n 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

27. EUROPEAN COMMISSION Inge Bernaerts Competition DG 27 Ex post application of competition law in electronic communications n Competition: law and sector-specific regulation are applied in parallel (e.g. LLU regulation and price squeeze cases – Deutsche Telecom) n Sector-specific regulation is/should be gradually phased out (upcoming review of the Recommendation).

28. EUROPEAN COMMISSION Inge Bernaerts Competition DG 28 Competition law concept of dominance n In principle SMP = dominance n But: –forward looking ↔ retrospective assessment –Permanent re-evaluation ↔ “one shot” assessment n In electronic communciations, the most difficult part is generally to show the abuse (e.g. price squeeze, excessive pricing, predatory pricing, see next session) n Article 81 does not require dominance

29. EUROPEAN COMMISSION Inge Bernaerts Competition DG 29 Conclusions n SMP/dominance assessment is a challenging exercise n Case law and thinking around SMP/dominance is evolving: –more economic, less mechanical approach –more emphasis on enduring bottlenecks n as regards regulation, is dominance the appropriate standard?

30. EUROPEAN COMMISSION Inge Bernaerts Competition DG 30 Thank you For more information –http://europa.eu.int/comm/competition/index_en/htmlhttp://europa.eu.int/comm/competition/index_en/html –http://europa.eu.int/information_society/policy/ecomm/article_7/index en.htmhttp://europa.eu.int/information_society/policy/ecomm/article_7/index en.htm –inge.bernaerts@cec.eu.intinge.bernaerts@cec.eu.int