1. Market Analysis under the New EU Regulatory Framework for Electronic Communications CLA European Conference 2005 Stockholm, October 27-28, 2005 Hogan & Hartson MNP 69, avenue Franklin Roosevelt 75008 Paris Phone: +33.1.55.73.23.00 Fax: +33.1.55.73.23.10 www.hhlaw.com

2. 2 2 History of telecom liberalization Phase I (1990-2002) : Impose basic interconnection rules to permit new entrants to enter the market and compete with the incumbent. Phase II (2003-2012?) : Make ex ante rules more flexible to handle changing technologies, multiple new players, and competition law principles. Phase III (2012? and beyond) : Remove ex ante rules, and rely only on competition law.

3. 3 3 New EU Regulatory Framework for Electronic Communications Directives adopted in 2002 -Implemented into national laws: 2003-2004 -Market analysis started in 2003, still going on now -2006: European Commission to review progress and recommend changes Key principles of new Framework: -Technological neutrality -Based on market analysis using competition law tools -Remedies must be narrowly tailored, and justified in each case

4. 4 4 Market Analysis: The Players NRA (National Regulatory Authority) European Commission -Art. 7 Task Force combines INFOSOC and DG COMP NCA (National Competition Authority) Audiovisual authority (?) ERG (European Regulatory Group) Other NRAs Courts

5. 5 5 Market Analysis: The Process Market Analysis - Reaching internal agreement within NRA - Dialog with European Commission, Competition Authority Public consultation, notification to National Competition Authority Official notification to European Commission Possible “grave doubts” letter, or veto New measures can take effect

6. 6 6 Market Analysis: The Methodology Three step process -1: Define the markets -2: Identify one or more operators with “significant market power” -3: Impose remedies

7. 7 7 Step One: Defining the markets Refer to European Commission’s predefined list of 18 markets Use competition law tools to validate that the list works for your country Use “SSNIP” test, demand-side substitutability, supply-side substitutability just like in merger cases -Define product market -Define geographic market Example: access to public telephone network at a fixed location – is a mobile subscription a substitute for fixed?

8. 8 8 Step One: Defining the markets (2) QUESTIONS: Can you define markets that aren’t on the Commission’s list? -Subdividing markets in a category already defined by the Commission  Relatively easy, but tendency is increasingly not to do it -Creating entirely new markets (SMS termination; retail mobile)  Strong pressure not to venture beyond Commission’s list How do you treat self-supply in market analysis? -Problem of cable networks and bitstream access (Market 12) -Access to mobile infrastructure (Market 15)

9. 9 9 Step Two: Determining whether the relevant market is competitive SMP = “significant market power” = dominant position under competition law -Look at market share, but also at potential competition and countervailing buying power Single network dominance for call termination (Markets 8 and 16) -Market share = 100% -But countervailing buying power (Hutchinson 3G Ireland v. Comreg – Sept. 26, 2005) Collective dominance for access to mobile networks (Market 15) -Market 15 will almost always require finding of joint dominance in order to impose remedies

10. 10 Step Three: Remedies Guiding principles: -Remedies must be closely tailored to address market problem -Retail remedies must be used only as a last resort. How to deal with low “on-net” pricing -Mobile -Cable operators Different remedies can be imposed for different products within the same market -Example: Voice over Broadband Rather than “cost orientation,” regulators are moving toward “retail minus” and “ladder of investment” ideas.

11. 11 Step Three: Remedies (2) Carrier preselection Wholesale line rental Bitstream access Unbundling Fiber to the home? The space between each rung in the ladder must be sufficient to encourage efficient investment in new infrastructure

12. 12 Appealing Market Analysis Decisions What court? What standard of review? First example: Hutchinson 3G Ireland v. Comreg -Appellate body must take due account of the merits -Detect “significant error” by regulator -“because likelihood of error is greater in a prospective analysis, the prospective analysis must be proportionately more rigorous to account for this possibility” Appellate courts may apply same standard as European Court of First Instance applies to European Commission merger decisions. If so, lawyers will be busy…

13. 13 Thank you Further reading: Electronic Communications: The New EU Framework (Oceana Publications/Oxford) www.oceanalaw.com