Access issues in the internet area: between competition law and sector-specific regulation *
The increasing convergence of the telecommunications and media sectors raises new risks of anti-competitive practices and therefore requires a more dynamic ex-ante and ex-post market analysis on the basis of sound competition principles. As a matter of fact, the so-called ex-ante control of sector-specific regulations, and even merger control, and the traditional expost control pursuant to Articles 81 & 82 EC seems to be more artificial nowadays. In this sense, the New Telecom Package tends to apply directly competition law principles into the regulatory framework as an intermediate step towards a future and deregulated competitive market. In particular, it includes the estándar competition law definition of the relevant market and of a dominant position on the basis of future regulation by sector, with a view to providing useful guidance for the analysis of the new economy markets.
National Regulatory Authorities (NRAs) are national sectorial regulators that have been appointed to perform the applicability of the Telecom package. However, none of these authorities can act in a vacuum. They have to take into account the competences and the measures adopted by other authorities (the European Commission, the national antitrust authority). Indeed, although the mode of regulation of these issues is a rather decentralised one, there are also important elements of co-ordination among the different regulatory levels. This can be seen by examining the details of the "new regulatory framework".
The new EC regulatory framework aims at increasing effective competition in the different telecom markets in the EU, including access to Internet. The basic idea is to combine the application (ex ante) of national regulations harmonised at EC level with the possible application (ex post) of EC competition rules. EC Institutions would therefore provide for a set of basic uniform principles to be implemented and applied in principle by national regulators. Depending on the cases EC requirements would either take the form of compulsory rules (EC Regulations and EC Directives) or of non- compulsory recommendations or guidelines. There are also mechanisms for EC institutions to react and deal with problems not adequately solved at national level.
The point of departure of the new approach is Regulation EC/2887/2000 on unbundled access to the local loop1. This Regulation obliges incumbent TO's to "unbundle" the access to the "local loop" to newcomers. It provides for access to be negotiated between the parties if possible or, if not, to be granted following regulatory intervention. It also establishes that this access has to be non-discriminatory and that the fees charged shall be cost oriented. The Regulation also foresees the maintenance of national regulatory disciplines until sufficient competition is developed. It must be stressed that this Regulation probably goes beyond what could be achievable under the "essential facilities" doctrine in EC competition law. This Regulation has been in force throughout the European Union since 1/1/2001 and is directly applicable. However, its practical implementation raises problems that require the intervention of NRAs and European Institutions.
In order to facilitate these interventions and to clarify the institutional framework, a number of additional EC instruments have been adopted. The first relevant instrument is a Directive on a common regulatory framework for electronic communications and services2. This directive is technology neutral and applies across industry sectors. It establishes an obligation to set up NRAs that are legally and functionally "independent" from TO's. The directive also explains the main duties of NRAs, in particular, the duty to monitor the competitive conditions in the different markets. NRAs must therefore determine whether there are undertakings (normally the incumbent TOs) with "significant market power" in some markets. If that is the case there is an obligation to maintain sector-specific regulation (see details below). The Directive also foresees certain harmonisation mechanism of the regulatory policies of the different Member States. A preference is given to "soft" harmonisation measures although there is a possibility of binding harmonisation in some cases. From an institutional point of view there is a preference for co-operation between NRA as way of dealing with cross-border disputes even if the European Commission will also play an important role in some cases.
As explained above, NRAs will have to determine which operators have "significant market power" and this will have important legal consequences. In order to clarify this concept the European Commission has prepared some Guidelines on market analysis and the calculation of significant market power3. The approach is to consider this concept as being very close to the notion of "dominant position" used in EC competition law. However, legally speaking, there is not an automatic and necessary identity between both notions. The Commission has also adopted a Recommendation on Relevant Markets4.
Also of relevance is the Directive on access to, and interconnection of, electronic communications networks and associated facilities5. The approach is to favour "negotiation" between the parties as the ideal mode of interconnection. To this end, network operators are under an obligation to negotiate interconnection in good faith. However, the Directive also recognises that negotiation alone would not be sufficient when one of the operators has 'significant market power'. In such cases NRAs may intervene and impose the terms of access/interconnection. In the short term, however, the Directive maintains existing rules on interconnection until NRAs determine whether there are operators with "significant market power". If so, NRAs will have to keep sector-specific regulation (which may correspond in part to some already existing rules) including obligations of transparency, non-discrimination, accounting separation, access to specific networks and/or price control. Obligations in the area of price control may include an obligation for the operator to prove that its prices are cost-related.
Last but not least, there is the Directive on universal service and user's rights relating to electronic communications networks and services6, which is examined below in the section relating to universal service obligations USO). This Directive deals with the obligation for Member States to guarantee universal services to users at 'affordable' prices. The Universal Services will include the provision of access to data communications such as Internet via the public telephone network from a fixed location. To guarantee Universal Services, the Directive favours the means that would least distort the market. The designation of the operator in charge of USO shall be done in a transparent and non-discriminatory way, ideally by tendering or auction. When these mechanisms are not used, then the calculation of the "net" cost of USO will be subject to certain disciplines. As regards the financing of these net costs, the directive gives a choice of two models: either direct subsidies financed from general government budgets or cost sharing via a fund. In this latter case the fund would be based on proportional contributions of the different operators. The Directive foresees future reviews of the scope of Universal Services. Until a fully competitive market develops, the Directive foresees the maintenance of regulated (cost- related) retail tariffs in order to protect user's rights.
This framework already gives a clear indication of the kind of tasks that NRAs will have to face in the near future.
2. ANALYSIS OF THE RELEVANT MARKETS AND DETERMINATION OF "SIGNIFICANT MARKET POWER".
Competition law and rules, the later understood as the set of rules established to implement sectorial liberalisation processes, aim to create or to maintain a certain level of competition, often referred to as workable competition, in markets. To this end, competition rules are very concerned with the existence of firms that hold dominant position in the market. Dominance is a position of considerable economic power held by a firm during a period of time over customers and suppliers in the market7 that allows it to restrict output and thus raise prices above the level that would prevail in a competitive market, without existing rivals or new entrants taking away its customers over time. In determining the existence of a dominant firm, market shares provide an important reference. A dominant firm is one which accounts for a significant share of a given market and has a significantly larger market share than its next largest rival. Dominant firms are typically considered to have market shares of 40 per cent or more.
Dominant firms can raise competition concerns when they have the power to set prices independently. Normally, the dominant firm faces a number of small competitors, referred to as the competitive fringe. The competitive fringe sometime includes potential entrants. Thus, the dominant firm may be a monopolist facing potential entrants. Like a monopolist, the dominant firm faces a downward sloping demand curve. However, unlike the monopolist, the dominant firm must take into account the competitive fringe firms in making its pricing/output decisions. It is normally assumed that the dominant firm has some competitive advantage (such as lower costs) over the fringe. The term "competitive fringe" arises from the basic theory of dominant firm pricing. It is generally assumed that the dominant firm sets its price after ascribing a part of the market to the competitive fringe which then accepts this price as given. Dominant firms may be the target of competition authorities when they achieve or maintain their dominant position...