Srpski / Arhiva brojeva / PRVI BROJ / dr S. KÖHLER: The Market Analysis Process under the Old and Current EU Framework
The following article is based upon my presentation within the workshop on the “European Union (EU) Regulatory Framework in the electronic communications area (market analysis procedures)” which took place in Belgrade in October 2007. It was kindly hosted by the Serbian regulatory authority, RATEL. All details, including the agenda, speakers and presentations can be found under (http://www.ratel.org.yu/index.php?page=novosti&item=68&id=1879&get_treerot=54&lang=eng).
The goals of the European integration are:
a. to establish an internal market,
b. to create a system preventing distortion of competition and
c. to harmonise the different legal frameworks in the Member States of the EU.
In order to achieve this internal market, the ambition of the European Commission is to “open up” markets with monopolistic structures and to enable competition by creating a single European legal framework and by monitoring its implementation in the National Member States. One of these monopolistic sectors was the sector of telecommunications.
A step-by-step process that lasted for several years was intended to achieve market liberalization in telecommunications. The challenging question was: “How can a legal framework in compliance with the enormous technical changes and developments in this market sector be formed?” Especially the period during the internet hype, with its partly unrealistic expectations caused discussions between the governments (responsible for the legislation) and the regulatory authorities (responsible for the decisions) whose very different views contradicted each other.
The first legal sector-specific basis for telecommunications within the European Union was the Open Network Provisions Package (ONP-Package) of 1997, which needed to be transformed into national legal frameworks (Telecom Act, regulations etc.) by the EU Member States. As regards the legal approaches, they differed from one Member State to another due to national particularities and legal histories.
In 2002, following the ONP-Package, the New Regulatory Framework was established in order to further streamline the legal provisions. Its focus was clearly put on the regulatory interventions. It was called the “Review 1999” and represented the second main step in a process towards achieving sustainable competition in the telecommunications sector of the EU.
The main idea of the sector specific regulations is:
It creates the possibility of asymmetric regulation and the imposition of ex-ante obligations for dominant operators (contrary to general competition law).
The ONP-Package was composed of two kinds of directives: the liberalization and harmonisation directives.
The liberalization directives were intended to end specific and exclusive rights previously granted to public undertakings and to enable that any operator can provide telecommunication services. The institutions which supervise the sector should be created as national independent regulatory authorities (NRAs) with the task to establish objective, non-discriminating and transparent conditions for all operators. The areas covered are e.g. licences, network access and interconnection.
Main idea of ONP significant market power concept is:
To set up provisions that regulate the way of how to define market power (the main question is: Which markets are relevant?) and possible related remedies as their consequence. In case a dominant operator could be defined, ex-ante obligations needed to be imposed as a regulatory intervention.
By introducing the New Regulatory Framework (NRF) of 2002, the European Commission first of all wanted to restructure the whole legal basis by bringing the existing directives down to only five directives. The four relevant directives for electronic communication services were:
·Framework directive
·Access directive
·Universal service directive
·Authorisation directive
Beside these directives, the Regulation on unbundled access to the local loop laid down the provision for unbundling.
The main idea of the NRF package is:
Introducing a first step of bringing the sector specific legal framework closer to general competition law principles, with a focus on the market power concept.
The market analysis process is an essential pillar for enabling competition. Therefore, a more detailed description could be helpful.
In order to achieve the opening of the monopolistic telecom markets and to enable competition in these markets, specific obligations for undertakings with significant market powers (SMP) needed to be implemented.
The basis of the market analysis process was a two-step approach:
In compliance with the EC directive 97/33, the first step was to clarify market definition and SMP designation by asking the question: “Which operator has more than 25% in the relevant product market?” The area for which the licence (e.g. fixed, mobile) was granted defined the relevant geographic market. In case the operators with less than 25% market share were designated as operators with SMP – the NRAs needed to prove further criteria. These are e.g.: the possibility to influence market conditions, the control of access to consumers and access to financial resources.
The predefined relevant product market according to the EU-directives were
·Fixed voice telephony market (& infrastructure)
·Mobile market (wholesale)
·Interconnection market
·Leased line market
In a second step, according to directive 97/33/EC and its Annex I, the regulatory measures were imposed. In fact all possible regulatory remedies – according to the EU-directives – needed to be imposed. The remedies were
·Network access,
·The principle of non-discrimination,
·The publication of a reference interconnection offer (RIO),
·The principles of transparency and cost orientation,
·Separated accounts,
Service obligation.Figure 1. The practical ONP-market analysis process in Austria
The main idea of the ONP market power concept is:
A “4 market dogma” and a two-step “Black and White approach”: In case the 25% market share threshold was reached, all listed remedies were imposed together (no selection of specific ones).
The market analysis process under the NRF-Package was the next step to follow in 2002. Three main regulatory goals – as laid down in the framework directive – should be achieved. They include principles like enhancing competition, the development of the internal market and fostering the interests of the European citizens. A description of these three regulatory goals as well as possible remedies is defined in the framework directive.
The NRF-Package 2002 and the new concept of market power can be summarised as “dependant on the needs”. In case of the need for eliminating a deficit in competition, the relevant market regulatory intervention is to have a precise and focused approach. Contrary to the ONP-Package – which was characterized by the “4 market dogma” and the “Black and White approach” – the NRF-Package enables the regulatory authority to choose the appropriate remedy out of a toolbox. The NRA may selectively choose the remedies, which could be imposed on SMP operators according to determined competition problems or according to the level of competition in the specific markets. The framework also introduced a substantial extension of rights (veto rights) for the European Commission. With its new veto rights the European Commission is able to intervene into regulatory decisions of the independent NRAs. Furthermore, a National and European-wide consultation process was created to consider all comments of interested parties and other NRAs in order to increase the transparency of the market analysis process.
Figure 2. ONP- & NRF relevant product markets
Figure 3. SMP criteria
Figure 4. Possible remedies
Figure 5. The practical NRF-market analysis process in Austria
The main idea of the NRF-Package is:
To set up a limitation on regulatory interventions to markets characterised by ineffective competition. The implementation of the new market power concept consists of a three-step approach: 1. Defining the relevant markets, 2. analysing them and defining SMP and 3. finally imposing appropriate measures to achieve effective competition.
A veto right of the European Commission was newly introduced in regard to the market definition and market analysis.
Figure 6. The implementation process of the NRF market power concept demonstrated by the example of Austria
The figure described above outlines the whole process starting from the NRF-Package to the final regulatory decision in the Member States. In Austria, several steps of implementation were needed.
The process started with the requirement to transpose the national legal basis of the EU market analysis process. The four relevant European directives (Framework-, Access-, Universal service- and Authorisation-Directive) were implemented into the national law. The directives arranged for the regulatory authority RTR to be entitled to define the relevant product and geographic markets. This was legally done by regulation in compliance with the Austrian Telecom Act. The Austrian Telecom Act also empowered the regulatory authority Telecom-Control-Commission (TKK) to decide upon an SMP position and to impose appropriate remedies. Legal transposition from the New EU Framework into the amended new national Telecom Act (TKG 2003) required 16 months.
The operational implementation of the market analysis process formally started with the relevant market regulation (TKMVO 2003), which defined 17 relevant telecommunications product and geographic markets. Furthermore, it provided legal basis for data collection which required around 300 companies to contribute. Depending on the complexity of the relevant product market, this single process took several months.
In the next step, the draft decisions on SMP status as well as on proposed remedies were consulted on both national and international level. Although criticised by the European Commission, the national and international consultations ran in parallel in Austria, in order to avoid further delays in the whole process. In case no veto of the European Commission on the market definition and SMP designation was raised, all comments were evaluated. Finally, the decisions were drafted and adopted by the regulatory authority TKK. Although Austria was one of the most efficient countries in the European Union, the operational process lasted approximately 30 months for all 17 markets.
The ONP-Package created a sector specific market power concept characterised by asymmetric and ex-ante obligations for operators with SMP. With its “4 market dogma” and the “Black and White approach” in terms of market definition and regulatory interventions it was simpler and more efficient for the NRA to open the monopolistic markets.
The NRF (after five years of regulation and market development) aims to focus on regulatory interventions for markets with ineffective competition only. Therefore, the market power concept has been developed into an extended three-step approach. Finally, in order to achieve effective competition appropriate remedies are imposed on SMP operators. As a consequence, the whole market analysis process has become more complex and resource-intensive.
One essential question that remains is “Which of the two frameworks should be transposed into the national law to enable competition in monopoly characterised markets?”
Both approaches can be found in the European Union. Romania, for example, has already implemented the NRF, whilst Bulgaria has transposed the ONP framework first. Both ways can be argued.
The approach of implementation has to be carefully scrutinised before deciding, and national circumstances (e.g. market status, efficiency of enforcing regulatory decisions) need to be taken into account. A mixed approach, which includes ONP provisions as well as NRF provisions, could generate advantages.
As regards the market power concept, the implementation of the ONP framework provisions could easily achieve the initial goal of opening monopolistic market structures. The ONP framework already provides the NRA with the necessary regulatory tools for creating objective, non-discriminating and transparent conditions for all operators. Due to the reduced market analysis process – with its four relevant markets and the predefined remedies – the NRA would first gain experiences in data collection, market analysis and imposing remedies. The whole process would be shorter and less complex than according to the NRF.
In parallel, provisions from the NRF can be transposed into the national law. For example the concept of general authorisation, which enables the operators to access telecom market without any entry barriers.