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The regulation of competition under the Austrian Telecommunications Act

2003 („TKG 2003“)by Stephan Polster

6th AIJA Winter SeminarJanuary 2005

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Content Principles Market definition Assessment of dominance (“SMP”) Imposition of remedies Case study: Mobile voice call

termination market

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I. Principles

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Principles

Market analysis (sec 35 to 37 TKG 2003)

The NRA analysis communications markets in three stages:

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Principles

Market definitionWhich markets are eligible for regulation?

Analysing the competitive structure of the defined markets. Effective competition versus operator(s) with significant market power.

Identifying possible competition constraints on the relevant markets;

Defining, evaluating and imposing proportionate and justified remedies.

Assessment of significant market

power (SMP)

Imposition of remedies

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Principles

Harmonisation with methodoligies under general competition law

Gradual adjustment of telecoms regulation to general competition law (for instance: definition of SMP)

But: Parallel applicability of sector specific regulation and competition law remains

– ex ante versus ex post assessment– different authorities (NRAs and competition authorities) – different (contradicting) decisions possible (for instance

Commission Decision COMP/C-1/37.451 et al, “Deutsche Telekom AG”)

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Principles

Principle of proportionality(sec 34 TKG 2003,

Art 8 para 1 Framework Directive)

Regulatory measures should be the minimum necessary to meet the policy objectives (“restore effective competition”)

Consequences– Regulation only if policy objectives can not be achieved by

market forces and competition law– Removal of existing obligations, if they are no longer necessary

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Principles

Supremacy of regulatory intervention on wholesale markets

Regulation of the retail level is only admissible, if the competition problem can not be solved through regulatory measures on the wholesale level

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Principles

Consultation and co-operation

Relationship between National Regulatory Authority (“NRA”) and European Commission

– Consultation procedure (Art 6, 7 Framework Directive; sec 129 TKG 2003)

Veto powers of European Commission– For Market definitions outside those listed in the Commission‘s

Recommendation or wrong assessment of SMP-status Effect upon trade between Member States, and Barrier to the single market or serious doubts as to the compatibility

with Community law

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II. Market definition

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Market definition

Legal Sources

Commission Recommendation of 11 February 2003

Austria: Telecommunication Markets Regulation 2003 of Regulator (TKMVO 2003)

In case of deviations: Veto power of the Commission

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Market definition

Criteria for defining the relevant markets

Competition law approach– Demand-side substitution – Supply-side substitution

But: ex ante-Assessment

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Market definition

Retail level Wholesale level

Fixed1. Access for residential customers2. Access for non-residential customers3. Local and/or national services for

residential customers4. International services for residential customers5. Local and/or national services for

non-residential customers6. International services for non-residential customers

Fixed8. Call orgination9. Call termination10. Transit services 11. Unbundled access12. Broadband access  

Leased Lines13. Terminating segments14. Trunk segments

Mobile15. Access and call orgination16. Voice call termination17. International roaming   Broadcasting18. Transmission services

Leased Lines7. Minimum sets

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Market definition

Example: Voice call termination on individual mobile networks

EC Commission and TKK: Every individual mobile network constitutes a separate market for voice call termination

Reason for narrow market definition:– Lack of alternatives (substitutes) to terminate calls to

subscribers of other networksConsequences: 100% market share of every network operatorstrong indication for SMP

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II. Assessing significant market power (SMP)

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Assessing significant market power

Objectives

Determination whether a defined market is characterised by effective competition or whether one or more undertaking(s) have significant market power, either individually or jointly with others.

If at least one undertaking has significant market power, a lack of effective competition is assumed.

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Assessing significant market power

Concept of signficant market power under section 35 TKG 2003

(Art 14 Framework Directive)

Competition law approach:

„An undertaking shall be deemed to have significant market power if, either individually or jointly with others, it enjoys a

position of economic strength affording it the power to behave to an appreciable extent independently of competitors,

customers and ultimately consumers.“

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Assessing significant market power

Forms of dominance

Single dominance Joint dominance Leveraging

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Assessing significant market powerCriteria for assessing dominance

Single dominance

Market shares Overall size of the undertaking Control of infrastructure not easily

duplicated Technological advantages Absence of or low countervailing

buying power Easy or privileged access to capital

markets / financial resources Economies of scale / scope Vertical integration Absence of potential competition

Joint dominance

Criteria as listed under single dominance

Maturity of market Stagnant or moderate growth on

the demand side Low elasticity of demand Homogenous product Similar cost structure Absence of excess capacity Retaliatory mechanisms Lack of technical innovation

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Assessing significant market power

Example: Assessment of SMP on the mobile voice call termination market

Austrian Telekom-Control-Kommission (TKK): Each mobile network operator holds a SMP position for terminating calls in its own network.

Main reasons– Monopoly position on the basis of the defined market (absolute

entry barriers) – Calling-Party-Pays-Principle (CPP)– Lack of countervailing market power

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Assessing significant market power

Criticism of the NRA´s decision

Insufficient consideration of market structure on retail level– Commission Recommendation on market definition: Narrow market

definition does not necessarily result in SMP; distinguishes between market power of large and small operators („...a small network operator may have very little market power relative to a larger one in respect of call termination“)

Wrong assessment of countervailing market power– Commission Recommendation: „...whether every operator then has

market power still depends on whether there is any countervailing market power, which would render any non-transitory price increase unprofitable.“

– Countervailing market power on the wholesale and retail level

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IV. Remedies

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Remedies

Potential results of market analysis (sec 37 TKG 2003)

Market analysis demonstrates that there is effective competition on the relevant market (no SMP undertaking)

TKK is not entitled to impose specific obligations (remedies)

Closing of proceedings

Market analysis demonstrates lack of effective competition (existence of undertaking(s) with SMP)

Imposition of (at least one) proportionate and justified remedie(s) as specified under sections 38-47 TKG 2003

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Remedies

Available remedies under the TKG 2003 („tool box“)

Wholesale markets- Obligation of non-discrimination- Obligation of transparency- Accounting separation- Access to network facilities and network

function- Price control and cost accounting for access

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Remedies

Retail markets– Price caps– Control of tarifs– Cost-oriented tarifs, benchmarks, etc– Provision of leased lines– Carrier selection and carrier pre-

selection

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Remedies

Example: Regulatory measures imposed in the market for voice call termination on individual mobile networks

Main competition problems identified by TKK1. Excessive pricing for termination of calls from fixed to

mobile networks („F 2 M“)2. Excessive pricing for termination of calls between mobile

networks („M 2 M“)3. Potential foreclosure-strategies against small network

operators4. Potential foreclosure-strategies against fixed operators in

the case of overlapping business segments

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Remedies

Imposed remedies: Obligation of non-discrimination (sec 38 TKG

2003) Obligation of transparency (sec 39 TKG 2003) Obligation for access to network facilities and

network function (sec 41 TKG 2003)

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Remedies

Price control (sec 42 TKG 2003)

– Cost-orientation based on Long Run Average Incremental Costs (LRAIC) of a hypothetical efficient operator

– Adjustment of so far different termination rates in „glide-path“

– Eventually reciprocal fees irrespective of market position on retail level

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Remedies

Criticism of NRA´s decision:

Infringement of principle of proportionality: Less burdensome measures available to ensure policy

objectives

Identical obligations for all operators, irrespective of market position on retail level (no consideration of late comer disadvantages for smaller operators)

Reciprocal termination rates only if similar market positions

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Remedies

Criticism of NRA´sdecision:

Failure to consider actual termination costs as opposed to costs of hypothetical provider

Differentiation between operators in decision on call termination in fixed networks

International comparisons

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Thank you!

DORDA BRUGGER JORDISRechtsanwälte GmbH

Tel: +43 1 533 47 95 35Email: stephan.polster@dbj.at