Commission's Analysis to Define Markets
Changes From Previous Draft
Explanatory Memorandum
Implementation of the Recommendation
On February 11 2003 the European Commission published Recommendation C(2003)497 on the relevant product and service markets within the electronic communications sector susceptible to ex-ante regulation in accordance with the Framework Directive (2002/21/EC). Pursuant to the Framework Directive, national regulatory authorities are to regulate only the markets listed in the recommendation. However, national regulatory authorities may define markets other than those listed, provided they are not vetoed by the commission (Article 7(4) of the Framework Directive).
The commission will review the recommendation on a regular basis, starting from June 30 2004, so as to remove markets from the list where competition is effective.
Commission's Analysis to Define Markets
The recommendation was adopted on the basis of Article 15 of the Framework Directive (2002/21/EC). Article 15 requires the commission to identify markets to be regulated under the new regulatory framework on the basis of two requirements. First, the commission must identify the relevant markets in accordance with Annex I of the Framework Directive, entitled "List of markets to be included in the initial commission recommendation on relevant product and services markets referred to in Article 15". Annex I lists the markets already defined in the directives of the current regulatory framework. These markets were not defined on the basis of competition law principles.
Secondly, Article 15(2) requires the commission to define markets in accordance with competition law principles. The Commission Guidelines on Market Analysis and Assessment of Significant Market Power under the Community Regulatory Framework for Electronic Communications Networks and Services (2002/C165/03) provide further guidance in this respect.
The commission has reconciled the first requirement with the second by defining markets which correspond to the market areas listed in Annex I, but which may be narrowed to comply with a competition law analysis. For instance, the commission has defined a market for voice call termination on individual mobile networks, although Annex I defines a broader market for call termination on public mobile telephone networks.
A draft recommendation was published on June 17 2002 together with an explanatory memorandum, and was followed by a public consultation. The final recommendation and its explanatory memorandum have been substantially changed in comparison with their previous version. In particular, the commission has removed the optional market segments. This segmentation was aimed at granting national regulatory authorities the flexibility to regulate segmented markets without going through the procedure stated in Article 7 of the Framework Directive. However, this proved controversial during the public consultation (in particular, it was feared that it might have harmed harmonization in the common market).
The final recommendation integrates some of the former market segments into the list of markets. For instance, at the retail level, the market for access to the public telephone network at a fixed location is divided into two separate markets which were previously listed as two market segments: (i) the market for access to the public telephone network at a fixed location for residential customers, and (ii) the market for access to the public telephone network at a fixed location for non-residential customers.
The recitals of the recommendation have also been amended. They further clarify the commission's methodology to define markets. Moreover, the deadline fixed upon the commission to review the recommendation was forwarded from December 30 2004 to June 30 2004.
The explanatory memorandum states the commission's competition analysis to define the markets listed in the recommendation. The commission has taken a two-step analysis, first defining markets and then identifying the markets with characteristics that require regulation to maintain competition.
Moreover, the commission explicitly gives national regulatory authorities room for interpretation in respect of the scope of some markets. For instance, it is left to national regulatory authorities to decide what constitutes a call origination service or a transit service in terms of what parts of the network are involved. In doing so, the commission has responded to some comments issued by national regulatory authorities during the public consultation.
The explanatory memorandum also clarifies when national regulatory authorities may identify markets that are different from those identified by the commission in the recommendation. The identification of new markets should be done in line with the methodology set out in the Commission Guidelines on Market Analysis and Assessment of Significant Market Power, and should follow the procedure stated in Article 7(4) of the Framework Directive. Where a specific technical area which is part of a market listed in the recommendation exhibits specific competition concerns, the commission recommends that the national regulatory authorities impose remedies in this specific area, rather than defining a narrower market.
The commission also affirms that the definition of a market in the recommendation does not necessarily mean that this market should be regulated. It is only where national regulatory authorities find that that market lacks effective competition that they should impose the appropriate remedies. To conduct their analysis, national regulatory authorities should assess barriers to entry, the structural dynamics that may lead to competition and the relative efficiency of competition law remedies. In this respect, the commission states that ex-ante regulation and competition law may complement each other with regards to remedies.
Implementation of the Recommendation
Article 16(1) of the Framework Directive requires national regulatory authorities to launch a market analysis once the recommendation has been published, in order to identify operators with significant market power (SMP) and impose the appropriate remedies. As foreseen in the commission's Eighth Report on the Implementation of the Telecommunications Regulatory Package (COM (2002) 695), this process may not be achieved before the entry into force of the new regulatory framework. Article 27 of the Framework Directive therefore requires national regulatory authorities to maintain in the meantime the obligations imposed under the national law implementing the current regulatory framework.
The recommendation has important implications for telecommunications operators. For instance, in the various member states mobile operators are likely to be found dominant in the market for voice call termination on individual mobile networks as a result of a competition law analysis. If so, they will be subject to regulatory obligations such as cost orientation, non-discrimination and transparency of their tariffs.
However, there is no certainty as to whether, on the basis of the recommendation, the new regulatory framework will lead to less regulation. Nor can it be expected with certainty that the new regulatory framework will be implemented in a harmonized manner. On the basis of the contributions sent to the commission during the public consultation, and of the reactions of some national regulatory authorities following the publication of the recommendation (see, for example, Financial Times, February 7 2003, p24), it may be expected that member states will diverge with regards to which markets should be regulated and what remedies be imposed.
The recommendation and the explanatory memorandum refer national regulatory authorities to the Commission Guidelines on Market Analysis and Assessment of Significant Market Power to analyze listed markets, designate SMP operators and impose remedies in compliance with competition rules. However, competition rules introduce new concepts and methodologies with which national regulatory authorities may not be familiar. In addition, the specificity of electronic communications involves competition concepts which may not yet have been fully clarified under competition law, such as the concept of joint dominance.
For further information on this topic please contact Colin Long or Cecile Plaidy at Olswang by telephone (+44 20 7067 3000) or by fax (+44 20 7067 3999) or by email ([email protected] or [email protected]). The Olswang website can be accessed at www.olswang.com