The Info-communications Development Authority of Singapore (the "IDA") has recently issued the following revised advisory guidelines under the Code of Practice for Competition in the Provision of Telecommunication Services 2012 (the "Code"):
- Advisory Guidelines Governing Petitions for Reclassification and Requests for Exemption under Sub-sections 2.3 and 2.5 of the Code ("Reclassification and Exemption Guidelines"); and
- Advisory Guidelines Governing Abuse of Dominant Position, Unfair Methods of Competition and Agreements Involving Licensees that Unreasonably Restrict Competition under Sections 8 and 9 of the Code ("Telecom Competition Guidelines").
The revised advisory guidelines took effect on 25 April 2014.
The advisory guidelines have been revised to provide more clarity on how the IDA will implement the relevant sections in the Code. The provisions in these advisory guidelines do not impose any binding legal obligation on the IDA. The issue of the revised advisory guidelines follow an earlier public consultation conducted in March/April of 2013 on draft versions of the advisory guidelines.
Set out below is a summary of some of the key issues raised in the feedback received and the IDA's corresponding responses. For the full details, please click here to read the IDA's Explanatory Memorandum on the IDA website www.ida.gov.sg.
Reclassification and Exemption Guidelines
The IDA will consider the concepts of bundles, chain substitutes and complements, where appropriate, in defining the relevant market. In response to a respondent's suggestion for further clarification that the IDA will also analyse the bundles and the individual components to accurately define the relevant product markets, the IDA commented that it will assess the potential substitutes for the focal product, be it the individual components separately and/or alternative bundles of products/services available.
The IDA has revised the advisory guidelines to consider whether the relevant market is a one-sided or two-sided market to properly assess any competition issues. Two-sided markets are those in which a licensee provides a platform that enables two distinct but related groups of customers to obtain products or services. The two sides of the platform are linked, with interdependent prices and output and intertwined strategies. The IDA also commented in its Explanatory Memorandum that it is not feasible to provide further detail on its approach of its analysis of a two-sided market beyond the general approach already set out in paragraph 2.4.2(a)(vi) of the Reclassification and Exemption Guidelines, as requested by a respondent, as such analysis is very fact-specific. When making submissions involving two-sided markets, parties are encouraged to make representations on how the nature of the market would constrain the exercise of significant market power by a licensee.
Market share assessment
A respondent suggested that the IDA remove the presumption that a dominant licensee has significant market power ("SMP") if it has a market share exceeding 40%. The IDA has decided to retain this presumption in the revised advisory guidelines and clarified that the 40% market share threshold is only an initial presumption of SMP and that it may be rebutted by evidence that the licensee is, in fact, subject to effective competition. The IDA also reiterated that its assessment of the competitiveness of the market is guided by many factors and price competition is one of the factors considered, along with market share.
There was also a suggestion for the IDA to consider a comprehensive analysis of telecommunication markets in Singapore to identify those markets where structural competition problems may persist and where some form of ex ante regulation of those markets may be relevant. Currently, the IDA adopts an "entity-based" approach whereby a dominant licensee is presumed to be dominant and hence requires ex ante regulation in all markets that it operates in unless exempted. As the entity-based approach is specified in the Code, the IDA stated that it would not consider this point further as part of this review of the Reclassification and Exemption Guidelines and encouraged respondents to raise these comments as part of the next review of the Code.
The IDA was also urged by a respondent to set out a more forward-looking approach to market analysis that considers foreseeable and relevant market developments such as the Next Generation Nationwide Broadband Network in Singapore. The IDA notes that this is reflected in the amendment under paragraph 2.4.1 of the Reclassification and Exemption Guidelines to clarify that the "IDA may also take into account the appropriate time frames where defining the relevant market".
Telecom Competition Guidelines
The IDA has introduced a leniency programme in the revised Telecom Competition Guidelines to encourage licensees participating or which have participated in cartels, to provide information on cartel activities.
Essentially, the IDA will grant a licensee the benefit of total immunity from the financial penalties which may be imposed under section 8(1) of the Telecommunications Act if, inter alia, the licensee is the first to provide the IDA with evidence of the cartel activity before an investigation has commenced (provided that the IDA does not already have sufficient information to establish the existence of the alleged cartel activity). If a licensee does not qualify for total immunity, it may still benefit from a reduction in the financial penalty of up to 100%. The revised Telecom Competition Guidelines also set out other conditions that the licensee must satisfy before the IDA grants it total immunity from or a reduction to the applicable financial penalty (including but not limited to providing the IDA with all information, documents and evidence available to it regarding the cartel activity, which must be such as to provide the IDA with a sufficient basis for taking forward a credible investigation or to add significant value to the IDA's investigation).
The IDA agreed with a respondent's comment that it will be useful to engage the industry further on the leniency programme and, accordingly, may consider arranging a briefing for licensees on this at a later stage.
Agreements involving licensees that unreasonably restrict competition
In response to a respondent's feedback that more clarity is required in respect of the IDA's determination of whether a tacit agreement exists, the IDA has further revised the Telecom Competition Guidelines to provide further details on when the IDA would find a concerted practice to exist. Paragraph 4.2(e)(iii) of the Telecom Competition Guidelines now sets out a list of matters which the IDA will take consider in determining whether a licensee has entered into a tacit agreement that could facilitate concerted practices, such as whether the licensees knowingly entered into practical co-operation, whether behaviour in the market is influenced as a result of direct or indirect contact between the licensees, and the structure of the relevant market and the nature of the product involved.
Pricing abuses and predatory pricing
The Code discusses three types of pricing abuses as examples of activity that constitute abuses of a dominant position: predatory pricing, price squeezes and cross-subsidisation.
Feedback was received that the IDA should not take action against a dominant licensee for an abuse of a dominant position in respect of tariffs that have been approved by the IDA in accordance with the provisions of the Code, on the basis that if the IDA had so approved a tariff, the IDA cannot then reasonably allege that such pricing constitutes an abuse of a dominant position.
The IDA disagreed with the respondent and, in response, highlighted that while section 4.7 of the Code makes it clear that the IDA's decision to allow a tariff to go into effect creates a presumption that the prices are just, reasonable and non-discriminatory, market conditions may change and effective tariffs may not remain just, reasonable and non-discriminatory. As such, the Code provides the IDA with the right to periodically review any effective tariff as well as an avenue for any person to petition the IDA to undertake such a review. Further, as the actual implementation of an effective tariff may also give rise to competition concerns, it is imperative that the IDA is able to take the necessary enforcement action in such cases.
There was also feedback on issues concerning predatory pricing and price squeezes. For example, on predatory pricing, a respondent raised concerns that certain factors identified by the IDA as constituting barriers to entry under the Code (in particular, retail distribution costs and advertising costs) cannot reasonably be considered to be such barriers. The IDA accepted that retail distribution costs typically constitute a normal part of the operational costs of a business, in contrast to limited access to distribution outlets (which can constitute a barrier to entry). The IDA has accordingly removed "retail distribution costs" as an example of commercial barriers but reserves the right to assess whether such costs serve as a barrier to entry, where applicable. The IDA however disagreed that advertising costs cannot reasonably be considered a barrier to entry. Whether advertising costs will constitute a barrier to entry would depend on the facts and circumstances of the case, and may thus potentially be a barrier to entry. The reference to high advertising costs has thus been retained as an example of a commercial barrier under the Code.
On price squeezes, under the revised Telecom Competition Guidelines, the prize squeeze test will be applied on the basis of "equally efficient non-affiliated service provider", as opposed to "reasonably efficient non-affiliated service provider". A respondent had urged the IDA to delete this test from the Telecom Competition Guidelines in its entirety, on the basis that it incorrectly provides for the IDA to apply the price squeeze test against the cost structure of a third party (which is not how such a test has been applied in leading competition law jurisdictions). In response, the IDA stated in its Explanatory Memorandum that it will take into consideration international best practices and will generally consider the cost structure of the downstream business or affiliate of the licensee with SMP to be the appropriate reference point.
Please click on the relevant titles below to read the revised advisory guidelines which are also available on the IDA website www.ida.gov.sg:
- Advisory Guidelines Governing Petitions for Reclassification and Requests for Exemption under Sub-sections 2.3 and 2.5 of the Code
- Advisory Guidelines Governing Abuse of Dominant Position, Unfair Methods of Competition and Agreements Involving Licensees that Unreasonably Restrict Competition under Sections 8 and 9 of the Code