KPN's Response to the BEREC Public Consultation on the Draft BEREC
Total Page:16
File Type:pdf, Size:1020Kb
BEREC Report on Oligopoly analysis and regulation BoR (15)74 KPN response KPN PO Box 30 000 2500 GA The Hague The Netherlands Contact persons: Gera van Duijvenvoorde ([email protected]) Paul Knol ([email protected]) Reference: GCO/15/U/053 31 July 2015 Introduction and summary KPN welcomes the opportunity to provide input to BERECs consultation on the Report on Oligopo- ly analysis and regulation (June 2015). BEREC describes the purpose of the report as twofold: Provide initial assistance to National Regulatory Authorities (NRAs) under the current regu- latory framework on the SMP analysis in ‘oligopolistic markets’; An assessment whether the future regulatory framework to deal ex ante with ‘oligopolistic markets’ should be amended. In its submission to the earlier BEREC questionnaire on the analysis of oligopolistic markets, of January 2015, KPN concluded that the discussion on ‘the regulation of oligopolistic markets’ lacks an adequate problem definition. KPN considered the concept of ‘oligopolies’ as such too broad and unspecified to build any conclusion upon. After reading the current report KPN is not con- vinced that one should conclude that existing regulation should be applied differently. Nor should a future regulatory framework be extended to regulate oligopolies on an ex ante basis. As described in the report the current framework allows ex ante regulatory intervention only if a sufficient level of proof of single or joint significant market power (‘SMP’) has been provided by the NRA. As for joint dominance / joint SMP the criteria have been defined by the ECJ in the Air- tours decision. There is no need or reason to change the standard of proof beyond or below the general threshold in cases of presumed oligopolies. The description of the standard of proof in the report seems adequate and provides clarity to NRAs. Most of the report addresses potential negative effects of the economic concept of ‘tight oligopo- lies’ and raises the question whether a new regulatory framework should provide NRAs with new ex ante regulatory powers to prohibit potential negative effects of such markets structures. KPN does not feel that such a need would exist and that such regulatory powers would be beneficial for the development of a competitive EU telecommunications- and ICT-market. The report itself indicates that even ‘tight oligopolies’ in itself do not indicate negative market effects. This results from the characteristics of the markets, such as (i) the dynamics of the electronic communications markets, (ii) the increasing close and converging relations of these markets with other markets in the internet value chain, (iii) the need for a stable and predictable regulatory and investment stimulating environ- ment, (iv) the situation that the interim phase after liberalisation of the market has been ended and no basis for an additional regulatory framework beyond Significant Market Power (’SMP’) exists, and (v) the fundamental principle in the EU Treaty that on the internal market (only) general competition law may remedy market failures. Given the above characteristics no justification exists to extend the current regulatory framework to address insufficiently defined ‘problems’ such as (‘tight’) oligopolistic markets. KPN will elaborate on these points in more detail hereafter. Due to the short timeframes in this consultation KPN mainly focusses on the basic assumptions that are addressed in the BEREC re- port, taking into account the market situation in The Netherlands. KPN is open to further clarify its view or provide additional information to BEREC, if desired. Hereinafter, we will first (paragraphs 1-3) describe the current regulatory framework and will con- clude that the current system of ex ante regulation is temporarily by nature (until no longer single or joint SMP exists) and that there is no need and no legal basis to change the standard of proof. We will also conclude that for a future amendment of regulation the concept of tight oligopolies KPN response to BEREC Oligopoly analysis 2 31 July 2015 in itself can be no criterion to base any ex ante regulatory intervention upon (paragraph 4). The dynamics in the telecommunications and wider internet markets is insufficiently taken into ac- count to propose specific regulation for the traditional telecommunications market (paragraph 5). Not only the role of OTTs as competitors in traditional telecommunications markets should be more critically be included, but also the dynamic effect that – in two-sided-markets – the role of other players in the internet value chain is a counterweight to potential dominant positions of traditional telecommunication operators. The BEREC analysis fails to investigate incentives that in the current market exist to achieve a wholesale market that is based on commercially negotiated agreements, if necessary complemented with dispute resolution mechanisms (paragraph 6). KPN believes such incentives are present and recent developments in the Dutch market support this view. Finally we will clarify why the merger control test of a ‘Significant Impediment of Effective Competition’ cannot be the criterion to trigger ex ante regulation (paragraph 7) and comment on the complexity and uncertainty of potential remedies in case, nevertheless, some form of ‘oligopo- ly-regulation’ would be introduced. Index Introduction and summary ...................................................................................................................... 2 1. The current framework and its background – the role of (ex ante) regulation .............................. 4 2. Standard of proof for joint SMP ...................................................................................................... 5 3. Sub conclusion on the application of the current framework ........................................................ 6 4. ‘Tight oligopoly’ no future triggering event for ex ante regulation ................................................ 6 5. Market developments do not support regulation without SMP ..................................................... 6 6. Implicit presumption for the need for ‘regulated’ access overlooks new reality in access arrangements on competitive markets ................................................................................................... 8 7. Could the SIEC test be relevant for ex ante regulation? ................................................................. 9 8. Remedies in case of joint SMP ...................................................................................................... 10 KPN response to BEREC Oligopoly analysis 3 31 July 2015 1. The current framework and its background – the role of (ex ante) regulation The need for sector specific regulation in the telecoms sector found its origin in the historic (state owned) monopolies. After opening up the fixed telephony networks with the Open Network Pro- vision framework of the 90ies, the ‘1999 review’1 chose to regulate previous monopolists on an ex ante basis as long as they still would enjoy dominant positions as defined under EU competition law. This ‘SMP-regime’ was defined to end once (single or joint) dominant positions (as defined in competition law) are no longer present. These dominant positions resulted from the fact that these incumbent operators rolled out their local access infrastructures protected by exclusive rights and would have been able to fund investment costs through monopoly rents. The point of departure of this regulatory framework is that the market will rely on the application of general competition law only after this situation is achieved. Good reasons for such a ‘sunset clause’ existed in the past and still do exist. The basics of the European Union is a free market, in which – solely – competition law fulfils the role to safeguard the competition on the market and to avoid negative consequences of (tacit) collusion and unilateral abuse of dominant positions. In the free market it is up to undertakings to compete for customers. Desired market structures are not defined upfront, but the result of market forces, which will change over time. Regulatory interven- tion is an exception that is – and should be – used as an ultimate remedium and not as a regular tool to shape markets in line with economic models or (politically) desired outcomes. Many sectors, including sectors adjacent to the telecommunications sector in the converging in- ternet value chain, have shown (and may increase to show) tendencies where the number of com- peting companies is limited. This especially holds true for markets where high initial costs, net- work effects, or scale for innovation are relevant characteristics. It is very important to note that the telecommunications sector in many ways is competing with sectors and companies in the in- ternet value chain, not in the least in the ability to externally finance investments or attract equity. Many new applications and services from other players in the internet value chain increasingly compete with the former telecommunications services, without being in scope for potential ex ante regulation or the oligopoly analyses in the BEREC report. Like all parts of the internet value chain, the telecommunications sector has been under constant and increasing change in the last decade and most of these changes point at contradicting direc- tions: strong decrease of revenues through traditional services on the one hand, against the need to increase investments to cope with the rapidly