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European competition law and the communications sector: the shift from regulation to enforcement Christian Duvernoy and Omar Shah Wilmer, Cutler & Pickering Post-liberalisation restructuring of the European communica- adopted on an accelerated timetable separately from the other tions industry continued in 2001, albeit at a slower pace than in measures in the Package. Regulation 2887/2000 was intended to 2000. The burst of the “New Economy” bubble and the high cost open access to the incumbent’s local loop, both for competitive of obtaining UMTS licences dampened the appetite for large- infrastructure operators and service providers. By the end of 2001, scale deals and reduced the amount of available capital. On the however, the European Commission had to bring enforcement regulatory front, however, competition and communications reg- proceedings against three member states (Greece, Portugal and ulatory authorities continued to focus on enforcement proceed- Germany) to push implementation of the Regulation. It has noted ings to achieve their policy goals. This shift from regulation to en- that implementation of local loop unbundling has been very dis- forcement can be seen both in the fundamental revision of the EU appointing, in part due to complex operational issues that arose communications regulatory framework and in the active process in regard to collocation and pricing (the Commission’s 7th Re- of review of mergers and acquisitions, often cleared only subject port on the Implementation of the Telecommunications Regula- to conditions (see also chapter “EU regulatory framework for tory Package). telecommunications”). The New Regulatory Framework The year began with entry into force of a last, purely regulatory measure, as part of the EU’s telecommunications framework: as The New Regulatory Framework for electronic communications, of 1st January, 2001, Regulation (EC) 2887/2000 mandated un- approved in final form by the European Council on 14th Febru- bundled access to the local loop. This Regulation evolved into a ary, 2002, introduces a more enforcement-oriented approach to key component of the proposed Telecoms Package that was regulation. The New Framework, which member states have 15 GLOBAL COUNSEL • GLOBAL COMMUNICATIONS INDUSTRY REPORT • 2002 • www.practicallaw.com/global 19 GLOBAL COMMUNICATIONS: COMPETITION LAW AND COMMUNICATIONS Technological developments and policy goals The shift from regulation to enforcement that is embodied in the New Framework is likely to be reinforced by the following interlinked and overlapping factors: • Convergence. The telecoms, media and IT industries continue to converge to form an electronic communications sector. The response of NRAs and competition authorities is to try to prevent the emergence of bottlenecks and of firms seeking to act as gatekeepers to those bottlenecks on the emerging economic value chain in the electronic communications sector, primarily through the use of competition law- based standards (see main text “Key cases: Preventing bottlenecks in convergent markets”). • Infrastructure competition. Regulators will be keen to facilitate convergence by stimulating competition between alternative infra- structures and by encouraging incumbent telcos to divest overlapping infrastructure assets. This may be achieved more and more through the use of ex post competition law procedures, in the context of a deal clearance, rather than ex ante sector-specific obligations. • Behavioural undertakings. Regulators are likely to be increasingly prepared to see the enforcement of behavioural undertakings put into place in the context of merger control proceedings as a half-way house between the imposition of structural remedies and simply rely- ing on sector-specific regulation. Although fewer new behavioural remedies were imposed in 2001 than in 2000, the effect of earlier reme- dies was a significant issue in several cases. months to implement into national law, is and the weight of the evidence. They will • Stimulating increased competition in based on two fundamental principles: no longer be able to rely on mechanistic the provision of mobile services. application of the SMP threshold under • A more flexible substantive test, based existing sector-specific regulation to jus- Access to broadband networks on competition law, is better suited to tify regulatory intervention. NRAs will Unbundling the local loop: OFTEL en- regulating the emerging electronic com- have to prove, on the basis of evidence forcement action against BT. Although munications sector than the previously gathered during their investigations, that the definition of SMP introduced by the applicable standard. The New Frame- undertakings are dominant, individually New Regulatory Framework has not yet work thus replaces the somewhat me- or collectively, before they are in a posi- been implemented into national law, chanical 25% market share test for signif- tion to intervene. The Commission will there is evidence to suggest that NRAs icant market power (SMP) with the more be able to take part in this process only as may already be anticipating the reform. flexible concept of dominance developed an observer in national cases or, in ex- They are tending to adopt a more sophis- under the EC competition rules. treme cases, by exercising its right to sub- ticated approach based upon market stitute its judgment for that of the NRA. analysis rather than simply intervening on • Since the national regulatory authori- Judicial review may increase in impor- the basis that the 25% SMP threshold is ties (NRAs) have now achieved a consid- tance if significant differences of opinion satisfied. For example, although the Reg- erable degree of independence and exper- develop between NRAs and the Commis- ulation on unbundling of the local loop tise, they should have even greater re- sion. continues, at present, to refer to the old sponsibility and discretion in applying the concept of SMP as embodied in existing regulatory framework to domestic elec- Key cases sector-specific regulation, the UK NRA, tronic communications markets. Thus, OFTEL, has shown that it will carry out a for example, the New Framework en- Beyond the changes in approach to regu- thorough market analysis before inter- trusts NRAs with the task of defining rel- lation that can be expected to result from vening in certain markets. In an ex officio evant markets within their territory, in adoption of the New Package, several investigation, OFTEL found that BT’s accordance with principles of competi- cases in 2001 demonstrate the ongoing charges for certain services to unbundled tion law and taking account of the Rec- importance of merger clearance and regu- local loop operators were excessive and ommendation and Guidelines to be pub- latory enforcement proceedings in achiev- that BT had SMP. However, OFTEL took lished by the Commission on this issue. ing the policy goals of the Commission immediate regulatory action only in re- NRAs are also responsible for assessing, and national regulators. These goals in- spect of certain services (provision of line where appropriate in co-operation with clude: information and escorted access to ex- national competition authorities, the changes). With respect to connection and competitiveness of these markets. As a • Ensuring open access to broadband rental charges for external tie cables check on this increased authority, the networks. (which link operators’ equipment with Commission obtains a veto right on cer- BT’s local exchanges), it deferred any reg- tain NRA decisions, where they would • Safeguarding against excessive market ulatory action pending a separate analysis conflict with internal market objectives. power through the vertical integration of of competition in the relevant market. delivery networks with exclusive rights to OFTEL took the view that the require- Fact-based inquiries content. ment (of existing sector-specific regula- The New Framework is likely to spur tions) for such prices to be cost-oriented NRAs to achieve regulatory goals using • Preventing new bottlenecks in conver- could not be considered in isolation from enforcement procedures that turn even gent markets (for example, interactive the extent of competition for the services more on the individual facts of the case TV services). in question. 20 GLOBAL COUNSEL • GLOBAL COMMUNICATIONS INDUSTRY REPORT • 2002 • www.practicallaw.com/global GLOBAL COMMUNICATIONS: COMPETITION LAW AND COMMUNICATIONS Broader implications. OFTEL’s approach satellite transmission because of the dif- Increasing importance of open access. in this case is likely to foreshadow the ap- ferent relative levels of penetration of This decision demonstrates again that as proach that will be taken by NRAs to the satellite, cable and terrestrial broadcast cable operators continue to increase new concept of SMP once it is adopted infrastructure. It would not be economi- market penetration and the range of ser- into national law. This approach is also cally feasible, due to Finland’s topogra- vices that they provide to consumers, the likely to expose the inherent tension be- phy and relatively limited market for ra- issue of open access to their networks is tween the overlapping roles of the NRA dio and TV broadcasting, to replicate likely to become more contentious. Both and the Commission in the New Regula- national coverage of the terrestrial the UK (OFTEL) and the Dutch regula- tory Framework. In particular, there is transmission infrastructure by cable or tors (NMa and OPTA)

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