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INTERNATIONAL COMPETITION NETWORK Advocacy Working Group Report prepared by the subgroup n°3 : case studies Mérida, Mexcio June 2003 1. PREFACE The mandate of the Subgroup on Advocacy in Specific Sectors of the Advocacy Working Group of the ICN, as established at its first Annual Conference in Naples last year, was to undertake studies about advocacy efforts in specific regulated sectors in member countries with a focus on the principles involved, advocacy techniques employed, the role of the competition agency in those sectors, the interface between competition authorities and regulatory bodies, and the successes and failures of the advocacy efforts. It was suggested that the subgroup would invite ICN members to share their experiences in this field by submitting brief contributions on the sectors to be selected. In order to maintain the work within manageable proportions, it was decided at an early stage to limit the scope of the efforts of the subgroup to the following four sectors: (i) telecommunications, (ii) energy, (iii) airline industry and (iv) legal professions. Early this year the agency that chaired the subgroup (France) sent out an invitation to members asking them to contribute on each of these sectors with a small paper setting out their experiences. Responses were received from eleven countries, some provided responses covering all four sectors while others responded to only some of them. The total number of contributions was 24. The purpose of this report is to present the results of the exercise. Apart from this introduction it comprises a list of documents, a table classifying the contributions by sector and country and four sectoral chapters. Each chapter has an introductory section with an overview of the results of the country contributions and indicating the main sector-specific problems related with competition advocacy. After the introductory sections the full texts of the country contributions are included. We wish to acknowledge the members who submitted contributions to the subgroup. We also acknowledge the work done by the authors of the introductory sections (United States Department of Justice, United States Federal Trade Commission, Romanian Competition Council and French General Directorate for Fair Trading, Consumer Affairs and Fraud Control) and express the hope that the report will be helpful also to members that did not directly participate, in shaping their advocacy activities in the sectors that were the subject of this study. ii TABLE OF CONTENTS 1. PREFACE II 2. COMPETITION AUTHO RITIES SUBMISSIONS 1 3. OVERVIEW OF ICN’S TELECOMMUNICATIONS SECTOR SUBMISSIONS 2 3.1. ARMENIA 6 3.2. FRENCH MINISTRY OF FINANCE - DGCCRF 7 3.3. IRISH COMPETITION AUTHORITY 12 3.4. THE JAPAN FAIR TRADE COMMISSION 22 3.5. MEXICO: FEDERAL COMPETITION COMMISSION 26 3.6. NETHERLANDS COMPETITION AUTHORITY 29 3.7. ROMANIA: COMPETITION COUNCIL 31 3.8. ANTIMONOPOLY OFFICE OF THE SLOVAK R EPUBLIC 42 3.9. UNITED STATES DEPARTMENT OF JUSTICE 47 4. COMPETITION ADVOCACY IN ENERGY INDUSTRIES 53 4.1. AUSTRALIAN COMPETITION AND CONSUMER COMMISSION 57 4.2. FRENCH MINISTRY OF FINANCE - DGCCRF 73 4.3. THE JAPAN FAIR TRADE COMMISSION 78 4.4. THE JAPAN FAIR TRADE COMMISSION 81 4.5. MEXICO: FEDERAL COMPETITION COMMISSION 84 4.6. SUBMISSION OF THE ANTIMONOPOLY OFFICE OF THE SLOVAK REPUBLIC 90 4.7. SWISS SUBMISSIO N ON THE ELECTRICITY SECTOR 93 4.8. UNITED STATES DEPARTMENT OF JUSTICE 98 5. COMPETITION ADVOCACY IN THE AIRLINE INDUSTRY 109 5.1. GENERAL DIRECTORATE FOR COMPETITION, CONSUMERS AFFAIRS AND FRAUD CONTROL (DGCCRF) 111 5.2. IRISH COMPETITION AUTHORITY COMMENTS: AVIATION 121 5.3. MEXICO: FEDERAL COMPETITION COMMISSION 129 5.4. UNITED STATES: DEPARTMENT OF JUSTICE 133 6. OVERVIEW OF COMPE TITION ADVOCACY IN THE LEGAL PROFESSIONS 139 6.1. FRENCH MINISTRY OF FINANCE - DGCCRF 140 6.2. THE IRISH COMPETITION AUTHORITY 144 6.3. SWITZERLAND COMPETITION COMMISSION 155 6.4. US FEDERAL TRADE COMMISSION AND DEPARTMENT OF JUSTICE 159 iii 2. COMPETITION AUTHORITIES SUBMISSIONS _______________________________________ COUNTRIES Telecom. Energy Air Transport Legal Professions Armenia x Australia x France x x x x Ireland x x x Japan x x Mexico x x x Netherlands x Romania x Slovak Rep. x x Switzerland x x United States x x x x 1 3. OVERVIEW OF ICN’S TELECOMMUNICATIONS SECTOR SUBMISSIONS The ICN Competition Advocacy Subgroup received papers on advocacy in telecommunications from nine members countries: Armenia, France, Ireland, Japan, Mexico, the Netherlands, Romania, the Slovak Republic, and the United States. All describe telecommunications markets in transition from monopoly (whether governmental or privately-owned) to competitive. Although the development is slightly different in each country, the trend is uniform. Similarly, all describe the transition as explicitly informed by principles of competition. The following outlines the major themes presented in the telecommunications subgroup papers. A. Industry Background and Transition All nine papers describe wireline telecommunications markets as being in transition. Drivers of this transition appear to be technological developments, including wireless and data services, as well as advocacy of competitive principles by the relevant authorities. For many years, France, Ireland, Mexico, Romania, and the Slovak Republic had state monopoly wireline providers that offered both local and long distance telecommunications services. Since the mid-1990s, those carriers have been privatized to some extent and the monopoly markets officially opened. The submissions recognize that opening a telecommunications market by law or regulation is merely the first step: the market may be open to competition officially and yet remain a monopoly for some period. The implementation of competition requires attention to details such as the prices and terms on which competitors can enter and obtain needed inputs from the incumbent. Thus, France, Ireland, Mexico, and Romania have established regulations that require incumbents to provide interconnection with new entrants. France, Romania and Mexico also have created a framework for establishing proper rates for interconnection services. On the other hand, while the Slovak Republic has opened its telecommunications market as of January 1, 2003, liberalization so far exists only on paper, as the Telecommunication Office has not yet exercised its regulatory powers notwithstanding the urging of the Antimonopoly Office. Japan, although it has not yet passed any formal legislation, has taken steps to create a regulatory framework for the telecommunications sector. These countries all have recognized that regulation is necessary to facilitate entry by new carriers and to prevent anticompetitive conduct by service providers that hold dominant positions in their respective markets. In the United States, wireline telecommunications services were monopolized by a private company, AT&T, until 1984. That year, as a result of antitrust litigation by the Department of Justice, local service monopolies (the “Bell” companies) were spun off from AT&T, and the long distance market was opened to competition between AT&T, MCI, and other carriers. In 1995 the Federal Communications Commission (“FCC”) declared that AT&T was no longer the dominant domestic long distance carrier. In 1996, Congress required the local telecommunications markets to be opened to competition, and included special provisions permitting the Bell companies to reenter the long distance market once they had proved that their local markets had been opened. Consistent with experience in other countries, formal and detailed regulations regarding prices, terms, and provisioning systems were necessary to open markets that had been officially and effectively closed to competition for decades. In addition, 2 some period of commercial use of the relevant systems has proved necessary in order to refine them so that what appears possible on paper becomes so in practice. In contrast to the historical monopolies providing wireline telecommunications, U.S. wireless services were originally licensed and developed with at least two carriers in each geographic market. Wireless telecommunications have continued to be fairly competitive. B. Competition Authorities Seven of the responding countries have more than one governmental authority involved in telecommunications. In some countries, mandated changes in the structure of the industry were accompanied by changes in the structure of the government oversight. The Netherlands, for example, recently moved responsibility for telecommunications matters from the Ministry of Transport, Public Works, and Water Management to the Ministry of Economic Affairs. Ireland replaced the Office of Director of Telecommunications Regulation with the Commission for Communications Regulation. France and Romania created their Telecommunications Regulatory Authority to oversee the industry, including consulting with the Competition Counsel regarding basic rules of fair competition. In other countries the relevant governmental authorities remained the same although their roles have shifted slightly. For instance, both the U.S. Department of Justice’s Antitrust Division and the FCC retained responsibility for oversight of the telecommunications industry following the enactment of the Telecommunications Act of 1996. However, the Act shifted the authority to allow local monopoly carriers to reenter the long distance market from the U.S. District Court for the District of Columbia (which had retained the