SMP and dominance SMP and dominance

Pál Belényesi Pál Belényesi VeronaVerona

29 29 November 2006November 2006

NNew regulatory framework ew regulatory framework July 2003July 2003harmonised regulation across Europeharmonised regulation across Europe – reducing entry barriers reducing entry barriers – fostering prospects for effective fostering prospects for effective

competition to the benefit of consumerscompetition to the benefit of consumers

The DirectivesThe DirectivesDirective 2002/21/EC ("the Framework Directive 2002/21/EC ("the Framework Directive"); Directive"); Directive 2002/19/EC ("the Access Directive 2002/19/EC ("the Access Directive"); Directive"); Directive 2002/20/EC ("the Authorisation Directive 2002/20/EC ("the Authorisation Directive"); Directive"); Directive 2002/22/EC ("the Universal Directive 2002/22/EC ("the Universal Service DirectiveService Directive”)”)Directive 2002/58/EC ("the Privacy Directive 2002/58/EC ("the Privacy Directive")Directive")

Recommendation on the relevant Recommendation on the relevant marketsmarkets

a set of markets in which a set of markets in which ex anteex ante regulation might be warrantedregulation might be warrantedNRAsNRAsNRAs are to define relevant markets NRAs are to define relevant markets appropriate to national appropriate to national circumstancescircumstances Guidelines on market analysis and Guidelines on market analysis and the assessment of SMPthe assessment of SMP

Market analysisMarket analysisforward looking analysis forward looking analysis Annex II to the Framework Directive Annex II to the Framework Directive SMP Guidelines SMP Guidelines

BUTBUT

Other criteria and other factors could Other criteria and other factors could be taken into accountbe taken into account

Cont’dCont’dIndividual analysisIndividual analysisTTo consider o consider circumstances circumstances against against the background of the respective the background of the respective market phasemarket phase– concentration processesconcentration processes– the mixture of behavioural para meters the mixture of behavioural para meters

and the resulting performance indicatorsand the resulting performance indicators– They are often differentThey are often different

Market review procedureMarket review procedure a definition of the relevant market or a definition of the relevant market or markets; markets; an assessment of competition in each an assessment of competition in each market, in particular whether any market, in particular whether any companies have Significant Market companies have Significant Market Power ("SMP") in a given market; and Power ("SMP") in a given market; and an assessment of the appropriate an assessment of the appropriate regulatory obligations which should be regulatory obligations which should be imposed where there has been a finding imposed where there has been a finding of SMPof SMP

Definition of the rel. marketsDefinition of the rel. marketsArt 15 + Annex I of the Framework Art 15 + Annex I of the Framework Directive Directive for ex-ante regulationfor ex-ante regulationNRAs toNRAs to determine the geographical determine the geographical markets markets

„„real” market definitionreal” market definitionDemand side substitution:Demand side substitution: Are consumers Are consumers prepared to substitute other services for the prepared to substitute other services for the relevant service? (relevant service? (SNIIP-testSNIIP-test) – shift in demand?) – shift in demand?

Supply side substitutionSupply side substitution: (speedy responses from : (speedy responses from competitors): Would a supplier of other services competitors): Would a supplier of other services switch to “compete” immediately or in the short switch to “compete” immediately or in the short term without incurring significant additional coststerm without incurring significant additional costs

Assessment of potential competition:Assessment of potential competition: lengthier lengthier time for competitors to respond consumer needs time for competitors to respond consumer needs

DDefining SMPsefining SMPs Art. 16 Framework DirectiveArt. 16 Framework DirectiveNRAs should carry out the market NRAs should carry out the market analysis as soon as the adoptaanalysis as soon as the adoptattion of ion of the recommendation takes place or the recommendation takes place or there is a modification of the there is a modification of the recommendationrecommendation NRAs have the obligation to decide NRAs have the obligation to decide whether there is effective whether there is effective competition on the given marketcompetition on the given market

ResultsResults1. Market is effectively competitive1. Market is effectively competitive– No remediesNo remedies– Existing remedies to be withdrawnExisting remedies to be withdrawn

2. Market is NOT competitive2. Market is NOT competitive

Market is NOT competitiveMarket is NOT competitiveSMP SMP Article 14 of the Framework Directive and Article 14 of the Framework Directive and the NRA to impose appropriate specific the NRA to impose appropriate specific regulatory obligations referred to in regulatory obligations referred to in paragraph 2 of Article 16 or maintain or paragraph 2 of Article 16 or maintain or amend such obligations where they amend such obligations where they already exist. already exist. At least one available obligation should be At least one available obligation should be imposed on identified SMPs imposed on identified SMPs

PPrinciples for analyzing the rinciples for analyzing the marketsmarkets

Forward looking approachForward looking approachStructural evaluation of the marketsStructural evaluation of the marketsBased on the existing market Based on the existing market conditions (not hypothetical)conditions (not hypothetical)Is the market prospectively Is the market prospectively competitive?competitive?Is any lack of competition durable?Is any lack of competition durable?Expected market developments Expected market developments over a reasonable periodover a reasonable period

The criteria for being SMPThe criteria for being SMP AAn undertaking shall be deemed to n undertaking shall be deemed to have significant market power if, have significant market power if, either individually or jointly with either individually or jointly with others, it enjoys a position equivalent others, it enjoys a position equivalent to dominance, that is to to dominance, that is to say a say a position of economic strength position of economic strength affording it the power to behave to affording it the power to behave to an appreciable extent independently an appreciable extent independently of competitors, customers and of competitors, customers and ultimately consumersultimately consumers (Art. 14 FD)(Art. 14 FD)

Cont’dCont’dGuidelines are based on the relevant Guidelines are based on the relevant case law of the Court of First case law of the Court of First Instance and the Court of Justice and Instance and the Court of Justice and on the Commission's own decision-on the Commission's own decision-making practicemaking practice See also: See also: Guidelines recital 62 Guidelines recital 62 (A-B-C (A-B-C products – chain substitutability)products – chain substitutability)

BUT (diff. in approach)BUT (diff. in approach)– Different sets of assumptions and Different sets of assumptions and

expectationsexpectations

– Lack of evidence of past behaviourLack of evidence of past behaviour

– Prospective instead of retrospective Prospective instead of retrospective approachapproach

ImplicationsImplicationsfinding of SMP does not mean that finding of SMP does not mean that there is no competition on the there is no competition on the market market ((Case 85/76, Case 85/76, Hoffmann-La Roche Hoffmann-La Roche v v CommissionCommission))

CCriteria can o be used to measure riteria can o be used to measure the powerthe power of a firmof a firm

— — overall size of the undertaking,overall size of the undertaking,— — control of infrastructure not easily control of infrastructure not easily duplicated,duplicated,— — technological advantages or superiority,technological advantages or superiority,— — absence of or low countervailing buying absence of or low countervailing buying power,power,— — easy or privileged access to capital easy or privileged access to capital markets/financialmarkets/financialresources,resources,

Cont’dCont’d— — product/services diversification (e.g. product/services diversification (e.g. bundled productsbundled productsor services),or services),— — economies of scale,economies of scale,— — economies of scope,economies of scope,— — vertical integration,vertical integration,— — a highly developed distribution and a highly developed distribution and sales network,sales network,— — absence of potential competition,absence of potential competition,— — barriers to expansion.barriers to expansion.

RESULTRESULTdominant position dominant position is theis the combination combination of the above criteriaof the above criteria separately may not determinativeseparately may not determinativemarket entrymarket entry importantimportantmarket share is a proxymarket share is a proxycompetitive constraints may competitive constraints may also also come from innovative threatscome from innovative threats from from outsideoutside

Worth to mentionWorth to mentionEssential facilitiesEssential facilitiesLeveragingLeveragingRemediesRemedies

Novelties in the new Framework Novelties in the new Framework with regard to SMP with regard to SMP

Old “definition” of SMP was based on 25% Old “definition” of SMP was based on 25% share of the relevant market + additional share of the relevant market + additional discretionary criteria. The “New” definition discretionary criteria. The “New” definition of SMP is based on the concept of of SMP is based on the concept of dominant position (at least 40%).dominant position (at least 40%).Transition to competition law methodology. Transition to competition law methodology. In practical terms: Ex ante regulation will In practical terms: Ex ante regulation will be applied to former monopolists and/or be applied to former monopolists and/or those who control essential facilities (se: those who control essential facilities (se: Recital 20)Recital 20)

Cont’dCont’dSMP is not equal to dominance. SMP is not equal to dominance. CCompetition authorities are not bound by NRAs ompetition authorities are not bound by NRAs decisions.decisions.SMP is a ”limit” for application of several obligations SMP is a ”limit” for application of several obligations (Remedies) and represents the limit for when NRAs (Remedies) and represents the limit for when NRAs can apply regulation.can apply regulation.Ex-ante regulation shall only be applied in certain Ex-ante regulation shall only be applied in certain circumstances: i.e on operators with SMP circumstances: i.e on operators with SMP Certain obligations (lighter) can be placed on all Certain obligations (lighter) can be placed on all undertakings (se Access Directive Art. 4 and 5 and undertakings (se Access Directive Art. 4 and 5 and USO chapter IV.), but most of the obligations must be USO chapter IV.), but most of the obligations must be places on SMPs.places on SMPs.

Thank youThank you