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A simplistic view of the EC model might suggest there is no risk of conflicts because competition law and SSR are two distinct sets of rules and applicable to different situations at different time. However, if having a closer look we may conclude that in practice there does exist a great amount of overlap of jurisdiction between the two sets of rules in EC. Because the two different types of rules, competition law and SSR, could be invoked to the same subject matter, different authorities (e.g. the ECJ, the Commission, NRAs, NCAs, and European or national courts) may be simultaneously competent to regulate many circumstances. For instance, a firm concerned with anticompetitive behaviors by an electronic communications player could:
(1) file a complaint to the Commission on the basis of Article 82 of the EC Treaty when the practice in question has an effect on intra-Community trade; or
(2) lodge a complaint to the NRAs when the practice in question violates a regulatory obligation; or
(3) lodge a complaint to the NCAs on the basis of national competition rules or Article 82 of the EC Treaty when the practice in question has an effect on intra-Community trade.
In short, there are two categories of institutional conflicts in EC regulatory regime. The first institutional conflict takes place at European level, referring to the conflict between the Commission and NRAs. If national SSR does not preclude the undertakings from engaging in autonomous conduct that prevent, restrict or distort competition, the Commission will intervene regardless of the fact that the undertakings concerned already have been subject to SSR. The second institutional conflict exists at national level. Because an anticompetitive activity of a regulated undertaking would simultaneously infringe regulatory rules and competition rules, national jurisdictional conflicts occur as well.
According to some academics, authorities that compete against each other may be more efficient than conjoint decisions by authorities or only one authority deciding on behalf of both. However, the duplication of procedures may generate delays, higher transaction costs and increased legal uncertainty for operators and from a public policy standpoint overlapping authority is also costly because it creates a duplication of investigative resources. Different objectives and methodologies employed by the separate authorities would inevitably produce diverging decisions under certain circumstances. Further, overlapping authorities would weaken the electronic communications players’ confidence on NRAs and thus impair the liberalization in the internal market. In practice this risk is more acute in the case of margin squeeze because the NCAs and NRAs do not necessarily apply the same imputation criteria and other tests in such cases. For all of the aforementioned reasons, it is necessary to establish an effective cooperation mechanism in order to solve these conflicts.
ii. The Innovations of the 2002 Framework
Assuming that SSR and competition law will gradually converge at the same point where the process of deregulation and liberalisation terminate, the 2002 Framework expects to mitigate the conflicts between competition authorities and regulatory authorities by establishing a closer cooperation between them in the so called “transitional period”. Furthermore, competition law/authorities have begun to play an important role in the process of adoption of regulatory measures. First, the Article 7 Procedure requires ex ante SSR subject to a conjoint review by DG Information and the Competition Directorates General (hereinafter, DG Competition). Second, the converging competition law methodologies into SSR on the one hand demands deregulation to solely competition; on the other hand requires NRAs to consult NCAs when conducting market analysis. Last but not least, the Framework Directive provides that “where more than one authority has competence to address such matters, Member States shall ensure that the respective tasks of each authority are published in an easily accessible form”. All these changes aim to smooth the effective and harmonious functions performed by these two regulatory arms.
1. The Article 7 Procedure
(1) A brief introduction
The Article 7 Procedure has as its objectives to (1) ensure consistent regulation across the EU on the basis of competition law principles; (2) to limit regulation to markets where there is a persistent market failure; and (3) to bring more transparency in the regulatory process. In addition, the Commission expects the Article 7 Procedure be instrumental in consolidating the internal market for electronic communications.
Article 7 of the Framework Directive requires NRAs to notify the Commission and other NRAs of their findings as to market definition and significant market power (hereinafter, SMP) analysis and the regulatory obligations they intend to impose (or remove). Once NRAs notify the Commission of its proposed measure related to a particular market, the case is registered, and an ad hoc case team comprising officials of the services of both DG Information and DG Competition is appointed.
The case team then has one month in which to assess the notification of the proposed measures (the “Phase one” procedure). The vast majority of cases are handled within this one-month period by a letter to the NRA concerned, which may contain Commission comments as to how the measures in question could be further improved. In cases where the Commission considers that, in terms of market definition or SMP analysis, the proposed measures would create a barrier to the single market or if it has serious doubts as to the measures’ compatibility with Community law (and in particular the common policy objectives that all NRAs should pursue), the Commission can conduct a more detailed investigation lasting a further two months (the “Phase two” procedure). Following this in-depth investigation, should its concerns be confirmed, the Commission may require the NRA to withdraw the draft measures (the “veto” decision) and possibly to resubmit the market analysis in question at a later stage. For transparency reasons, the Commission has so far adopted a decision in every case, even where it has had no comments of its own.
(2) Advantages to resolve institutional conflicts
The Article 7 Procedure guarantees a closer cooperation between the Commission and NRAs, between NRAs and their corresponding NCAs, and between one NRA and other NRAs. It, to a large extent, resolves institutional conflicts.
First, the Article 7 Procedure adopted is in line with the three objectives provided by the Framework Directive. It imposes upon the Commission responsibility and power to ensure the coherent regulatory policy on the common market. The implementation of the strongly Europeanized consultation procedures also helps harmonization. Until 20 December 2006, the Commission has used the Article 7 Procedure to wield significant influence by vetoing five draft decisions , and causing the withdrawal of seven others before veto . The Article 7 Procedure installs a platform where pan-European consistency can be ensured despite of separate national regulation schemes. In addition, the involvement of interested parties in Article 7 Procedure brings more regulatory transparency and predictability as well.
Second, the Article 7 Procedure is able to relax the tension rising from the concurrent application of competition law and regulation at European level. The Article 7 Procedure installs a platform not only for SSR, but also for EC competition law. Because the application of the Article 7 Procedure is a joint work with DG Competition, it brings EC competition law “on board”. The two DGs work hand in hand, pooling together their sectoral, regulatory and competition law expertise, thereby reflecting the principles underpinning the regulatory framework. The close co-operation between the two DGs ensures that the new principles of the regulatory framework have been put successfully into practice. Second, since the decision based on Article 7 Procedure is co-concluded with the European competition authority, the Commission is expected to be bound by its own decision so that it would not apply EC competition law ex post into already regulated issues, as it did before in Deutsche Telecom Case.
Third, the Article 7 Procedure will help resolve issues stemming from overlapping jurisdictions shared by NRAs and NCAs. When defining the relevant markets, NRAs should consult their NCAs and be compelled to take account of their NCA’s opinion. The involvement of NCAs ex ante will certainly decrease the possibility of overlapped jurisdiction over competition issues ex post.
2. Converging Competition law Methodologies into SSR
Another striking feature of the reforms within the 2002 Framework is that the “new” SSR is built upon European competition law methodologies and principles. This innovation is justified by several reasons: “firstly, to make the regime more flexible than was the case previously and get regulatory decisions closer to the economic reality of the market; secondly, to maintain legal certainty, as decisions will be based on more than forty years of well-established antitrust case law; thirdly, to ensure a better harmonisation of regulatory decisions across Europe; fourthly, to ensure a progressive removal of obligations as competition develops on the different markets and to facilitate the transition towards the pure application of competition law when SSR will no longer be necessary.”
In order to impose a regulatory obligation, NRAs have to follow the three-step analysis, i.e. to define the market, to designate SMP undertakings, and to impose appropriate obligations in line with the Framework Directive. This three step analysis perfectly resembles the analysis of Article 82 of the EC Treaty, which is illustrated in the table on Page 12 of this paper. The first step of the analysis, market definition, is significant for solving the institutional conflicts between competition authorities and regulatory authorities. In other words, market definition draws a borderline between the application of competition law and SSR because it is clear maintained by the Commission that SSR can only be imposed where there is no effective competition. Thus the goal of converging competition law methodologies into SSR is to confine SSR to areas where competition law alone is not sufficient to deal with the market failure concerned.
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