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For the sake of legal certainty in the process of market definition, the Commission advocates a so called “three-principle analysis” to “standardize” the definition of the relevant market. The cumulative three principles used for market definition are assessing the high and non-transitory barriers to entry, the non-dynamics to competition, and the possible insufficiency of relevant competition law. According to the explanation of the Commission, the high and non-transitory barriers concern both structural and regulatory barriers that are identified as the core of regulation for initiating competition, i.e. market access and interconnection in the electronic communications sector. Non-dynamic aspects of the market definition refer to an examination of whether effective competition could be spontaneously launched at all. The third principle to define the market is to study whether the application of competition law could actually create competition, even if non-transitory barriers to entry and non-dynamics of competition already exist. If competition law alone can sufficiently reduce or remove barriers to entry and restore competition, then the SSR concerned should be rolled back. In addition, the Commission urges NRAs to consult their NCAs when evaluating the sufficiency of competition law alone to solve competition issues. The participation of NCAs in the process of imposition of regulatory measures would further strengthen the coordination between NRAs and NCAs and eliminate the institutional conflicts between them as well.
Through the three-step analysis (defining the market, designating SMP undertakings, and imposing appropriate obligations) the decision of NRAs would have an effect of binding competition authorities since both of them will work on a similar methodological basis. Subsequently, a duplication of procedures would, at least in theory, be prevented. Consequently, should the three-step analysis work well, there would be no jurisdictional conflicts between competition authorities and regulatory authorities.
Table: Compare the Conditions of Article 82 EC with Those of SSR
Preliminary Step Step 1 Step 2 Step 3 Choices of remedies
Article
82 EC
Suspected activity of abusing dominant position Market definition
Stage 1 Stage 2 If fulfill all the conditions: infringe Fines
Exceptionally, transparency
Existence of dominant position or not Abuse dominant position or not and affect EC trade or not
Non- discrimination
Provide access
Otherwise: not infringe
Reduce price
SSR
Markets pre-selected by the Commission or by NRA Market definition
Existence of SMP or not If no SMP: withdraw regulations Transparency
Non-discrimination
Accounting separation
If SMP: impose obligations
Access obligation
Price control
III. REMAINING INSTITUTIONAL CONFLICTS WITHIN THE 2002 FRAMEWORK
The conflicts, actual or potential, between competition authorities and regulatory authorities have been resolved significantly by the 2002 Framework. However, there are still some residual problems to which the 2002 Framework offers no solution. These problems stem from either the incomplete review power of the Commission in the Article 7 Procedure, or the ambiguity of some concepts within competition-law-oriented regulation, or the SSR falling outside the regime of market analysis and the Article 7 Procedure. All these problems further raise a risk that the relevant competition authorities, either the Commission or NCAs, might resolve their conflicts with NRAs by undoing the NRA’s work through the application of competition law on an already regulated issue.
i. No Veto Power on National Regulatory Remedies: The Article 7 Procedure
Under the Article 7 Procedure, The Commission enjoys review power over the initiation of the regulatory policy by NRAs. If the draft of national regulatory measures is not compatible with EC laws, in particular contradicts EC regulatory objectives, the Commission can veto NRAs’ proposals. However, at present the Commission is only competent to veto the inappropriate analysis of NRAs with regard to the first two steps, i.e. market definition and designation of SMP. As far as the last step, imposition of regulatory remedies, is concerned, the Commission lacks veto power.
The Commission may consider whether these remedies are appropriate, for example, whether they are based on the nature of the problem identified, proportionate and justified in the light of the policy objectives enshrined in the Framework Directive, and make its own comments which should be taken utmost account of by NRAs . However there is no coercive mechanism for NRAs to implement the Commission’s proposed remedies. Only when NRAs propose to adopt other obligations on undertakings with SMP than those set out in Article 9 to 13 of Access Directive, does the Commission have veto power on such draft obligations. Hence the imposition of regulatory remedies is loosely controlled by the Commission in an optional way.
Regulatory remedies have become one of the major concerns of the Commission, as evidenced by the fact that a significant proportion of the Commission’s comments so far have related to the appropriateness of the remedies proposed. The Commission has commented on remedies which solved only part of the competition problem identified, appeared to be inadequate, or might have produced effective results too late. The increasing attention of the Commission to remedies suggests the importance of national regulatory remedies in the EC electronic communications market.
Nevertheless, the Commission’s non-binding comments on national remedies under Article 7 Procedure cannot forestall potential a divergence with the NRAs. There is a risk that the Commission could not guarantee consistency of regulation in the internal market under the 2002 Framework if NRAs are unaccepting of the Commission’s comments about the NRA’s imposition of obligations.
Supposing the NRAs might disregard the Commission’s comments on their proposed remedies, it is without doubt that the Commission is incompetent to interfere with the national remedies under the 2002 Framework. In search for other means for intervention, Article 86(3) of EC Treaty, which governs the Commission’s competition law regulations, is not an ideal legal basis for the Commission to act in case of a conflict with an NRA. Accordingly, the Commission, taking account of its exclusive competence under EC competition law, may possibly have recourse to EC competition law to offset its incompetence over national regulatory obligations in so far as the regulatory results contradict EC competition law. Deutsche Telecom case has already depicted us a picture how the Commission applied EC competition law to urge the German regulatory authority to change their remedies by condemning Deutsche Telecom abusing its dominant position to achieve marginal squeeze, even its wholesale price and retail price were both controlled by the German regulator. There is scant evidence to believe such a circumstance will not recur.
From another perspective, this describes the awkward position of the Commission as the ERA. Since it has very limited means to surveille NRAs under the regulatory framework, it cannot but seek the help of its power based on EC competition law in order to attain the regulatory policy. It is a way roundabout, but it is a way out. However, it certainly decreases legal certainty and efficiency of a national regulatory measure, and inevitably increases transaction costs. An appropriate and proportionate solution is to extend the Commission’s veto power to the area of national regulatory remedies. A proposal for extension is being submitted by the Commission, which will be discussed in the next part of this paper.
ii. Ambiguity of Insufficiency of Competition Law: Market Analysis
Converging competition law methodologies into SSR is another innovation of the 2002 Framework. Through this convergence it requires NRAs to take the position of competition authorities to deal with the regulatory issues. In other words, it demands the decisions of NRAs to be acceptable for competition authorities and therefore competition authorities would not intervene with the regulatory measures ex post. In addition, as already mentioned, the first step, market definition, is significant as regards the borderline between competition law and SSR. Within this step NRAs have to identify the hardcore of regulation, then compare the advantages of SSR with those of competition law and finally set up SSR where necessary. It is an appropriate way to prevent ex post conflicts between regulatory authorities and competition authorities ex ante.
For more legal certainty, the three-principle analysis methodology for market definition, along with specific explanations, is advocated by the Commission. The first two principles of the market definition analysis, i.e. high and non-transitory barriers to entry and non-dynamic aspects, are clearly developed. However, the third principle, insufficiency of competition law, causes some uncertainty. In line with the explanation of the Commission, the insufficiency of competition law may exist where
“the compliance requirements of an intervention to redress a market failure are extensive (e.g. the need for detailed accounting for regulatory purposes, assessment of costs, monitoring of terms and conditions including technical parameters etc), that frequent and/or timely intervention is indispensable and that creating legal certainty is of paramount concern”.
Nevertheless, according to the existing case law, competition law, that parallels SSR, has been regarded as a successful instrument to remedy competition problems. For example, based on the principle of ‘essential facility’, denial of access to infrastructure may be annulled as an infringement of Article 82 of the EC Treaty. Likewise, a margin squeeze by one player may be an abuse of dominant position under Article 82 of the EC Treaty, which can be invoked to solve interconnection problems. Furthermore, accounting separation and structural separation, as the standard remedies provided by Access Directive, can also be imposed by competition authorities, though exceptionally. Consequently, there is not an explicit guide to identify in which area competition law is insufficient to liberalize.
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