BEREC ref. No
BoR PC03 (15) 14
GSM Association comments on the
Draft BEREC Report on Oligopoly Analysis and Regulation (BoR (15) 74)
1 August 2015
About the GSMA
The GSMA represents the interests of mobile operators worldwide, uniting nearly 800 operators with
more than 250 companies in the broader mobile ecosystem, including handset and device makers,
software companies, equipment providers and Internet companies, as well as organisations in adjacent
industry sectors. The GSMA also produces industry-leading events such as Mobile World Congress,
Mobile World Congress Shanghai and the Mobile 360 Series conferences.
For more information, please visit the GSMA corporate website at www.gsma.com. Follow the GSMA
on Twitter: @GSMA.
Policy Contacts:
Emanuela Lecchi
Head of Competition
elecchi[at]gsma.com
Laszlo Toth
Head of Office, Europe
ltoth[at]gsma.com
1
1.
SUMMARY
The GSMA welcomes the opportunity to comment on BEREC’s Draft Report on Oligopoly Analysis and
Regulation (“Draft Report”). As the GSMA represents specifically the mobile industry, the following
comments focus on issues concerning mobile networks.
BEREC accepts that oligopolies do not necessarily lead to poor outcomes for consumers, if long run and
short run competitive effects are taken into account. It proposes to adapt the Significant Impediment of
Effective Competition (SIEC) test from merger cases into an ex-ante regulatory test for dealing with what
might be viewed as poorly functioning oligopolies.
The GSMA believes that creating a novel “oligopoly regime” will lead to uncertainty for investors, national
regulators and competition authorities for the following reasons:
•
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SMP regulation has clear boundaries, it is about what to do when a party with Significant
Market Power has been identified; similarly
Collective SMP requires the finding of joint SMP based on the so-called Airtours criteria, we
note that BEREC sees this as a substantial burden of proof; yet
The proposed oligopoly regulation appears to require a subjective determination of whether
a market is functioning in the consumer interest; and
oligopoly regulation would be applicable to the telecoms industry only, compounding the
issue that already the telecoms industry is subject to regulation over and above other sectors
of the economy.
We believe that the creation of a subjective test, with no case law sat behind it, would make the oligopoly
regulation unworkable in practice. The SIEC test used in merger provides no assistance to the
measurement and assessment of the absolute quality of competition and as BEREC accepts, the new exante process would require the balancing of a wide range of static and dynamic competitive factors. If
BEREC considers that a new regime of regulating oligopolies could be based on the SIEC test, further
clarity is required as to how this would be applied. Alternatively, if BEREC is considering the type of
approach that the Commission (and certain national authorities) employs in market investigations, then
this also needs to be explained in more detail.
Mobile markets have either not had operators with SMP, or seen the removal of SMP conditions very
early on, to such an extent that the market for access and call origination was removed from the list of
relevant markets. While national licensing regimes and high investment requirements preserve the
characteristics of more concentrated markets for mobile network operators, competitive pressures from
MVNOs and Internet-based content and application providers (CAPs) deliver competitive outcomes for
consumers, in terms of prices, choice, quality, investment and innovation.
It is the view of the GSMA that the forthcoming review of the electronic communications regulatory
framework should focus on modernising and wherever possible reducing regulation in the mobile sector
taking full account of new sources of disruptive competition that are emerging from non-traditional
sources. A major concern of the GSMA is that BEREC seems to see the need for regulatory action on
oligopolies as a consequence of consolidation, raising the spectrum of multiple reviews and disparate
national outcomes following mergers already examined by a competition authority with a general remit
over the economy as a whole.
In this paper, the GSMA:
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Considers the theoretical pricing assumptions that underpin the Draft Report and warns that
economic models should be treated with caution, as they do not capture some of the defining
features of telecommunications markets including sunk cost, investment levels and quality
2
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differentiation. The GSMA believes that consumer benefit should not be exclusively framed by a
debate about lowest price. (section 2);
Considers the factors singled out for a finding that a tight oligopoly exists and concludes that there is
not sufficient clarity about what factors would lead to a positive determination (section 3);
Believes that BEREC should better take into account in its Final Report the broader market trends
that have a profound impact on the telecoms sector. (section 4);
Specifically focuses on the two scenarios in which regulation of oligopolies could take place
(greenfield regulation and lifting of existing regulation). The GSMA believes that if NRAs can move in
to regulate at the national level newly merged parties (after a merger investigation), outside the
boundaries of SMP regulation and competition law, there would be serious implications for the
Digital Single Market (section 5);
Singles out a lack of clarity on the burden of proof in the two above scenarios and raises concerns
that regulation would happen on the basis of reliance on hypotheticals (Section 6);
Expresses concerns that these proposals will lead to an extra layer of regulation imposed on the
telecoms sector only. (Section 7); and
Explains that merger control is not the appropriate benchmark to consider, nor a justification for
extra regulation of tight oligopolies (Section 8).
In this paper we also point to some of the inconsistencies in the Draft Report and we encourage BEREC
to eliminate them when finalising the Report.
The GSMA does not have much to add to the debate about the framework for regulating “coordinated
oligopolies”. The framework for intervention both as a matter of competition law (in joint dominance
cases) and indeed in the context of merger control (applying the Airtours criteria) is quite well established
and we broadly agree with the framework set out in the Draft Report. We would like to note that existing
precedent would not appear to support a finding of “coordinated oligopoly” in the mobile industry. As
BEREC states in several paragraphs, one of the necessary conditions for coordination is transparency in
the market, such that a focal point can be identified, and that it should be relatively simple to monitor
adherence. Given that BEREC also notes that collusion is often price based, it is important to bear in mind
that the mobile industry has a very large range of retail tariffs and menus of non-linear tariffs for both
individual and business customers. Furthermore, many customers will often have tailored tariffs and/or
special offers. This is consistent with NRA’s findings, for example, in the UK Ofcom found in the 2015
Mobile Call Termination review, that there is a high degree of retail price discrimination in the mobile
market.1 It is therefore not clear that prices are sufficiently transparent for operators to use as a focal
point for collusion.
2.
PRICING IN TELECOMS
There are two points on pricing in the telecoms sector that we believe warrant further consideration and
discussion by BEREC.
First, in Section 4.1.1 the Draft Report discusses socially optimal prices in a perfectly competitive market
and why prices are often above the competitive level in an oligopoly. In particular, BEREC states (page
12) that “in oligopolistic markets as well as in a monopoly, prices are typically above marginal costs,
foremost, because firms are able to exert a degree of market power”. Such a characterisation, correct in
1 Ofcom, Mobile Call Termination Statement (2015), Paragraph 6.33.
http://stakeholders.ofcom.org.uk/binaries/consultations/mobile-call-termination14/statement/MCT_final_statement.pdf
3
general economic theory, does not hold true in the telecommunications market. As BEREC notes in a
number of places, the sector is characterised by significant sunk costs as well as fixed and common costs.
The concept of marginal cost is therefore not useful because it is generally close to (or equal to) zero until
a network reaches capacity, at which point the marginal cost of serving an additional customer (or of
providing another minute of voice or another bit of data) is extremely high. For this reason, telecom
regulators use the Long Run Incremental Cost (or LRIC) concept rather than marginal cost. Furthermore,
due to the presence of fixed and common costs and in order to recover investments that are sunk, it is
necessary for operators to charge prices above LRIC for a number of services. Therefore, in the
telecommunications sector, prices for certain products have to be above LRIC in order for firms to recover
their efficiently incurred costs, not because they are able to exert some market power.2 This will be the
case even if prices are at the competitive level. Of course, it is also necessary for regulators and
competition authorities to take dynamic efficiency into account as well as static efficiency when
considering telecoms markets. This is something that BEREC notes in the Draft Report (Sections 4.1.1 and
4.2.1.1) and we agree on this point.
Secondly, we are concerned about the reference to prices being high in telecoms markets made
throughout the Draft Report (see specifically the discussion of capacity constraints and the demand-side
factors discussed below), despite the acknowledgement that the cost structure is determined by the
presence of “high investment costs which have to be covered on a long lasting basis” (page 51). The
European mobile industry has seen significant reductions in absolute and per unit pricing alongside
improvements in coverage, reliability and capability. The revenue pool of the industry faces downward
pressures from competition, while operators must undertake significant investments to meet increasing
demand for broadband access and innovative services. A certain degree of consolidation is necessary in
some markets to provide operators with the resources and incentives to invest in network upgrades and
new services. Investment in new technology is the most important determinant of consumer outcomes
in mobile markets. Frequent technology cycles significantly increase capacity, and reducing unit prices
through higher volumes.
We agree with BEREC that “it is difficult to assess whether a specific price level reflects effective
competition from a dynamic perspective, or whether it should be considered non-competitive from a short
term perspective.” (page 51). But the Draft Report then sets out different ways of assessing national price
trends or making international comparisons, which may well be misleading as price levels across different
country markets are influenced by many factors beyond competitive intensity 3. The GSMA is particularly
concerned that BEREC intends to advocate for NRAs the right to “assess whether a specific price level
reflects effective competition from a dynamic perspective, or whether it should be considered noncompetitive from a short term perspective”. It can easily be discerned how unsettling it would be for any
firms contemplating a merger and for their investors, to face the prospect of a lengthy investigation by
2
Indeed, following the EC’s 2009 Recommendation that NRAs should set mobile termination rates (MTRs) at LRIC,
a number of regulators reduced MTRs on the basis that a portion of fixed and common costs could be recovered
from retail markets. See for example Section 8 of Ofcom’s 2011 Mobile Call Termination Statement.
http://stakeholders.ofcom.org.uk/binaries/consultations/mtr/statement/MCT_statement.pdf
3
Price levels across different country markets are influenced by many factors including differences in input costs
for items such as labour, real estate costs and network/capacity leasing, differences in the upfront and ongoing
costs of mobile spectrum, differences in taxation, GDP per capita, population density, the level of maturity of the
market for mobile data. Unless these factors can be robustly controlled for, we believe that the most informative
metric for regulators to consider are operators’ return on capital employed over the long-term (as there will
inevitably be variation year-on-year). Such analysis should ideally reflect economic rates of return rather than
accounting rates of return, as company accounts can often over- or understate economic costs.
4
the competition authorities under generally applicable merger control, possibly leading to commitments,
and then face the NRAs’ investigations at the national level. Low incentives for investment in the telecoms
industry will then not be “indicators of non-effective competition”. More likely, they will be indicators
of non-effective regulation.
3.
DEFINING “TIGHT OLIGOPOLIES”: THE SEVEN FACTORS
The term “tight oligopolist” has not generally been used in competition and regulatory policy. The GSMA
considers “tight oligopoly” and “non-coordinated oligopoly” to be equivalent terms. In the context of a
regulatory discussion, we believe there would be merit in not multiplying the (already complex) concepts
to be used.4
BEREC lists seven main factors that could lead to “ineffective” oligopolistic competition in the absence of
(tacit) collusion. The presence of “one or more” of these factors is said to possibly lead to unilateral
“behaviour which forms a self-sustaining reduction in competition and prevents the development of
competitive outcomes” (page 16). We consider that “one or more” factors does not provide enough
clarity to either regulators or operators, particularly as BEREC later states (page 50) that “the number of
firms does not give a complete impression of the competition effects”: therefore, market concentration
on its own is not sufficient for a finding of a “tight oligopoly” (see also “high market concentration”,
below). The Draft Report goes on to state that “Instead, these effects must always be assessed in the light
of additional factors”; however, these additional factors are not specified (page 50). That
notwithstanding, elsewhere (page 16) BEREC seems to single out two factors: capacity constraints and
high entry barriers, and quotes spectrum availability in mobile as an example for both. We do not agree
with this example and we are concerned that BEREC may be basing its views on incorrect or outdated
factual assumptions (see discussion below under “Capacity Constraints”).
High market concentration: The presence of a high market concentration is inherent in the definition of
an oligopoly. Therefore, if high market concentration on its own were sufficient for a finding of a “tight
oligopoly” and if it could be used to justify ex-ante regulation, then this would be tantamount to imposing
regulation on all oligopolies. If BEREC agrees that high market concentration is not sufficient on its own
to justify regulation, it would be helpful to amend the position in the Draft Report that states that
ineffective competition may occur when “one or more” factors are present in a market (for example on
page 16).
BEREC refers to OPTA’s Economic Policy Note entitled “Is two enough?”5 to justify the inclusion of this
“factor”. If by “high market concentration” BEREC has in mind a duopoly rather than an oligopoly, it
should be noted that, in the mobile sector at a national level, a two-operator structure cannot be found
in the 28 EU Member States.
High entry barriers and no significant new entrants: Throughout the Draft Report, there is an assumption
that telecoms markets are subject to high barriers to entry6. The only remedy referred to specifically in
4
The term “tight oligopoly” refers to “oligopolistic market structures that cause non-effective market outcomes,
without explicit collaboration or tacit collusion.” (page 48)
5
Footnote 66
6
Para. 4.1.1: “high entry barriers due to, for example, substantial economies of scale, high fixed or sunk costs,
legal barriers, patents or exclusive resource ownership may result in a low number of firms on the market”.
5
the Draft Report as appropriate for “tight oligopolists” is “tackling entry barriers” (by way of wholesale
access obligations imposed to ensure access for new entrants).7
The GSMA agrees that “if innovation was likely, new firms could enter the market more easily based on
new technologies, circumventing existing entry barriers”. 8 Taking the example of services based on
mobile platforms, customers clearly see these as substitutable irrespective of technology, whether they
are delivered over mobile networks or IP protocol. However, there appears to be an inconsistency in the
Draft Report, as at 4.2.1.1, it states: “Both [text messaging and instant messaging] services may serve a
similar purpose, but given that instant messaging uses different technology, they may not belong to the
same relevant market". It is not clear from BEREC’s Draft Report how the use of different technology
affects demand-side substitution (which is one of the key considerations in defining markets).
More generally, entry barriers can stem from a variety of sources, including regulatory controls. In mobile
markets, entry to wholesale markets is organised by physical (e.g. radio spectrum); economic (e.g. high
sunk costs) and regulatory (e.g. spectrum auctions; licensing regimes) constraints. Even when spectrum
is made available specifically to attract new entrants, as happened with the remedy imposed in the
merger of Hutchison 3G and Orange in Austria, this is no guarantee of new market entry. Where physical,
economic, or regulatory barriers are lowered, such as in wholesale mobile access markets, many
geographic markets across the EU have seen rapid entry of MVNOs, 9 based on wholesale access granted
by mobile operators on a commercial basis.
High level product differentiation: BEREC states that, unlike in the case of co-ordinated effects,
characterised by homogeneity in the products offered, non-coordinated oligopolies are “more likely to
occur where the level of product differentiation is higher”.10 BEREC characterises telecoms markets as
“fairly homogeneous compared to other retail goods”, but “there are some ways in which they may be
differentiated”, such as in the case of bundled offerings. We have the following comments on this point.
First, it is important to distinguish between regulation of an existing market place and an analysis in
merger control (see below, section 8).
Secondly, in regulation market definition is the first step– if substitutability exists, the market should be
defined accordingly (often, more widely). For example taking CAPs into account in market assessments
will show that there is a much greater level of competition in most markets than is currently recognised
by regulatory authorities and, consequently, will justify a significant degree of deregulation. If
substitutability does not occur, any one provider of a bundle may have a position of single SMP in the
marketplace.
Thirdly, high level of product differentiation is prized by consumers and is a consequence of innovation
brought about by competition.
Capacity constraints: as a matter of economic theory, capacity constraints may impede oligopolists from
competing on price when they cannot adjust output in response to a competitor’s price rises. This aspect
is considered in general at page 16 of the BEREC Draft Report – the example given for capacity constraints
7
Para 8. Page 59
8
Footnote 12
9
GSMA Intelligence, The Global MVNO Footprint: A Changing Environment, February 2015. See also: Analysys
Mason, MVNO market analysis: status update, emerging opportunities and outlook for Europe, April 2014;
10
Para 7.1.1, page 51
6
is the fact that spectrum availability may be limited. 11 We believe this is an over-simplification. As
markets move to 4G, there might be overcapacity. In the 2005 ARCEP case summarised in Annex A, the
French competition authority pointed out that the third MNO at least “experienced overcapacity in its
network” and therefore that the scenario in which the third MNO would grant wholesale access to an
MVNO was at least as probable as the scenario presented by ARCEP, weakening the case for ex-ante
regulation. In BEREC’s assessment of capacity constraints on page 37, it notes that in case ES/2005/0330
the NRA found that all of the providers were “able to adjust their capacity easily”.
We also note that BEREC concludes that “other factors than capacity constraints may be more relevant”.
Demand side restrictions: High switching costs, low growth of demand, low cross-price elasticity and no
countervailing buyer power are all listed as “factors” which may “enhance the market power exerted by
the firms on the market” (p 51). It appears from the examples that BEREC considers that these factors
apply to the mobile sector. We would therefore make the following two points.
First, consumers of mobile services value quality, in the form of network coverage, data speed, new and
improved handsets. The ever-increasing demand for new content, higher bandwidth and new handsets
is evidence that in mobile markets, demand continues to grow. Many consumers have more than one
subscription, and there is growing interest in converged (CAP / mobile) services. As BEREC itself points
out,12 when growth is rapid, “it would be easier for new firms to enter the market, because there are
many potential new customers”.
Second, price elasticity is increasing in many mobile markets. Notably, in today’s converging markets
consumers are able to migrate to competing technologies if they perceive them to be better value than
mobile. With the near-ubiquitous availability of Wi-Fi, switching between mobile and alternative
networks has become very easy and commonplace.
4.
THE DYNAMICS OF CHANGE IN THE MARKETPLACE AND ROLE OF CAPS ARE UNDERESTIMATED
The GSMA is concerned about the assumption that these seven factors should apply to the mobile sector,
making it a prime candidate for extra regulation of tight oligopolies, at a time when the mobile market is
subject to fundamental changes and fierce competition. Before imposing any remedies in competition
law or adopting any extra regulation, a market must be defined and then analysed. At page 59 of the
Draft Report, 13 BEREC makes reference to the “growing complexity” of the link between retail and
wholesale communications products, some of which fall outside the definition of electronic
communications services in the current EU regulatory framework. This “growing complexity” is a crucial
point and we believe BEREC should discuss this in more detail in its Final Report. For example, at page 8
of the Draft Report there seems to be some recognition of the changes in the industry, from which BEREC
simply takes that consolidation in the industry may lead to oligopolies. 14 It appears that the Draft Report
11
See also page 37: In mobile telecommunications markets, capacity constraints may be more likely to be present,
for example because it can be hard to obtain more spectrum or more sites. Capacity may be more constrained if
the network is shared. But, so long as these constraints are similar it may be that collusion can be sustained.
12
Footnote 13
13
And, very briefly, on page 10
14
“This evolution of the European telecommunications market is also conditioned by a trend towards consolidation
of the industry via mergers and acquisitions. […] the increased occurrence of oligopolistic market structures, […]
raises issues as to the level of competition in [the] markets as well as the question of the necessity and
7
is partly based upon those regulatory cases on access and call origination on public mobile telephone
networks summarised in Annex A, 11.1. All of these pre-date the launch of the iPhone (2007)15, which
revolutionised the mobile market. We believe that if the indirect constraints that CAPs pose on telcos are
properly considered in market definition and in market analysis, the market may not be an oligopoly at
all. Even if an oligopoly exists, the pressure in many retail markets constrains wholesale pricing. With
very few exceptions, even wholesale markets with fewer than four operators prove to be highly
competitive. The move from four to three operators coexists with continuing and rapid price fall in the
vast majority of downstream and retail markets. The mobile markets are very unlikely to lead to
uncompetitive outcomes as they tend to be characterised by multiple infrastructure players with spare
capacity and this provides incentives to offer wholesale access to third parties.
Indeed, commercial MVNO agreements are the norm across Europe and that there is no evidence that
this will change going forward. Europe is home to two thirds of MVNOs (585) in the world16. In addition
to that CAPs are another source of competition in wholesale markets, they are also exerting competitive
pressure on operators through their buying power and their ability to enable users to choose between
operators. The ability for access providers to attract exclusive content or certain flagship services and the
ability for CAPS/hardware vendors to steer demand to ISPs can have significant impact on wholesale
access conditions. The Draft Report recognises that at services level CAPs can exercise competitive
pressure - it does not, however, consider that this impacts the wholesale access conditions.
5.
IMPLICATIONS FOR THE DIGITAL SINGLE MARKET – TWO SCENARIOS
According to BEREC, the two situations in which NRAs potentially should have additional powers to
intervene (para. 7.1.2) are:
(i)
(ii)
in a market never previously regulated, NRAs wish to regulate operators without SMP, on the
basis that these are “tight oligopolists”; and
in an already regulated market, due to a “change in the market structure”, the previously
determined operator with single SMP (or, it seems the operators previously determined to have
collective SMP) no longer have SMP.
In the first scenario, no operator has even been subject to SMP regulation and each NRA will, under the
proposal, decide whether to regulate, outside the current system of SMP regulation.
In the second scenario, BEREC seems concerned at the prospect that existing regulation may be lifted. It
therefore appears to be proposing an extra step: notwithstanding a finding of non-SMP, regulation could
remain in place, or different regulation could be imposed on the “tight oligopolists”.
It seems that a major concern for BEREC is that, in the case of a merger between two smaller market
players, the operator previously in a position of SMP finds itself less powerful (because it is subject to
increased competition, which should presumably be welcomed). On this point, we note that any noncoordinated effects arising out of a merger would be properly analysed by the competition authority
during the merger investigation, using a SIEC test when appropriate.
effectiveness of ex-ante regulatory intervention in addressing any potential anticompetitive behaviour in such
oligopolistic markets.”
15
The Slovenian case was in 2008, but too early for the impact of smartphones to be properly assessed
16
GSMA Intelligence, The Global MVNO Footprint: A Changing Environment, February 2015.
8
One other instance when telecoms regulation is lifted occurs when the markets subject to regulation are
no longer referred to in the EU Recommendation on Market, a fact recognised by BEREC on page 33 (and
footnote 47): most of the regulatory cases considered in the Draft Report (Annex A) relate to markets no
longer subject to SMP regulation. Therefore, the extra tool that NRAs wish to be granted could be used
as a back-stop that could lead to continued regulation, along national lines, or could lead to new
regulation in some countries but not others. There is a risk associated with such a proposal as it could
side-step the system of SMP regulation which, to date, constitutes an important area of harmonisation
across EU Member States. This would have important consequences for the very existence of a Digital
Single Market.
The EU encompasses a diverse range of economies and this is reflected in the competitive dynamics,
price points, investment levels, penetration, coverage within national mobile markets.
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A decision by one NRA that its county’s particular mix of parameters demonstrates a wellfunctioning oligopoly would imply that many other Member States have poorly functioning
oligopolies, as their parameters would diverge from the “optimal result” posited by this NRA.
Conversely, if an NRA found that its market was functioning sub-optimally, it would need to
determine the optimal outcome in order to set remedies. In so doing, it would again be sending
a signal to all other NRAs about the functioning (or otherwise) of their markets.
In addition, would there be some proven competitive concerns in a given oligopolistic market, BEREC has
not considered the possibility to use existing tools; when looking at the criteria listed by BEREC it indeed
omits to take on board that the framework encompasses relevant provisions on issues such as switching,
transparency (universal service directive), general access and interconnection obligations (access
directive), symmetric access to given bottlenecks (framework directive).
6.
THE TWO SCENARIOS - BURDEN OF PROOF
BEREC seems to consider that there is a difference in approach between the two scenarios above, as
regards the burden of proof. It is not entirely clear from the Draft Report what BEREC’s key concern is as
it considers both in the context of an assessment of collective SMP and of a tight oligopoly.
Our understanding is that BEREC considers that the second scenario, cases where the NRA is reviewing a
market previously subject to regulation, should lead to a different “type of proof”, but not a different
standard of proof. BEREC equates this situation to one in which a competition authority carries out a
merger investigation and it appears to conclude that in this second scenario, more reliance should be
based on hypotheticals rather than facts.17
The GSMA is unsure about what is proposed here, 18 but we have three concerns with the above
conclusion (assuming our understanding of BEREC’s proposals are correct).
17
See for example, at Page 47: “Based on the above we conclude that the type of proof that NRAs can use in a
regulated environment differs slightly from the evidence that Competition Authorities or NRAs in an unregulated
environment can use. Hence, it seems likely that not so much the standard of proof that is being applied is or
should be different but that the type of proof may be different. In a regulated environment NRAs will have to rely
more on expectations and economic reasoning than on actual facts. (as in merger control). (emphasis added)
18
Page 48: Lastly, we considered what the appropriate standard of proof should be in terms of ex-ante
intervention in a case of joint dominance. One could argue that the standard of proof for joint dominance in
markets with existing (single SMP) regulation in place should be lower when compared to markets with no
regulation in place. However, given the possible impact the imposition of regulation may have BEREC does not find
9
First, BEREC distinguishes the two scenarios on the basis that the second (lifting regulation) leads to an
analysis “to be done from a forward-looking perspective through evaluating the likely market
developments”, whereas the first (introducing new regulation) is done on the basis of a market
assessment “essentially made with regard to the current market structure and an observable market
outcome” (page 52).
The GSMA considers that the introduction of regulation should always be forward-looking and always be
based on an assessment of empirical evidence. Based on the current drafting, we are concerned that, in
the context of markets which are no longer included in the Commission Recommendation on Relevant
Markets, BEREC is advocating reliance on hypotheticals for continued regulation.
Secondly, BEREC suggests that the findings of fact in scenario 2 are skewed by application of regulation
in the previous period, leading to it being “difficult, if not impossible, for regulators to depend on empirical
evidence and factual data”.19 We disagree with this point and would argue that the facts that led to the
adoption of regulation in the first place can be re-assessed in the context of a new market structure (and
indeed that reassessment constitutes the basis for excluding markets from the Recommendation).
Thirdly, we consider that regulation should not be based on a hypothetical scenario, which could be as
possible as another hypothetical scenario. Much as the ARCEP case mentioned in Annex A proves, if a
competitive outcome is hypothetically possible, the fact that another scenario (anti-competitive) is also
possible, does not seem to be sound basis for regulation.
7.
IMPLICATIONS FOR THE REGULATORY LEVEL PLAYING FIELD
The GSMA is concerned that BEREC’s proposal may lead to the adoption by NRAs of regulation of
oligopolies in the telecom sector only, fragmented along national lines. We believe that any proposals to
adopt extra controls of oligopolies should be considered across all sectors of the economy and that there
should not be a presumption that oligopolistic market structures require ex-ante regulatory remedies.
Ex-ante remedies should only be considered following careful analysis with clear evidence of durable
market failure or abuse and, even then, when no other remedies exist. The GSMA contends that there is
little or no evidence of mobile market failure and that the current framework provides all the tools
necessary to address any concerns should they arise.
Mobile markets have either not had operators with SMP, or seen the removal of SMP conditions very
early on, to such an extent that the market for access and call origination was removed from the list of
relevant markets. While national licensing regimes and high investment requirements preserve the
characteristics of more concentrated markets for mobile network operators, competitive pressures from
MVNOs and CAPs deliver competitive outcomes for consumers, in terms of prices, choice, quality,
investment and innovation.
The envisaged broadening of the ex-ante regulation in the telecoms sector raises concerns of successive
layers of regulatory intervention. The sector has already subject to horizontal regulation (eg consumer
it appropriate to do so. According to BEREC the standard of proof between regulated and unregulated markets is
equal, i.e. in both cases SMP has to be proven. We also considered the types of evidence used for proving joint
SMP. We argued that in markets with existing regulation in place it is hard, if not impossible, for NRAs to use
empirical evidence. On the other hand, in markets where there currently is no regulation in place NRAs can rely
more on factual evidence because the analysis is less hypothetical in nature. Yet, also for markets without existing
regulation in place NRAs still have to cumulatively fulfil the Airtours criteria.
19
Para. 6.2.2, page 46
10
protection, data protection), and obligations imposed as part of the spectrum licences or the remedies
imposed on mergers. Moreover, the proposal would further aggravate the asymmetry of regulation
between CAPs and network operators, because it singles out electronic communications providers as the
only players to be subject to ex-ante regulation. It is just the opposite of what is needed today.
It is the view of the GSMA, that the forthcoming review of the telecoms regulatory framework should
focus on modernising and wherever possible reducing regulation in the sector taking full account of new
sources of disruptive competition that are emerging from non-traditional sources.
In the context of modernising the telecoms regulatory framework, the Digital Single Market Strategy20
states that “[t]here is a need for simpler and more proportionate regulation in those areas where
infrastructure competition has emerged at regional or national scale. The deployment of very high
capacity networks needs to be encouraged while maintaining effective competition and adequate returns
relative to risks.” The Strategy also anticipates that the review of the telecoms rules will focus on
“ensuring a level playing field for market players and consistent application of the rules”. We are
concerned that the BEREC proposal goes in the opposite direction.
Further, it appears that the (alleged) adverse effects on competition of non-coordinated oligopolies could
possibly be considered in the context of market investigations, a tool of some competition law systems,
notably at the EU level21 and in some countries, such as the UK22. In those cases, market investigations
can be carried out in any sector of the economy and are carried out by a competition authority, ensuring
20
http://ec.europa.eu/priorities/digital-single-market/docs/dsm-communication_en.pdf
21
At the EU level, DG COMP can carry out Sector Inquiries, investigations into sectors of the economy and into
types of agreements across various sectors, when it believes that a market is not working as well as it should (and
also believes that breaches of the competition rules might be a contributory factor).
22
In the UK, the 2002 Enterprise Act introduced the tool of market investigations. The system involves:
 a first stage investigation by the competition authority and the sectoral regulators (including Ofcom) at the
end of which a reference can be made for
 a second phase investigation by the general competition authority (used to be the Competition
Commission and is now the Panel of the Competition and Markets Authority).
Before deciding to make a reference for a second phase investigation, the first stage authority has to consider the
following factors:




Suitability of using the Competition Act (or sectoral powers) instead of these powers;
Possibility of addressing the problem through commitments;
The scale of the problem in terms of its adverse effect on competition;
Feasibility that appropriate remedies will be available
There is no statutory benchmark against which the Competition Authority measures adverse effects on
competition. Therefore, the assessment is based on a “balance of probabilities” and assessed against a “wellfunctioning market” (i.e. not an idealised perfectly competitive market). Theories of harms – drawing on sources
such as unilateral market power, barriers to entry, coordinated conduct, vertical relationships and poor customer
response to competitive offers - are set out to help with this assessment. “Non-coordinated oligopolies” refers to
unilateral market power by a number of firms acting independently.
11
that no single sector is subject to enhanced scrutiny. 23 Granting NRAs specific tools for market
investigations in the telecoms sector would mean extra scrutiny of the sector.
8.
MERGER CONTROL IS NOT THE APPROPRIATE BENCHMARK
BEREC relies on EU merger control, rather than market investigation references, to justify the concept of
“tight oligopolies” as a reason to seek more regulatory tools for NRAs in the telecoms sector. 24
Specifically, the justification would be found in the change to the merger control test from a dominance
test to a SIEC test. The GSMA does not agree that the change to the test in the EU Merger Regulation
supports the stance taken by BEREC.
A merger control investigation is by nature designed to deal with the effects of an anticipated increase in
market concentration. This is a change in market structure which will happen as a result of the parties
merging. Therefore a decision is made in relation to the appropriate counterfactual: what would happen
if the merger did not go ahead. In practice, the existing situation, the status quo, is often the benchmark
in merger control. The SIEC test is a comparative test and does not purport to measure the level of
competition per se and determine whether it is good or bad. We also note that the move to a SIEC test
in EU merger control did not lead to a change to the national systems of merger control in all the EU
Member States.25
It is a fundamentally different situation where a regulator considers a given marketplace to determine
whether it requires regulation going forward because the market structure would have oligopolistic
characteristics. The SMP regulation was anchored in Article 102 of the EU Treaty, but not the Merger
Regulation, because it deals with a situation of significant market power defined in the same way as
dominance (albeit that it is a different system, leading to ex ante regulation).
We believe that the creation of a subjective test, with no case law sat behind it, would make the oligopoly
regulation unworkable in practice. The creation of an ex-ante process for regulating markets without
dominant firms would either mean:


Double jeopardy for investors, who could see mergers cleared but then draconian ex-ante
regulation imposed to address purported competition concerns that did not cause concerns
in the merger process; or
All mobile mergers being cleared without remedies, because merger authorities would have
to take account of an ex-ante regime and its ability to remedy and competition issues that
might arise.
All of these issues suggest to GSMA that the justification, basis, application and consequences of BEREC’s
proposal do not justify the new concept of tight oligopoly regulation.
23
As an example, Ofcom in the UK has access to both the tools of SMP regulation and, as a concurrent regulator,
the tools of competition law, including market investigation references (to the general competition authority, the
CMA).
24
For example, at p 26 of the Draft Report, BEREC states that “The introduction of the SIEC test in merger law was
a consequence of identified gaps in dealing with merger cases in oligopolistic market structure, where the reliance
on the concept of dominance did not seem to be sufficient to ensure effective competition.”
25
Only 15 out of the 28 Member States have moved to a SIEC test nationally.
12