Issue
4: January - March 2003 English: PDF
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Previous editions
In this edition:
1. Upcoming
events
2. Competition Policy in
Telecommunications
3. Competition
Policy in the United States - Policy in practice
1. Upcoming
events
Workshop on Promoting
broadband
As local and national
governments prepare for the challenges of the information society,
there is increasing interest in broadband deployment statistics
showing which countries are leading, and which are falling behind.
Although most existing users are residential consumers, broadband
access is being touted as a way for governments to attract
investment, ensure future economic prosperity and provide enhanced
social welfare. But among developing countries, there is a fear
that the huge investments necessary to establish wide-scale
broadband access will open up a new digital divide.
An ITU New Initiatives workshop - the eleventh
in the series organized by the ITU Strategy and Policy Unit
- will be held in April 2003 on the topic of promoting broadband. This
workshop will examine the different strategies that have been
followed by ITU Member States, at local and national levels, for
promoting the deployment and use of broadband networks. The key
research question will be why some economies have been more
successful than others and whether this success can be replicated.
For further information, visit the website
on promoting broadband.
An ITU New Initiatives workshop — the
tenth in the series organized by the ITU Strategy and Policy
Unit (SPU) — was held at ITU headquarters from 20 to 22
November 2002, on the subject of competition policy in
telecommunications. On the basis of country case studies
(including Chile, Denmark, India and the United States), an
ITU background paper and presentations, participants looked
at the relationship between competition law and
telecommunication regulation. The workshop sought to
highlight general trends and policy options that could be
used by countries that have recently introduced, or are
planning to introduce, competition into their
telecommunication markets. Countries seeking to maintain or
increase the level of competition may also find these trends
and policy options useful.
More information about the workshop is available at:
www.itu.int/competition. To
order the CD-ROM and report produced on the basis of the
workshop, please visit: www.itu.int/publications/cd-rom/index.html. |
Why competition policy?
Despite the recent setbacks faced by telecommunication markets,
the ongoing trend has been towards greater competition. For the
majority of countries, competition has become the regime of
choice. The number of countries introducing competition in basic
telecommunications and wireless services has increased steadily
since the late 1990s (see Figure 1). In 2001 for instance, 79
countries allowed some competition in local services, an increase
from 68 in 2000. In long-distance services, 66 allowed some form
of competition in 2001 as compared to 53 in 2000, while in
international services, 69 allowed competition against 57 in 2000.
Growth in competition — especially in a fast-moving sector
like telecommunications — naturally raises a host of complex
issues. While competition has proven economic benefits and can
help drive down prices and improve service provision, lack of
appropriate competition policy can result in abuses of market
dominance and anti-competitive practices. The role of policy
provisions, including telecommunication regulations and
competition law, is therefore paramount in safeguarding meaningful
competition.
Anti-competitive behaviour
The costs of anti-competitive behaviour affect the economy as a
whole, not just the sector. For instance, the European Commission
estimates that barriers and bottlenecks in the ICT market slowed
GDP growth by around half a percentage point during the 1990s.
Anti-competitive behaviour may include conduct intended to harm
competitors or abuse of dominant position. Some competition policy
authorities also regulate deceptive or misleading conduct or
discrimination among customers. The major difficulty in applying
competition law in the fast-changing ICT environment is that it
may sometimes take several years to resolve a particular case,
during which time the market, the technology and the actors
involved can change significantly. For instance, a case brought by
MFS (now WorldCom) against KPN in the Netherlands in 1998 is not
due for resolution until 2003, possibly too late to assist the
complainant.
Areas in telecommunications, especially mobile communications,
where accusations of anti-competitive behaviour have been made
include:
- Fixed-to-mobile call termination, especially in Europe,
where rates are considered to be well above costs (see for
instance research at: www.itu.int/osg/spu/ni/fmi).
Australia decided to regulate this market in 2000 by
encouraging operators to mirror reductions in retail tariffs
in their termination charges, and by using the threat of ex
post action if there was evidence of anti-competitive
behaviour. The UK Competition Commission recently conducted an
enquiry that supported the UK regulator's view that consumers
pay too much for calls to mobile phones and that mobile
operators must cut their termination charges for these calls.
- Mobile roaming, where users typically have little or no
information about the rates they will be charged, may not
receive the bill until much later, and where no one
jurisdiction may be able to handle complaints.
- Pricing for SMS (short message service), where the trend has
been for prices to rise, despite a huge increase in the volume
of SMS traffic being generated. As SMS is carried over the
signalling channel, the costs should be relatively low, but
prices are not. Because of the bundling of SMS with other
services though, meaningful price comparisons can be difficult
to establish.
-
State aid to former incumbents.
Several incumbent operators have debts that run to tens of
billions of US dollars. Should such companies, in some cases
still partly State-owned, be permitted to receive State aid?
|
Mergers, acquisitions and alliances
Mergers, acquisitions and other corporate alliances may be
subject to review by competition authorities and/or
sector-specific regulators on an ex ante or an ex post
basis. While ex post merger regulation theoretically
involves a lighter regulatory burden on business, it raises
problems in undoing anti-competitive aspects of mergers after they
have been implemented. Competition authorities typically consider
the effects on competition, applying tests such as whether there
has been a “substantial lessening of competition”. Sector
regulators may apply similar tests, but may also apply broader
sector-related policies or “public interest” standards, which
can sometimes appear to conflict with competition concerns.
Another potential problem is the risk of conflicting decisions
where both agencies oversee mergers. One solution is to have the
sector-specific regulator provide recommendations, including
sector-specific policy recommendations, for a final decision to be
made by a competition authority. This solution can overcome
problems of jurisdictional overlaps, the danger of regulatory capture and the relative inexperience of sector-specific
regulators in dealing with the analytical techniques of
competition law. A more common approach is to promote cooperation
and information sharing between the agencies.
Industry consolidation seems set to continue (especially given
the dynamics of the market over recent years) and can be seen as a
result of a correction in the market structure stemming from
over-capacity in the industry. As such, industry consolidation
does not necessarily lead to a lessening of competition. Seen in
this light, it may be inappropriate to protect certain industry
players from financial failure in the name of maintaining
competition levels.
Institutional approaches
While international and global arrangements are likely to lead
to a greater harmonization of institutional arrangements, the
institutional framework must be consistent with the constitutional
framework of each country. A wide range of institutional
approaches have been adopted to implement competition policy in
telecommunication markets. At one end of the range, in some
countries, generic competition legislation is simply applied by
the judicial system. At the other end of the range, many countries
have only telecommunication sector-specific regulators, and no
generic competition authorities. In between lie the increasing
number of countries with both sorts of agency. For this dual
system to function smoothly, cooperative mechanisms can be
developed between the agencies to clarify their respective roles,
and to share information and analyses to reduce duplication of
efforts and inconsistent rulings.
One approach that is consistent with good competition and
telecommunication policy involves defining the relevant product
and geographical markets and determining if there are dominant
firms in relevant markets based on competition policy analyses.
Dominant service providers can be regulated by sector-specific
regulators on an ex ante basis in the markets where they
are dominant. Markets with no clearly dominant service providers
can be deregulated or made subject to much lighter regulation.
However, in those markets, competition authorities may be able to
intervene on an ex post basis, to apply competition
law-based remedies, for instance to deal with cross-sectoral
market entry by firms that have a dominant position in a different
market segment.
Multilateral approaches
The most significant multilateral instrument governing
telecommunication sector regulation has been the Reference Paper
on Regulation developed by the World Trade Organization (WTO) as
part of its 1998 Agreement on Basic Telecommunications. While many
countries applied competition policy to the telecommunications
sector before the WTO Agreement, the more than 70 countries
that have adopted the Reference Paper are now legally required to
do so as part of their obligations under WTO’s General
Agreement on Trade in Services (GATS). Depending on the
country, some of these competition policies are being applied by
both multisectoral competition authorities, but most are applied
by sector-specific regulators under sector-specific legislation.
In addition to sector-specific instruments, such as the
Reference Paper, an increasing number of countries have adopted
competition policies and laws of general application. At the
multilateral level, a number of WTO Member governments have
proposed the development of a “multilateral framework on
competition policy”, which will be discussed as part of the new
round of multilateral trade negotiations.
At present, bilateral cooperation agreements on
anti-competitive activities represent the most concrete form of
international cooperation in this area, but the importance of a
multilateral framework to enhance the contribution of competition
policy to international trade and development is reflected in the
WTO Ministerial Meeting at Doha in 2001, which may help pave the
way for greater progress in the development of a multilateral
competition policy framework.
3. Competition in
the United States - Policy in practice
This
article is based on a specially-commissioned case study on
competition in telecommunications in the United States,
prepared by John Alden, Vice President of Freedom
Technologies. The entire text of this and other case studies
produced within the scope of the recent ITU New Initiatives
workshop on competition policy in telecommunications can be
found at: www.itu.int/osg/spu/casestudies/
Opinions expressed in this study are those of the author,
and do not necessarily reflect the views of ITU, its
membership, or the US Government. |
The United States provides a good example
of the application of competition policy concepts in the context
of antitrust law enforcement and sector-specific telecommunication
regulation. For instance, the regulator, the Federal
Communications Commission (FCC) and the Department of Justice (DoJ)
— and in some cases the Federal Trade Commission (FTC) —
present similarities and differences in their approaches to market
intervention.
Certain elements of competition policy
are identical or similar in analyses carried out by both FCC and
DoJ. These include:
-
Defining markets in product and
geographic terms.
-
Analysing markets to determine the
extent of concentration.
-
Analysing markets to determine
whether any single entity or group of entities does or can
exercise market power.
-
Examining ease of entry and exit.
-
Identifying whether any market player
controls essential facilities that are required by competitors
as inputs to their own offerings.
-
There are, however, significant
distinctions in how these analytical principles are applied.
Perhaps the greatest of them lie in:
-
The purposes for which analyses of
market power are carried out.
-
The overall standard of review
utilized.
-
The degree to which specific remedies
and requirements are spelled out in statutes.
In concrete terms, the FCC generally
carries out market analyses either as part of a proceeding to
alter sector-specific, ex ante regulations, or as part of
its review of
licence transfers required to complete mergers. Antitrust
authorities, meanwhile, conduct analyses either as part of
investigations to seek ex post enforcement of antitrust
laws or through pre-merger reviews.
As Box 1
shows, even in the seemingly similar act of authorizing mergers,
there are important differences in the standards the FCC and the
Justice Department or FTC apply. The DoJ employs a narrow standard
focusing purely on competition—whether or not the proposed
business combination will violate the Sherman or Clayton antitrust
Acts. The FCC, on the other hand, employs a much broader “public
interest” standard.
There is also a distinction between the
nature of statutes governing the FCC’s actions and those
governing antitrust enforcement. The Communications Act,
particularly with its Telecommunications Act amendments, contains
more specific, direct mandates and instructions, many of which,
when implemented by the FCC, embody proactive, ex ante
requirements. The antitrust laws on the other hand, are by
necessity more general, and they apply punishment for proscribed
behaviour after it has occurred.
Box
1 – The FCC’s public interest standard
In its order approving the 1998
merger of MCI Communications Corp. and WorldCom, Inc., the
FCC outlined the differences between its public interest
standard and DoJ’s antitrust standard:
-
The FCC examines not only the
potential effect of the merger on competition, but also
the balance of other potential benefits or harm to the
public. While the FCC’s analysis of competitive
effects is “informed” by antitrust principles, it is
not “governed” by them.
-
The Commission must implement
and enforce the Telecommunications Act of 1996, in which
Congress established a “clear national policy that
competition leading to deregulation, rather than
continued regulation of dominant firms” should be
paramount.
-
The FCC acknowledged that its
competitive analysis was derived not only from its own Competitive
Carrier and non-dominance proceedings, but also from
the 1992 Horizontal Merger Guidelines employed by
DoJ and FTC. In approving the merger, the Commission
defined the affected markets as: domestic long-distance
services; US international services; Internet backbone
services, and local exchange and exchange access
services.
-
The Commission found no
potential impairment of competition in the long-distance
or international service markets. It also accepted
commitments from executives of both companies that they
would seek to enter additional local service markets,
thereby actually increasing competition. During the
concurrent DoJ and FCC reviews, however, it became
apparent that one or both of those agencies were
concerned about Internet infrastructure concentration,
particularly in the backbone market. To head off this
problem, the merger partners agreed to divest MCI’s
Internet assets to Cable & Wireless plc. After that,
the merger was allowed to proceed.
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For further information on Policy
and Strategy Trends, please contact: ITU Strategy and Policy Unit,
International Telecommunication Union, Place des Nations, CH-1211 Geneva 20
(Switzerland). Fax: +41 22 730 6453. E-mail: spumail@itu.int
. Website: www.itu.int/spu/ |
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