application of the ec competition rules to access agreements in the telecommunications sector

E C T e l e c o m s C o m p e t i t i o n P o l i c y

EC TELECOMS COMPETITION POLICY APPLICATION OF THE EC COMPETITION RULES TO ACCESS AGREEMENTS IN THE TELECOMMUNICATIONS SECTOR Susan Bright

The European Commission finally published its Notice on the application of the competition rules to access agreements in the telecommunications sector in August 1998.1 A draft of the Notice was originally published in October 1996 and was followed by a period of public consultation.The purpose of the Notice is to draw out the main issues that are relevant to access agreements in the telecommunications sector and to give guidance on how the Commission will apply the EC competition rules. The Notice builds on the Commission's previous Guidelines published in September 19912 on the application of competition rules in the telecommunications sector, since those Guidelines did not deal specifically with access agreements.

The Notice recognizes that the Commission's liberalization and harmonization measures have enabled new services to emerge, wi th users benefiting from increased competi t ion. The Commission is; however, concerned that undertakings should not be able to engage in restrictive or abusive prac- tices and that, at least in the initial stages, n e w entrants should be guaranteed the right to have access to the facilities necessary to provide those n e w services. The concept of 'access' covers not only access to physical networks, such as interconnect ion to the public switched telecoms network or the ability to obtain leased lines, but also access to customer information or other data or facilities necessary for a potential compet i tor to enter a te lecommunicat ions market.

It is recognized in the Notice itself that many of the specific issues will be relevant to sectors other than telecollmaU- nications, such as interactive services, digital television and the Internet. The principles set out in the Notice will also apply to those sectors. Moreover, certain concepts such as dominance and joint dominance will be of general relevance. The Notice will therefore have a wider impact and be of more general interest than its title would suggest. The Notice is divided into three parts: Part I:The legal framework Part II:The Commission's approach to market definition Part III:The principles to be followed by the Commission in

applying the compet i t ion rules.

PART I: LEGAL F R A M E W O R K

This section deals wi th the interaction of the EC compet i t ion rules wi th specific regulatory procedures and the Open Network Provision (ONP) framework.The Notice recognizes

that access problems may be resolved either at Community or at national member state level using a range of legislative pro- visions. There may be a remedy through the National Regulatory Authority (NRA), through national courts under either national or EC compet i t ion law, or through action by the Commission.

The Notice emphasizes the important role of NRAs (OFTEL in the UK), particularly in dealing with complaints. It also stresses the advantages of pursuing a complaint at national level, such as the ability to claim damages in a national court. In accordance with established practice, the Notice makes clear that the Commission intends to deal only with those cases that have particular political, economic or legal significance for the Community. As a practical matter, the Commission has limited resources to deal wi th these issues - - there are only about 10 people in the compet i t ion direc- torate - - DGIV dealing with the application of Articles 85, 86 and 90 to the telecommtmicat ions sector. That said, the Notice recognizes that there may be instances where the Commission will need to in tervene to safeguard com- plainants' rights - - for example if an NRA is unable to resolve an access dispute within a reasonable time, which the Notice indicates will generally be six months from the time the dispute is first brought to the NRA's attention.

PART I1: M A R K E T DEFINITION

The Notice states that the Commission will base its approach to market definition on its existing notice dealing with the subject. 3 It recognizes that there are three main sources of competi t ive constraints: demand substitutability, supply substitutability and potential competi t ion, but regards demand

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substitutability as the main tool for defining the relevant product market. Where relevant, the Commission will determine whe the r there are any effective substitutes by consider- ing hypothetical pr ice increases; i.e. whe the r customers would change to other products or services if all suppliers of the products or services in quest ion were to raise their prices by 5 to 10% - - if so those substitutes would be included in the relevant product market.

The Notice indicates that in the te lecommunicat ions sector there are at least two types of relevant market to consider: first, services to be provided to end users and, second, access to the facilities necessary to provide those services to end users.The Commission has shied away from defining relevant product markets in the Notice. Its reason for this is that the pace o f technological change means that any definition may quickly become inaccurate or irrelevant. However, this leaves certain difficult issues to be resolved, including whe the r fixed and mobile te lecommunicat ions are in the same or separate markets and whe the r call origination and call termination arc part of the same market.

P A R T IIh P R I N C I P L E S

This is the main part of the Notice and describes the principles to be applied by the Commission in dealing with cases before it. Although the Notice deals wi th both Article 86 (abuse of a dominant position) and Article 85(1) (anti-com- petit ive agreements), the main part of the Notice is devoted to issues relating to dominance and abuses of a dominant posit ion.The Commission regards dominance as an important issue since te lecommunicat ions networks will often be in the hands of a dominant operator.

A r t i c l e 86 - D o m i n a n c e

The Notice states that the judgement of the Court of Justice in Tetra Pak 4 is likely to be important in the telecommunications sector. InTetra Pak, the Court held that there were close links be tween the market dominated by Tetra Pak and another market, and that given its high market shares on the dominated market,Tetra Pak was in a situation comparable to that of holding a dominant posit ion on the markets in question as a whole. In the Notice, the Commission states that, although Tetra Pak concerned closely related horizontal markets, the analysis would be equally applicable to closely related verti- cal markets which are c o m m o n in the te lecommunicat ions sector.

A concep t discussed at some length in the Notice is that of ' joint' or 'collective' dominance .The law in this area is still. developing, but the Commission appears to be taking a wide v iew of joint dominance in this Notice. For two (or more) companies to occupy a posit ion of joint dominance, the Notice states that "they must together have substantially the same posit ion vis-a-vis their customers and competi tors as a single company has ff it is in a dominant posit ion".The Notice acknowledges that for companies to be jointly dominant, it is necessary for there to be no effective compet i t ion be tween them on the relevant market. In its judgement in Hat Glas, 5 the European Court of First Instance stated that for there to be joint dominance there needed to be "economic links" be tween the undertakings. However, the Notice appears to

contradict this. It states that the Commission does not consider that "either economic theory or Community law implies that such lhaks are legally necessary for a joint dominant position to exist". In the Commission's view, the kind of interde- p e n d e n c e w h i c h "often comes about in ol igopolis t ic situations" will be sufficient. The Commission's widening of the concep t of joint dominance in this way will be a matter of concern not only for the te lecommunicat ions industry but also more generally.

A r t i c l e 86 - A b u s e

Having looked at the question of dominance, the Notice goes on to consider in some detail a number of types of behaviour that may be regarded as abuses of a dominant position. The Notice looks first at refusals to grant access to facilities and then at a number of other types of possible abuse.When con- sidering refusals to grant access to facilities, the Notice identifies three scenarios: refusal to grant access to provide a service where access has been given to another operator to operate on that service market; refusal to grant access where no other operator has been given access; and withdrawal of access from an existing customer. • Refusal to grant ac c e s s w h e r e ac c e s s granted to others:

The Notice states that a refusal in these circumstances will, in the absence of any objective justification, generally be abusive since it discriminates be tween the operator who is given access and the operator who is refused a c c e s s .

• Refi~sal to grant ac c e s s w h e r e ac c e s s n o t granted to others: The Notice states that in this case, the question arises whe the r the person controlling access should be obliged to contract wi th the service provider to enable him to operate on a n e w services market. This involves the concept of an 'essential facility'.This is the not ion of a facility or infrastructure that is essential to carry on business and which cannot be replicated by any reasonable means.The concep t of 'essential facilities' has been imported from, although it is not identical to, US antitrust law.To date, the concept has not been specifically recognized by the European Court of Justice.

The Notice states that an operator will be required to grant access to the facility if access is generally essential for companies to compete on the related market; if there is sufficient capacity available to provide access; if the owner of the facility fails to satisfy demand on an existing market, prevents the emergence of a potential n e w service or p roduc t or impedes compet i t ion on an existing market; if the company seeking access is prepared to pay a reasonable and non-discriminato- ry price; and if there is no objective justification for refusing access. However, it is not an easy matter for a complainant w h o has been refused access to establish that a facility is 'essential'. It may in practice be easier to mount a complaint relying on other principles of EC compet i t ion law such as discrimination or tying. • ~rithdrawal o f access: The third scenario is where access

granted to an existing cus tomer is wi thdrawn.The Notice states that withdrawal of access from existing customers will usually be abusive, unless an objective justification can be shown.

Having looked at refusals to supply, the Notice then deals

Computer Law & Security Report Vol. 15 no. 1 1999 0267 3649/99/$- see front matter © 1999 Elsevier Science Ltd. All rights reserved

41


with other forms of abuse, such as tying, excessive or preda- tory pricing and discrimination. Each of these raises certain difficult issues. For example, to assess whe the r a price is excessive, the Commission needs to determine the actual costs of providing the service in question.This is not an easy matter. Cost allocation be tween different services provided by te lecommunicat ions operators is fundamental to this exer- cise and yet it is a notoriously difficult and subjective process. The Notice states that comparison wi th other geographic areas can also be used as an indicator of an excessive pr ice and, in the absence of comparative data, the Commission may take into account any analysis of what the competi t ive price would be were a competi t ive market to exist.

Article 85 There is less detail in the Notice about agreements that may be caught byArt icle 85(1).The Notice recognizes that access agreements may have significantly p ro-compet i t ive effects as they improve access to the downstream market. However, it identifies certain potential ant i -compet i t ive effects of access agreements, including that they may serve as a means to coor- dinate prices, to share markets, to have exclusionary effects on third parties and may lead to an exchange of commercially sensitive information.The Notice indicates, as a possible issue for the future, the fact that to enter an in terconnect ion agreement, compet i tors have to exchange information they would not normally give to each other. It states that operators will have to introduce safeguards to ensure that confidential information obtained from another party to an in terconnect ion agreement is only disclosed to those parts of the companies involved in making the in terconnect ion agreement, and to ensure that the information is not used for ant i -compet i t ive purposes.

In terconnect ion agreements have to be provided to NRAs and to interested third parties (save for those parts that con- rain commercial ly sensitive information). Where an interconnect ion agreement has been provided to the NRA, this does not preclude notification to the Commission in appropriate circumstances for an individual exempt ion under Article 85(3). However, where an agreement has been provided to the NIL&, the Commission has indicated that it is unlikely to impose fines for breaches of Articles 85 or 86, although complaints may still be submitted to the Commission and damages could be sought in a national court by a third party w h o has suffered loss. The Commission stated recently that no operator had as yet notified an interconnect ion agreement for an individual exemption.

CONCLUSION

The Commission's aim in producing this Notice is to gather together its exper ience of applying the compet i t ion hales to the te lecommunicat ions sector and to set out its views for the benefit of those who are affected by the rules. It is a useful starting point, but the Notice will need to be developed and amended as the industry and new services evolve so that it keeps pace with the rapid changes that are likely to occur over the next few years: The Commission has also used the Notice to set out its views on certain controversial subjects such as joint dominance and access to so-called 'essential facilities' .The Commission's approach to these issues is likely to be challenged and it will be interesting to see whe the r the European Court of Just ice ul t imately upholds the Commission's interpretation of the law.

Susan Bright, Solicitor, Lovell White Durrant

FOOTNOTES 1The Notice was published in the Official Journal of the European Communi t ies on 22 August 1998 (OJ 1998 C265/2). 2Guidelines on the application of EEC compet i t ion hales in the te lecommunicat ions sector (OJ 1991 C233/2). 3Commission Notice on the definition of the relevant

market for the purposes of Community compet i t ion law (OJ [1997] C372/5). 4Case C/333/94 P Tetra Pak International v Commission, 1996, ECR I - 5951. 5joined cases T-68/89 ,T-77/89 and T-78/89, Societa Italiana V e t r o SpA v Commission, 1992, ECR II - 1403.

Book Review

Telecommunications Law Official Telecommunicat ions Dic t ionary- Legal and Regulatory Definitions, edited by Thomas F.P. Sullivan, 1997,

loose-leaf, Government Institutes, 312 pp., ISBN 0 86587 564 2 This dictionary contains the official legal and regulatory definitions from United States Congressional telecommtmica-

tion legislation and agency regulations. The terms and acronyms were taken from the following sources: the Telecommunicat ions Act of 1996 - Public Law 104 - 104, signed 8 February 1996 (47 USC 151 et seq); the Communications Act of 1934 as amended by the Telecommunicat ions Act of 1996 (47 USC 151 et seq); andTitle 47 of the Code of Federal Regulations as issued by Federal Communicat ions Commission.

All of the official terms and acronyms in the dictionary carry citation to the above sources. Available from: Government Institutes Inc., 4 Research Place, Rockville, Maryland, 20850, USA; tel: 001 303 9212355

o r fax: 001 301 9210373, E-mall: #info@govinst .com.

42 Computer Law & Security Report Vol. 15 no. 1 1999 0267 3649/99/$- see front matter © 1999 Elsevier Science Ltd. All rights reserved

application of the ec competition rules to access agreements in the telecommunications sector

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