Joint Dominance Issue Roils EU E-Communications Code Debate

European telcos and alternative players disagree on whether EU antitrust rules should extend to enable access to competitors in so-called "joint dominance" situations, where either communications providers are actively colluding or where they aren't but the market is dominated by a small number of players. The standoff arose in the context of the European Commission's proposed electronic communications code (ECC), working its way through EU institutions. The European Competitive Telecommunications Association (ECTA) and one European Parliament committee want national regulatory authorities (NRAs) to be able to address joint dominance. Network operators and the EC say extending regulatory powers beyond the current "significant market power" (SMP) analysis would hurt investment and competition.

European regulators mulled the issue of telecom oligopolies in a November 2015 report. The document was intended to spur discussion of how oligopolies should be treated in the context of ex ante (prospective) regulation, the Body of European Regulators for Electronic Communications (BEREC) said. Oligopolies are emerging in the European e-communications sector as next-generation access networks roll out, it said. Takeovers are reducing the number of providers, and there's an increased move toward supplying bundled services, leaving a limited number of operators owning fixed and mobile network infrastructures, it said.

Not all oligopolies raise competition issues, and they're a problem only when they harm consumers, BEREC said. While current rules apply the concept of joint dominance, which covers tacit collusion in line with competition law, ex ante regulation doesn't explicitly address cases where the market simply doesn't work, it said. To trigger prospective intervention, NRAs must prove dominance, joint or otherwise, it said. NRAs have brought cases of joint dominance to the EC in the past decade but many were overturned or withdrawn, which may mean it's difficult to show joint dominance and regulators need more guidance, the report said.

"EU NRAs are running out of things to regulate under the existing ex ante regulatory framework, and want to create a new justification for expanding their competence to do so," said Brussels telecom attorney David Cantor. The idea is to transpose the doctrine of collective (or joint) dominance developed in a line of EU antitrust cases into the ex ante regulatory framework, he said. The EC opposes that, but the European Parliament and Council appear disposed to accept a compromise position, he said.

Current "intensive" discussions on widening regulatory powers beyond the concept of SMP to address oligopolistic markets "neither meet our goal of stability and predictability for investors, nor that of promoting infrastructure competition and can lead to over-regulation," said Digital Economy and Society Commissioner Mariya Gabriel at a Sept. 27 FT-European Telecommunications Network Operators' Association (ETNO) Brussels summit. "The worst effect could be to deter the rollout of new infrastructure by new players."

ECTA agrees not all oligopolies are bad, but there's a need to regulate noncompetitive results arising from such markets, Executive Director Luc Hindryckx said in an interview. Current rules are based on SMP, but the question is whether that system can capture all market situations and structures, said Senior Regulatory Affairs Manager Oliver Füg. As markets shifts from traditional telecom monopolists to alternative providers, they aren't as clearly unilaterally dominated, and there could be two or more players in top position, creating the need to discuss joint dominance, he said.

The question is how to gauge whether two companies can be held jointly dominant, said Füg. Jurisprudence created a test, but it has proven unworkable, he said. There's no public engagement on what the criteria should be, Füg said. The European Parliament Industry, Research and Energy (ITRE) Committee Oct. 2 approved an amendment to its response to the EC proposal that introduced the concept of tight oligopoly: "Two or more undertakings may be found in a joint dominant position, even in the absence of structural or other links." ECTA approves of the amendment in principle, but it's concerned it doesn't give players legal certainty, said Hindryckx.

The ITRE vote drew criticism from Cable Europe Executive Chairman Matthias Kurth, who warned that "competition rules applying to joint dominance need to be strictly aligned with European Union case law." Introducing more competition rules specific to the telecom sector "simply isn't justified," in light of a wider competition landscape and over-the-top players, he said. "All unjustified regulatory proposals should be rejected," ETNO said.

Governments are ready to begin talks with lawmakers on the ECC, they said Oct. 11. Their negotiating position "retains the core regulatory approach" based on SMP, acknowledging as market players become increasingly complex, SMP regulation alone isn't enough to always ensure competition. Administrations want to complement those rules with "symmetric" regulation of all e-communications network providers in certain situations, it said. Governments want NRAs to be able to address issues such as duopolistic situations, it said. Council members changed one ECC provision to address tight oligopoly issues, an EU source said. An initial exploratory "trilogue" meeting with the European Parliament is expected to take place by month's end if lawmakers adopt ITRE's position, the Council said.

CEOs and top executives of BT, Deutsche Telekom, Ericsson, KPN, Nokia, Orange, Telefonica, Telecom Italia and other companies said Thursday that key parts of the ECC debate risk leading Europe in the wrong direction. "Even the status quo with the existing EU Directive would deliver more predictability and certainty than the proposed new Code," they said. The ITRE vote to push open access to jointly dominant networks led to "market overreaction," Pivotal Research Group analyst Jeffrey Wlodarczak emailed investors Oct. 4. This is just a proposal from one EU body which "may go nowhere or be watered down dramatically," he said.