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IDATEL’Europe en marche……..

Montpellier, 21 November 2002“From Deregulation to Consolidation-

the case of Europe”

Martin CaveWarwick Business School

The University of Warwick, Coventry, CV4 7ALemail: Martin.Cave@wbs.ac.uk

Website http://users.wbs.warwick.ac.uk/cmur/

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The point of departure: the 1998 package

• Developed incrementally

• differentiated by market

• structural regulation:• more or less free entry

• behavioural regulation• retail price controls

• interconnection pricing

• universal service

• regulatory precondition:• SMP (>25% of ‘large’ pre-specified markets

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Conditions for the new regime

• Takes account of convergence

• maintains ex ante regulation in some markets

• provides for differential advance to effective competition in different markets, in member states with different histories and market sizes

• end state is competition law

• involves interactions between EC and NRAs

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The modus operandi

A. Market definition: ‘relevant’ markets identified, using anti-trust principles, as candidates for ex ante regulation; otherwise, reliance on competition law

B. Market analysis: is there (single, joint or vertically averaged) dominance in the relevant markets - or others nominated by NRAs?

C. Remedies, if yes, remedy selected from list in Directives (mostly relating to access).

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Which markets are ‘relevant’/liable to ex ante regulation?

Three (cumulative) conditions in draft Recommendation

• barriers to entry and development of competition

• dynamic aspects

• relative efficiency of competition law and complementary ex ante regulation

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Meaning of greater efficiency?

Competition law would not adequately address the market failures because of (eg)

extensive compliance requirement or

need for frequent and/or timely intervention

May be related to type of barrier to entry or competition

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What markets are found ‘relevant’ in the draft

• Mostly wholesale

• operator by operator markets for fixed and mobile termination

• unbundled loops included

• broadcasting transmission included

Markets may be extended to adjacent technical areas and segmented

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Remedies

May only be applied in absence of effective competition

Must be proportionate and justified by objectives of regime as a whole

Largely relate to access and interconnection

Also include retail price caps

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Some observations on the proposed remedies

Obligation Indication Contra-indications oradverse effects

Transparency Technical informationindispensable to successfulinterconnection

Price disclosure may ensureexcessive/rigid prices

Non-discrimination Partial remedy against marginsqueeze

Too broad a prohibition mayreduce consumer welfare;conditions for discriminationmay not exist

Separate accounting Potentially useful forpersistent monopoly

Costly and not essential forprice squeeze investigation

Mandatory access Useful for dealing withpersistent network monopoly

Reduces incentives to investand innovate

Cost-oriented pricing Useful for dealing withpersistent network monopoly

Reduces incentives to investand innovate

Retail price control Can maintain distorted retailprice structure; possibleapproach to consumerprotection issues (e.g.ignorance)

Widespread mandatory accessby resellers an alternative

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An assessment of the regime

• Designed to corral NRAs down road to deregulation and reliance on competition law

• Places burden of proof for intervention on NRAs

• Seeks to confine remedies to least intrusive effective instruments

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Risks

• Multiplication of ex ante markets by NRAs

• ‘One size fits all’ for large and small markets

• No detailed guidance on choice of remedies

• Complex and divisive institutional interactions