Dr François SOUTY Professor, University of La Rochelle, France

1. 2011 CUTS Conference on Reviewing Global Experiences of Economic Regulation, DelhiApril 18-20, 2011The Relationship between Regulation and Competition Institutions in the E.U. Dr François SOUTY Professor, University of La Rochelle, France Deputy Interministerial Director for the Protection of the Populations, Tours, France Rev2

2. Overview Introduction: Regulation is not a new issue… • About Competition & Regulation Objectives • The 3 basic functions of “classical” Regulation • In the EU Regulation derives from a supplementary constitutional objective • Regulated industries in the EU: network industries, SGEI, ESR • US & EU differences: Essential facilities and «Services of General Economic Interest»` • SGEI & Liberalization • Types of A/C behaviours of SGIE/ESR Firms • Divis° of labour between RAs & CA s • Subsidiarity (Federalism) and Regulation • Three models of relationships between NCAs and RAs Perspectives

3. Introduction: Regulation of indivisible industries and ownership issues are not new … • « To begin, it is now universally recognised that there is a great increase in the number and importance of a class of industries, which are often called monopolies, but which are perhaps better described as indivisible industries. Such are the industries that supply gas or water in any given area, for only one such company in any district can be given leave to pull up the streets. Almost on the same footing are railways, tramways, electricity supply companies, and many others... Without therefore expressing any opinion as to the advantages of the public management of indivisible undertakings on the Continent, the greater part of younger English and American economists are, I think, inclined to oppose it for England and America. We are not sure that we could exchange our own industrial virtues for those of the Continent if we wished to, and we are not sure that we do wish it. » Alfred Marshall, Some Aspects of Competition, Leeds, 1890 = What may be new is the imprint of Competition Policy in the analysis and reasoning.

4. 1. About competition and regulation objectives… • Competition law and regulation aim at defending the public interest against anticompetitive behaviors, namely cartels and abuse of market power. • Both provide tools to fulfill this objective, but vary in scope intervention. They are not identical and can interact in 4 ways: -   regulation can contradict competition policy.   -   regulation can replace competition policy.   -   regulation can reproduce competition law and policy. -  regulation can use competition institutions methods.

5. 2. Classical regulation: 3 basic functions 1 Sectoral regulation is a framework which determines conditions of entry in a sector, rules on provisions of a universal service (in France linked to « status » of operators): Parliament & government   2 Regulation is the administrative & technical management of a sector: selection of candidates to ESR (« DSP » or concessions), ressources allocation (when activity performed with Ess. facilities), verification of operators’ compliance with obligations determining entry: sectoral regulators 3 Regulation is about Markets surveillance : Surveillance may deal with operators (see above); it may also concern the market process: A/C behaviors monitoring and prosecution: Competition authorities (in the EU, several institutional levels: the « Community »,the « Member States », and emerging « Provinces »)

6. 3. In the EU, regulation derives from a supplementary constitutional objective aiming at EU Market integration: harmonization, liberalization, competition • Regul° is a product of a teleological” reasoning in the EU Treaty: 1/ Free circulation of goods and services (Directives of harmonization or market integration following TFUE art. 37 & art. 56-62 including on Water, Energy, Telecom, Public procurement + Regulations on Transports) 2/ Competition Law can be used against practices or behaviors that run against EU market integrat° 3/ Liberalization is vested in enforcement of Art. 106 namely through decisions by the EU Commission AND Competition Authorities in Member States = a major issue to understand: connexion between art. 37, 56-62 and 106 (de facto including art 101-102)

7. 4. What are the regulated industries in the EU? Enterprises supplying a Service of General Economic Interest, enjoying Exclusive or Special rights and regulated professions • EU Competit° authorities (DG Comp PLUS NCAs) have developed an important Case Law in sectors operating with network industries operating from particular resources called «essential facilities» (e.g. Tele-communications and Communication Industries, Airports platforms, railways tracks and stations; Harbor facilities, Energy generation, Gas or Oil stocking infrastructures, electricity or water distribution networks, waste collection networks and treatment, urban heating, banking etc.). • However, regulated sectors also concern a wide range of services activities that are not depending on essential facilities (medical professions, legal professions, taxis etc.)

8. 5. Differences between US principles and EU principles : Essential facilities and «Services of General Economic Interest» • US= EFD = «owner (s) of an «essential» or «bottleneck» facility has long been mandated to provide access to that facility at a «reasonable price»; changes over the last decades with contestability theory develpmt • EU Law = SGEI = Dominant firms have a broad duty to deal or supply on a non discriminatory basis, i.e. they may have to justify any refusal of supply or discrimination • EU Law extends not only to private behaviors but also to public entities enjoying ESR when - they cannot justify that they perform a SGEI (which justifies Monopoly rights) or that they present the character of a tax monopoly - they perform specific services (added value service) which are commonly subject to competition

9. 6. Services of General Economic Interest and liberalization under EU Law • Art. 102 EC: a prohibition for enterprises enjoying a dominant position to abuse their position • Art 106-1 prohibits Member States to take any measure contrary to provisions of art. 81 and 82 with regard to public enterprises and/or enterprises enjoying exclusive or special rights. • Art 106-2 para. 2 submits to competition rules and namely to article 82 enterprises (public or private) which supply a Service of General Economic Interest or which present the character of a tax monopoly in so fars as these Competition rules do not compromise the mission granted to these enterprises (de jure or de facto). • Liberalization is vested in the enforcement - of Art. 106 namely through decisions by the EU Commission AND Competition Authorities in Member States pursuant to art. 101-102 - of Directives of approximation pursuant to Art. 37 & Art. 56-62 on Free circulation of goods and services namely on Water, Energy, Telecom, Public procurement, Regulations on Transports)

10. 7. Types of A/C behaviors by SGEI/ESR Firms What are the main types of A/C behaviors?: 4 + 1 • matters dealing with network access: abuses • problems resulting of the Dominant Position of the incumbent firm («opérateur historique» or former holder of the ESR): abuses • problems requiring interim measures from NCA where there are risks of market foreclosure:cease and desist orders and undertakings/commitment • special surveillance of take-overs by incumbent firms (merger control) • «  + 1 »: cartels in telecommunications industries

11. 8. Division of Labor between Regulatory and Comp° agencies in the EU may differ from State to State but EU Commission is the single regulator at the EU level • Structural aspects of regulation (i.e. technical regulation, entry, mergers): sectoral regulators • Behavioral aspects of regulation (market operat°): competit° authorities (in France since 2009 investigation by Autorité de la concurrence; in the UK: concurring powers by sectoral agencies and competition agencies) • On issues neighboring structural and behavioral aspects: compulsory cross-consultation mechanisms between sectoral and competition regulators (i.e. France) • NB: at the EU level, the EU Commission is the main regu-lator both on sectoral (liberalizat°, harmonizat° of legis-lation°) and behavioral issues affecting Trade between MS

12. 9. Subsidiarity (Federalism) and Regulation in the EU: the actual design of Regulatory Agencies and Competition Agencies • The EU experience shows that there may be three levels of regulation: • A Federal-type level: presently only one institution , the EU Commission is performing the regulatory and competition functions • A National level: it combines systems where regulatory agencies and NCAs can enjoy a mixed distribution of powers to exercise technical, structural and behavioral controls • A Local level: PPP-run services of general interest where the local government mostly performs only sectoral regulation (i.e. technical) functions

13. 10. Three models of organization of relationships between Regulatory and Competition Agencies in the EU • In the EU, there are three mains groups of countries with regard to the organization of relationships between Regulatory and Competition Agencies: • a group where competition regulation is institutionaly embodied in the enforcement of sectoral regulation: Sectoral Agencies concurrently enforce competition law with NCAs without capacity of the Executive (Ministers) to intervene such as Finland, Italy, the Netherlands, Sweden, the United Kingdom • A group where competition regulation is not embodied in sectoral regulation: Sectoral Agencies enforce structural regulation and NCAs enforce competition law with capacities of the Executive to overule decisions such as Danemark, Germany, France, Hungary (exceptional) • A group with Local Government Sectoral & Comp° Regulation (Germany, Spain and - to a lesser extent - UK)

14. Perspectives: no Monopoly over regulation, Agencies networks, independance • Collegiality and concurring powers of regulatory and competition authorities are major ways to overcome regulatory capture. One should resist the concentration of powers in one single agency • Competition Network: Within the EU National Competition authorities independance has been strengthened by the European Competition Network compelling the NCA to enforce the EU competition Law in a consistant and coherent manner • Regulatory Agencies Networks are in the making for Regulatory Agencies (i.e. telecoms). Sectoral Studies conducted by the EU Commission may speed up that process of « networkization » • Appeals of NCAs and Regulatory Agencies’ decisions are introduced before the same specialized Appeal court

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