SMP and dominance

1. SMP and dominance Pál Belényesi Verona 29 November 2006

2. New regulatory framework • July 2003 • harmonised regulation across Europe • reducing entry barriers • fostering prospects for effective competition to the benefit of consumers

3. The Directives • Directive 2002/21/EC ("the Framework Directive"); • Directive 2002/19/EC ("the Access Directive"); • Directive 2002/20/EC ("the Authorisation Directive"); • Directive 2002/22/EC ("the Universal Service Directive”) • Directive 2002/58/EC ("the Privacy Directive")

4. Recommendation on the relevant markets • a set of markets in which ex ante regulation might be warranted • NRAs • NRAs are to define relevant markets appropriate to national circumstances • Guidelines on market analysis and the assessment of SMP

5. Market analysis • forward looking analysis • Annex II to the Framework Directive • SMP Guidelines • BUT • Other criteria and other factors could be taken into account

6. Cont’d • Individual analysis • To consider circumstances against the background of the respective market phase • concentration processes • the mixture of behavioural para­meters and the resulting performance indicators • They are often different

7. Market review procedure • a definition of the relevant market or markets; • an assessment of competition in each market, in particular whether any companies have Significant Market Power ("SMP") in a given market; and • an assessment of the appropriate regulatory obligations which should be imposed where there has been a finding of SMP

8. Definition of the rel. markets • Art 15 + Annex I of the Framework Directive for ex-ante regulation • NRAs to determine the geographical markets

9. „real” market definition • Demand side substitution: Are consumers prepared to substitute other services for the relevant service? (SNIIP-test) – shift in demand? • Supply side substitution: (speedy responses from competitors): Would a supplier of other services switch to “compete” immediately or in the short term without incurring significant additional costs • Assessment of potential competition: lengthier time for competitors to respond consumer needs

10. Defining SMPs • Art. 16 Framework Directive • NRAs should carry out the market analysis as soon as the adoptation of the recommendation takes place or there is a modification of the recommendation • NRAs have the obligation to decide whether there is effective competition on the given market

11. Results • 1. Market is effectively competitive • No remedies • Existing remedies to be withdrawn • 2. Market is NOT competitive

12. Market is NOT competitive • SMP • Article 14 of the Framework Directive and the NRA to impose appropriate specific regulatory obligations referred to in paragraph 2 of Article 16 or maintain or amend such obligations where they already exist. • At least one available obligation should be imposed on identified SMPs

13. Principles for analyzing the markets • Forward looking approach • Structural evaluation of the markets • Based on the existing market conditions (not hypothetical) • Is the market prospectively competitive? • Is any lack of competition durable? • Expected market developments over a reasonable period

14. The criteria for being SMP • An undertaking shall be deemed to have significant market power if, either individually or jointly with others, it enjoys a position equivalent to dominance, that is to say a position of economic strength affording it the power to behave to an appreciable extent independently of competitors, customers and ultimately consumers(Art. 14 FD)

15. Cont’d • Guidelines are based on the relevant case law of the Court of First Instance and the Court of Justice and on the Commission's own decision-making practice • See also: Guidelines recital 62 (A-B-C products – chain substitutability)

16. BUT (diff. in approach) • Different sets of assumptions and expectations • Lack of evidence of past behaviour • Prospective instead of retrospective approach

17. Implications • finding of SMP does not mean that there is no competition on the market • (Case 85/76, Hoffmann-La Roche v Commission)

18. Criteria can o be used to measure the powerof a firm • — overall size of the undertaking, • — control of infrastructure not easily duplicated, • — technological advantages or superiority, • — absence of or low countervailing buying power, • — easy or privileged access to capital markets/financial • resources,

19. Cont’d • — product/services diversification (e.g. bundled products • or services), • — economies of scale, • — economies of scope, • — vertical integration, • — a highly developed distribution and sales network, • — absence of potential competition, • — barriers to expansion.

20. RESULT • dominant position is the combination of the above criteria • separately may not determinative • market entryimportant • market share is a proxy • competitive constraints may also come from innovative threatsfrom outside

21. Worth to mention • Essential facilities • Leveraging • Remedies

22. Novelties in the new Framework with regard to SMP • Old “definition” of SMP was based on 25% share of the relevant market + additional discretionary criteria. The “New” definition of SMP is based on the concept of dominant position (at least 40%). • Transition to competition law methodology. In practical terms: Ex ante regulation will be applied to former monopolists and/or those who control essential facilities (se: Recital 20)

23. Cont’d • SMP is not equal to dominance. • Competition authorities are not bound by NRAs decisions. • SMP is a ”limit” for application of several obligations (Remedies) and represents the limit for when NRAs can apply regulation. • Ex-ante regulation shall only be applied in certain circumstances: i.e on operators with SMP • Certain obligations (lighter) can be placed on all undertakings (se Access Directive Art. 4 and 5 and USO chapter IV.), but most of the obligations must be places on SMPs.

24. Thank you