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  • EC Electronic Communications and Competition Law by Mira Burri

    Загружено:

    Mira Burri Nenova
    223 просмотров396 страниц
    Telecommunications have developed at an incredible speed over the last couple of decades. The decreasing size of our phones and the increasing number of ways in which we can communicate are barely the only result of this (r)evolutionary development. The latter has indeed multiple implications. The change of paradigm for telecommunications regulation, epitomised by the processes of liberalisation and reregulation, was not sufficient to answer all regulatory questions pertinent to communications. Today, after the transition from monopoly to competition, we are faced perhaps with an even harder regulatory puzzle, since we must figure out how to regulate a sector that is as dynamic and as unpredictable as electronic communications have proven to be, and as vital and fundamental to the economy and to society at large. The present book addresses the regulatory puzzle of contemporary electronic communications and suggests the outlines of a coherent model for their regulation. The search for such a model involves essentially deliberations on the question "Can competition law do it all?", since generic competition rules are largely seen as the appropriate regulatory tool for the communications domain. The latter perception has been the gist of the 2002 reform of the European Community (EC) telecommunications regime, which envisages a withdrawal of sectoral regulation, as communications markets become effectively competitive and ultimately bestows the regulation of the sector upon competition law only. The book argues that the question of whether competition law is the appropriate tool needs to be examined not in the conventional contexts of sector specific rules versus competition rules or deregulation versus regulation but in a broader governance context. Consequently, the reader is provided with an insight into the workings and specific characteristics of the communications sector as network-bound, converging, dynamic and endowed with a special societal role and function. A thorough evaluation of the regulatory objectives in the communications environment contributes further to the comprehensive picture of the communications industry. Upon this carefully prepared basis, the book analyses the communications regulatory toolkit. It explores the interplay between sectoral communications regulation, competition rules (in particular Article 82 of the EC Treaty) and the rules of the World Trade Organization (WTO) relevant to telecommunications services. The in-depth analysis of multilevel construct of EC communications law is up-to-date and takes into account important recent developments in the EC competition law in practice, in particular in the field of refusal to supply and tying, of the reform of the EC electronic communications framework and new decisions of the WTO dispute settlement body, such as notably the Mexico-Telecommunications Services Panel Report. Upon these building elements, an assessment of the regulatory potential of the EC competition rules is made. The conclusions drawn are beyond the scope of the current situation of EC electronic communications and the applicable law and explore the possible contours of an optimal regulatory framework for modern communications. The book is of particular interest to communications and antitrust law experts, as well as policy makers, government agencies, consultancies and think-tanks active in the field. Experts on other network industries (such as electricity or postal communications) can also profit from the substantial experience gathered in the communications sector as the most advanced one in terms of liberalisation and reregulation.

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    Telecommunications have developed at an incredible speed over the last couple of decades. The decreasing size of our phones and the increasing number of ways in which we can communicate are barely the only result of this (r)evolutionary development. The latter has indeed multiple implications. The change of paradigm for telecommunications regulation, epitomised by the processes of liberalisation and reregulation, was not sufficient to answer all regulatory questions pertinent to communications. Today, after the transition from monopoly to competition, we are faced perhaps with an even harder regulatory puzzle, since we must figure out how to regulate a sector that is as dynamic and as unpredictable as electronic communications have proven to be, and as vital and fundamental to the economy and to society at large. The present book addresses the regulatory puzzle of contemporary electronic communications and suggests the outlines of a coherent model for their regulation. The search for such a model involves essentially deliberations on the question "Can competition law do it all?", since generic competition rules are largely seen as the appropriate regulatory tool for the communications domain. The latter perception has been the gist of the 2002 reform of the European Community (EC) telecommunications regime, which envisages a withdrawal of sectoral regulation, as communications markets become effectively competitive and ultimately bestows the regulation of the sector upon competition law only. The book argues that the question of whether competition law is the appropriate tool needs to be examined not in the conventional contexts of sector specific rules versus competition rules or deregulation versus regulation but in a broader governance context. Consequently, the reader is provided with an insight into the workings and specific characteristics of the communications sector as network-bound, converging, dynamic and endowed with a special societal role and function. A thorough evaluation of the regulatory objectives in the communications environment contributes further to the comprehensive picture of the communications industry. Upon this carefully prepared basis, the book analyses the communications regulatory toolkit. It explores the interplay between sectoral communications regulation, competition rules (in particular Article 82 of the EC Treaty) and the rules of the World Trade Organization (WTO) relevant to telecommunications services. The in-depth analysis of multilevel construct of EC communications law is up-to-date and takes into account important recent developments in the EC competition law in practice, in particular in the field of refusal to supply and tying, of the reform of the EC electronic communications framework and new decisions of the WTO dispute settlement body, such as notably the Mexico-Telecommunications Services Panel Report. Upon these building elements, an assessment of the regulatory potential of the EC competition rules is made. The conclusions drawn are beyond the scope of the current situation of EC electronic communications and the applicable law and explore the possible contours of an optimal regulatory framework for modern communications. The book is of particular interest to communications and antitrust law experts, as well as policy makers, government agencies, consultancies and think-tanks active in the field. Experts on other network industries (such as electricity or postal communications) can also profit from the substantial experience gathered in the communications sector as the most advanced one in terms of liberalisation and reregulation.

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    223 просмотров396 страниц

    EC Electronic Communications and Competition Law by Mira Burri

    Загружено:

    Mira Burri Nenova
    Telecommunications have developed at an incredible speed over the last couple of decades. The decreasing size of our phones and the increasing number of ways in which we can communicate are barely the only result of this (r)evolutionary development. The latter has indeed multiple implications. The change of paradigm for telecommunications regulation, epitomised by the processes of liberalisation and reregulation, was not sufficient to answer all regulatory questions pertinent to communications. Today, after the transition from monopoly to competition, we are faced perhaps with an even harder regulatory puzzle, since we must figure out how to regulate a sector that is as dynamic and as unpredictable as electronic communications have proven to be, and as vital and fundamental to the economy and to society at large. The present book addresses the regulatory puzzle of contemporary electronic communications and suggests the outlines of a coherent model for their regulation. The search for such a model involves essentially deliberations on the question "Can competition law do it all?", since generic competition rules are largely seen as the appropriate regulatory tool for the communications domain. The latter perception has been the gist of the 2002 reform of the European Community (EC) telecommunications regime, which envisages a withdrawal of sectoral regulation, as communications markets become effectively competitive and ultimately bestows the regulation of the sector upon competition law only. The book argues that the question of whether competition law is the appropriate tool needs to be examined not in the conventional contexts of sector specific rules versus competition rules or deregulation versus regulation but in a broader governance context. Consequently, the reader is provided with an insight into the workings and specific characteristics of the communications sector as network-bound, converging, dynamic and endowed with a special societal role and function. A thorough evaluation of the regulatory objectives in the communications environment contributes further to the comprehensive picture of the communications industry. Upon this carefully prepared basis, the book analyses the communications regulatory toolkit. It explores the interplay between sectoral communications regulation, competition rules (in particular Article 82 of the EC Treaty) and the rules of the World Trade Organization (WTO) relevant to telecommunications services. The in-depth analysis of multilevel construct of EC communications law is up-to-date and takes into account important recent developments in the EC competition law in practice, in particular in the field of refusal to supply and tying, of the reform of the EC electronic communications framework and new decisions of the WTO dispute settlement body, such as notably the Mexico-Telecommunications Services Panel Report. Upon these building elements, an assessment of the regulatory potential of the EC competition rules is made. The conclusions drawn are beyond the scope of the current situation of EC electronic communications and the applicable law and explore the possible contours of an optimal regulatory framework for modern communications. The book is of particular interest to communications and antitrust law experts, as well as policy makers, government agencies, consultancies and think-tanks active in the field. Experts on other network industries (such as electricity or postal communications) can also profit from the substantial experience gathered in the communications sector as the most advanced one in terms of liberalisation and reregulation.

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    © All Rights Reserved
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    из 396

    EC Electronic Communications

    and
    Competition Law

    Inaugural dissertation for the attainment of the title Doctor iuris of the Faculty
    of Law of the University of Berne. The Faculty accepted the present work as a
    dissertation on 7 September 2006 by motion of the two reviewers, Prof. Dr.
    Thomas Cottier and Prof. Dr. Christoph Beat Graber, without taking a position
    on the concepts formulated therein.

    EC Electronic Communications
    and
    Competition Law
    Mira Burri Nenova

    CAMERON
    MAY
    INTERNATIONAL LAW & POLICY

    Copyright Cameron May


    Published 2007 by Cameron May Ltd
    17 Queen Annes Gate, London SW1H 9BU
    Tel: +44 (0)20 7799 3636 Fax: +44 (0)20 7222 8517
    email: info@cameronmay.com
    Website: http://www.cameronmay.com
    All rights reserved. Except for the quotation of short passages for the purpose of
    criticism and review, no part of this publication may be reproduced, stored in a
    retrieval system or transmitted, in any form or by any means, electronic, mechanical,
    photocopying, recording or otherwise, without prior permission of the publisher.
    This book is sold subject to the condition that it shall not by way of trade or otherwise,
    be lent, resold, hired out, or otherwise circulated without the publishers prior consent
    in any form of binding or cover other than that in which it is published and without
    a similar condition including this condition being imposed on the subsequent
    purchaser.

    ISBN 10: 1 905017 48 0


    ISBN 13: 978 1 905017 48 5

    Printed in the United Kingdom TJ International

    TABLE OF CONTENTS
    xi

    Abbreviations and Acronyms


    Table of Cases

    xiii

    Table of Legislation

    xxi
    xxxi

    Prologue

    Introduction
    PART 1:

    E LECTRONIC C OMMUNICATIONS
    UNIQUE OBJECT OF REGULATION

    AS A

    D ISTINCT

    AND

    Chapter 1: The Object of Regulation

    Introduction
    Brief Historical Remarks
    The Metamorphosis of (Tele)communications
    Intrinsic Characteristics of the Communications Sector
    4.1 Network Industries
    4.1.1 Positive Network Effects
    4.1.2 Economic Implications of Positive Network Effects
    4.1.3 Negative Network Effects
    4.1.4 Communications as a Network Industry
    4.1.5 Communications as a Specific Network Industry
    4.2 Dynamism
    4.3 Convergence
    4.4 Sensitive to Regulation, Sensitive to Societys
    Reactions
    4.5 Special Significance and Role
    4.6 Communications as Part of the New Economy
    Chapter 1: Conclusion

    9
    10
    13
    17
    17
    19
    21
    22
    22
    24
    25
    28
    32

    Chapter 2: The Goals and Objectives of Communications


    Regulation

    43

    1.
    2.

    44
    46
    46

    1.
    2.
    3.
    4.

    5.

    Introduction
    Economic Objectives
    2.1 Consumer Welfare

    34
    38
    39

    3.

    4.

    2.2 The Internal Market


    2.3 Innovation
    2.3.1 Standards
    2.3.2 Intellectual Property Rights: Some Brief Remarks
    2.3.3 Facility-based or Service-based Competition?
    2.4 Interim Conclusion on the Economic Goals
    Societal Objectives
    3.1 Introduction
    3.2 Universal Service
    3.2.1 The Roots of Universal Service Policies
    3.2.2 The EC Universal Service Regime
    a.
    Before the 2002 Regulatory Package
    b.
    The 2002 Universal Service Regime
    c.
    The Universal Service Directive
    d.
    Interim Conclusion on Universal Service
    3.3 Consumer Protection
    3.4 On a Higher Level
    3.5 The eEuropean Goals
    Chapter 2: Conclusion

    49
    52
    57
    61
    64
    68
    69
    70
    70
    70
    72
    72
    74
    75
    80
    82
    89
    96
    100

    PART 2: THE INSTRUMENTS OF COMMUNICATIONS REGULATION

    103

    Chapter 3: Typology of the Regulatory Tools

    105

    1.
    2.

    105
    106
    107
    110
    111
    112
    115
    117
    117
    118

    3.

    Introduction
    The Communications Regulation Toolkit
    2.1 Competition Law
    2.2 Sector Specific Regulation
    2.3 Comparison of the Regulatory Tools
    2.3.1 General and Abstract versus Tailored Rules
    2.3.2 Reactive versus Pro-active Nature
    2.3.3 To Protect versus to Promote or Restrict Competition
    2.3.4 One-off Interventions versus Long-term Perspective
    2.3.5 Narrowly Focused Objectives versus Broad Range
    of Objectives
    2.3.6 Limited Instruments versus Broad Range of
    Instruments
    2.3.7 Antitrust Expertise versus Communications Industry
    Expertise
    Chapter 3: Conclusion

    120
    120
    122

    Chapter 4: European Community Communications Law

    127

    1.
    2.

    127
    130

    Introduction
    European Community Competition Law

    3.

    2.1 Article 82 EC
    2.2 Constituent Elements of Article 82 EC
    2.2.1 Dominance
    a.
    Market Definition
    i.
    Demand Substitutability
    ii.
    Supply Substitutability
    iii.
    Potential Competition
    iv.
    The Geographical Market
    b.
    Relevant Communications Markets
    c.
    Market Analysis
    i.
    Market Shares
    ii.
    Barriers to Entry
    iii.
    Conduct and Performance
    2.2.2 A Position of Dominance within the Common
    Market or in a Substantial Part of It
    2.3 Abuse: Types of Abusive Practices
    2.3.1 Refusal to Supply
    2.3.2 The Essential Facilities Doctrine
    a.
    The Concept of Essential Facilities and the EC
    Legal Doctrine
    b.
    Observations on the EFD and Its Application
    2.3.3. Tying
    a.
    The Concept of Tying in EC law
    b.
    Observations on Tying as an Abuse
    2.4. Conclusion on EC Competition Rules
    European Community Communications Specific
    Legislation
    3.1 The Liberalisation of the European Community
    Communications Markets
    3.1.1 The Liberalisation Package
    a.
    The
    Telecommunications
    Terminal
    Equipment
    Directive
    and
    the
    Telecommunications Services Directive
    b.
    The Use of Article 86(3) of the EC Treaty
    c.
    Further Liberalisation Measures
    3.1.2 The Open Network Provision Framework
    3.1.3 Relationship between EC Competition Law and the
    Sectoral Rules
    3.1.4 Key Regulatory Decisions of the 1998 European
    Telecommunications Package
    3.2 The 2002 Electronic Communications Framework
    3.2.1 Design of the 2002 Regulatory Framework
    a.
    Hard Law Instruments
    b.
    Soft Law Instruments
    3.2.2 Scope of the Electronic Communications Regime

    131
    132
    133
    134
    135
    138
    139
    141
    143
    149
    149
    151
    153
    155
    156
    159
    161
    161
    168
    172
    172
    178
    183
    185
    185
    186
    186

    187
    189
    190
    193
    195
    197
    199
    199
    203
    206

    3.2.3 Key Elements of the 2002 Communications Regime


    3.2.4 The New Significant Market Power Regime
    a.
    Introduction to the SMP Regime
    b.
    Market Definition
    i.
    Market Selection
    ii.
    Interim Observations on Market
    Selection
    iii.
    Product and Geographical Market
    Definition
    iv.
    Interim Conclusion on Market
    Definition
    c.
    Market Analysis
    i.
    Standard Antitrust Analysis
    ii.
    Idiosyncrasies of the Communications
    Specific Market Analysis
    iii.
    Interim Conclusion on Market Analysis
    d.
    Remedies
    i.
    Obligations Regarding Wholesale
    Markets
    ii.
    Choice of Remedies
    iii.
    Interim Observations on Wholesale
    Markets Remedies
    iv.
    Obligations Imposed on Retail Markets
    v.
    Exceptions
    e.
    A Brief Comparison of the 2002 Sector Specific
    Regulation and Generic Competition Rules
    3.2.5 Conclusion on the SMP Regime
    Chapter 4: Conclusion

    207
    209
    209
    212
    212
    215

    Chapter 5: The WTO Regime for Telecommunications


    Services

    245

    1.
    2.

    245
    247
    248
    254
    254
    256
    258

    4.

    Introduction
    The World Trade Organization
    2.1 General Agreement on Trade in Services
    2.2 The Annex on Telecommunications
    2.2.1 Scope of the Annex on Telecommunications
    2.2.2 Contents of the Annex on Telecommunications
    2.2.3 Interim Observations on the Annex on
    Telecommunications
    2.3 The Fourth Protocol
    2.3.1 The Reference Paper
    2.3.2 Scope of the Reference Paper
    2.3.3 Contents of the Reference Paper
    a.
    Definitions

    217
    221
    222
    222
    223
    225
    225
    227
    230
    231
    233
    234
    235
    238
    241

    259
    261
    262
    263
    263

    b.
    Section 1
    c.
    Section 2
    d.
    Other Provisions
    2.3.4 Interim Observations on the Reference Paper
    The WTO Law on Telecommunications and the EC
    Telecommunications Law
    3.1 Effect(s) of the WTO Law onto the EC Legal Order
    3.2 Specific Commitments of the European
    Communities and Their Member States
    3.3 WTO Telecommunications Rules vis--vis EC
    Telecommunications Rules
    3.3.1 Harmony
    3.3.2 Discord
    a.
    Basic versus Value-added Telecommunications Services
    b.
    Telecommunications versus Audiovisual
    Services
    c.
    Technological Neutrality
    d.
    Solutions?
    e.
    Lack of Global Competition Rules
    Chapter 5: Conclusion

    265
    267
    268
    269
    273

    PART 3: CAN COMPETITION LAW DO IT ALL? THE FINAL ASSESSMENT

    297

    1.

    300

    3.

    4.

    2.

    3.
    4.
    5.

    Step 1: Competition Law versus the Intrinsic


    Characteristics of Electronic Communications
    1.1 Network Effects
    1.2 Dynamism
    1.3 Convergence
    Step 1: Conclusion
    Step 2: Competition Law versus the Goals and Objectives
    of Communications Regulation
    2.1 Economic Goals and Objectives
    2.1.1 Consumer Welfare
    2.1.2 Innovation
    2.2 Societal Goals and Objectives
    Step 2: Conclusion
    Step 3: Endangering the Authority and Integrity of
    Competition Law:
    Yes or No? The Answer
    Some Speculations on the Future

    Epilogue
    Bibliography
    About the Author

    274
    278
    281
    281
    284
    284
    285
    288
    290
    292
    294

    300
    306
    309
    313
    314
    314
    314
    315
    319
    321
    322
    326
    328
    337
    339
    363

    ABBREVIATIONS AND ACRONYMS


    AB
    AG
    API
    BNetzA

    CEN
    CENELEC
    CEPS
    CEPT
    CFI
    CMLR
    DG
    DRM
    DSB
    DSU
    DVD
    EC
    ECJ
    ECR
    EDI
    EEA
    EEC
    EFD
    EPG
    ERG
    ETSI
    FCC
    GATS
    GATT
    GBT
    GDP
    GSM

    Appellate Body
    Advocate General
    Application Programme Interface
    Bundesnetzagentur fr Elektrizitt, Gas,
    Telekommunikation, Post und Eisenbahnen / Federal
    Network Agency
    for
    Electricity,
    Gas,
    Telecommunications, Postal and Railway Markets,
    Germany
    European Committee for Standardisation
    European Committee for Electrotechnical
    Standardisation
    Centre for European Policy Studies
    European
    Conference
    of
    Postal
    and
    Telecommunications Administrations
    Court of First Instance
    Common Market Law Reports
    Directorate General (of the European Commission)
    Digital Rights Management
    Dispute Settlement Body
    Understanding on Rules and Procedures Governing
    the Settlement of Disputes
    Digital Versatile Disc
    European Community / European Communities
    Court of Justice of the European Communities
    European Court Reports
    Electronic Data Interexchange
    European Economic Area
    European Economic Community
    Essential Facilities Doctrine
    Electronic Programme Guide
    European Regulators Group for Electronic
    Communications Networks and Services
    European Telecommunications Standards Institute
    Federal Communications Commission
    General Agreement on Trade in Services
    General Agreement on Tariffs and Trade
    Group on Basic Telecommunications
    Gross Domestic Product
    Global System for Mobile Communications
    xi

    IC
    ICT
    IEC
    ILM
    IPRs
    ISO
    IT
    ITU
    MFN
    NCA
    NGBT
    NRA
    OECD
    OJ
    ONP
    PTO
    PTT
    R&D
    RegTP

    SMP
    SMS
    SSNIP
    TELRIC
    TO
    TRIMs
    TRIPs
    UDHR
    UN
    UNCTAD
    UNESCO
    USO
    USTR
    WIPO
    WMP
    WSIS
    WTO

    xii

    integrated circuit
    Information and Communication Technology
    International Electrotechnical Organisation
    International Legal Materials
    Intellectual Property Rights
    International Organisation for Standardisation
    Information Technology
    International Telecommunication Union
    Most-Favoured-Nation
    National Competition Authority
    Negotiating Group on Basic Telecommunications
    National Regulatory Authority
    Organization for Economic Co-operation and
    Development
    Official Journal of the European Communities /
    European Union
    Open Network Provision
    Public Telecommunications Operator
    Post, Telegraph and Telephone
    Research and Development
    Regulierungsbehrde fr Telekommunikation und
    Post / the German telecommunications and post
    regulator
    Significant Market Power
    Short Message Service
    Small but Significant Non-Transitory Increase in
    Price
    Total Element Long-Run Incremental Cost
    Telecommunications Operator
    Agreement on Trade-Related Investment Measures
    Agreement on Trade-Related Aspects of Intellectual
    Property Rights
    Universal Declaration of Human Rights
    United Nations
    United Nations Conference on Trade and
    Development
    United Nations Educational, Scientific and Cultural
    Organization
    Universal Service Obligation
    United States Trade Representative
    World Intellectual Property Organization
    Windows Media Player
    World Summit on the Information Society
    World Trade Organization

    TABLE OF CASES
    COURT OF JUSTICE OF THE EUROPEAN COMMUNITIES
    (Numerical Order)
    Case 26/62 Van Gend en Loos v. Nederlanse Administratie der Belastingen
    [1963] ECR 1.
    Case 6/64 Costa v. ENEL [1964] ECR 585, [1964] CMLR 425.
    Cases 56 and 58/64 Consten and Grundig v. Commission [1966] ECR 299,
    [1966] CMLR 418.
    Case 56/65 Socit Technique Minire v. Maschinenbau Ulm GmbH [1966]
    ECR 235, [1966] CMLR 357.
    Case 14/68 Walt Wilhelm v. Bundeskartellamt [1969] ECR 1, [1969] CMLR
    100.
    Case 5/69 Vlk v. Vervaecke [1969] ECR 295, [1969] CMLR 273.
    Case 6/72 Europemballage Corporation and Continental Can v. Commission
    [1973] ECR 215, [1973] CMLR 1999.
    Cases 21-24/72 International Fruit Company NV v. Produktshap voor groenten
    en fruit [1972] ECR 1219, [1975] 2 CMLR 1.
    Cases 6 and 7/73 Istituto Chemioterapico Italiano SpA and Commercial
    Solvents Corp v. Commission [1974] ECR 223, [1974] I CMLR 309.
    Case 155/73 Sacchi [1974] ECR 409, [1974] 2 CMLR 177.
    Case 41/74 Van Duyn v. Home Office [1974] ECR 1337.
    Case 43/75 Defrenne v. Sabena (II) [1976] ECR 455.
    Case 27/76 United Brands Company and United Brands Continental v.
    Commission [1978] ECR 207, [1978] 1 CMLR 429.
    Case 26/76 Metro SB-Grossmrkte GmbH and Co KG v. Commission (Metro
    I) [1977] ECR 1875.
    Case 85/76 Hoffmann-La Roche and Co AG v. Commission [1979] ECR 461,
    [1979] 3 CMLR 211.
    Case 22/78 Hugin Kassaregister AB v. Commission [1979] ECR 1869, [1979]
    3 CMLR 345.
    Case 31/80 LOral [1980] ECR 3775, [1981] 2 CMLR 235.
    Case 172/80 Zchner v. Bayerische Vereinsbank AG [1981] ECR 2021, [1982]
    1 CMLR 313.
    Case 15/81 Gaston Schul Douane-Expediteur BV v. Inspecteur der
    Invoerrechten en Accijnzen [1982] ECR 1409.
    Case 322/81 Nedelansche Baden-Industrie Michelin NV v. Commission [1983]
    ECR 3461, [1985] 1 CMLR 282.
    Case 7/82 GVL v. Commission [1983] ECR 483, [1983] 3 CMLR 645.
    Cases 240/82 etc. Stichting Sigarettenindustrie [1985] ECR 3831.

    xiii

    EC Electronic Communications and Competition Law

    Case 319/82 Socit de Vente de Ciments et Btons de lEst SA v. Kerpen and


    Kerpen [1983] ECR 4173, [1985] 1 CMLR 511.
    Case 41/83 Italy v. Commission (British Telecommunications) [1985] ECR
    873, [1985] 2 CMLR 368.
    Case 170/83 Hydrotherm Gertebau GmbH v. Compact del Dott Ing Mario
    Andreoli and C Sas [1984] ECR 2999, [1985] 3 CMLR 224.
    Case 226/84 British Leyland v. Commission [1986] ECR 3263, [1987] 1 CMLR
    184.
    Case 311/84 Centre Belge dEtudes de March Tlmarketing (CBEM) v. CLT
    [1985] ECR 3261, [1986] 2 CMLR 558.
    Case 12/86 Meryem Demirel v. Stadt Schwbisch Gmnd [1987] ECR 3719,
    [1989] 1 CMLR 421.
    Case C-62/86 Akzo Chemie BV v. Commission [1991] ECR I-3359, [1993] 5
    CMLR 215.
    Case 66/86 Ahmed Saeed Flugreisen v. Zentrale zur Bekampfung Unlauteren
    Wettbewerbs [1989] ECR 803, [1990] 4 CMLR 102.
    Case 247/86 Alsatel v. Novasam [1988] ECR 5987, [1990] 4 CMLR 434.
    Case 70/87 Fdration de lindustrie de lhuilerie de la CEE (Fediol) v.
    Commission [1989] ECR 1781.
    Case C-202/88 France v. Commission (Terminal Equipment) [1991] ECR 1223,
    [1992] 5 CMLR 552.
    Case C-322/88 Grimaldi v. Fonds des maladies professionnelles [1989] ECR
    I-4407, [1991] 2 CMLR 265.
    Case C-69/89 Nakajima All Precision Co Ltd v. Council [1991] ECR I-2069.
    Case C-213/89 R v. Secretary of State for Transport (Factortame II) [1991] 1
    AC 603, [1990] 3 CMLR 1.
    Case C-221/89 R v. Secretary of State for Transport (Factortame III) [1991]
    ECR I-3905, [1991] 3 CMLR 589.
    Case C-41/90 Hfner & Elser v. Macrotron GmbH [1991] ECR I-1979, [1993]
    4 CMLR 306.
    Case C-179/90 Merci Convenzionali Porto di Genova v. Siderurgica Gabriella
    [1991] ECR I-5889, [1994] 4 CMLR 422.
    Cases C-271/90, 281/90 and C-289/90 Spain and others v. Commission
    (Telecommunications Services) [1992] ECR 5833, [1993] 4 CMLR 100.
    Cases C-241/91 P and C-242/91 P RTE and ITP v. Commission (Magill)
    [1995] ECR I-743.
    Case C-53/92 P Hilti AG v. Commission [1994] ECR I-667, [1994] 4 CMLR
    614.
    Case C-250/92 Gttrup-Klim v. Dansk Landbrugs Grovvareselskab AmbA
    [1994] ECR I-5641, [1996] 4 CMLR 191.
    Case C-393/92 Gemeente Almelo [1994] ECR I-1477.
    Case C-18/93 Corsica Ferries Italia Srl v. Corpo dei piloti del porto di Genova
    [1994] ECR I-1783.
    Case C-280/93 Germany v. Council [1994] ECR I-4973.

    xiv

    Table of Cases

    Case C-61/94 Commission v. Germany (International Dairy Agreement)


    [1996] ECR I-3989.
    Case C-333/94 P Tetra Pak International v. Commission [1996] ECR I-5951,
    [1997] 4 CMLR 662.
    Case C-242/95 GT-Link v. DSB [1997] ECR I-4449, [1997] 5 CMLR 601.
    Case C-53/96 Herms International v. FHT Marketing Choice BV [1998] ECR
    I-3603.
    Case C-55/96 Job Centre (No 2) [1997] ECR I-7119, [1998] 4 CMLR 708.
    Case C-146/96 Portugal v. Council [1999] ECR I-8395.
    Case C-162/96 Racke GmbH & Co. v. Hauptzollamt Mainz [1998] ECR I3655.
    Cases C-395/96 P and C-395/97 P Compagnie Maritime Belge Transport SA
    and Dafra-Lines v. Commission [2000] ECR I-1365, [2000] 4 CMLR 1076.
    Case C-7/97 Oscar Bronner GmbH & Co KG v. Mediaprint Zeitungs- und
    Zeitschriftenverlag GmbH & Co KG etc. [1998] ECR I-7791, [1999] 4 CMLR
    112.
    Case C-209/98 Enteprenrforeningens Affalds/Miljsektion (FFAD) v.
    Kbenhavns Kommune [2000] ECR I-3743.
    Case C-344/98 Masterfoods [2000] ECR I-11369.
    Cases C-390/98 and 392/98 Parfums Christian Dior SA v. TUK Consultancy
    BV and Asco Gerste and Rob Van Dijk v. Wilhelm GmbH & Co. KG and
    Layher BV [2000] ECR I-11304.
    Case C-340/99 TNT Traco SpA v. Poste Italiane SpA [2001] ECR I-4109.
    Case C-390/99 Canal Satlite Digital SL v. Administracin General del Estado,
    and Distribuidora de Televisin Digital SA (DTS) [2002] ECR I-607.
    Case C-475/99 Ambulanz Glckner v. Landkreis Sdwestpfalz [2001] ECR I8089, [2002] 4 CMLR 726.
    Case C-53/00 Ferring SA v. Agence centrale des organismes de scurit sociale
    (ACOSS) [2001] ECR I-9067.
    Case C-76/00 P Petrotub SA and Republica SA v. Council [2003] ECR 79.
    Case C-280/00 Altmark Trans GmbH v. Nahverkehrsgesellschaft Altmark
    GmbH [2003] 3 CMLR 12.
    Case C-481/01 IMS Health GmbH & Co v. NDC Health GmbH & Co KG
    [2004] 4 CMLR 1543.
    Case C-93/02 P Biret International SA v. Council, judgment of the Court of
    30 September 2003, nyr.
    Case C-94/02 P Biret International SA v. Council, judgment of the Court of
    30 September 2003, nyr.
    Case C-377/02 Lon Van Parijs v. Belgisch Interventie- en Restitutie Bureau,
    judgment of 1 March 2005, nyr.

    xv

    EC Electronic Communications and Competition Law

    COURT OF FIRST INSTANCE


    (Numerical Order)
    Case T-30/89 Hilti AG v. Commission [1991] ECR II-1439, [1992] 4 CMLR
    16.
    Case T-69/89 Radio Telefis Eireann (RTE) v. Commission v. Commission [1991]
    ECR II-485, [1991] 4 CMLR 586.
    Case T-70/89 BBC Enterprises Ltd v. Commission [1991] ECR II-535, [1991]
    4 CMLR 669.
    Case T-76/89 Independent Television Publications (ITP) v. Commission [1991]
    ECR II-575, [1991] 4 CMLR 745.
    Case T-30/91 Solvay SA v. Commission [1995] ECR II-1775, [1996] 5 CMLR
    57.
    Case T-83/91 Tetra Pak v. Commission (Tetra Pak II) [1994] ECR II-755, [1997]
    4 CMLR 726.
    Case T-504/93 Tierc Ladbroke v. Commission [1997] ECR II-923, [1997] 5
    CMLR 309.
    Case T-229/94 Deutsche Bahn v. Commission [1997] ECR II-1689, [1998] 4
    CMLR 220.
    Cases T-374, T-375, T-384 and T-388/94 European Night Services Ltd v.
    Commission [1998] ECR II-3141, [1998] 5 CMLR 718.
    Cases T-25/95 etc. Cimenteries CBR [2000] ECR II-491.
    Case T-86/95 Compagnie Generale Maritime [2002] ECR II-1011.
    C-359/95 and C-379/95 P Commission and France v. Ladbroke Racing [1997]
    ECR I-6225.
    Case T-41/96 Bayer v. Commission [2000] ECR II 3383, [2001] 4 CMLR 126.
    Case T-65/96 Kish Glass v. Commission [2000] ECR II-1885, [2000] 5 CMLR
    229.
    Cases T-125/97 and T-127/97 The Coca-Cola Company and Others v.
    Commission [2000] ECR II-1733, [2000] 5 CMLR 467.
    Case T-228/97 Irish Sugar plc v. Commission [1999] ECR II-2969, [1999] 5
    CMLR 1300.
    Case T-175/99 UPS Europe SA v. Commission [2000] ECR II-1915, [2002] 5
    CMLR 67.
    Case T-219/99 British Airways plc v. Commission [2004] All ER 1115, [2004]
    4 CMLR 19.
    Case T-513/93 Consiglio Nazionale degli Spedizionieri Doganali v. Commission
    [2000] II-1807.
    EUROPEAN COMMISSION DECISIONS
    (Alphabetical Order)
    ACEA/Telefnica (Case No COMP/M.1650), OJ C 321/4, 9 November 1999.
    Albacom/BT/ENI (Case No IV/M.975), OJ [1997] L 369/8, [1998] 4 CMLR
    14.
    xvi

    Table of Cases

    Atlas (Case No IV/35.337), OJ L 239/23, 19 September 1996.


    BBI/Boosey & Hawkes (87/500) OJ [1987] L 286/36, [1988] 4 CMLR 67.
    Bertelsmann/Kirch/Premiere (Case IV/M.993), OJ [1999] L 53/1.
    Blackstone/CDPQ/Kabel Nordrhein/Westfalen (Case No COMP/JV.46), OJ
    C 262/5, 13 September 2000.
    British Interactive Broadcasting, OJ [1999] L 312/1 [2000] 4 CMLR 901.
    British Telecom, OJ [1987] L 360/36, [1987] 1 CMLR 457.
    British Telecommunications/MCI (I), (Case IV/34.857), OJ L 223, 27 August
    1994.
    British Telecommunications/MCI (II) (Case No IV/M.856), OJ L 336, 8
    December 1997.
    BT/AT&T (Case No IV/JV.15), Commission Decision of 30 March 1999.
    BT/Esat (Case No COMP/M.1838), Commission Decision of 16 March
    2001.
    Continental Can Co Inc. OJ [1972] L 7/25, [1972] CMLR D11.
    Decca Navigator System, OJ [1987] L 43/27, [1990] 4 CMLR 627.
    Deutsche Post, OJ [2001] L 125/27, [2001] 5 CMLR 99.
    Deutsche Telekom AG (Commission Decision 2003/707/EC of 21 May 2003
    relating to a proceeding under Article 82 of the EC Treaty, Case COMP/
    C-1/37.451, 35.578, 37.579), OJ L 263/9, 14 October 2003.
    ECS/AKZO, OJ [1985] L 374/1, [1986] 3 CMLR 273.
    Eurofix-Bauco v. Hilti, OJ [1988] L 65/19, [1989] 4 CMLR 677.
    Flughafen Frankfurt am Main AG, OJ [1998] L 72/30, [1998] 4 CMLR 779.
    Football World Cup 1998, OJ [2000] L 5/55, [2000] 4 CMLR 963.
    France Telecom/Equant (Case No COMP/M.2257), OJ C 187/8, 3 July 2001.
    France Telecom/Orange (Case No COMP/M.2016), OJ C 261/6, 12
    September 2000.
    Iridium (Case IV/350518), OJ L 16, 18 January 1997.
    London European-Sabena (88/589), OJ [1998] L 317/47, [1989] 4 CMLR 662.
    Magill TV Guide/ITP, BBC, RTE (89/205), OJ [1989] L 78/43, [1989] 4 CMLR
    757.
    Mannesmann/Bell Atlantic/Omnitel (Case No COMP/JV.17), OJ C 11/4, 14
    January 2000.
    Mannesmann/Olivetti/Infostrada (Case No IV/M.1025), [1998] 4 CMLR 407.
    MCI WorldCom/Sprint (Case No COMP/M.1741), OJ L 300/1, 18
    November 2003.
    Microsoft, (Case COMP/C-3/37.792) C(2004) 900 final.
    Napier Brown-British Sugar, OJ [1988] L 284/41, [1990] 4 CMLR 196.
    Phoenix/Global/One (Case No IV/35617), OJ L 239/57, 19 September 1996.
    Pirelli/Edizione/Olivetti/Telecom Italia (Case No COMP/M.2574), OJ C 325/
    12, 21 November 2001.
    Port of Rdby, OJ [1994] L 55/52, [1994] 5 CMLR 457.
    Porto di Genova, OJ [1997] L 301/27.
    RTL/Veronica/Endemol (Case No IV/M.553), OJ L [1996] 134/21.

    xvii

    EC Electronic Communications and Competition Law

    Sea Containers v. Stena Sealink Interim Measures, OJ [1994] L 15/8, [1995]


    4 CMLR 84.
    SEAT Pagine Gialle/ENIRO (Case No IV/M.2468), OJ C 198/9, 13 July 2001.
    Soda-Ash ICI, OJ 1991 L 152/40, [1994] 4 CMLR 645.
    Soda-Ash Solvay, OJ 1991 L 152/51, [1994] 4 CMLR 454.
    TDC/CMG/Migway JV (Case No COMP/2598), OJ C 16/16, 19 January
    2002.
    Telefnica Portugal Telecom/Mdi Telecom (Case No COMP/JV.23), OJ 22/
    11, 26 January 2000.
    Telekom/BetaResearch (Case IV/M.1027), OJ [1999] L 53/31.
    Telia/Sonera (Case No COMP/M. 2803), Commission Decision of 10 July
    2002.
    Telia/Telenor (Case No IV/M.1439), OJ L 40/1, 9 February 2001.
    Tetra Pak II, OJ 1992 L 72/1, [1992] 4 CMLR 551.
    VIAG Interkom/Telenor Media (Case No COMP/M.1957), Commission
    Decision of 14 June 2000.
    Virgin/British Airways, OJ [2000] L 30/1, [2000] 4 CMLR 999.
    Vodafone Airtouch/Mannesmann (Case No COMP/M.1975), OJ C 141/19,
    19 May 2000.
    Vodafone/Airtel (Case COMP/M.1863), Commission Decision of 26 June
    2001.
    Vodafone/Airtouch (Case No IV/M.1430), OJ C 295/2, 15 October 1999.
    WorldCom/MCI (Case IV/M.1069), OJ L 116/1, 4 May 1999.
    Zoja/CSC-ICI, OJ [1972] L 299/51, [1973] CMLR D50.
    ARTICLE 7 COMMISSION DECISIONS
    (Numerical Order)
    Commission Decision of 20 February 2004 pursuant to Article 7(4) of
    Directive 2002/21/EC (Withdrawal of a notified draft measure), Case
    FI/2003/0024 and FI/2003/27: Publicly available international telephone
    services provided at a fixed location for residential and non-residential
    customers, C(2004) 527 final, 20 February 2004.
    Commission Decision of 5 October 2004 pursuant to Article 7(4) of
    Directive 2002/21/EC (Withdrawal of a notified draft measure), Case
    FI/2004/0082: Access and call origination on public mobile telephone
    networks in Finland, C(2004) 3682 final, 5 October 2004.
    Commission Decision of 20 October 2004 pursuant to Article 7(4) of
    Directive 2002/21/EC (Withdrawal of a notified draft measure), Case
    AT/2004/0090: Transit services in the fixed public telephone network in
    Austria, C(2004) 4070 final, 20 October 2004.
    Commission Decision of 17 May 2005 pursuant to Article 7(4) of Directive
    2002/21/EC (Withdrawal of notified draft measures), Case DE/2005/

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    Table of Cases

    0144: Call termination on individual public telephone networks provided


    at a fixed location, C(2005) 1442 final, 17 May 2005.

    EUROPEAN COURT OF HUMAN RIGHTS


    Informationsverein Lentia and Others v. Austria, 24 November 1993,
    Application No 13914/88 and 15041/89, 17 EHRR 93.

    WTO PANEL REPORTS


    United States Sections 301-310 of the Trade Act of 1974, WT/DS152/R, 22
    December 1999.
    Mexico Measures Affecting Telecommunications Services, WT/DS204/R, 2
    April 2004.
    United States Measures Affecting the Cross-Border Supply of Gambling and
    Betting Services, WT/S285/R, 10 November 2004.

    WTO APPELLATE BODY REPORTS


    United States Measure Affecting Import of Woven Wool Shirts and Blouses
    from India, WT/DS333/AB/R, 23 May 1997.
    European Communities Regime for the Importation, Sale and Distribution
    of Bananas, WT/DS27/AB/R, 9 September 1997.
    Canada Certain Measures Affecting the Automotive Industry, WT/DS/139/
    AB/R, WT/DS142/AB/R, 31 May 2000.
    Brazil Export Financing Programme for Aircraft (Recourse by Canada to
    Article 21.5 of the DSU), WT/DS46/AB/RW, 21 July 2000.
    United States Measures Affecting the Cross-Border Supply of Gambling and
    Betting Services, WT/DS285/AB/R, 7 April 2005.

    NATIONAL CASES
    (Numerical Order)
    UNITED STATES
    Munn v. Illinois, 94 US 113 (1877).
    United States v. Terminal Railroad Association, 224 US 383 (1912).
    Eastman Kodak Co v. Southern Photo Materials Co, 273 US 359 (1927).
    Lorain Journal Co v. United States, 342 US 143 (1951).
    United States v. El du Ponte de Nemours and Co, 351 US 377 (1956).
    Otter Tail Power Co v. United States, 410 US 366 (1973).

    xix

    EC Electronic Communications and Competition Law

    MCI Communications Corp. v. AT&T, 708 F.2d 1081, 1132-33 (7th Cir. 1983).
    Aspen Skiing Co v. Aspen Highlands Skiing Corp, 472 US 585 (1985).
    Matsushita Elec. Industrial Co v. Zenith Radio Corp, 475 US 574 (1986).
    Eastman Kodak Co v. Image Technical Services Inc., 504 US 451 (1992).
    Spectrum Sports v. McQuillan, 506 US 447 (1993).
    Comp. Tel. Assoc. v. FCC, 117 F.3d 1068 (8th Cir. 1997).
    Iowa Utilities Bd. v. FCC, 120 F.3d 753 (8th Cir. 1997).
    AT&T v. Iowa Utils. Bd., 525 US 366 (1999).
    Iowa Utils. Bd. v. FCC, 219 F.3d 744 (8th Cir. 2000) (Iowa Utilities II).
    US v. Microsoft Corp, 87 F.Supp.2d 30 (D.D.C. 2000).
    US v. Microsoft Corp, 253 F.3d 34 (D.C. Cir. 2001).
    Verizon Communications Inc v. FCC, 535 US 467 (2002).
    Verizon Communications Inc v. Law Offices of Curtis V. Trinko, LLP, 540 US
    682 (2004).

    NEW ZEALAND
    Telecom Corporation of New Zealand Ltd v. Clear Communications Ltd [1995]
    1 NZLR 385.

    xx

    TABLE OF LEGISLATION
    (Chronological/Numerical Order)

    TREATIES
    Treaty on European Union (consolidated version), OJ C 325/5, 24
    September 2002.
    Treaty establishing the European Community (consolidated version),
    OJ C 325/33, 24 December 2002.

    REGULATIONS
    Council Regulation 17 of 6 February 1962, First Regulation implementing
    Articles 85 and 86 of the Treaty, OJ 13/204, 21 February 1962.
    Council Regulation (EEC) 4064/89 of 21 December 1989 on the control
    of concentrations between undertakings, OJ L 395/1, 30 December 1989.
    Regulation (EC) 1310/97 of 30 June 1997 amending Regulation (EEC)
    4064/89 on the control of concentrations between undertakings, OJ L
    180/1, 9 July 1997.
    Regulation 2887/2000/EC of the European Parliament and of the Council
    of 18 December 2000 on unbundled access to the local loop, OJ L 336/4,
    30 December 2000.
    Council Regulation (EC) 1/2003 of 16 December 2002 on the
    implementation of the rules on competition laid down in Articles 81
    and 82 of the Treaty, OJ L 1/1, 4 January 2003.
    Council Regulation (EC) 139/2004 of 20 January 2004 on the control of
    concentrations between undertakings, OJ L 24/1, 29 January 2004.

    DIRECTIVES
    Commission Directive 80/723/EEC of 25 June 1980 on the transparency
    of financial relations between Member States and public undertakings,
    OJ L 195/35, 29 August 1980.
    Council Directive 87/372/EEC of 25 June 1987 on the frequency bands
    designed for the co-ordinated introduction of public pan-European
    cellular digital land-based mobile communications in the European
    Community, OJ L 196/85, 17 July 1987.
    Council Directive 90/387/EEC of 28 June 1990 on the establishment of
    the internal market for telecommunications services through the
    implementation of open network provision, OJ L 192/1, 24 July 1990.
    xxi

    EC Electronic Communications and Competition Law

    Commission Directive 88/301/EEC of 16 May 1988 on competition in


    the markets for telecommunications terminal equipment, OJ L 131/73,
    27 May 1988.
    Council Directive 89/552/EEC of 3 October 1989 on the coordination of
    certain provisions laid down by law, regulation or administrative action
    in Member States concerning the pursuit of television broadcasting
    activities, OJ L 298/23, 17 October 1989.
    Commission Directive 90/388/EEC of 28 June 1990 on competition in
    the markets for telecommunications services, OJ L 192/10, 24 July 1990.
    Council Directive 90/544/EC of 9 October 1990 on the frequency bands
    designed for the co-ordinated introduction of pan-European land-based
    public radio paging in the Community (ERMES), OJ L 310/28, 9
    November 1990.
    Council Directive 91/250/EEC of 14 May 1991 on the legal protection of
    computer programmes, OJ L 122/42, 17 May 1991.
    Council Directive 91/287/EC of 3 June 1991 on the frequency band
    designed for the co-ordinated introduction of digital European cordless
    communication (DECT) into the Community, OJ L 144/45, 8 June 1991.
    Council Directive 92/44/EEC on the application of open network
    provision to leased lines, OJ L 165/27, 19 June 1992.
    Council Directive 93/13/EEC of 5 April 1993 on unfair terms in consumer
    contracts, OJ L 95/29, 21 April 1993.
    Council Directive 93/98/EEC of 29 October 1993 harmonising the term
    of protection of copyright and certain related rights, OJ L 290/9, 24
    November 1993.
    Commission Directive 94/46/EEC amending Directive 90/388 and
    Directive 88/301 in particular with regard to satellite communications,
    OJ L 268/15, 19 January 1994.
    Commission Directive 95/51/EC amending Directive 90/388/EEC with
    regard to the abolition of the restrictions on the use of cable television
    networks for the provision of already liberalised telecommunications
    services, OJ L 256/49, 26 October 1995.
    Directive 95/46/EC of the European Parliament and of the Council of 24
    October 1995 on the protection of individuals with regard to the
    processing of personal data and on the free movement of such data, OJ
    L 281/31, 23 November 1995.
    Directive 95/47/EC of the European Parliament and of the Council of 24
    October 1995 on the use of standards for the transmission of television
    signals, OJ L 281/51, 23 November 1995.
    Commission Directive 96/2/EC amending Directive 90/388/EEC with
    regard to mobile and personal communications, OJ L 20/59, 26 January
    1996.
    Commission Directive 96/19/EC of 13 March 1996 amending Directive
    90/388/EEC with regard to the implementation of full competition in
    telecommunications markets, OJ L 74/13, 22 March 1996.
    xxii

    Table of Legislation

    Directive 96/9/EC of the European Parliament and of the Council of 11


    March 1996 on the legal protection of databases, OJ L 77/20, 27 March
    1996.
    Directive 97/13/EC of the European Parliament and of the Council of 10
    April 1997 on a common framework for authorisations and individual
    licences in the field of telecommunications services, OJ L 117/15, 7 May
    1997.
    Directive 97/7/EC of the European Parliament and of the Council of 20
    May 1997 on the protection of consumers in respect of distance contracts,
    OJ L 144/19, 4 June 1997.
    Directive 97/33/EC of the European Parliament and of the Council of 30
    June 1997 on interconnection in telecommunications with regard to
    ensuring universal service and interoperability through application of
    the principles of the Open Network Provision (ONP), OJ L 199/32, 26
    July 1997.
    Directive 97/36/EC of the European Parliament and of the Council of 30
    June 1997 amending Council Directive 89/552/EEC on the coordination
    of certain provisions laid down by law, regulation or administrative
    action in Member States concerning the pursuit of television broadcasting
    activities, OJ L 202/60, 30 July 1997.
    Directive 97/51/EC of the European Parliament and of the Council of 6
    October 1997 amending Council Directives 90/387/EEC and 92/44/EEC
    for the purpose of adaptation to a competitive environment in
    telecommunications, OJ L 295/23, 29 October 1997.
    Directive 97/66/EC of the European Parliament and of the Council of 15
    December 1997 concerning the processing of personal data and
    protection of privacy in the telecommunications sector, OJ L 24/1, 30
    January 1998.
    Directive 98/10/EC of the European Parliament and of the Council of 26
    February 1998 on the application of open network provision (ONP) to
    voice telephony and on universal service for telecommunications in a
    competitive environment, OJ L 101/24, 1 April 1998.
    Directive 98/34/EC of the European Parliament and of the Council of 22
    June 1998 laying down a procedure for the provision of information in
    the field of technical standards and regulations, OJ L 204/37, 21 July
    1998.
    Directive 98/48/EC of the European Parliament and of the Council of 20
    July 1998 amending Directive 98/34/EC laying down a procedure for
    the provision of information in the field of technical standards and
    regulations, OJ L 217/18, 5 August 1998.
    Directive 99/5/EC of the European Parliament and of the Council of 9
    March 1999 on radio equipment and telecommunications terminal
    equipment and the mutual recognition of their conformity, OJ L 91/10,
    7 April 1999.

    xxiii

    EC Electronic Communications and Competition Law

    Commission Directive 99/64/EC amending Directive 90/388 in order to


    ensure that telecommunications networks and cable TV networks owned
    by a single operator are separate legal entities, OJ L 175/39, 10 July 1999.
    Directive 2001/29/EC of the European Parliament and of the Council of
    22 May 2001 on the harmonisation of certain aspects of copyright and
    related rights in the information society, OJ L 167/10, 22 June 2001.
    Directive 2002/19/EC of the European Parliament and of the Council of
    7 March 2002 on access to, and interconnection of, electronic
    communications networks and associated facilities (Access Directive),
    OJ L 108/7, 24 April 2002.
    Directive 2002/20/EC of the European Parliament and of the Council of
    7 March 2002 on the authorisation of electronic communications
    networks and services (Authorisation Directive), OJ L 108/21, 24 April
    2002.
    Directive 2002/21/EC of the European Parliament and of the Council of
    7 March 2002 on a common regulatory framework for electronic
    communications networks and services (Framework Directive), OJ L 108/
    33, 24 April 2002.
    Directive 2002/22/EC of the European Parliament and of the Council of
    7 March 2002 on universal service and users rights relating to electronic
    communications networks and services (Universal Service Directive),
    OJ L 108/51, 24 April 2002.
    Directive 2002/58/EC of the European Parliament and of the Council of
    12 July 2002 concerning the processing of personal data and the
    protection of privacy in the electronic communications sector (Directive
    on privacy and electronic communications), OJ L 201/37, 31 July 2002.
    Commission Directive 2002/77/EC of 16 September 2002 on competition
    in the markets for electronic communications networks and services, OJ
    L 249/21, 17 September 2002.
    Directive 2004/48/EC of the European Parliament and of the Council of
    29 April 2004 on the enforcement of intellectual property rights, OJ L
    195/16, 2 June 2004.

    DECISIONS
    Council Decision 91/396/EEC of 29 July 1991 on the introduction of a
    single European emergency call number, OJ L 217/31, 6 August 1991.
    Council Decision 92/264/EEC of 11 May 1992 on the introduction of a
    standard international telephone access code in the Community, OJ L
    137/21, 20 May 1992.
    Council Decision 94/800/EC of 22 December 1994, concerning the
    conclusion on behalf of the European Community, as regards matters
    within its competence, of the agreements reached in the Uruguay Round
    multilateral negotiations (1986-1994), OJ L 336/191, 23 December 1994.
    xxiv

    Table of Legislation

    Council Decision 97/838/EC concerning the conclusion on behalf of the


    European Community, as regards matters within its competence, of the
    results of the WTO negotiations on basic telecommunications services,
    OJ L 347/45, 18 December 1997.
    Decision 128/1999/EC of the European Parliament and of the Council of
    14 December 1998 on the co-ordinated introduction of a third generation
    mobile and wireless communications system (UMTS) in the Community,
    OJ L 17/1, 22 January 1999.
    Decision 676/2002/EC of the European Parliament and of the Council of
    7 March 2002 on a regulatory framework for radio spectrum policy in
    the European Community (Radio Spectrum Decision), OJ L 108/1, 24
    April 2002.
    Commission Decision of 29 July 2002 on establishing the European
    Regulators Group for electronic communications networks and services,
    OJ L 200/38, 30 July 2002.
    Commission Decision of 14 September 2004 amending Decision 2002/
    627/EC establishing the European Regulators Group for Electronic
    Communications Networks and Services OJ L 293/30, 16 September 2004.
    Decision 854/2005/EC of the European Parliament and of the Council of
    11 May 2005 establishing a multiannual Community Programme on
    promoting safer use of the Internet and new online technologies, OJ L
    149/1, 11 June 2005.

    RESOLUTIONS
    Council Resolution of 19 January 1999 on the consumer dimension of
    the Information Society, OJ C 23/1, 28 January 1999.
    Council Resolution of 28 October 1999 on the role of standardisation in
    Europe, OJ C 141/1, 19 May 2000.
    Council Resolution of 21 January 2002 on the development of the
    audiovisual services sector, OJ C 32/4, 5 February 2002.

    RECOMMENDATIONS
    Council Recommendation 86/659/EEC of 22 December 1986 on the
    coordinated introduction of the integrated services digital network
    (ISDN) in the European Community, OJ L 382/36, 31 December 1986.
    Commission Recommendation on relevant product and service markets
    within the electronic communications sector susceptible to ex ante
    regulation in accordance with Directive 2002/21/EC, OJ L 114/45, 8 May
    2003.

    xxv

    EC Electronic Communications and Competition Law

    Commission Recommendation of 23 July 2003 on notifications, time


    limits and consultations provided for in Article 7 of Directive 2002/21/
    EC of the European Parliament and of the Council of 7 March 2002 on a
    common regulatory framework for electronic communications networks
    and services, OJ L 190/13, 30 July 2003.
    Commission Recommendation of 19 September 2005 on accounting
    separation and cost accounting under the regulatory framework for
    electronic communications, OJ L 266/64, 11 October 2005 and
    accompanying Explanatory Memorandum of 19 September 2005.
    NOTICES
    Commission guidelines on application of EEC competition rules in the
    telecommunications sector, OJ C 233/2, 6 September 1991.
    Commission Notice on the concept of undertakings concerned, OJ C 66/
    14, 2 March 1998.
    Commission Notice on the application of the competition rules to access
    agreements in the telecommunications sector, OJ C 265/3, 22 August
    1998.
    Guidelines on vertical restraints, OJ C 291/1, 13 October 2000, [2001] 2
    CMLR 1074.
    Commission Notice on agreements of minor importance, which do not
    appreciably restrict competition under Article 81(1) of the Treaty
    establishing the European Community (de minimis), OJ C 368/13, 22
    December 2001.
    Commission Guidelines on market analysis and the assessment of
    significant market power under the Community regulatory framework
    for electronic communications networks and services, OJ C 165/6, 11
    July 2002.
    Guidelines on the effect on trade concept contained in Articles 81 and
    82 of the Treaty, OJ C 101/81, 27 April 2004.

    GREEN PAPERS
    Green Paper on the development of the common market for
    telecommunications services and equipment: Towards a dynamic
    European economy, COM(1987) 290 final, 30 June 1987.
    Green Paper on the convergence of the telecommunications, media and
    information technology sectors, and the implications for regulation:
    Towards an Information Society approach, COM(1997) 623, 3 December
    1997.
    Green Paper on services of general interest, COM(2003) 270 final, 21
    May 2003.

    xxvi

    Table of Legislation

    WHITE PAPERS
    White Paper on growth, competitiveness and employment, COM(1993)
    700 final, 5 December 1993.
    European governance: White Paper, COM(2001) 428 final, 25 July 2001.
    EUROPEAN COMMISSION COMMUNICATIONS
    Communication on the consultation on the review of the situation in
    the telecommunications services sector, COM(1993) 159 final, 26 April
    1993.
    1992 Review of the situation in the telecommunications sector, SEC(1992)
    1048, 21 October 1992, COM(1993) 159 final, 28 April 1993.
    Developing universal service for telecommunications in a competitive
    environment, COM(1993) 543, 15 November 1993.
    Universal service for telecommunications in the perspective of a fully
    liberalised environment, COM(1996) 73 final, 13 March 1996.
    Services of general interest in Europe, OJ C 281/3, 26 September 1996.
    Communication on the assessment criteria for national schemes for the
    costing and financing of universal service in telecommunications and
    guidelines for the Member States on operation of such schemes,
    COM(1996) 608 final, 27 November 1996.
    Results of the public consultation on the Green Paper on the convergence
    of the telecommunications, media and information technology sectors,
    and the implications for regulation [COM(1997) 623], COM(1999) 108
    final, 10 March 1999.
    The globalisation of the Information Society: The need for strengthened
    international coordination, COM(1998) 50 final, 4 February 1998.
    Fifth Report on the implementation of the telecommunications
    regulatory package, COM(1999) 537 final, 10 November 1999.
    Towards a new framework for electronic communications infrastructure
    and associated services: the 1999 Communications Review, COM(1999)
    539 final, 10 November 1999.
    Status of voice on the Internet under Community law, and in particular,
    under Directive 90/388/EEC Supplement to the Communication by
    the Commission to the European Parliament and the Council on the
    status and implementation of Directive 90/388/EEC on competition in
    the markets for telecommunications services, OJ C 369/3, 22 December
    2000.
    Unbundled access to the local loop: Enabling the competitive provision
    of a full range of electronic communications services, including
    broadband multimedia and high-speed internet, OJ C 272/55, 23
    September 2000.

    xxvii

    EC Electronic Communications and Competition Law

    eEurope 2005: An Information Society for All, An Action Plan to be


    presented in view of the Sevilla European Council, 21 and 22 June 2002,
    COM(2002) 263 final, 28 May 2002.
    Electronic communications: the road to the knowledge economy,
    COM(2003) 65 final, 11 February 2003.
    Towards a global partnership in the Information Society: EU perspective
    in the context of the United Nations World Summit on the Information
    Society (WSIS), COM(2003) 271 final, 19 May 2003.
    Integrated product policy, COM(2003) 302 final, 18 June 2003.
    Connecting Europe at high speed: Recent developments in the sector of
    electronic communications, COM(2004) 61, 3 February 2004.
    Communication on the role of European standardisation in the
    framework of European policies and legislation, COM(2004) 674 final,
    18 October 2004.
    European electronic communications regulation and markets 2004 (Tenth
    Report) COM(2004) 759 final, 2 December 2004.
    Communication to the Spring European Council, Working together for
    growth and jobs: A new start for the Lisbon Strategy, COM(2005) 24, 2
    February 2005.
    On the review of the scope of universal service in accordance with Article
    15 of Directive 2002/22/EC, COM(2005) 203, 24 May 2005.
    i2010 A European Information Society for growth and employment,
    COM(2005) 229 final, 1 June 2005.
    Towards a global partnership in the Information Society: The
    contribution of the EU to the second phase of the WSIS, COM(2005) 234
    final, 2 June 2005.
    Proposal for a Directive of the European Parliament and of the Council
    amending 89/552/EEC on the coordination of certain provisions laid
    down by law, regulation or administrative action in Member States
    concerning the pursuit of television broadcasting activities, COM(2005)
    646 final, 13 December 2005.
    On market reviews under the EU regulatory framework: Consolidating
    the internal market for electronic communications, COM(2006) 28 final,
    6 February 2006.
    European electronic communications regulation and markets 2005
    (Eleventh Report), COM(2006) 68 final, 20 February 2006.
    Report regarding the outcome of the Review of the scope of universal
    service in accordance with Article 15(2) of Directive 2002/22/EC,
    COM(2006) 163 final, 7 April 2006.

    INTERNATIONAL TREATIES AND CONVENTIONS


    Universal Declaration of Human Rights (GA Resolution 217 A (iii), UN
    Doc. A/810, 10 December 1948.
    xxviii

    Table of Legislation

    Council of Europe, Convention for the Protection of Human Rights and


    Fundamental Freedoms, Rome, 4 November 1950, as amended by
    Protocol No 11, ETS No 155.
    International Covenant on Economic, Social and Cultural Rights (GA
    Resolution 2200 A (xi), UN Doc. A/6316, 1966, entered into force 3 January
    1976.
    International Covenant on Civil and Political Rights (GA Resolution 2200
    A (xxi), UN Doc. A/6316, 1966, entered into force 23 March 1976.
    European Convention on Human Rights, Charter of Fundamental Rights
    of the European Union, OJ C 364/1, 18 December 2000.
    Universal Declaration on Cultural Diversity, adopted at the 31st Session
    of the General Conference of UNESCO, 2 November 2001.
    Convention on the Protection and Promotion of the Diversity of Cultural
    Expressions, adopted at the 33rd Session of the General Conference of
    UNESCO, 20 October 2005.

    WTO DOCUMENTS
    General Agreement on Tariffs and Trade of 30 October 1947, annexed to
    the Final Act of the United Nations Conference on Trade and
    Employment, Havana 1947, entered into force 1 January 1948
    (subsequently rectified, amended, or modified by the terms of legal
    instruments, which have entered into force before the date of entry into
    force of the WTO Agreement).
    Services Sectoral Classification List, WTO Doc. MTN.GNS/W/120, 10
    July 1991.
    Agreement Establishing the World Trade Organization with
    Understanding on the Rules and Procedures Governing the Settlement
    of Disputes and Trade Policy Review Mechanism, Marrakesh, TS
    57(1996) Cm 3277; (1994) 33 ILM 15, 15 April 1994.
    Fourth Protocol to the General Agreement on Trade in Services, S/L20,
    30 April 1996.
    Singapore Ministerial Declaration, Conf. Doc. WT/MIN(96)/DEC/W, 13
    December 1996.
    WTO Secretariat, Background Note on Telecommunication Services, S/
    C/W/74, 8 December 1998.
    Work Programme on Electronic Commerce Progress Report to the
    General Council, adopted by the Council for Trade in Services, S/L/74,
    27 July 1999.
    Communications from the United States, Market Access in
    Telecommunications and Complementary Services, S/CSS/W/30,
    18 December 2000.

    xxix

    EC Electronic Communications and Competition Law

    Communication from the European Communities and their Member


    States, GATS 2000: Telecommunications, S/CSS/W/35, 22 December 2000.
    Communication from Switzerland, GATS 2000: Audio-Visual Services,
    S/CSS/W/74, 4 May 2001.
    Communication from Colombia, Telecommunications Services, S/CSS/
    W/119, 27 November 2001.
    Doha Ministerial Declaration, WT/MIN(01)/DEC/W/1, 14 November
    2001.
    Communication from the European Communities and its Member States,
    Conditional Initial Offer, TN/S/O/EEC, 10 June 2003.
    Communication from the European Communities and its Member States,
    Classification in the Telecom Sector under the WTO-GATS Framework,
    TN/S/W/27, S/CSC/W/44, 10 February 2005.
    Communication from the United States, Classification in the
    Telecommunications Sector under WTO-GATS Framework, TN/S/W/35,
    S/CSC/W/45, 22 February 2005.
    Communication from the European Communities and its Member States,
    Conditional Revised Offer, TN/S/O/EEC/Rev.1, 29 June 2005.
    Communication from Australia, Canada, the European Communities,
    Japan, Hong Kong China, Korea, Norway, Singapore, the Separate
    Customs Territory of Taiwan, Penghu, Kimmen and Matsu and the
    United States, TN/SW/50, 1 July 2005.
    Hong Kong Ministerial Declaration, WT/MIN(05)/DEC, 22 December
    2005.

    WSIS DOCUMENTS
    WSIS, Background Note on the Information Society and Human Rights,
    WSIS/PC-3/CONTR/178-E, 27 October 2003.
    WSIS, Declaration of Principles, WSIS-03/Geneva/Doc/4-E, 12 December
    2003.
    WSIS, Plan of Action, WSIS-03/Geneva/Doc/5-E, 12 December 2003.
    WSIS, Tunis Commitment, WSIS-05/Tunis/Doc/7-E, 18 November 2005.
    WSIS, Tunis Agenda for the Information Society, WSIS-05/Tunis/Doc,
    6(Rev.1)-E, 18 November 2005.

    xxx

    PROLOGUE
    I started this work at the peak of the dotcom buzz and was most
    fascinated by the process of convergence and its indefinability. My wish
    was to explore how the European Community telecommunications
    regulation would respond to convergence and the changed dynamics
    of the communications sector. The EC did respond in 2002 in a fairly
    innovative way and created the current rules for what is now called the
    electronic communications sector. With the progress of my work over
    time, however, my research task went beyond the limitations of analysing
    the EC regulatory framework. I took upon myself other (and more
    burdensome) tasks and attempted to explore the communications system
    through the filter of competition law. This involved not only a pure
    examination of the existing instruments, case law and practice, but also
    an analysis in the broader sense of governance. Thereby, I was primarily
    driven by the aspiration of considering all the elements of the complex
    communications ecosystem, while designing or assessing the applied
    regulatory regime.
    This work is to a great extent inspired by Pierre Larouches seminal book
    on competition and regulation in European telecommunications,1 which
    although analysing the previous Community regulatory regime, is a
    stepping stone for any research endeavour in EC communications law.
    The present work is in that sense a humble attempt for continuation of
    the debate on an appropriate regulatory design for European
    communications markets, albeit in a transformed environment.
    My venture would have never been completed if it were not for the
    people, who helped me along the way. My thanks go in particular to
    Professor Christoph Beat Graber of the University of Lucerne. He showed
    me what a truly interdisciplinary perspective is, guided me through the
    debris of international media and communications law and taught me
    the joy of writing. I am most indebted to my supervisor Professor Thomas
    Cottier of the University of Berne, who with invariable precision
    pinpointed my position in the big picture of international governance
    and helped me not to lose my way in this dynamic multi-stakeholder,
    multi-level environment. Through the constant exchange of ideas, both
    of them made the loneliness of the long-distance runner, inherent to
    writing a PhD thesis, less unbearable. I would further like to thank the
    1
    Pierre Larouche, Competition Law and Regulation in European Telecommunications, Oxford/
    Portland, Oregon: Hart Publishing, 2000.

    xxxi

    i-call (International Communications and Art Law Lucerne) Research


    Centre for making available its superb collection of books, which partly
    explains the lengthy bibliography of this work.
    My gratitude goes above all to my parents and my brother, who have
    incessantly supported me at every step I took with lots of love and
    understanding. This work is for Boris, who makes me a happy and
    balanced person.

    Berne, April 2006

    xxxii

    INTRODUCTION
    Telecommunications have developed over the past couple of decades at
    an incredible speed, especially if one compares this pace with that of
    the other sectors of the economy. We do not even talk of
    telecommunications as such any more but rather of electronic
    communications.1 Even if we do speak of telecommunications, we
    definitely do not mean just voice telephony or the simple services we
    used to associate with it. The POTS (plain old telephone services) have
    definitely been replaced by PANS (pretty amazing new stuff).2
    The decreasing size of our phones and the increasing number of ways
    in which we can communicate are hardly the only result of this
    (r)evolutionary development of the telecommunications sector. Indeed,
    the latter has multiple implications. The communications industry, as
    part of the information and communication technologies (ICT)
    industries, has clearly emerged as an engine for rapid growth of the
    global economy. This increased economic and social significance of
    communications has been made possible by and is closely related to the
    change of paradigm for telecommunications regulation. Whereas
    previously there was broad agreement that telecommunications
    constitute a natural monopoly, received wisdom now has it that they
    can (and should) be operated under normal market conditions. This
    paradigm shift, together with a plethora of other factors, both exogenous
    and endogenous to the sector, have triggered its liberalisation and
    thereby proved in practice the benefits of open communications markets.
    The processes of liberalisation and the related reregulation have unfolded
    with differing intensity around the globe and have been clear success
    stories in terms of economic performance.
    Yet, although these processes radically transformed the regulatory
    environment (or maybe precisely because of this), they did not of themselves
    provide answers to all regulatory questions pertinent to communications.
    Despite the multiple transition models of regulation and the possibility of
    experimenting therewith, no coherent regulatory vision has yet emerged.
    1

    The term electronic communications was coined by the 2002 EC framework for
    electronic communications networks and services to encompass all of these. The
    terminology as well as the scope and design of the regulatory regime are elaborated
    upon in Chapters 1 and 4.
    2
    Rob Frieden (Rapporteur), New World, New Realities: The Remaining Roles of
    Government in International Telecommunications, Report of the Fifth Annual Aspen
    Institute Roundtable on International Telecommunications, Washington, DC, 2000.

    EC Electronic Communications and Competition Law

    Today, after the transition from monopoly to competition, we are faced


    with perhaps an even harder regulatory puzzle, since we must figure out
    how to regulate a sector that is as dynamic and as unpredictable as electronic
    communications have proven to be, and is vital and fundamental to the
    economy and to society at large.
    The inherent dynamism of communications markets also has implications
    when one attempts to write about them, especially if one dares to do so
    from a legal point of view. To use the words of others in a similar situation,
    [g]iven the lightning pace of change in the telecoms industry, writing a
    book on the current status of the relevant laws and regulation is virtually
    an impossible (and, moreover, probably useless) task. Indeed, given the
    personal experience, we are confident that some major regulatory initiative
    from either Washington or Brussels will no doubt come out just after we
    have submitted this manuscript for publication and before the ink is dry on
    the first print edition of this book.3
    Despite the seeming uselessness, or at least the transient value of writing
    on telecommunications, an attempt is still worth the effort. Even if we admit
    that such a work could only capture a snapshot of the current state of the
    communications sector and the applicable law, it could allow an analysis
    of these snapshots so that they could be fitted into the mosaic of a bigger
    picture in pursuit of a more comprehensive regulatory model for electronic
    communications. This is indeed the approach of the present work.
    Seeking an answer to the question Can competition law do it all?, this
    work examines the potential of generic competition rules as a regulatory
    instrument applied to communications markets. It is however not
    necessarily a case against antitrust and a case for sector specific
    regulation but rather an attempt to analyse objectively their respective
    regulatory toolkits within the specific setting of the European
    Community electronic communications. The question of whether
    competition law has sufficient regulatory potential needs to be addressed
    for (at least) two reasons one concrete and one of a more general nature.
    In concrete terms, this question is triggered by the change that occurred
    in the telecommunications regime of the European Community through
    the adoption of the 2002 framework for electronic communications
    networks and services.4 This regulatory reform is based on the premise
    3

    Mark Naftel and Lawrence J. Spiwak, The Telecoms Trade War: The United States, the
    European Union and the World Trade Organization, Oxford/Portland, Oregon: Hart
    Publishing, 2000, at Preface.
    4
    The 2002 EC regime for electronic communications networks and services consists of
    the Framework, Access, Authorisation, Universal Service and Privacy Protection
    Directives. It was adopted by the Council and the European Parliament at the beginning
    of March 2002 and the transposition period for the Member States expired on 24 July
    (continued...)
    2

    ..)

    Introduction

    that competition law is a better-suited regulator for the highly fluid


    environment of the communications industry than the previously
    existing dual regime of regulation, whereby sector specific and
    competition rules were cumulatively applied. The gist of the regulatory
    reform is that as markets become effectively competitive, sectoral
    regulation will be withdrawn and competition law will remain as the
    sole regulator of the communications sector.
    The second reason for analysing the potential of competition law as a
    regulatory instrument for the communications sector is that the latter
    presents a genuine governance puzzle. The design of an appropriate
    regulatory regime is rendered difficult by the very uniqueness of the
    communications sector. Having developed as a public utility, which was
    predominantly monopolistic and heavily regulated, it has undergone
    radical changes in the past two decades, both in the sense of technological
    breakthroughs and emergence of competition in the markets. Law has
    tried to keep up with the technological developments and the resultant
    market changes but it remains an open question as to whether these
    modifications of law are doing so adequately. New technologies,
    including those related to communications, influence the substance of
    decisions, as well as the structure of decision-making 5 and pose
    significant governance challenges.6 In that sense, the question of what
    constitutes the desirable regulatory structure of communications and
    how it could be realised needs to be addressed. Relying merely upon
    the idea that dismantling regulation is beneficial could be misleading
    and in any case, it would be foolish to proceed with complete
    deregulation of the telecom sector without a careful analysis.7
    Furthermore, [i]nsofar as technological changes in the
    telecommunications industry produce substantial externalities on overall
    economic productivity, there are additional costs associated with
    regulatory errors8 and thus, an exacerbated need for designing an
    appropriate regulatory model. The opportunities for wealth creation
    through further evolution of electronic communications and the
    sustainable development of the Information Society might otherwise be
    jeopardised.
    2003. The 2007 update of the e-communications framework foresees a continuation of
    the 2002 regime with a few adjustments concerning in particular the markets susceptible
    to ex ante regulation. See Chapter 4 of this book.
    5
    Thomas Cottier, The Impact of New Technologies on Multilateral Negotiation and
    Governance (1996) Chicago-Kent Law Review, Vol. 72, pp. 415436, at p. 417.
    6
    Ibid. at p. 426.
    7
    Nicholas Economides, Telecommunications Regulation: An Introduction (2004) Stern
    School of Business Working Paper 0420, at p. 4, also published in Richard R. Nelson (ed.),
    The Limits of Market Organization, New York: Russell Sage, 2005, pp. 4876.
    8
    Marc Bourreau and Pinar Dogan, Regulation and Innovation in the Telecommunications
    Industry (2001) Telecommunications Policy, Vol. 25, pp. 167184, at p. 169.
    3

    EC Electronic Communications and Competition Law

    In this context, while analysing generic competition rules as applied to


    the rapidly changing landscape of the communications sector, the present
    work seeks to contribute to the ongoing governance discussion. The
    current European Community regime for electronic communications
    will in that sense serve as a model, an experimental field, in which we
    shall see how instruments impact and regulatory environments react.
    This approach also sets this work apart from other studies on EC
    communications law.
    The structure of the present enquiry follows the logical line of the
    relationship between communications as the object of regulation, the
    economic and societal goals and the available regulatory tools applied
    for their achievement. The rationale behind this seemingly simplified
    structure is the need for considering all the elements of the system in
    order to minimise regulatory mistakes and design the most appropriate
    regulatory model. Before examining the regulatory instruments as
    applied to communications, it is vital to figure out what exactly the object
    of regulation is, especially in a sector as unique as electronic
    communications. Chapter 1 will hence identify the characteristics
    symptomatic of electronic communications. It will analyse them as
    network-bound, dynamic, converging, regulation sensitive and having
    a special significance and role. Chapter 2 introduces the goals and
    objectives, which the regulatory model for electronic communications
    should be able to address, since goal evaluation is an essential element
    of the regulation designing process. As a whole, Part 1 (including
    Chapters 1 and 2) will thus set the specific scene against which the
    regulatory potential of competition law will be tested, both in terms of
    the specific characteristics inherent to communications and in terms of
    specific regulatory objectives.
    Part 2, comprising Chapters 3, 4 and 5, will then proceed with the
    examination of the third element along the logical line of object of
    regulation goals regulatory tools and concentrate on competition
    law and sector specific rules as instruments of regulation. The potential
    of each will be respectively analysed and ultimately compared, first in
    an abstract framework (Chapter 3) and then in the concrete setting of
    European Community law (Chapter 4). With the benefit of hindsight
    regarding the multiplicity of regulatory models applied to
    telecommunications, the development of the EC communications regime
    will be closely examined in order to give real life examples of the pros
    and cons of both tools and to provide a firm basis for assessment. The
    focus of the analysis is placed upon the control of market power, in
    particular in the sense of unilateral behaviour of undertakings. Extensive
    attention is paid to the 2002 EC framework for electronic communications
    networks and services and its 2007 update, which prescribed the
    4

    Introduction

    mechanism shifting to pure antitrust regulation of electronic


    communications and as mentioned, led us to put forward the question:
    Can competition law do it all? Chapter 5 introduces the rules of the
    World Trade Organization applicable to telecommunications services
    and the relevant commitments of the European Communities, thereby
    completing the examination of EC communications law and illustrating
    the interplay between Community and international trade law in this
    field.
    Upon the foundation laid down in Part 1, presenting the specific
    characteristics of the communications sector and the relevant goals and
    Part 2, examining the regulatory potential of competition law rules, Part
    3 will provide a final assessment. Ultimately, an answer to the question
    of whether European Community competition law is capable (or capable
    enough) of dealing with all the specificities intrinsic to communications,
    while securing the achievement of the pertinent economic and societal
    objectives, will be given.9

    By way of guidance to the readers, it should be noted that each chapter within the book
    is an autonomous document. Footnotes are numbered for each chapter separately and
    begin anew with every chapter. Cross-references from one chapter to the other are
    indicated by the number of the chapter, as well as where necessary by the section(s)
    within it. References to Section numbers without chapter indication are to the same
    Chapter. All websites, except otherwise specified, were last accessed on 1 April 2007. The
    state of legislation is that of 1 April 2007.

    PART 1:
    ELECTRONIC COMMUNICATIONS AS A DISTINCT AND
    UNIQUE OBJECT OF REGULATION

    CHAPTER 1
    THE OBJECT OF REGULATION
    1.

    Introduction

    Any design of adequate regulatory instrumentarium necessitates a clear


    identification of the object of regulation. In this line of reasoning, before
    plunging into analysis of the regulatory tools applied to the electronic
    communications sector1 and their potential, it is of primary importance
    to clarify what exactly is to be regulated. What is precisely the object of
    communications regulation? For the majority of sectors of the economy,
    such a question is more or less pointless, or self-explanatory. This was
    true for telecommunications a couple of decades ago but does not hold
    true any longer. Today, the electronic communications sector escapes a
    clear-cut definition and is truly unique.
    In broad terms, telecommunications can be defined as the process of
    conveying information over a distance by means of a system using
    electrical energy. The corresponding industry parameters are, however,
    not as clear. New ways of transporting information (building upon or
    substituting for the old ones) and a plethora of new services are
    constantly emerging. In that sense, the communications sector is a work
    in progress and any definition given will be at the best a snapshot of its
    present state of development.
    Article 1 of the Framework Directive of the current European
    Community regime for electronic communications states that it shall
    cover the regulation of electronic communications services,
    electronic communications networks, associated facilities and
    1

    The terms electronic communications, telecommunications, communications and


    e-communications will be used interchangeably throughout the work for the sake of
    reader friendliness, as it is often the case in European Communitys documents. Electronic
    communications is the term coined by the 2002 EC framework for electronic
    communications networks. The scope of the latter term (also known in EC jargon as ecommunications) is strictly speaking more extensive than that of telecommunications,
    since it covers all electronic communications services and/or networks which are concerned
    with the conveyance of signals by wire, radio, optical or other electromagnetic means (ie
    fixed, wireless, cable television, satellite networks), including the transmission and
    broadcasting of radio and television programmes. See Commission Directive 2002/77/
    EC of 16 September 2002 on competition in the markets for electronic communications
    networks and services, OJ L 249/21, 17 September 2002, at Recital 7. For a clarification of
    the scope of the current European Communitys electronic communications regime, see
    infra Part 2, Chapter 4, in particular Section 3.2.2.

    EC Electronic Communications and Competition Law

    associated services.2 Electronic communications network is defined


    in the subsequent Article to mean transmission systems and, where
    applicable, switching or routing equipment and other resources
    which permit the conveyance of signals by wire, by radio, by optical
    or by other electromagnetic means, including satellite networks, fixed
    (circuit- and packet-switched, including internet) and mobile
    terrestrial networks, electricity cable systems, to the extent that they
    are used for the purpose of transmitting signals, networks used for
    radio and television broadcasting, and cable television networks,
    irrespective of the type of the information conveyed. Electronic
    communications service is defined accordingly as a service normally
    provided for remuneration which consists wholly or mainly in the
    conveyance of signals on electronic communications networks,
    including telecommunications services and transmission services in
    networks used for broadcasting, excluding services providing, or
    exercising editorial control over, content transmitted using electronic
    communications networks and services, and information society
    services.3
    The above extensive definitions are clearly helpful when one needs to
    identify precisely the scope of application of the legal instrument in
    question and they will be used as such in the legal discussions in Parts
    2 and 3 of this work. These definitions fail, however, to reveal the nature
    of the object of regulation.
    In order to introduce the communications sector beyond its currently
    existing legal designations, the next Sections will attempt to identify
    telecommunications and its contemporary counterpart of electronic
    communications,4 first by providing a brief overview of the industrys
    development (Sections 2 and 3) and secondly and more importantly, by
    analysing its intrinsic characteristics (Section 4).
    2.

    Brief Historical Remarks

    The historical overview does not go back to the time when telegraph
    and telephone were invented (in 1844 and 1876 respectively) or to the
    structure of the telecommunications industry that developed in the
    century that followed.5 Its purpose, fitting to the overall purpose of this
    2

    Directive 2002/21/EC of the European Parliament and of the Council of 7 March 2002 on
    a common regulatory framework for electronic communications networks and services
    (Framework Directive), OJ L 108/33, 24 April 2002.
    3
    As defined in Article 1 of Directive 98/34/EC laying down the procedure for the provision of
    information in the field of technical standards and regulations, OJ L 204/37, 21 July 1998.
    4
    See supra note 1.
    5
    An excellent overview of the early discoveries and developments in the
    telecommunications sector is provided by David Gillies and Roger Marshall,
    (continued...)
    10

    The Object of Regulation

    work, is rather to stress the transformation from monopolistic to


    competitive telecommunications markets that took place in the last two
    decades, and is still unfolding in the present.
    The picture of the telecommunications industry until the beginning of
    the 1980s was a fairly simple one. The traditional view of the
    telecommunications sector as one of the network-bound ones6 was that
    in order to achieve certain public policy objectives most notably
    universal service7 a single, often state-owned, Telecommunications
    Operator (TO) 8 must be established in the particular state.
    Telecommunications markets were strictly national and the services
    offered to the public rather limited. The latter were basically identical
    with the provision of plain voice telephony service. Transmission and
    terminal equipment was largely purchased from national suppliers and
    there was little standardisation.9 The traditional sectoral regulation did
    not make a distinction between infrastructure, terminal equipment and
    services. All these activities were in the hands of one monopolised
    organisation.10 Given that the Public Telecommunications Operator
    (PTO) normally held monopoly over the infrastructure, the only
    alternative to using the services provided by the PTO was to self-provide
    those services, which was possible only for the largest
    telecommunications customers and extremely costly.11
    The above quite bleak and simplistic image of the telecommunications
    industry and its comparison with todays dynamic electronic
    communications market with an abundance of services (and even
    networks!) and multiple market players provokes a legitimate question:
    What caused this transformation?

    .)

    Telecommunications Law, Vol. 1, 2nd edition, London: Butterworths LexisNexis, 2003, at


    pp. 23. See also Anton A. Huurdeman, The Worldwide History of Telecommunications, New
    York: John Wiley and Sons, 2003.
    6
    For analysis of telecommunications as a network-bound sector, see infra Section 4.1
    7
    For an extensive discussion of universal service policies, see infra Chapter 2,
    Section 3.2.
    8
    In the EC, the Post, Telegraph and Telephone (PTT) model used to dominate. The Ministry
    for Post and Telecommunications ran the telecommunications network. Being the owner of
    the enterprise, the State was responsible for the firms business strategy and the regulation of
    market access. On the PTT model, see Oliver Stehmann, Network Competition for European
    Telecommunications, Oxford: Oxford University Press, 1995, at pp. 7879; Damien Geradin
    and Michel Kerf, Controlling Market Power in Telecommunications, Oxford: Oxford University
    Press, 2003, at pp. 67; Rob Frieden, Managing the Internet-Driven Change in International
    Telecommunications, Boston/London: Artech House, 2001, at pp. 54 et seq.
    9
    On standardisation, see infra Chapter 2, Section 2.3.1.
    10
    Willem F. Korthals Altes, Regulation Instruments from a Legal Perspective in Kornel
    Terplan and Patricia Morreale (eds.), The Telecommunications Handbook, Boca Raton, FL:
    CRC Press LLC, 2000, pp. 149 et seq., at p. 152.
    11
    Some multinational enterprises, banking and insurance companies and the government
    used this alternative by leasing capacity from the PTOs. This practice was nonetheless
    limited due to the high costs involved.
    11

    EC Electronic Communications and Competition Law

    The European Commission stated in its Fifth Telecommunications


    Report12 that:
    [t]he move to a liberalised and harmonised Community
    [telecommunications] market was driven by a number of welldocumented phenomena, in particular the globalisation of
    markets and rapid advances in technology. Other events, such as
    the rapid rise in mobile penetration rates, the spread of the
    internet, and the convergence of the telecommunications,
    broadcasting and information technology sectors, were largely
    unforeseeable, at least at the outset of the process. Underpinning
    the resulting regulatory framework was the political objective,
    set out in the Treaty in terms of the need to secure growth,
    employment and competitiveness and protect the interests of
    consumers, of ensuring a wide choice of providers and services,
    innovation, competitive prices and quality of service.13

    Eli M. Noam provides another concise description of the impetus behind


    the transformation of telecommunications, suggesting that:
    [t]he driving force behind the restructuring of telecommunications
    was the shift toward an information-based economy, which
    resulted in the rapid growth and reliability of telecommunications
    as the medium for the electronic transmission of information.
    Especially, for large organisations, the price, control, security and
    reliability of telecommunications became variables requiring
    organised attention. In a series of steps, each controversial and
    painful, monopoly began to give way to the network of networks,
    as the foundation to todays diverse telecommunications and
    Internet infrastructure.14

    These statements outline lucidly some of the main phenomena that drove
    the telecommunications restructuring. However, they are both set within
    the context of todays policy reasoning and in this sense, take a bit of romantic
    view of past events. The initial reasons that triggered the change in the
    policies towards telecommunications and thus the process of liberalisation
    were more practical in nature. Indeed, it was a constellation of technological
    developments and economic considerations that transformed into a policy
    framework and not the other way around.

    12

    European Commission, Fifth Report on the implementation of the telecommunications


    regulatory package COM(1999) 537 final, 10 November 1999.
    13
    Ibid. at p. 5.
    14
    Eli M. Noam, Interconnecting the Network of Networks, Cambridge, MA: MIT Press, 2001,
    at p. 1.

    12

    The Object of Regulation

    3.

    The Metamorphosis of (Tele)communications

    The triggers for the metamorphosis were mostly within the


    communications sector itself.
    Technology came first and now with the benefit of the hindsight, one
    can discern the technological advances that had a profound effect on
    the telecommunications industry. Broadly, these were: (i) the progression
    from analogue to digital systems (or, as it has become known,
    digitisation); (ii) the invention of the transistor and (iii) the perfection
    of the optical fibre.
    (i) In its simplest form, a digital code is a binary bit or digit indicating
    one of two alternatives (represented as either 0 or 1) to denote the
    presence or absence of an electrical signal or two different voltage levels.
    Binary bits can be grouped in various combinations to represent
    numbers, alphabetical characters, symbols or any other type of
    information.15 Through a combination of powerful microprocessors and
    sophisticated algorithms, these bit streams can then be compressed to
    manageable lengths,16 therewith allowing a wide range of content to be
    stored, retrieved and transported electronically in the form of encoded
    text, audio and video traffic over any network infrastructure, provided
    it is digital. In that sense, digitisation provides a universal code for all
    information and allows its transportation and use in ways quite
    inconceivable before.17
    (ii) The ability of digital systems to handle multimedia content at lower
    and lower cost is a product of the exponential progress in the processing
    power and memory of integrated circuits (ICs). The latter depends in
    turn on the ability to increase the density of transistors on a single
    integrated circuit chip.
    The first integrated circuits were fabricated as early as in 1960. Eleven years
    later, in 1971, the Intel Corporation created the first microprocessor by
    15

    Modern telecommunications and computer systems are typically based on the use of
    eight bit groups, which provide up to 256 permutations. This is sufficient to cover the
    numbers 0 to 9, upper and lower case letters, symbols and control codes and allows one
    binary bit to be used for checking purposes.
    16
    For instance, a standard full motion colour television picture with associated sound
    requires 120 million bits per second of digital information, which can be compressed
    into approximately 2 Mbit/s to 3 Mbit/s.
    17
    For excellent examples, see OECD, Digital Broadband Content: Mobile Content. New
    Content for New Platforms, DST/ICCP/IE(2004)14/Final, 3 May 2005; OECD, Digital
    Broadband Content: The Online Computer and Video Game Industry, DST/ICCP/
    IE(2004)13/Final, 12 May 2005; OECD, Digital Broadband Content: Scientific Publishing,
    DST/ICCP/IE(2004)11/Final, 2 September 2005; OECD, Digital Broadband Content: Music,
    DST/ICCP/IE(2004)12/Final, 13 December 2005.

    13

    EC Electronic Communications and Competition Law

    placing an entire computer central processing on a single silicon chip the


    size of a fingernail. This technology18 and its ability to handle multimedia
    content at lower costs drove the digitisation revolution. Content and
    networks have been digitised in order to make use of this power.19
    (iii) The perfection and the use of optical fibers20 for telecommunications
    transmission enhanced the capacity of networks and made the
    conveyance of digitised information at high speed possible.
    Naturally, these groundbreaking technological developments had certain
    economic repercussions.
    First, and most remarkably, digitisation fundamentally changed the industry
    and its inner mechanisms in the course of the two decades prior to the
    liberalisation. It fuelled the integration of telecommunication services, data
    transmission and audiovisual media and the opening up of new markets
    for value-added network services. The merging of telecommunications and
    information technology allowed the introduction of new services and
    products, which vastly improved the quality and range of communications
    services. Telecommunications and data processing gradually became related
    industries. Thereby, a heavily regulated market (telecommunications) and
    an almost unregulated one (information technology) were coming closer
    to each other and the question of which regulatory regime should prevail
    needed to be addressed.21
    Secondly, the demand by the other industries for communications was
    increasing rapidly. Communications became an important input,
    especially for the growing services sector of the economy. It was
    acknowledged that cheaper and faster means of communications could
    reduce transaction costs in all areas. The rapid development of an
    efficient telecommunications network was therefore regarded as crucial
    for fostering higher productivity growth. 22 Within the European
    18

    Microprocessor in a more technical language is a technological system with solid-state


    integrated circuits at its core, supplemented by photonic components (lasers and optical
    fibres) and applications of mathematical information theory.
    19
    The above paragraph is based on excerpts of Milton L. Mueller, Digital Convergence
    and its Consequences: a Report on the Digital Convergence and Market Structures, 1999,
    available at http://dcc.syr.edu/miscarticles/rp1.pdf and David Gillies and Roger Marshall,
    supra note 5, at p. 9.
    20
    The concept was originally developed at Standard Telephones and Cable Ltd., England.
    For more on the development of optical fibre technology, see David Gillies and Roger
    Marshall, ibid. at p. 19.
    21
    Klaus W. Grewlich, Access to Global Networks European Telecommunications Law
    and Policy in German Yearbook of International Law, Vol. 41, Berlin: Duncker & Humblot,
    1998, pp. 1 et seq., at p. 25.
    22
    See eg European Commission, White Paper on growth, competitiveness and
    employment, COM(1993) 700 final, 5 December 1993.

    14

    The Object of Regulation

    Community, the existing national networks were considered as


    insufficient to cater for the forecast increase in demand for telecom
    services in particular for international communications.
    Thirdly, besides its importance as an input for other industries, the
    telecommunications industry was itself acknowledged to have
    already a considerable size and growth potential. While in 1984 the
    sectors share of the European Communitys GDP was slightly above
    2 per cent, it was expected to rise to 7 per cent by the end of the
    century and by this time, up to 60 per cent of all jobs were expected
    to depend directly or indirectly on telematic technologies.23 The world
    market for telecommunication services was estimated to be growing
    at a rate of 12 per cent per year.24
    The above outlined technological and economic developments were
    factors that demanded a policy shift towards the whole
    telecommunications industry. As telecommunications activities became
    increasingly integrated into the operations of companies, government
    agencies and most other organisations, as well as into the economic and
    social lives of individuals, there was a growing recognition that the
    productivity of the entire economy depends upon an efficient
    communications system.
    One also needs to acknowledge the flip side of these developments. As
    William H. Melody points out, [t]he significant changes in the role of
    the market that [took] place in telecom internationally [were] not
    founded simply upon ideological shifts and a new found faith in the socalled free market. Nor [were] they a directly determined response to
    the dictates of new technologies. Rather, the inherited monopoly
    institutions (public or private) had great difficulty adapting to changing
    economic, political and social conditions, of which changing technology
    23

    European Commission, Green Paper on the development of the common market for
    telecommunications services and equipment: Towards a dynamic European economy,
    COM(1987) 290 final, 30 June 1987. See also Reinhard Schulte-Braucks, Europisches
    Telekommunikationsrecht fr den gemeinsamen Telemarkt in Joachim Scherer (ed.),
    Telekommunikation und Wirtschaftsrecht, Cologne: Otto Schmidt, 1988, p. 6, as referred to
    by Oliver Stehmann, supra note 8, at p. 148.
    24
    Marcel Roulet, France Telecom: Preparing for More Competition (1998)
    Telecommunications Policy, Vol. 12, No 2, pp. 109113. The Tenth Communications Report
    (European Commission, European electronic communications regulation and markets
    2004, COM(2004) 759 final, 2 December 2004, at pp. 23 and Annex 3) shows that the
    overall growth of the sector was 11.9 per cent in 2000 and is estimated at 4.6 per cent for
    2004 in an aggregated market worth 226 billion in 2000 and 277 billion in 2004. The
    latest Eleventh Communications Report (European Commission, European electronic
    communications regulation and markets 2005, COM(2006) 68 final, 20 February 2006, at
    p. 2) shows that the market is worth 273 billion in 2005 and the overall revenue growth
    continued strong at estimated levels of between 3.8 and 4.7 per cent.

    15

    EC Electronic Communications and Competition Law

    was only a part. Monopolies operating in a protected, stable environment


    [were] not well-suited to cope with new and increasingly diversified
    and dynamic market place.25
    As a result of this constellation of positive and negative developments
    and under the agreeable conditions of mainstream economic liberalism
    and intensified globalisation, telecommunications underwent a complete
    reshaping from monopoly to full competition.26 The latter transformation
    was by no means a work of magic but was rather accomplished, to recall
    the words of Eli M. Noam, through a series of steps, each controversial
    and painful. 27 The liberalisation and the parallel regulatory
    transformation of the telecommunications market were an economic and
    political endeavour. The affirmation of this deregulatory trend at the
    global level, in the realm of the World Trade Organization, was perhaps
    one of the decisive factors for its success.28
    The multiple regulatory models adopted in the EC29 are a vivid example
    showing the incrementalism of the communications transformation and
    will be surveyed in Chapter 4, in the framework of examining the EC
    communications law toolkit. At this stage of unfolding the topic of this
    work, the details of the different regulatory regimes are irrelevant. What
    is significant is to grasp that telecommunications have indeed changed.
    The rationale for telecommunications regulation and the
    telecommunications regulation itself have changed. The sector has
    moved from monopoly to competition, from simple national markets
    offering few services to an increasingly global market with a plethora
    of services and market players. In view of this metamorphosis of the
    industry and of the law, it is of great importance to bear in mind that the
    25
    William. H. Melody (ed.), Telecom Reform: Principles, Policies and Regulatory Practices,
    Lyngby: Technical University of Denmark, 1997, at p. 3. See also European Commission,
    Guidelines on the application of EEC competition rules in the telecommunications sector,
    OJ C 233/2, 6 September 1991, at para. 3.
    26
    Referring to the European Community and the US telecommunications markets.
    27
    Eli M. Noam, supra note 14.
    28
    The World Trade Organizations (WTO) Basic Agreement on Telecommunications,
    in 1997, can be seen as a definitive moment in the international communitys commitment
    to the structural evolution of the sector from monopolistic to competitive marketplace.
    See Ian Walden, Telecommunications Law and Regulation: An Introduction in Ian
    Walden and John Angel (eds.), Telecommunications Law and Regulation, 2nd edition, Oxford:
    Oxford University Press, 2005, pp. 122, at p. 4. For a detailed discussion of the WTO
    regime for telecommunications services, see infra Part 2, Chapter 5.
    29
    The European Communitys telecommunications market metamorphosis passed through
    several successive regulatory models, namely: from the traditional model (until 1990),
    through the model of the 1987 Green Paper (19901996) and the short lived transitional
    model of the 1992 Telecommunications Review and the 1994 Green Paper (19961998) to
    the fully liberalised model which came with the Full Competition Directive (in place
    since 1998). For an excellent overview of the models, see Pierre Larouche, Competition
    Law and Regulation in European Telecommunications, Oxford/Portland, Oregon: Hart
    Publishing, 2000, at pp. 136.

    16

    The Object of Regulation

    different models of regulation have built upon each other. They


    correspond to different market developments in different periods of time
    but each subsequent model inherits the regulatory decisions of the
    previous ones. This observable path dependence is largely determined
    by the unique characteristics of telecommunications, which instigated
    its special treatment as a public utility in the first place and which bring
    us to the second core discussion of this chapter.
    4.

    Intrinsic Characteristics of the Communications Sector

    In view of the overall purpose of Chapter 1 to identify electronic


    communications as the object of regulation, which is the identification
    of regulation, the following paragraphs will explore the specific
    characteristics of the communications sector. The latter will also serve
    as a foundation for the chapters to come, where the regulatory
    instruments applied to communications will be analysed. The very
    characteristics, described herein, will later be examined as challenges
    for designing an appropriate telecommunications regulatory regime in
    general, and for competition rules serving as a sole regulator, in
    particular.
    The communications sector will be identified as: (i) network-bound;
    (ii) dynamic; (iii) converging; (iv) sensitive to regulation and societys
    reactions; and as one (v) with special societal significance and role and
    (vi) part of the new economy.
    4.1

    Network Industries

    The first and most essential characteristic of the communications sector


    is that it is a network-bound one. As such, it was categorised as a public
    utility and this categorisation justifies in retrospect the monopolistic
    structure and organisation of telecommunications and its heavy
    regulation. The term public utility is however not telecommunicationsspecific but used to encompass a wide variety of industries including,
    inter alia, airlines, electricity, railroads and post. The common feature
    of these industries is that they share a network structure, having an
    extensive distribution system of lines, pipes or routes often with strong
    physical linkages between the component parts.30 Network industries
    typically involve substantial sunk costs31 because of the need for all30

    For a more extensive definition of networks, see eg European Commission, Liberalisation


    of Network Industries: Economic Implications and Main Policy Issues, Report of the DG for
    Economic and Financial Affairs No 4, Brussels, 1999, at pp. 81 et seq.
    31
    Sunk costs can be defined as non-recoupable costs or outlays necessary in order to get
    into business, but which are without value if one exits the market. See eg Massimo Motta,
    Competition Policy: Theory and Practice, Cambridge: Cambridge University Press, 2004, at
    pp. 7679.

    17

    EC Electronic Communications and Competition Law

    encompassing infrastructure and, consequently, such networks cannot,


    or cannot easily, be duplicated. Resultant from the above, network
    industries exhibit economies of scale and scope.32
    Natural monopoly theory has provided perhaps the strongest rationale
    for this heavy regulation of utilities. The latter theory holds that an
    industry is naturally monopolistic if its product can be produced at least
    cost by a single firm. Traditionally, telecommunications were considered
    to possess such characteristics, because of the inherent high sunk and
    fixed costs of the infrastructure, the existing network effects and
    economies of scale. Owing to these, it was deemed that the unit costs of
    a firm would fall as the firms production increase and it could profit
    from the positive network externalities, 33 ultimately being able to
    produce the industrys whole output at a lower unit cost than two or
    more firms could.34
    To achieve this efficiency, therefore, it was considered necessary to have
    only one firm operating in the industry (within the legally protected
    monopoly service territories). At the same time, this monopoly had to
    be regulated to prevent price gouging and to ensure that [the firm
    entrusted with the monopoly] earned a fair rate of return on its
    investment.35 Alternatively, this fairness was achieved simply through
    State ownership of the utility, as more frequently the case in Europe.36
    During this, what we might call monopoly age of telecommunications
    evolution, regulation (or ownership) ensured both productive and
    allocative efficiency.37
    32

    Economies of scale occur when mass production of a good results in lower average
    cost. Economies of scope are related to the decrease of the average total cost of production
    as a result of increasing the number of different goods produced. Whereas economies of
    scale refer primarily to supply-side changes (such as level of production), economies of
    scope refer to demand-side changes (such as marketing and distribution). For relevant
    details, see European Commission, Liberalisation of Network Industries, supra note 30,
    at pp. 85 et seq.
    33
    See infra the Section that follows.
    34
    The above is necessarily a simplification of the natural monopoly theory. For
    comprehensive analyses of natural monopoly, its implications and regulation, see eg
    William Sharkey, The Theory of Natural Monopoly, Cambridge: Cambridge University Press,
    1982; Richard A. Posner, Natural Monopoly and its Regulation, Washington, DC: Cato
    Institute, 1999; Ben W. F. Depoorter, Regulation of Natural Monopoly in Boudewijn
    Bouckaert and Gerrit De Geest (eds.), Encyclopaedia of Law and Economics, Cheltenham,
    UK: Edward Elgar Publishing, 2000, pp. 498532; Rick Geddes, Public Utilities, ibid.
    pp. 11621205; Massimo Motta, supra note 31, at pp. 3989.
    35
    Rick Geddes, ibid. at p. 1165, referring to John C. Moorhouse, Competitive Markets
    for Electricity Generation (1995) Cato Journal, Vol. 14, No 3, pp. 421441, at p. 423.
    36
    See OECD, Government Ownership of Public Telecommunication Network Operators
    in OECD Communications Outlook, Paris: OECD Publishing, 2003, at p. 40.
    37
    On productive and allocative efficiency as part of the generic benefits of competition,
    see infra Chapter 2, Section 2.1.

    18

    The Object of Regulation

    It is further noteworthy that the special public utility status was awarded
    to network industries because the demand for the goods or services they
    provided was considered a common necessity for the public at large
    and the supply conditions (because of the specific network
    characteristics) were such that the public may not be provided with a
    reasonable service at a reasonable price, or not provided with it at all. In
    the frame of this universal service rationale, regulation was implemented
    to control, among others, cross-subsidisation38 within the monopolistic
    firm and avoid cream-skimming39 by competitors in situations where
    the monopoly was not legally protected.
    4.1.1

    Positive Network Effects

    Networks industries exhibit notably the so-called network effects (or


    network externalities).40 In this sense, a network exists when a products
    value to the user increases as the number of users of the product grows.
    Each new user of the product derives private benefits, but also confers
    benefits (positive network externalities) on existing users. One can
    distinguish between direct and indirect externalities. The former are
    traditionally exemplified by communications networks, and the latter
    by the hardware/software paradigm. The distinction between the two
    refers to the source of benefit to the participants in the network and is
    not related to the magnitude of the network effect.

    38

    Cross-subsidisation is used here to mean the practice where the difference between
    the price charged to the targeted consumers and the cost of supply might be funded by
    cross-subsidising from the prices paid by other consumers or in a multi-product firm by
    the purchases of other products.
    39
    Cream-skimming, also occasionally referred to as cherry-picking, is used here to
    mean a situation where a supplier concentrates only on those areas of the market where
    the costs of supply are lowest or the profits are higher, for instance because of geographical
    reasons or targeted business customers.
    40
    The terms network externality and network effect are often used as having the
    same meaning. However, Liebowitz and Margolis (Stanley J. Liebowitz and Stephen E.
    Margolis, Network Externality: An Uncommon Tragedy (1994) Journal of Economic
    Perspectives, Vol. 8, No 2, pp. 126 and Stanley J. Liebowitz and Stephen E. Margolis, Are
    Network Externalities a New Source of Market Failure? (1995) Research in Law and
    Economics, Vol. 17, pp. 122) distinguish network externalities from network effects. They
    define network externality more narrowly than network effect and limit the term to
    those specific network effects in which the equilibrium exhibits unexploited gains from
    trade regarding network participation. Some authors have adopted this terminological
    distinction (see eg Michael L. Katz and Carl Shapiro, Systems Competition and Network
    Effects (1994) Journal of Economic Perspectives, Vol. 8, pp. 93115), while other scholars
    continue to use the term network externalities to encompass all network effects (eg
    Nicholas Economides, The Economics of Networks (1996) International Journal of
    Industrial Organization, Vol. 14, pp. 673 et seq.; Michael Klausner, Corporations, Corporate
    Law, and Networks of Contracts (1995) Virginia Law Review, Vol. 81, pp. 757852). The
    present work concurs with the second group.

    19

    EC Electronic Communications and Competition Law

    Indirect externalities exist in the network of users of systems of compatible


    devices, even if the devices owned by different users are not physically
    connected. In this case, a system can be any combination of a durable good
    and associated goods and/or services that perform together some desired
    function. Katz and Shapiro41 illustrate this type of system with the abovementioned hardware/software paradigm. However, the rule remains valid
    not only for computer hardware and the applied software but for many
    other product combinations, including camera and film, phonographs and
    records, television sets and programming or even, coffee machines and
    matching coffee pods. Participants in such networks, both one-way and
    two-way, may receive indirect external benefits, if the increased size of the
    network results in more options, better service and lower prices.42
    Direct externalities, on the other hand, typically occur in a physical,
    two-way communications network. For instance, if Mr. Brown becomes
    a member of the Orange mobile network, the other existing customers
    of Orange also profit, since they now have an additional person to
    communicate with at Orange network rates. Users of the network receive
    increasing returns in consumption. Producers of network goods also
    receive increasing returns to scale in production, up to the critical mass.
    The positive feedback effect of increased network size makes the larger
    network all the more attractive to new purchasers and the goods that
    permit access to the network all the more valuable. Most notably, the
    value of the good to the purchasers depends also on the purchasers
    expectation about the future size of the network. The demand for an
    Orange abonnement is thus a function not only of the price of the service
    and the mobile set but also of the expected size of the network to which
    the purchaser will be connected. If Orange is the largest network and all
    of Mr. Browns friends and relatives happen to be members of the Orange
    network, Mr. Brown would be very much inclined to become one as
    well. In a hypothetical situation of absence of interconnection between
    the existing networks, Mr. Brown would barely have any choice but to
    subscribe to the largest network. Even at a higher price. This last point
    resolves the apparent paradox that, despite the downward slope of the
    demand curve, the marginal purchase of a good can yield a higher value
    than infra-marginal goods: the value contributed by the expected size
    41

    Michael L. Katz and Carl Shapiro, ibid.


    In the recent Microsoft case (Commission Decision of 24 March 2004 relating to a
    proceeding under Article 82 of the EC Treaty, Case COMP/C-3/37.792 Microsoft, C(2004)
    900 final), the Commission refers explicitly to the presence of indirect network effects in
    the software industry (see eg paras 449450 and 879 et seq.). It used the presence of the
    latter in the context of proving that the existing tying of Windows Media Player with the
    Windows operating system might have the effect of foreclosing competition and stifling
    innovation. On tying and further examination of the Microsoft case, see infra Part 2, Chapter
    4, Section 2.3.3.
    42

    20

    The Object of Regulation

    of the network offsets the reduction in value from purchase of a marginal


    unit.43
    4.1.2

    Economic Implications of Positive Network Effects

    The above outlined network effects have diverse economic implications.44


    The seemingly simple phenomenon that the act of joining a network
    confers a benefit on all other participants in the network strongly
    influences competitive strategies and market outcomes in network
    industries. Because of existing network effects, networks may not reach
    optimal size due to users failure to take account of external benefits.
    Furthermore, markets in which incompatible standards compete may
    tip in the direction of a standard that gains an early advantage, even if
    that standard is objectively inferior. Famous examples in that regard
    are the QWERTY typewriter keyboard45 and VHS/Beta video cassette
    formats.46 Suppliers of network goods may compete to become the de
    facto standard or attempt to make their products compatible leading to
    particularly intense competition early in the markets existence and
    competing for the market rather than in it in order to obtain the future
    monopoly profit.47
    43

    The above paragraphs are based on excerpts from William H. Page and John E. Lopatka,
    Network Externalities in Boudewijn Bouckaert and Gerrit De Geest (eds.), Encyclopaedia
    of Law and Economics, Cheltenham, UK: Edward Elgar Publishing, 2000, pp. 952980.
    44
    On network economics, see Stanley J. Liebowitz and Stephen E. Margolis, Network
    Externality: An Uncommon Tragedy (1994) Journal of Economic Perspectives, Vol. 8, No 2,
    pp. 126; Stanley J. Liebowitz and Stephen E. Margolis, Are Network Externalities a
    New Source of Market Failure? (1995) Research in Law and Economics, Vol. 17, pp. 122;
    Stanley J. Liebowitz and Stephen E. Margolis, Network Externalities and Market Failure
    in Peter Newman (ed.), The New Palgrave Dictionary of Economics and Law, London:
    Macmillan, 1997; William H. Page and John E. Lopatka, Ibid.; Michael L. Katz and Carl
    Shapiro, Systems Competition and Network Effects (1994) Journal of Economic
    Perspectives, Vol. 8, pp. 93115; Carl Shapiro and Hal R. Varian, Information Rules, Boston,
    MA: Harvard Business School Press, 1999, at pp. 173225; Nicholas Economides, The
    Economics of Networks (1996) International Journal of Industrial Organization, Vol. 16,
    No 4, pp. 673699; Mark A. Lemley and David McGowan, Legal Implications of Network
    Economic Effects (1998) California Law Review, Vol. 86, pp. 79 et seq.; Nicholas
    Economides, Competition Policy in Network Industries: An Introduction in Dennis
    Jansen (ed.), The New Economy and Beyond: Past, Present and Future, Cheltenham, UK:
    Edward Elgar , 2006, pp 96121; Heli Koski and Tobias Kretschmer, Survey on Competing
    in Network Industries: Firm Strategies, Market Outcomes, and Policy Implications (2004)
    Journal of Industry, Competition and Trade (Bank Papers), pp. 531.
    45
    Paul A. David, Clio and the Economics of QWERTY (1985) American Economic Review,
    Vol. 75, No 2, pp. 332337; Paul A. David, Path Dependence and the Quest for Historical
    Economics: One More Chorus of the Ballad of QWERTY (1997) University of Oxford
    Discussion Papers in Economic and Social History, No 20.
    46
    Arthur W. Brian, Positive Feedbacks in the Economy (1990) Scientific American, Vol. 62,
    pp. 92 et seq. For more on the implications of network effects and standardisation, see
    infra Chapter 2, Section 2.3.
    47
    In some instances, giving the product away or adopting another type of aggressive
    bidding for future monopoly profit. See Michael L. Katz and Carl Shapiro, supra note 40,
    at p. 107. See also infra Chapter 2, Section 2.3.

    21

    EC Electronic Communications and Competition Law

    Ultimately, as proponents of network externalities theory suggest,


    network externalities may cause markets to fail, equilibrium may not
    exist, or multiple equilibria may exist and as we shall see in the
    following chapters,48 the fundamental theorems of welfare economics
    may not apply.49
    4.1.3

    Negative Network Effects

    The negative network effects are normally only briefly mentioned in


    the extensive literature on networks economics 50 and generally
    considered of a lesser importance than the positive ones. Nevertheless,
    they do exist and we sometimes happen to experience their unpleasant
    influence. Recent reminders in that sense were the multiple electricity
    breakdowns in different parts of the world. Major Power Outrage Hits
    New York,51 Wide Power Blackout Hit Sweden and Denmark,52
    Massive Power Outrage Sweeps across Italy53 made the newspaper
    headlines to describe a series of electricity network failures that left
    millions of people in the dark. These events were due to chain reactions
    and system overload. They are associated with the structure of the
    network and its security: If one node of the network breaks down or is
    congested, the negative effect spreads across the whole network (or
    affects substantial parts of it).54
    4.1.4

    Communications as a Network Industry

    Electronic communications undoubtedly fall within the category of


    network industries. Indeed, the telecommunications sector is a classical
    example of a network industry exhibiting direct network effects. This
    feature of the sector has, as shown above, diverse implications in an
    48

    See in particular Chapters 2 and 4.


    Michael L. Katz and Carl Shapiro, supra note 40. See also Joseph Farrell and Paul
    Klemperer, Coordination and Lock-In: Competition with Switching Costs and Networks
    Effects in Richard Schmalensee and Robert D. Willig (eds.), Handbook of Industrial
    Organization, Vol. 3, Amsterdam: North-Holland, forthcoming 2007, draft available at http:/
    /paulklemperer.org.
    50
    See supra note 44.
    51
    Major Power Outrage Hits New York, and Other Large Cities, CNN, 14 August 2003,
    available at http://www.cnn.com/2003/US/08/14/power (29 September 2003). See also The
    Blackout of 2003, The New York Times, paper edition, 15 August 2003.
    52
    Wide Power Blackout Hit Sweden, Denmark, 23 September 2003. Available at http:/
    /se.news.yahoo.com/030923/76/1a8m8.html (29 September 2003).
    53
    Massive Power Outrage Sweeps across Italy, 28 September 2003. Available at http://
    bayarea.com/mld/bayarea/news/6878994.htm (29 September 2003). See also Nationwide
    Power Cut Blacks Out Italy, The Morning Star, paper edition, 29 September 2003.
    54
    An excellent example of negative network effects is the MafiaBoy attack on Yahoo!, CNN,
    Amazon and other major websites in February 2000. The attack caused their denial of service
    and amounted to losses of millions of dollars. The story has been eloquently told in the context
    of networks by Albert-Lszl Barabsi. See Albert-Lszl Barabsi, Linked: The New Science of
    Networks, Cambridge, MA: Perseus Publishing, 2002, at pp. 1 et seq.
    49

    22

    The Object of Regulation

    economic context. The policy implications of network externalities are,


    however, less clear.
    Although the paradigm of telecommunications being a natural
    monopoly has been successfully contested, 55 the industry remains
    dependent on networks and involves high sunk costs for the newcomers
    to build such a network. Despite the growing network substitution, it is
    still premature to argue that distinctions based on transmission networks
    have become obsolete. Providers of communications services still need
    to set up or have access to an infrastructure in order to provide services
    on the market.
    Moreover, despite the liberalisation of communications markets and the
    intensive competition therein, it should be acknowledged that some
    segments of the industry are, technologically, still natural monopolies.56
    To the extent that they are produced or managed by one or a small
    number of operators, these segments become bottlenecks57 to which
    operators must have access in order to compete. This renders the issues
    of access and the regulation of access of crucial importance and as we
    shall see below,58 has proven the need for asymmetric regulation, in
    particular during the transformation from monopoly to competition.
    In the context of communications being also a dynamic industry,59 it is
    important to stress additionally that the locations of these bottlenecks
    change with the evolution of technology.60 And they might do so in quite
    unpredictable ways.
    55

    For an overview of the different theories challenging natural monopoly regulation, see
    Rick Geddes, supra note 34, at pp. 1165 et seq. For the institutional economics rationale,
    see also Jean-Michel Glachant, Why Regulate Deregulated Network Industries? (2002)
    Journal of Network Industries, Vol. 3, pp. 297311.
    56
    Such a segment of the communications network, exhibiting the characteristics of a
    natural monopoly, is notably the local loop. The latter refers to the physical circuit
    between the customers premises and the telecommunications operators local switch or
    equivalent facility. The introduction of competition to this market, the so-called
    unbundling of the local loop, has been especially problematic and will be examined in
    some detail in Chapters 2 and 4.
    57
    Bottleneck can be defined as a deficiency of some kind in the availability or functioning
    of an intermediate good or service. In economic terms, bottlenecks present problems for the
    producers and consumers by increasing the cost of resource supply and/or output distribution.
    See Martijn Poel and Richard Hawkins, The Evolution of Access Bottlenecks in Europe: ReLocating the Regulatory Issues (2001) Communications and Strategies, Vol. 44, pp. 71101, at p. 72.
    58
    See infra Part 2, Chapter 4.
    59
    See infra Section 4.2.
    60
    Jean-Jacques Laffont and Jean Tirole, Competition in Telecommunications: Munich Lectures
    in Economics, Cambridge, MA: MIT Press, 2000, at p. 17. See also Damien Geradin and
    Christophe Humpe, Regulatory Issues in Establishment and Management of
    Communications Infrastructure: The Impact of Network Convergence (2002) Journal of
    Network Industries, Vol. 3, pp. 99-127, at pp. 124 et seq.
    23

    EC Electronic Communications and Competition Law

    4.1.5

    Communications as a Specific Network Industry

    Despite the fact that telecommunications is a network-bound industry,


    the sector exhibits some particular characteristics that differentiate it
    from other network sectors. In our attempt to pinpoint communications
    as object of regulation, it is worthwhile taking note of them. First, unlike
    pipelines, rails and roads, telecommunications are characterised by
    transport at the speed of light. Digitisation and optical fibres have further
    enhanced the potential of network transportation61 and we can indeed
    nowadays speak of instant communication. Secondly, while both
    telecommunications signals and electricity can be transmitted at the
    speed of light, in the electronic communications environment, this
    transportation takes place without any loss of quality and value. Thirdly,
    unlike in the printing and publishing sectors, one can copy, compress,
    broadcast, bundle and unbundle, reroute and refile the information. This
    means that, although both publishing and telecommunications are
    information businesses, the former is free of most of the restrictive
    notions that apply to the printed medium. The content carried over the
    communications networks is furthermore not necessarily a point-to-point
    communication but it could involve interaction and special delivery
    modes (eg video-on-demand).
    In addition, unlike sea, air and rail terminals, communications can be
    provided using lightweight or even portable terminals, which could
    change the perspective of the classical arguments regarding terminal
    bottlenecks in conventional network economics. Another specific
    characteristic of telecommunications is that there is a choice concerning
    the method of service provision. On the one hand, there are the wired
    services, which are characterised by strong economies of scale, scope
    and density. On the other hand, there are the wireless services, where it
    is relatively cheap to cover an area and gets cheaper the more thinly
    populated the area is, which is quite the opposite of the phenomena
    associated with natural monopoly.62 Furthermore, the choice of method
    of service provision as a result of technological evolution and the
    enhanced interoperability of networks and devices becomes practically
    unlimited (thus, Mr Brown from our previous Orange example can now
    61

    The process of digitalising all telecommunication networks is nearing completion across


    the OECD area. See OECD, Communications Outlook 2003, Paris: OECD Publishing, 2003,
    at p. 91.
    62
    Some of the arguments follow from the opinion of Jens Arnbak expressed during the
    Panel Discussion on Competitive Access to Bottleneck Network Facilities at the EUI,
    1998. See Claus Dieter Ehlermann and Louisa Gosling (eds.), European Competition Law
    Annual 1998: Regulating Telecommunications, Oxford/Portland, Oregon: Hart Publishing,
    2000, at pp. 711. See also Pierre-Andr Buigues, The Competition Policy Approach in
    the New Regulatory Framework for Electronic Communications. Comments on Koski
    and Kretschmer (2004) Journal of Industry, Competition and Trade (Bank Papers), pp. 4148,
    at pp. 44 et seq.

    24

    The Object of Regulation

    send his text messages through the fixed telecom network, make phone
    calls over the cable TV network and surf the internet by means of his
    mobile phone). The latter phenomenon, while largely a positive
    development, could make regulatory decisions problematic and
    demands their absolute technological neutrality.
    Network industries differ further in a number of aspects due to their
    natural characteristics. Differences noteworthy in the present context
    relate to the degree of the industrys internationalisation (eg water/gas
    supply v. telecommunications), the degree of competition in the
    respective markets (eg railways v. telecommunications) or the degree of
    capital intensity (eg postal service v. telecommunications).63
    The above non-exhaustive list of specificities of electronic
    communications asserts its uniqueness and thus, draws attention to the
    fact that not all general notions and rules applying to network industries
    would necessarily be true in telecommunications. Analogies are to be
    made cautiously.
    4.2

    Dynamism

    A second feature of the communications industry that sets it apart in a


    most categorical way from the other network sectors and from the rest
    of the economic sectors in general, is its dynamism. The roots of the
    rapid development of telecommunications, as already mentioned, are
    of technological nature. Roughly speaking the very basis of all
    information technology industries is the microchip and its ability to
    process information. Gordon Moore of Intel postulated in 1965 that the
    transistor density on a single integrated circuit microchip would double
    approximately every eighteen months. The latter rule showing the
    incredible pace of technological advance became known as the Moores
    Law. Moores Law (as unlikely as it seems) has held true for the last
    forty years and has governed the Silicon Valley like an immutable force
    of nature.64 Even if its validity diminishes by the end of the decade65
    63

    For a comprehensive comparison of the eight European network industries


    (telecommunications, post, electricity, gas, water supply, urban, air and railway transport),
    see European Commission, Liberalisation of Network Industries, supra note 30, at pp. 15
    et seq. See also European Commission, Green Paper on services of general interest,
    COM(2003) 270 final, 21 May 2003, at paras 7072 and in the attached Annex, at paras 29
    33.
    64
    Peter Leyden, Moores Law Repealed, Sort Of, Wired Magazine, Issue 5.05, May 1997.
    On Moores Law, see eg Rob Frieden, Managing the Internet-Driven Change in International
    Telecommunications, Boston/London: Artech House, 2001, at pp. 17 et seq.
    65
    There are different predictions about how much longer the semiconductor industry
    will be able to sustain the rate of progress. More conservative technologists think that the
    rate of enhancement will soon slow down. Moore himself predicts that advances in circuit
    complexity will begin to reach their limits around 2010. At the International Solid-State
    Circuit Conference in 2003, he stated that, [a]nother decade is probably straightforward.
    (continued...)
    25

    EC Electronic Communications and Competition Law

    and the density of transistors cannot be further increased (which is


    probably not true),66 this will not substantially restrain the development
    of different applications. The sky is the limit will still very much be
    true. In the words of Gordon Moore himself:
    Even with the level of technology we can extrapolate fairly easily
    a few more generations we can imagine putting a billion
    transistors on a chip. A billion transistors is mind-boggling.
    Exploiting that level of technology even if we get hung up at a
    mere billion transistors, could keep us busy for a century.67

    Clearly, the potential for further technological (r)evolution of electronic


    communications is there. What makes the communications market truly
    dynamic however is the implementation of these technological applications
    in real life market situations. As in every other industry, the demand for the
    different products and services is crucial and this is even more so in the
    communications sector being a society-oriented one. The communications
    companies are striving to offer new products and services and
    understandably striving even harder to sell them. New business models
    come into being and the value chains are constantly transformed.68 The
    problem is that the so-defined dynamism of the industry is closely related
    to the unpredictability of its development with regard to new technological
    advances and especially with regard to the acceptance of the new
    applications by the public.69 Some technologies survive and become an
    inseparable part of our everyday life, while others make a flashy start but
    vanish into thin air. The latter situation is further aggravated by the fact
    that communications is an industry in need of high investments and affected
    by network externalities.
    The internet70 bubble experience shows (sadly though evidently) the
    discrepancies between technological potential and market developments,
    None of these things hits a brick wall. There is certainly no end to creativity. See Moore
    Predicts More Advances, BBC News World Edition, 11 February 2003, available at http://
    news.bbc.co.uk/2/hi/technology/2748281.stm (4 February 2004).
    66
    See John Markoff, IBM Researchers Find a Way to Keep Moores Law on Pace, The
    New York Times, 20 February 2006.
    67
    Gordon Moore, Interview in Moores Law Repealed, Sort Of, supra note 64.
    68
    See eg on the new developments with regard to broadband content the survey of the
    OECD, Digital Broadband Content, Panel and Government Session, DSTI/ICCP/
    IE(2004)15/final, 3 June 2004.
    69
    Shapiro and Varian note in that regard that, it is devilishly difficult to tell early on
    whether your technology will take off or crash and burn. See Carl Shapiro and Hal R.
    Varian, supra note 44, at p. 196. See also Anthony G. Oettinger, Information Technologies,
    Government and Governance: Some Insights from History, Incidental Paper, Program
    on Information Resources Policy, Harvard University, September 1998, available at http:/
    /www.pirp.harvard.edu.
    70
    For a concise overview of the development of the internet and its underlying technology,
    see Commission Decision of 8 July 1998, Case IV/M.1069 WorldCom/MCI, OJ L 116/1, 4
    May 1999.
    26

    The Object of Regulation

    exemplifying thereby also the uneven rhythm of telecommunications


    dynamism. Throughout the 1990s, there were prospects of ever more
    powerful networks and sophisticated applications and it seemed that
    there were literally no limits to the new opportunities technology would
    bring. In almost every developed country, market projections suggested
    that an ever-increasing proportion of national income would be spent
    on communications. Missing from the projections was invariably a
    realistic assessment of how much people and businesses would actually
    pay for new services and features,71 and if they needed them at all. As
    Gillies and Marshall point out, [t]oo often the prices of alternative ways
    of delivering similar or in some cases identical services were ignored.
    In 2000 the situation came to a head when the combination of a bull
    market and nonsensical valuations of anything to do with the internet
    led to a ludicrous overvaluation of any type of telecommunications and
    information technology activity.72 This was further exacerbated by the
    government auctions of 3G cellular licences,73 which were designed to
    maximise revenues rather than encourage the introduction of new
    services.74 As a result of all this, in 2001 the telecommunications and the
    dotcom bubble burst and a year later a few leading communications
    companies of the calibre of WorldCom, which had fraudulently
    overstated their profits, filed for bankruptcy.75 Exactly how much money
    was destroyed in the bubble is hard to quantify, but many estimates
    reach the USD 1 trillion mark76 money that otherwise might have been
    spent on developing new communications services and infrastructure.
    Crisply put, the much-touted Internet time, which ran faster than for
    71

    David Gillies and Roger Marshall, supra note 5, at p. 25.


    David Gillies and Roger Marshall, ibid. (emphasis added). A bull market is said to
    exist when prices of a certain group of securities are rising or are expected to rise; as
    opposed to a bear market.
    73
    The auctions for UMTS licences brought all together 103.9 billion for the public
    treasuries of the European Member States. The UK auction, in April 2000, earned 38.5
    billion, while the German auction, four months later in August 2000, saw bids go up to
    50.8 billion. These auctions took place just before the decline of the telecommunications
    sector began and with the benefit of the hindsight, one can see that the UMTS experiment
    put all significant players on the European telecommunications market in a dire financial
    situation, thereby aggravating the whole industrys situation. On the auctions, see eg
    Paul Klemperer, How (Not) to Run Auctions: The European 3G Telecom Auctions (2002)
    European Economic Review, Vol. 46, Issues 45, pp. 829845; Kenneth Binmore and Paul
    Klemperer, The Biggest Auction Ever: The Sale of the British 3G Telecom Licences (2002)
    The Economic Journal, Vol. 112, pp. C74-C96.
    74
    European Commission, Electronic communications: The road to the knowledge
    economy, COM(2003) 65 final, 11 February 2003, at p. 3.
    75
    See eg Luisa Beltran, WorldCom Files Largest Bankruptcy Ever, CNN/Money, 22 July
    2002, available at http://money.cnn.com/2002/07/19/news/worldcom_bankruptcy/ (30 May
    2005). See also Eli Ofek and Matthew P. Richardson, DotCom Mania: A Survey of Market
    Efficiency in the Internet Sector, April 2001, Social Science Research Network Paper, available
    at http://ssrn.com/abstract=268311.
    76
    The Economist, Beyond the Bubble, 9 October 2003.
    72

    27

    EC Electronic Communications and Competition Law

    the rest of the economy, has slowed down to a point where it might
    almost be running behind real time. Reality has reasserted itself in a
    brutal fashion.77
    Besides the dotcom bubble, the history of the communications industry
    is full of other examples of unfortunate investment and management
    decisions based on predictions of how the market would develop. What
    is fortunate is that we find ourselves after the bubble trouble and can
    (more or less) rationally assess the dynamism of communications and
    observe the new bubble formations.78 The industry itself has become
    more level-headed and is driven today not only by technological change
    but also by solid financial considerations.79 Moreover and quite
    importantly in the context of assessing communications markets,
    unpredictability of the communications industry development has
    become a integral part of market assessments and something that
    regulators have to reckon with.
    4.3

    Convergence

    An implication of the dynamism of electronic communications and a


    result of the technological developments therein is the process of
    convergence.80
    77

    Pierre Larouche, What Went Wrong: The European Perspective (2003) Tilburg Law
    and Economics Center (TILEC) Discussion Paper, DP 2003001, at p. 5.
    78
    The Economist, Net Dream: Big Media and the Internet, 16 March 2006.
    79
    Benefiting from hindsight, the Commission has pointed out in that regard that, [a]fter
    a period of fast growth in 19982000, the electronic communications sector is currently
    undergoing a severe adjustment process. The adjustment was perhaps inevitable after the
    very fast growth of earlier years. See European Commission, Electronic communications:
    The road to the knowledge economy, supra note 74, at p. 3 (emphasis added).
    80
    On convergence, see inter alia Colin R. Blackman, Convergence between
    Telecommunications and Other Media (1998) Telecommunications Policy, Vol. 22, No 3,
    pp. 163170; Yochai Benkler, Communications Infrastructure Regulation and the
    Distribution of Control over Content (1998) Telecommunications Policy, Vol. 22, No 3,
    pp. 183196; Bernard Clements, The Impact of Convergence on Regulatory Policy in
    Europe (1998) Telecommunications Policy, Vol. 22, No 3, pp. 197205; Suzan D. Scales,
    Whos Doing It, Whos Not, and Why?, Convergence Center Report, 1999; P.H. Longstaff,
    New Ways to Think about the Visions Called Convergence: A Guide for Business and
    Public Policy, Program on Information Resources Policy, Harvard University, April 2000;
    Natascha Just and Michael Latzer, EU Competition Policy and Market Power Control in
    the Mediamatics Era (2000) Telecommunications Policy, Vol. 24, pp. 395411; Pierre
    Larouche, Competition Law and Regulation in European Telecommunications, Oxford/
    Portland, Oregon: Hart Publishing, 2000, at pp. 334339; Arlan Gates, Convergence and
    Competition: Technological Change, Industry Concentration and Competition Policy in
    the Telecommunications Sector (2000) University of Toronto Faculty of Law Review, Vol. 58,
    Issue 2, pp. 83120; Lucy Firth, P.H. Longstaff and Cate Dowd, Broadband and
    Convergence (2002) Journal of Network Industries, Vol. 3, pp. 161181; Damien Geradin
    and Christophe Humpe, supra note 60; The Economist Intelligence Unit, The Next Moves:
    Convergence in the communications and content industries, Economist Intelligence Unit
    White Paper, 2004; Paul Nihoul and Peter Rodford, EU Electronic Communications Law,
    (continued...)
    28

    ..)

    The Object of Regulation

    One of the earliest uses of the term convergence in the sense of


    information industries coming together has been attributed to Nicholas
    Negroponte, a chairman and co-founder of the Media Lab at the
    Massachusetts Institute of Technology (MIT).81 During a campaign to
    raise money for the foundation of the Media Lab, as early as in 1979,
    Negroponte used a chart predicting that the ability to digitise information
    and other developments in the computer industry would cause the
    communications industries to merge and thus expressed the view that
    they should be studied and developed as a single craft.82
    Since then convergence has been widely discussed and different radical
    or less radical industries amalgamations have been envisaged. During
    the dotcom bubble expansion, convergence became a most talked about
    hype phenomenon to the extent that it almost lost its definite meaning.
    The buzzword convergence was used in multiple contexts to signify
    quite different trends and processes. As put bluntly by P. H. Longstaff
    [e]veryone talks about it but no one is sure what it means.83 Despite
    the numerous terminological denotations of the word, it is quite
    doubtless that the very roots of the process of convergence are (again)
    of technological nature. The market changes and the regulatory
    adaptations only followed the technological advances.
    In the context of technological evolution, the term convergence means a
    take over of all forms of media by one technology, rather than a coming
    together of different technologies or industries. To put it in purely
    technical terms, in the centre of the whole hurricane are digital computers
    and applications of mathematical information theory. Digitisation, as
    discussed above, allows all types of information to be expressed in
    asingle format a line of zeros and ones and thus provides a common
    platform for the creation and distribution of data. While, in the past,
    Oxford: Oxford University Press, 2004, at paras 1.129 et seq.; OECD, The Implications of
    Convergence for Regulation of Electronic Communications, DSTI/ICCP/TISP(2003)5/final,
    12 July 2004; Damien Geradin and David Luff (eds.), The WTO and Global Convergence in
    Telecommunications and Audio-Visual Services, Cambridge: Cambridge University Press, 2004,
    especially therein Milton L. Mueller, Convergence: A Reality Check, pp. 311322 and Pierre
    Larouche, Dealing with Convergence at the International Level, pp. 390422.
    81
    See http://www.media.mit.edu.
    82
    Nicholas Negroponte argued that by 2000 the broadcast and motion picture industry,
    print and publishing and the computer industry would merge together. His predictions
    were thus not entirely fulfilled but visionary. See Stewart Brand, The Media Lab: Inventing
    the Future at M.I.T., New York: Penguin Books, 1987, at pp. 1011. See also Nicholas
    Negroponte, Being Digital, Cambridge, MA: MIT Press, 1990. For even earlier visions of
    convergence in regard to content in the sense of a fusion of all arts into one work, see
    Theodor Adorno and Max Horkheimer, Dialectic of Enlightenment, London: Verso Press,
    1979 (first published 1947).
    83
    P. H. Longstaff, New Ways to Think about the Visions Called Convergence, supra
    note 80, at Executive Summary. On the false conceptions of digital convergence, see Milton
    L. Mueller, supra note 80, at pp. 314316.

    29

    EC Electronic Communications and Competition Law

    communications networks were designed to carry different types of


    information separately (eg telephone networks for voice, broadcast
    networks for images), digital technologies permit the manipulation of
    all forms of information voice, data, video across all types of networks.
    Consequently, the distinctions between different types of networks are
    disappearing and One Big (distributed) Medium is emerging.84
    It is important to note the direction of the existing connection between
    technological advances and digitisation: the spreading applications of
    microprocessors were not responses to a world of digital content and
    networks. Instead, content and networks have gone digital in order to
    avail themselves of the power of the integrated circuits. 85 This
    relationship cannot be ignored and it puts convergence on more concrete
    and real (although not necessarily predictable) grounds. In this sense,
    the pace of convergence could be largely equated to the operation of the
    Moores Law postulating, as mentioned above, that the transistor density
    of a single microchip doubles approximate pace every eighteen months.
    Convergence is, however, not only a technological phenomenon, it
    involves convergence of services and markets. In that sense, another
    factor that plays an important part in shaping convergence is the process
    of setting common protocols and technical standards for data
    interchanges.86 Although it builds upon the technological level, this
    process is of an essentially different nature. It is a predominantly socioeconomic one, rather than technical and involves the co-ordinated
    adoption of compatible technology platforms by a critical mass of
    producers and consumers.87
    The technological, services and market aspects of convergence are also
    mirrored in the companies positioning along the converging industries
    and their ownership patterns.88 The 1999 OECD Communications
    Outlook provides an overview of this trend toward concentration in
    telecommunications and the neighbour information technology (IT) and
    media industries. It states:

    84

    See Ithiel de Sola Pool, Technologies of Freedom: On the Free Speech in the Electronic Age,
    Cambridge, MA: Belknap Press of Harvard University Press, 1983, as referred to by Milton
    L. Mueller, ibid. at p. 311.
    85
    Milton L. Mueller, supra note 80, at p. 312. See also Arlan Gates, supra note 80, at pp. 87
    88.
    86
    Milton L. Mueller, Digital Convergence and its Consequences: a Report on the Digital
    Convergence and Market Structures, supra note 19.
    87
    Ibid. For more on standardisation, see infra Chapter 2, Section 2.3.1.
    88
    See eg Arlan Gates, supra note 80, at pp. 88 et seq.

    30

    The Object of Regulation

    Rapid convergence, in technologies, services and markets, linked


    with the development of digital technology, is allowing various
    content, eg, voice, data, audio, and video, to be provided through
    different networks regardless of their characteristics. Different
    network platforms are becoming increasingly substitutable from
    the technical perspective as they attain the ability to carry
    essentially the same services. Taking the advantage of this
    technical progress, a number of market participants are
    strategically expanding service provision beyond their traditional
    services through cross-platform and cross-product development
    []. Furthermore, cross-ownership is also developing in the
    communications sector as enterprises enter traditionally
    separated markets seeking further business opportunities. The
    sectors impacted by convergence have shown a growing trend
    towards mergers and alliances.89

    As shown by this excerpt and our brief discussion above, convergence


    has multiple ramifications on different levels. Since it is profoundly affects
    the structure of the previously separately functioning
    telecommunications, broadcasting and IT sectors, convergence has
    implications on policy and regulatory levels as well. Regulation has to
    adjust adequately to the changes occurring in order not to hinder the
    development of the process, while at the same time continuing to serve
    its objectives.90 In that sense, one could also speak of a process of
    convergence of law.91
    Without further elaboration on the regulatory responses to convergence,
    which will be dealt with in Part 2 of this work, for the purposes of
    identifying communications as the object of regulation, it is necessary
    to lay emphasis on a few essential characteristics of the convergence
    phenomenon, namely:
    (i)
    (ii)

    the change from a world of scarcity to one of seemingly limitless


    capacity (due to digitisation);92
    interactivity;93

    89

    OECD Communications Outlook 1999, Paris: OECD Publishing, 1999, at p. 113.


    The Green Paper on convergence has pointed out in that regard that, [g]etting the
    regulatory framework right is of crucial importance. See European Commission, Green
    Paper on the convergence of the telecommunications, media and information technology
    sectors, and the implications for regulation: Towards an Information Society approach,
    COM(1997) 623, 3 December 1997, at p. iii.
    91
    Wolf Sauter, EU Regulation for the Convergence of Media, Telecommunications, and
    Information Technology: Arguments for a Constitutional Approach?, Zentrum fr
    Europische Rechtspolitik an der Universitt Bremen (ZEPR) Diskussionspapier, 1/98, at p. 10.
    See also Damien Geradin and Christophe Humpe, Regulatory Issues in Establishment
    and Management of Communications Infrastructure: The Impact of Network
    Convergence (2002) Journal of Network Industries, Vol. 3, pp. 99127, at pp. 115 et seq.
    92
    Arlan Gates, supra note 80, at p. 87 and Christoph Beat Graber, supra note 6, at p. 42.
    93
    See Colin R. Blackman, supra note 80, at p. 164.
    90

    31

    EC Electronic Communications and Competition Law

    (iii)
    (iv)
    (v)

    interoperability of terminals and networks;94


    technologically driven but highly dependent on socio-economic
    conditions;
    unpredictability of the direction(s) and final outcome of the
    convergence process considering that there are also simultaneous
    divergence trends.95
    4.4.

    Sensitive to Regulation, Sensitive to Societys Reactions

    In the context of the above sketched characteristics of


    telecommunications its dynamism and the ongoing process of
    convergence, it is also interesting to note that the sector exhibits certain
    sensitivities. Its development has proven to be sensitive to regulation,
    on the one hand, and to the reactions of the public, on the other.
    Telecommunications is a network-bound sector and, as mentioned in
    the Section on network industries, it involves high sunk costs and thus
    a need for substantial investments. Such investments are naturally based
    on the future profits, which are in turn based on the market development
    projections. Although normally, further deployment of new services is
    primarily up to the market, incentives to invest are also affected by public
    policies and the regulatory choices. Thus, the current regime regulating
    the industry represents a factor that is included naturally in the
    projections of the market, in the short-term and often also, in the longterm plans of firms. As such, the existing regulations can influence the
    development of the market on their own account. The investment and
    management decisions taken at a certain moment considering the
    regulatory restrictions (or the lack of them) at that moment shape the
    future structure of the market and influence the decisions and behaviour
    of other market players. Since regulation affects investment decisions,
    regulators have to be concerned about the impact of regulation on
    infrastructure investments. Entry decisions not only depend on
    regulation in force at the moment of the decision, but also on the expected
    future regulatory policy and regulators views about economies of scale
    in local access networks in different segments of the market.96

    94

    See Milton L. Mueller, supra note 80, at pp. 314 et seq.


    Although things are clearly coming together in communications and computing, at
    the turn of the century the ultimate direction(s), outcome(s), and timing(s) of change
    remain unclear because so many variables are at work. See P.H. Longstaff, supra note 80,
    at p. 13.
    96
    Paul W.J. de Bijl and Martin Peitz, Dynamic Regulation and Entry in
    Telecommunications Markets: A Policy Framework (2004) Tilburg Law and Economics
    Center (TILEC) Discussion Paper, DP 2004-010, at pp. 2627.
    95

    32

    The Object of Regulation

    The electronic communications sector has proven to be very sensitive to


    regulation and interestingly, there are controversial rationales for the
    appropriate regulation. On the one hand, because of the considerable
    investments needed the stability of the regulatory environment and the
    predictability of the decisions of the regulatory authorities involved are
    of crucial importance. 97 On the other hand, the communications
    ecosystem calls for flexibility. Since communications are dependent on
    the development of new technologies and the introduction of new
    products and services, innovation plays a vital role. The policy of
    fostering innovation involves, among others, complex decisions on the
    relation between regulating major market players and allowing access
    for newcomers and on promoting services or facility-based competition,
    while remaining technologically neutral and flexible enough for future
    developments.98 This regulatory conundrum is further complicated by
    the process of convergence since in the face of blurring boundaries
    between telecommunications, media and information technologies,
    companies are adjusting and positioning themselves on all markets,
    integrating both vertically and horizontally in order to offer the new
    converged products and services more effectively.
    The other side of the market, that is, the consumers, contribute additionally
    to the complexity of the electronic communications settings. In line with
    the discussion above, they represent another key factor in the market
    projections of firms. As economic wisdom has it, the demand determines
    the supply. This is unfortunate since in communications, we are often faced
    with completely new (or substantially changed) services and products, the
    demand for which is hard to predict in absolute numbers. Moreover, one
    should bear in mind that, under the presence of strong positive network
    effects, expectations are crucial and can easily be self-fulfilling: the
    product or technology expected to prevail does prevail.99
    The history of all technology-based industries is full of curious examples
    of the unpredictability of societys reaction and the incapability of the
    industry to foresee it. The Short Message Service (SMS) that is in constant
    use today and contributes significantly to the revenues of cellular
    operators was initially invented only for internal communication
    between the providers technicians and not for commercial use. As the
    Oftel survey from April 2002 showed, SMS totalled more than 8 billion
    calls per quarter (nearly 30 per cent of all calls) and accounted for
    between 20 and 32 per cent of operators revenues in the United
    Kingdom. Another good example, albeit not strictly communications97

    Predictability provides incentives to innovate and facilitates long-term investment.


    See European Commission, Electronic communications: The road to the knowledge
    economy, supra note 74, at p. 4.
    98
    On innovation in electronic communications, see further infra Chapter 2, Section 2.3.
    99
    Carl Shapiro and Hal R. Varian, supra note 44, at p. 211 (emphasis in the original).
    33

    EC Electronic Communications and Competition Law

    specific, is provided by Ypsilanti and Xavier. They note pertinently that


    [t]he products and uses of new technology have always been difficult
    to predict. Indeed, the telephone it has been alleged, was invented for
    listening to symphony music; the Xerox for copying plans; computers
    for calculating; post-it notes for marking places in books.100
    4.5.

    Special Significance and Role

    It was in 1801 when the first international communication was carried


    out, enabling a connection between the telegraph systems of Sweden
    and Denmark through a line of towers, each equipped with a set of
    moveable panels on top. Now, a little over two centuries later, we are
    faced with a whole other reality. The towers and the panels have been
    replaced by a highly sophisticated international network of fibre-optic
    links, undersea cables, powerful routing and switching computers,
    mobile phone stations, and millions and millions of telephones,
    computers and other devices, both wired and wireless.
    In 2001, the size of the communications services market was over USD
    831.3 billion and the total revenues of telecommunications carriers with
    headquarters in the OECD area were around USD 878 billion.101 The
    annual expenditures on communication per person increased from USD
    534 in 1991 to USD 933 in 2000 and this increase of 65 per cent between
    1990 and 2000 was the most significant of all consumptions sectors.102 In
    2005, the estimated value of the European (EU25) electronic
    communications services sector was 273 billion, which accounts for
    44.4 per cent of the overall ICT (information and communication
    technology) sector.103 The number of cellular mobile subscribers in the
    enlarged European Union is over 4.26 billion with an average penetration
    rate of 91 per cent in the EU25 and of 92 per cent within the EU15.
    Eighteen of the Member States have a mobile penetration rate of over 90
    100

    Dimitri Ypsilanti and Patrix Xavier, Toward Next Generation Regulation (1998)
    Telecommunications Policy, Vol. 22, No 3, pp. 643659, at p. 646.
    101
    OECD Communications Outlook 2003, Paris: OECD Publishing, 2003, at p. 13.
    102
    Source: OECD, SNA (Statistics of National Accounts) Database. The other sectors in
    the survey are recreation and culture, household equipment, health, transport, clothing
    and footwear, education, restaurants and hotels, water, electricity and gas, alcohol, tobacco
    and narcotics, and food. The SNA data do not provide the opportunity to disaggregate
    between telecommunications equipment and services, and postal services. Within
    countries, which provide surveys with enough detail to evaluate shares of household
    expenditures, it can be observed that on average, postal services make up 2 per cent of
    household budgets for all communications. By way of contrast, telecommunications
    equipment made up 8 per cent and telecommunications services make up 90 per cent of
    the total for communications (the proportions remaining relatively stable). See OECD
    Communications Outlook 2003, ibid. at pp. 3132.
    103
    Market data covering the period up to and including 1 September 2005. See European
    Commission, European electronic communications regulation and markets 2005, supra
    note 24, at p. 2.

    34

    The Object of Regulation

    per cent,104 while Luxembourg reached a 150 per cent penetration.105 The
    total number of fixed broadband lines in the EU is almost 53 million,106
    with an average number of more 52,565 added per day in 2005.107
    As visible from the above miscellaneous statistical data, communications
    have a great value as an economic sector in global terms. In fact, the
    influence of the communications industry is manifold and extends well
    beyond the quoted number of fixed telephone and wireless lines. Despite
    the burst of the dotcom bubble and the relative slowdown in growth
    thereof, the telecommunications sector still grows faster than the overall
    economy.108 Moreover, there is a qualitative aspect of these quantitative
    values. Some technologies and their applications are having profound
    effects on the way we live and do business. While wireless continues to
    be one of the principal drivers of new services, e-commerce has
    revolutionised the way business is conducted and accounts for an
    increasing proportion of the applications carried on telecommunications
    networks. Recent empirical evidence confirms that most of the labour
    productivity growth in the United States can be traced to the industries
    that either produce ICTs or use ICTs more intensively.109 Currently, nearly
    all businesses have a website, where company information and details
    of products and services are displayed and diverse search tools change
    the way this information is used. Many products and services may be
    ordered and customised and, in some cases, delivered online.110 In
    addition, there is a growing number of companies, such as Amazon,
    eBay and Expedia that trade exclusively electronically.111
    104

    These Member States are the Czech Republic, Denmark, Germany, Estonia, Spain,
    Ireland, Italy, Cyprus, Lithuania, Luxembourg, Hungary, the Netherlands, Austria,
    Portugal, Slovenia, Finland, Sweden and the UK. See European Electronic
    Communications Regulation and Markets 2005, ibid. at Annex 2, Figures 40 and 43 at
    pp. 42 and 43, respectively.
    105
    Ibid. at Figure 40. The penetration rate for Luxembourg being calculated on the basis
    of the national population only, excluding trans-national commuters.
    106
    European electronic communications regulation and markets 2005, supra note 24, at
    p. 5 and at Annex 2, pp. 32 et seq.
    107
    Ibid. at Annex 2, p. 32.
    108
    See European Commission, European electronic communications regulation and
    markets 2004, supra note 24, at Annex 3 Market Overview.
    109
    Mary OMahony and Bart Van Ark (eds.), EU Productivity and Competitiveness: An
    Industry Perspective, 2003, available at http://europa.eu.int/comm/enterprise/
    enterprise_policy/ competitiveness/doc/eu_competitiveness_a_sectoral_perspecive.pdf.
    See also European Commission, Connecting Europe at high speed: Recent developments
    in the sector of electronic communications, COM(2004) 61, 3 February 2004, at p. 6.
    110
    An example in point is the booming sale of music over the internet through direct
    downloading. See eg iTunes available at http://www.apple.com/itunes. See also Chris
    Anderson, The Long Tail: Why the Future of Business Is Selling Less of More, New York:
    Hyperion, 2006.
    111
    David Gillies and Roger Marshall, supra note 5, at pp. 2526. For more statistical data,
    see Forrester Research, Europes eCommerce: The Next Five Years, 1 March 2004 and
    Forrester Research, The US Consumer 2004: Online Retail, 8 September 2004. See also
    The Economist, Happy e-birthdays, 21 July 2005.
    35

    EC Electronic Communications and Competition Law

    These economic and market developments are mirrored in the change


    of the way communications are perceived, and in the change in the
    paradigm of their regulation. The idea that communications services
    are not just a necessary cost of doing business, but rather an enormously
    valuable economic resource, has been widely recognised. The old view
    that telecommunications development was a natural appendage to
    general economic development and just one of the social benefits that
    economic development allowed has been rendered obsolete.
    Communications are indeed recognised as an integral part of both
    economic and social development in both developed and developing
    countries. A prominent example in that context is the European
    Communitys eEurope Programme 112 and its successor the i2010
    agenda.113 Making use of ICTs, the latter are intended to create new
    jobs, to boost productivity, to modernise public services, and to give
    everyone the opportunity to participate in the global information
    society.114
    In line with the above, it is thus important to stress that the communications
    sector is of special significance not only as a separate sector but also in
    relation to all other sectors of the economy. As recognised in the GATS
    Annex on Telecommunications, telecommunications have a dual role as a
    distinct sector of economic activity and as the underlying transport means
    for other economic activities.115
    Besides this dual economic role, communications have a special soctal
    role. Since the electronic communications sector essentially involves the
    function of carrying and disseminating information and content, one
    cannot view it from a strict dollars and cents perspective but should
    consider it from a societal perspective as well.116
    112

    See European Commission, eEurope 2005: An Information Society for all, Action Plan
    to be presented in view of the Sevilla European Council, 21 and 22 June 2002, COM(2002)
    263 final, 28 May 2002. eEurope 2005 is the Action Plan that was approved at the Sevilla
    European Council, 21 and 22 June 2002. It succeeds the eEurope 2002 Action Plan endorsed
    by the Feira European Council in June 2000.
    113
    European Commission, i2010 A European information society for growth and
    employment, COM(2005) 229 final, 1 June 2005. For more on the European initiatives in
    the context of Information Society, see infra Chapter 2, Section 3.5.
    114
    eEurope 2005, supra note 112, at p. 1.
    115
    Recognising the specificities of the telecommunications services sector, in particular,
    its dual role as a distinct sector of economic activity and as the underlying transport
    means for other economic activities, the Members have agreed to the following Annex.
    See GATS, Annex on Telecommunications (published in OJ L 336/191, 23 December 1994),
    at para. 1. For more on the telecommunications rules in the framework of the World
    Trade Organization, see infra Part 2, Chapter 5.
    116
    Thus, in addition to viewing these industries from a strict dollars and cents perspective,
    we need to view these industries (and the policies designed to restructure them) from a
    societal perspective as well. See Mark Naftel and Lawrence J. Spiwak, The Telecoms Trade
    War: The United States, the European Union and the World Trade Organization, Oxford/
    Portland, Oregon: Hart Publishing, 2000, at p. 16.
    36

    The Object of Regulation

    In this context, as early as in 1987, at the outset of the liberalisation


    process, the European Telecommunications Green Paper117 notably
    acknowledged that:
    [t]elecommunications is the most crucial area for influencing the
    nervous system of modern society. To flourish it has to have
    optimum environmental conditions .118

    Especially now, when the telecommunications system has become the


    electronic infrastructure for transmitting all types of information voice,
    data, graphics, video and music, its societal role is indeed crucial. The
    transformation from point-to-point to multipoint communications
    necessitates consideration of the societal values that have to be
    underpinned in communications regulation and a reassessment of its
    objectives. The latter need for reassessment and adequate regulatory
    readjustment has increasingly been recognised on a global level as well.
    The World Summit on Information Society (WSIS), organised by the
    United Nations and the International Telecommunication Union (ITU),119
    attempts to address that need and to provide guidance and coordination
    among countries in order to build a people-centred, inclusive and
    development-oriented Information Society.120
    117

    European Commission, Green Paper on the development of the common market for
    telecommunications services and equipment, supra note 23. The Green Paper was the
    first of the Community documents that provided for the transition of the EC
    telecommunications market from monopoly to competition. On the development of the
    EC telecommunications liberalisation and harmonisation initiatives, see infra Part 2,
    Chapter 4.
    118
    Telecommunications is the most crucial area for influencing the nervous system of
    modern society. To flourish it has to have optimum environmental conditions. The
    traditional form of organisation of the sector does not allow the full development of the
    potential of these new services. In order to create an open and dynamic market in this
    area it therefore seems necessary to introduce regulatory changes to improve the sectors
    environment. See European Commission, Green Paper on the development of the
    common market for telecommunications services and equipment, ibid. at Introduction.
    119
    The World Summit on Information Society is constructed as a two-phase forum (Phase
    One: Geneva 2003 and Phase Two: Tunis 2005). See WSIS, Declaration of Principles, WSIS-03/
    Geneva/Doc/4-E, 12 December 2003; WSIS, Plan of Action, WSIS-03/Geneva/Doc/5-E, 12
    December 2003; WSIS, Tunis Commitment, WSIS-05/Tunis/Doc/7-E, 18 November 2005; WSIS,
    Tunis Agenda for the Information Society, WSIS-05/Tunis/Doc, 6(Rev.1)-E, 18 November 2005.
    See also European Commission, Towards a global partnership in the Information Society:
    EU perspective in the context of the United Nations World Summit on the Information Society
    (WSIS), COM(2003) 271 final, 19 May 2003 and European Commission, Towards a global
    partnership in the Information Society: The contribution of the EU to the second phase of the
    WSIS, COM(2005) 234 final, 2 June 2005. For all relevant documents, see http://www.itu.int/
    wsis. See also Steve Buckley, Whose Information Society? Communication Rights and the
    World Summit on the Information Society in Christian Mller and Arnaud Amouroux (eds.),
    The Media Freedom Cookbook, Vienna: Organization for Security and Co-operation in Europe
    (OSCE), 2004, pp. 230241.
    120
    WSIS Declaration of Principles, ibid. at para. 1.

    37

    EC Electronic Communications and Competition Law

    4.6

    Communications as Part of the New Economy

    In the context of identifying electronic communications as a distinct and


    unique object of regulation, it is perhaps also appropriate to elaborate
    briefly upon the so-called new economies and whether the
    communications sector qualifies as such. The concept of the new
    economy is often strictly related to the computer software and hardware
    industries, but if taken broadly, it could in fact encompass biotechnology
    as well as agriculture.121
    Cosmo Graham identifies four salient features of the new economy that
    essentially distinguish it from the old type of economic sectors.122 The
    first and most easily observable one is the rapid technical or
    technological change, which leads to alteration of the markets under
    consideration either through the creation of new markets or the
    transformation of old ones.123 New economy firms engage in dynamic
    competition for the market,124 ie in a process of creative destruction,125
    whereby drastic innovation makes market leadership highly contestable.
    Meanwhile, in old economy industries, competition takes place
    primarily through standard price competition in the market or through
    incremental innovations.126 The second characteristic is the growing
    importance of intellectual property since the above-mentioned inherent
    121

    Cosmo Graham, Introduction in Cosmo Graham and Fiona Smith (eds.), Competition,
    Regulation and the New Economy, Oxford/Portland, Oregon: Hart Publishing, 2005, pp. 1
    15, at p. 2.
    122
    Ibid. Similar characteristics have also been identified by David S. Evans, Antitrust
    and the New Economy in David S. Evans (ed.), Microsoft, Antitrust and the New Economy:
    Selected Essays, Boston/Dordrecht/London: Kluwer Academic Publishers, 2002, pp. 253
    264, at pp. 255 et seq. See also in the same vein, Richard A. Posner, Antitrust in the New
    Economy, John M. Olin Law and Economics Working Paper No 106, 2000. Similarly, Atilano
    Jorge Padilla defines the industries of the new economy as computer software and
    hardware industries, the Internet, the mobile telephony industry, biotechnology as well
    as others primarily based on the creation of intellectual property and undergoing rapid
    technological change. See Atilano Jorge Padilla, The Role of Supply-Side Substitution in
    the Definition of the Relevant Market in Merger Control, A Report for DG Enterprise A/
    4, Madrid, June 2001, at p. 10.
    123
    Cosmo Graham, supra note 121, at p. 2.
    124
    For a comparison between static and dynamic competition, see David S. Evans, supra
    note 122, at p. 258.
    125
    As famously defined by Joseph A. Schumpeter, Capitalism, Socialism and Democracy,
    New York: Harper, 1984 (first published 1942).
    126
    Atilano Jorge Padilla, supra note 122, at p. 66. David Evans points out in the same vein
    with regard to new economy industries that, [c]ompetition is dynamic. The contest is
    not about which widget producer can sell widgets for the lowest price today, but which
    inventor can come up with something so much better that no one wants widgets anymore.
    Many decades ago the great economist Joseph Schumpeter prophetically described this
    dynamic competition as a perennial gale of creative destruction that strikes not at the
    margins of the profits of the existing firms but at their foundations and their very lives.
    See David S. Evans, supra note 122, at p. 257, quoting Joseph A. Schumpeter, supra
    note 125.

    38

    The Object of Regulation

    rapid technological changes are based on intensive research and


    development activities, which naturally call for protection.127 The third
    specificity is the presence of some kind of network or networks in the
    new economies and the network effects related thereto. The fourth
    feature (derived from the preceding one) is in fact typical for all networkbound industries and amounts to the pronounced tendency of these
    industries to have high sunk and/or fixed costs and low marginal costs.128
    The latter could have implications for the pricing policies of the new
    economy firms and frequently lead to market concentrations.
    The above sketch of the salient features of the new economy reveals a
    surprisingly complete correspondence to the intrinsic characteristics of
    the electronic communications industry as discussed in the course of
    this chapter. The question that naturally arises in the context of
    identifying these new industries as something distinct and different from
    the other economic sectors, is whether the rules regulating these new
    sectors also need to be different. In the words of David Evans, [c]an
    century-old antitrust laws, created in the days when the public was
    concerned about robber barons controlling entire industries, serve
    economic policy in an era in which the Next Big Thing regularly wipes
    out the fortunes made from the Last Big Thing?. 129 Through our
    elaborations on the appropriate regulatory toolkit for electronic
    communications, we will also indirectly attempt an answer to this
    question and identify some common regulatory principles.
    5.

    Chapter 1: Conclusion

    The purpose of Chapter 1 was to provide an introduction to


    telecommunications. It is fundamental to the following chapters and to
    the overall aim of the present work to grasp the specific characteristics
    of the electronic communications sector. In order to discuss the adequate
    regulatory design for communications, the communications landscape
    needed to be explored and its parameters identified.
    In the above Sections, it was submitted that the telecommunications
    sector is unique. It has a heavy regulatory history as a public utility and
    possesses a number of specificities that set it apart from the other sectors
    of the economy.
    First, telecommunications fall into the category of the network industries
    that notably exhibit the so-called network effects. These might cause
    market failures and ultimately, question the application of the theorems
    127

    Cosmo Graham, supra note 121, at p. 3.


    Ibid. at pp. 45.
    129
    David S. Evans, supra note 122, at p. 254.
    128

    39

    EC Electronic Communications and Competition Law

    of conventional welfare economics. The issue of access to networks is


    one that needs special attention. On the one hand, because although the
    paradigm for telecommunications being a natural monopoly has been
    challenged, it remains true that some parts of the networks are still
    technologically natural monopolies130 and consequently can easily
    develop into bottlenecks. On the other hand, since electronic
    communications are an extremely dynamic industry and dependent on
    innovation, the entry of new market players is a key factor for the further
    development of the sector.
    The dynamism of the communications environment is a feature that
    distinguishes the sector from the other network-bound sectors, such as
    electricity or postal services. It requires accordingly a dynamic
    perspective from regulators and flexibility of the regulatory rules. Policymakers must continually take into account the real potential for change
    that characterises communications markets. Since both demand and
    supply appear to be rapidly expanding, simply focusing the analysis of
    current market conditions may not reveal an accurate picture of what is
    (or may be) unfolding. The three groundbreaking technological
    developments that occurred in the past 30 years, namely: the progression
    from analogue to digital systems, the invention of the transistor and the
    perfection of optical fibres have the capacity for further evolution. Even
    if Moores law ceases to be valid by the end of the decade, the
    technological potential for development is still very much indefinite.
    What will be important and path-defining is how society responds to
    the new technological applications and ultimately, the adequate
    regulatory environment.
    The importance of a dynamic regulatory perspective is enhanced by the
    implications of the ongoing process of convergence. The outcomes and
    the finality of the latter are quite unpredictable and they should not be
    artificially enforced by regulation (eg by privileging a particular
    technology or standard). Convergence requires a certain amount of
    experimentation in order to find out which technology and infrastructure
    are most appropriate for which service. In this sense, convergence also
    increases the importance of the requirements of regulatory symmetry
    and competitive neutrality.131
    It is obvious that the simultaneous presence of network effects,
    dynamism and convergence makes the designing of an adequate
    regulatory regime for electronic communications a fairly complex task.
    The significance of the communications as a separate sector of economic
    130

    In the sense discussed above that they can be operated at least cost by one firm, rather
    than by multiple market players.
    131
    Damien Geradin and Michel Kerf, supra note 8, at p. 60.

    40

    The Object of Regulation

    activity and as an essential element of other economic activities makes


    the designing of the regulatory instruments also a critically important
    task. This importance is substantially magnified by the societal role that
    telecommunications play first, as a means of interpersonal and public
    communication and, secondly, as the platform for distribution of
    information and content. Especially now that we find ourselves in the
    process of building an Information Society132 and the communications
    sector is intended to play various functions at different levels of the
    socium.133
    To conclude on communications as object of regulation, it might be
    helpful to use the terminology of systems theory. In the context of systems
    theory, communications can be identified as a complex adaptive system.
    Such systems have intricate interdependencies among the parts and
    many variables operating at the same time.134 Indeed, this is how we
    should observe electronic communications when attempting to find
    adequate instruments for their regulation and this is how we intend to
    proceed in the following chapters.

    132

    On the concept of Information Society, see infra Chapter 2, Section 3.4.


    For instance, according to the eEurope 2005 Action Plan (supra note 112), such functions
    are the creation of jobs, modernisation of public services (e-government, e-health, elearning), ensuring social cohesion and providing opportunities for participation in the
    global society. On the so-called eEuropean policy goals, see infra Chapter 2, Section 3.5.
    134
    On communications as a complex adaptive system, see P.H. Longstaff, The
    Communications Toolkit, Cambridge, MA: MIT Press, 2002, at pp. 16 et seq.; P.H. Longstaff,
    Competition in the Communications Sector: Can Predictability Be Regulated, Program
    on Information Resources Policy, Harvard University, April 2003, at pp. 14 et seq.; P.H.
    Longstaff, The Puzzle of Competition in the Communications Sector: Can Complex
    Systems be Regulated or Managed?, Program on Information Resources Policy, Harvard
    University, July 2003, both available at http://www.pirp.harvard.edu, at pp. 517 and
    pp. 20 et seq. See also Peter R. Monge and Noshir S. Contractor, Theories of Communication
    Networks, Oxford: Oxford University Press, 2003, especially at pp. 7998.
    133

    41

    CHAPTER 2
    THE GOALS AND OBJECTIVES OF COMMUNICATIONS REGULATION
    After introducing communications as object of regulation, it is necessary
    to figure out what goals are there to be pursued in order to examine
    what kind of measures can bring them about. The presentation of the
    regulations objectives is, on the one hand, necessary because the multiple
    goals inherent to the communications regulatory environment stress
    further the unique nature of electronic communications, as already
    revealed in Chapter 1. On the other hand, goal evaluation is in itself an
    essential element of the regulation designing process. Goals give
    regulation direction and function and thus need to be taken into utmost
    account. In the words of Robert Bork, [o]nly when the issue of goals
    has been settled is it possible to frame a coherent body of substantive
    rules.1
    Article 8 of the Framework Directive2 of the current EC electronic
    communications regime defines as policy objectives to be pursued by
    the National Regulatory Authorities (NRAs) three major goals. These
    are: (i) promotion of competition; (ii) contribution to the development
    of the internal market; and (iii) promotion of the interests of the citizens
    of the European Union, including consumer protection and the provision
    of universal service.
    The analysis that follows in the next Sections will build upon the so-defined
    objectives of Article 8 and the primary EC law but will not be constrained
    by them. Our purpose in fact is not only to see what the goals of
    communications regulation according to the current European Community
    law are but also to explore what goals are in general of relevance in electronic
    communications. We shall also distinguish between the objectives pursued
    by the policy and the objectives that are assigned to the regulatory agencies
    in charge of implementing that policy, as reflected in the legal framework
    within which they function. Such a distinction is necessary since the
    objectives embodied in the framework may differ from the ultimate policy
    objectives. The first reason for this divergence is that the constraints under
    which the institutions operate must be explicitly recognised. The mandate
    of the regulatory agency is to be limited and clearly defined so that one can
    1
    Robert H. Bork, The Antitrust Paradox: A Policy at War with Itself, New York: The Free
    Press, 1993 (first published New York: Basic Books, 1978), at p. 50.
    2
    Directive 2002/21/EC of the European Parliament and of the Council of 7 March 2002 on
    a common regulatory framework for electronic communications networks and services,
    OJ L 108/33, 24 April 2002 (Framework Directive).

    43

    EC Electronic Communications and Competition Law

    be reasonably confident that the agency can fulfil it. If broad discretion in
    implementation could be more easily abused, for instance, it may be
    desirable to formulate the institutions tasks in terms of simplified rules.
    This might in practice lead to loss of precision in implementation with
    respect to the ultimate objective, but could be far less damaging than leaving
    implementation of general objectives open to capture by particular interests
    or by the implementing agency itself. The second reason for divergence
    involves strategic interactions that may occur between the institution in
    charge and other agents concerned with the policy. The theory of delegation
    provides the important insight that a particular objective may be best
    achieved indirectly, by delegating responsibility to achieve it to an agent
    with a different objective. Finally, since a concrete legal regime corresponds
    to a certain time period of application, the goals formulated in that regime
    might be focused on certain transitory problems that are peripheral to the
    ultimate policy objectives.3
    The purpose of this Chapter is to outline the essential policy objectives
    pertinent to electronic communications. This would be done only in
    broad sketch lines within the built-in logical framework of object of
    regulation goals tools since it is beyond the scope of the present
    work to engage in all the economic, sociological, policy (and indeed
    philosophical) discussions triggered by the issue of regulation
    objectives.4 The methodological approach will be rather a mixed one it
    will be founded on the EC legal bases and past experience, as well as on
    academic research and normative recommendations in the broad context
    of good governance.5
    1.

    Introduction

    As we saw in Chapter 1, the telecommunications sector is one with heavy


    regulatory history. While part of the rationale for the burdensome
    regulation was the natural monopoly characteristics of the industry,
    another (important) part of it was the different perception of the
    industrys role. Indeed, telecommunications have always been
    considered a business affected with a public interest,6 although the
    precise definition of the public interest has changed over time and even
    3

    In this vein, see Damien Neven, Working Paper on Competition Policy Objectives in
    Claus Dieter Ehlermann and Laraine L. Laudati (eds.), European Competition Law Annual
    1997: Objectives of Competition Policy, Oxford/Portland, Oregon: Hart Publishing, 1998, at
    pp. 111112.
    4
    See eg Anthony I. Ogus, Regulation: Legal Form and Economic Theory, Oxford: Clarendon
    Press, 1994, at Part I.
    5
    See eg European Commission, European Governance: White Paper, COM(2001) 428
    final, 25 July 2001.
    6
    William H. Melody, Policy Objectives and Models of Regulation in William. H. Melody
    (ed.), Telecom Reform: Principles, Policies and Regulatory Practices, Lyngby: Technical
    University of Denmark, 1997, pp. 1124, at p. 12.

    44

    The Goals and Objectives of Communications Regulation

    more impressively so, the measures for the achievement of the public
    interest goals. At the outset of their development, telecommunications
    were simply important for point-to-point communication within strictly
    national limits, and later, on inter-national level as well.7 In that context,
    governments regulated them as public services and with considerations
    of spectrum scarcity, national security and defence. Public authorities
    were given control of the national networks and the services provided
    through them. The entities responsible for telecommunications were
    organised as monopolies whose activities were exempt from the general
    rules of competition and subject to specific regulation. The objective of
    regulation during this period, although not necessarily explicitly defined,
    was the provision of telecommunications services at affordable prices
    to the public and access to all citizens across the national territory to
    basic telecom services, which meant in essence, a telephone in every
    home.8
    Today, the telecommunications sector no longer fits the straitjacket of
    public service anymore. Plain voice telephony service has been replaced
    with the idea of Information Society 9 and the objectives of
    communications regulation have been adjusted accordingly. In the
    dynamic new world of electronic communications, the identification of
    the regulatory objectives is critically important and, at the same time,
    increasingly difficult.10
    Since electronic communications is now a sector that touches upon, and
    indeed influences, multiple facets of economic and social reality, the
    goals to be pursued are equally varied. One could differentiate broadly
    between economic and societal goals, although as we shall see below,
    they overlap in many respects. For the sake of clarity, the following
    Sections will discuss the economic (Section 2) and the societal objectives
    (Section 3) as distinct categories. Innovation and universal service will
    be additionally examined as concrete models illustrating the complexity
    of issues behind an economic and a societal goal of communications
    regulation, respectively.
    7

    International communications were based on the traditional bilateral correspondent


    system. See eg Pierre Larouche, Competition Law and Regulation in European
    Telecommunications, Oxford/Portland, Oregon: Hart Publishing, 2000, at p. 2.
    8
    Colin R. Blackman, Universal Service: Obligation or Opportunity? (1995)
    Telecommunications Policy, Vol. 19, No 3, pp. 171176, at p. 171.
    9
    On the concept of Information Society, see infra Section 3.4.
    10
    Colin Blackman eloquently noted in this regard that, [i]f the arrival of the Information
    Society has been tardy so, too, has been our ability to grasp its implications, to define
    what kind of society we want and the measures needed to bring it about. See Colin R.
    Blackman, Convergence between Telecommunications and Other Media (1998)
    Telecommunications Policy, Vol. 22, No 3, pp. 163170, at p. 163.

    45

    EC Electronic Communications and Competition Law

    2.

    Economic Objectives
    2.1

    Consumer Welfare

    When one talks about the economic objectives standing before regulation,
    as conventional wisdom has it now, one is talking about competition.
    The roots of the concept of competition can be traced back to the very
    beginning of economic science: Adam Smith, the father of the invisible
    hand theory of welfare, viewed competition as the force driving
    economies to the very best outcomes that are feasible.11 Although the
    underlying economic theories of antitrust have changed over the years,12
    a competitive market driven by entrepreneurship is still believed to make
    the most efficient use of resources and to be the best allocator of wealth
    among societys members.13
    But competition is not an end in itself. It is the means for achieving the
    ultimate goal standing before economic policy, including the one applied
    to communications, which is, according to modern economic theory,
    consumer welfare.14 The consumer welfare approach sees competition
    11

    Adam Smith, An Enquiry into the Nature and Causes of the Wealth of Nations, New York:
    Modern Library, 1937 (first published 1776). Available at http://www.gutenberg.org/etext/
    3300. The most well-known and cited passage therein is the following: He [specifically
    each individual] generally, indeed neither intends to promote the public interest, nor
    knows how much he is promoting it[He] intends only his own gain, and he is in this, as
    in many other cases, led by an invisible hand to promote an end which was no part of his
    intention. As cited by Patrick Van Cayseele and Roger Van den Bergh, Antitrust Law
    in Boudewijn Bouckaert and Gerrit De Geest (eds.), Encyclopaedia of Law and Economics,
    Cheltenham, UK: Edward Elgar Publishing, 2000, pp. 467497, at p. 469 (emphasis added).
    12
    For an overview of the different schools of economic thought from the Harvard through
    the Chicago School to the game-theoretic models, see Patrick Van Cayseele and Roger
    Van den Bergh, ibid. With a more specific regard to EC competition law, see Jonathan
    Faull and Ali Nikpay, The EC Law of Competition, Oxford: Oxford University Press, 1999,
    at pp. 360; Mel Kenny, The Transformation of Public and Private EC Competition Law, Berne:
    Staempfli Publishers, 2002, at pp. 114134; Doris Hildebrand, The European School of
    EC Competition Law (2002) World Competition, Vol. 25, No 1, pp. 323. On the debate on
    the objectives of EC competition law, see Claus Dieter Ehlermann and Laraine L. Laudati
    (eds.), European Competition Law Annual 1997: Objectives of Competition Policy, Oxford/
    Portland, Oregon: Hart Publishing, 1998, in particular at pp. 1133.
    13
    [O]n the whole, markets deliver better outcomes than state planning; and central to
    the idea of a market is the process of competition. See Richard Whish, Competition Law,
    5th edition, London: Butterworths LexisNexis, 2003, at p. 2. For some examples on the
    beneficial role of competition, see Stephen Davies, Heather Coles, Matthew Olczak,
    Christopher Pike and Christopher Wilson, The Benefits from Competition: Some
    Illustrative UK Cases, DTI Economics Paper No 9, July 2004. On the benefits of deregulation
    in telecommunications, see J. Gregory Sidak and Daniel F. Spulber, Deregulation and
    Managed Competition in Network Industries (1998) Yale Journal on Regulation, Vol. 15,
    No 1, pp. 117147, at pp. 120 et seq.
    14
    The surplus of a given consumer is given by the difference between the consumers valuation
    for the good in issue (willingness to pay) and the price that he/she effectively has to pay for it.
    Consumer welfare (or consumer surplus) is then the combined surpluses of all consumers.
    The surplus of an individual producer, on the other hand, is the profit he/she makes by
    (continued...)
    46

    ..)

    The Goals and Objectives of Communications Regulation

    as ensuring allocative, productive and dynamic efficiency in the


    economy. These three interdependent categories imply respectively that:
    (i) under the circumstances of allocative efficiency firms employ
    resources and productive energies to produce goods and services that
    provide maximum benefit to society; (ii) under the circumstances of
    productive efficiency firms have the appropriate incentives to produce
    services at least cost, and production activities are distributed between
    firms so that industry-wide costs are minimised; and finally, (iii) under
    dynamic efficiency firms have the appropriate incentives to invest,
    innovate, improve the range and quality of services, increase
    productivity and lower costs over time. Collectively, these generic
    benefits of competition provide maximisation of wealth by the lowest
    possible cost for society, the consumer15 being the ultimate beneficiary
    of the competitive market forces.
    The goal of regulation in the above context is to ensure that these
    efficiencies are present. In Western economies and, increasingly in all
    world economies, this is coordinated to a significant extent by the market
    mechanisms. In fact, according to theoretical models, it can be
    demonstrated that, under certain circumstances, the allocation of
    resources by means of market mechanisms is optimal.16 Such conditions
    however seldom exist in reality and there is a demand for instruments
    of promoting efficiency and improving allocation. The public interest
    theory of regulation17 holds that government regulation can be the
    selling the good in question. Producer welfare (or surplus) is the sum of all profits made by
    producers in the industry. Economic welfare is a measure that aggregates both consumer welfare
    and producer welfare. In practice, it is sometimes difficult to see whether competition authorities
    favour as an objective consumer or total economic welfare. In the EC jurisdiction, as well as
    in the US, antitrust authorities and the courts seem to favour consumer welfare as the standard.
    See Massimo Motta, Competition Policy: Theory and Practice, Cambridge: Cambridge University
    Press, 2004, at pp. 1822. On consumer welfare in US antitrust decisions, see Jerry A. Hausman
    and J. Gregory Sidak, A Consumer-Welfare Approach to the Mandatory Unbundling of
    Telecommunications Networks (1999) The Yale Law Journal, Vol. 109, pp. 417505, at pp. 452
    et seq. and Lawrence J. Spiwak, Antitrust, the Public Interest and Competition Policy: The
    Search for Meaningful Definition in a Sea of Analytical Rhetoric (1997) Antitrust Report,
    pp. 223.
    15
    That it is in a situation that we construe economic welfare as consumer welfare. However,
    even we take it as a total surplus (see supra note 14), that is a sum of consumer and
    producer welfare, the consumers could be identified as ultimate beneficiaries, since in
    most cases, producers are in effect consumers themselves.
    16
    Kenneth J. Arrow, The Potential and Limits of the Market in Resource Allocation in George
    R. Feiwel (ed.), Issues in Contemporary Microeconomics and Welfare, London: Macmillan
    Press, 1985, pp. 107124, as referred to by Johan den Hertog, General Theories of Regulation
    in Boudewijn Bouckaert and Gerrit De Geest, supra note 11, pp. 223270, at p. 225.
    17
    For representatives of the public interest theory, see eg Kenneth J. Arrow, The
    Organization of Economic Activity: Issues Pertinent to the Choice of Market versus Nonmarket Allocation in Robert H. Haveman and Julius Margolis (eds.), Public Expenditure
    and Policy Analysis, Chicago: Rand MacNally College Publishing, 1970, pp. 6781 and
    Martin Shubik, On Different Methods for Allocating Resources (1970) Kyklos, Vol. 13,
    pp. 332338.
    47

    EC Electronic Communications and Competition Law

    appropriate tool for overcoming the disadvantages of market


    mechanisms in situations such as imperfect competition, unstable market
    equilibrium, unbalanced market operation or undesirable market results.
    Although this theory has been criticised because it takes for granted the
    effectiveness of the applied government regulation tools and ignores
    some phenomena, such as imperfect information and partiality of policy
    makers,18 it still remains true that some kind of regulation is needed
    where market failures occur.
    The telecommunications industry is a vivid example for the changed
    views of economic regulation. As discussed in Chapter 1, the sector was
    under heavy regulation precisely because it was believed that it
    constitutes a natural monopoly, ie a case of imperfect competition, where
    due to the inherent high sunk costs, economies of scale and scope,19 it
    was more efficient (or so it seemed) to have only one operator on the
    market.20 The telecommunications regulation enforced was meant to
    correct the undesirable effects and promote efficient allocation by
    certain restrictions on the market and on the organisation entitled with
    monopoly functions. 21 This monopolistic view of the
    telecommunications is no longer supported and now it is the market
    itself that is responsible for bringing about the generic benefits of
    competition, 22 as clearly exemplified by the current European
    Community regulatory approach to electronic communications.23
    These transformed views of economic regulation of telecommunications
    do not mean however that the ultimate goals have essentially changed.
    The means and methods for their achievement have. While under the
    monopoly regime, the state was responsible for providing the consumer
    welfare through extensive sectoral regulation, now the role of regulation
    is limited to facilitating and maintaining the market operation,24 or
    imitating it in situations where it has not yet substantially developed.25
    18

    For an overview of the shortcomings of the public interest theory of regulation, see eg
    Johan den Hertog, supra note 16, at pp. 231235.
    19
    For the corresponding definitions, see supra Chapter 1, at note 32.
    20
    For references on natural monopoly theory and regulation, see supra Chapter 1, at note 34.
    21
    See supra Chapter 1, Section 4.1 on network industries.
    22
    For the different theories challenging natural monopoly regulation, see supra Chapter
    1, at note 55.
    23
    See infra Part 2, Chapter 3.
    24
    The XXIX Report on Competition Policy states in that regard: The first objective of
    competition policy is the maintenance of competitive markets. Competition policy serves as
    an instrument to encourage industrial efficiency, the optimal allocation of resources, technical
    progress and the flexibility to adjust to a changing environment. See European Commission,
    XXIX Report on Competition Policy, Brussels, 2000, at p. 6. See also Guidelines on vertical
    restraints, OJ C 291/1, 13 October 2000, [2001] 2 CMLR 1074, at para. 7 (emphasis added).
    25
    That is, in the case of telecommunications, as we shall see in Part 3, achieved presently
    through a combination of competition law and additional specific regulatory tools. The
    former is aimed at maintaining the market operation through monitoring the creation of
    (continued...)
    48

    The Goals and Objectives of Communications Regulation

    Thus, one can reiterate the submission that consumer welfare and the
    corresponding efficiencies are the core and ultimate objective of
    economic regulation, while competition is the way leading to them.26
    2.2

    The Internal Market

    When construing economic policy objectives broadly, consumer welfare


    is, however, by no means, the only objective. At least in the European
    Community context, economic policy has been instrumentalised to the
    achievement of goals that do not necessarily correspond to the stringent
    economic rationales for regulatory intervention but rather take a wider
    view of its desired outcomes.27
    The European Court of Justice, in its seminal Metro judgment, stated
    that, the requirements for the maintenance of workable competition
    may be reconciled with the safeguarding of objectives of different nature
    and that to this end certain restrictions on competition are permissible,
    provided that they are essential to the attainment of those objectives
    and that they do not result in elimination of competition for a substantial
    part of the Common Market.28
    Taking into account the macro-dimension of the European project, these
    objectives of different nature are related above all to the promotion of
    market integration,29 involv[ing] the elimination of all obstacles to intracommunity trade in order to merge the national markets into a single

    ..)

    positions of economic power and by prohibiting competition limiting agreements or


    punishing the abuse thereof. The latter are supposed to play a supporting role to
    antitrust regulation, in order to introduce market mechanisms and facilitate them until
    competition gets hold and/or intervene in situations where the market fails. Such a
    regulatory intervention is however only justified where the goals are not obtainable
    through the functioning of market forces.
    26
    The potential of competition has been empirically proven by the development of the
    telecommunications sector since its opening to competition. The European Commission
    reports on the state of the telecommunications markets provide an excellent account for
    this. For the current state of affairs, see European electronic communications regulation
    and markets 2004 (Tenth Report), COM(2004) 759 final, 2 December 2004 and European
    electronic communications regulation and markets 2005 (Eleventh Report), COM(2006)
    68 final, 20 February 2006.
    27
    See eg Massimo Motta, supra note 14, at p. 23.
    28
    Case 26/76 Metro SB Grossmrkte GmbH & Co KG v. Commission (Metro I) [1977] ECR 1875,
    [1978] 2 CMLR 1, at para. 1905 (emphasis added). On the concept of workable competition,
    see John M. Clark, Towards a Concept of Workable Competition (1940) American Economic
    Review, Vol. 30, pp. 242243; Damien Neven, Working Paper on Competition Policy
    Objectives in Claus Dieter Ehlermann and Laraine L. Laudati (eds.), supra note 12.
    29
    Although it should be noted that, as the case law of the European Court of Justice and the
    Court of First Instance, and the practice of the EC institutions have shown, the objectives of
    different nature in the sense of the Metro judgment (ibid.), might also involve policy
    considerations other than market integration, such as the promotion of small and medium
    enterprises or diversity of market players. On these other goals, see eg Richard Whish,
    supra note 13, at pp. 1720 and Massimo Motta, supra note 14, at pp. 1517 and 2630.
    49

    EC Electronic Communications and Competition Law

    market bringing about conditions as close as possible to those of a


    genuine internal market.30 The completion of the internal market is
    indeed a goal innate to the European Union, which has its solid
    justification in the economic theory31 and has been vigorously pursued
    by the Communitys institutions throughout the Unions evolution.32
    The Treaty establishing the European Community33 declares expressly the
    Common Market as a Communitys task34 and defines further in Article 3
    the achievement of an internal market characterised by the abolition, as
    between Member States, of obstacles to the free movement of goods, persons,
    services and capital35 as one of the core EC activities. The four freedoms
    and the competition rules, along with the positive integration measures,36
    and essentially all European Union policies have been made instrumental
    to the achievement of the internal market.37 An example in point is indeed
    the opening of the European telecommunications markets, which was
    achieved through the adoption of the Commissions liberalisation directives
    and the extensive Open Network Provision (ONP) framework.38 The latter
    was notably based on Article 95 EC, ie the primary Communitys instrument
    30

    Case 15/81 Gaston Schul Douane-Expediteur BV v. Inspecteur der Invoerrechten en Accijnzen


    [1982] ECR 1409, at paras 14312.
    31
    For a comprehensive analysis, see Richard E. Baldwin and Charles Wyplozs, The
    Economics of European Integration, New York: McGraw-Hill, 2003. See also Paolo Cecchini
    (Rapporteur-General), The Cost of Non-Europe, Report prepared for the European
    Commission, Brussels, 29 March 1988.
    32
    On the concepts of the common market and the single market, see Catherine Barnard, The
    Substantive Law of the European Union, Oxford: Oxford University Press, 2004, at pp. 10 et seq.
    33
    Treaty establishing the European Community (consolidated version) OJ C 325/33,
    24 December 2002 (hereinafter the EC Treaty).
    34
    Article 2 of the EC Treaty reads: The Community shall have as its task, by establishing
    a common market and an economic and monetary union and by implementing common policies
    or activities referred to in Articles 3 and 4, to promote throughout the Community a
    harmonious, balanced and sustainable development of economic activities, a high level
    of employment and of social protection, equality between men and women, sustainable
    and non-inflationary growth, a high degree of competitiveness and convergence of
    economic performance, a high level of protection and improvement of the quality of the
    environment, the raising of the standard of living and quality of life, and economic and
    social cohesion and solidarity among Member States (emphasis added).
    35
    Article 3(1)(c) of the EC Treaty.
    36
    See Articles 2 and 3 EC, as well as Titles I, II and VI of the Treaty.
    37
    As pointed out by the Honourable Christopher Bellamy, contemplating on EC antitrust
    rules, [t]hose articles [Articles 85 and 86] were included in the EEC Treaty not because of
    any deep rooted idea of competition being an end itself, but as support for the political idea
    behind the Treaty, which was to establish not just a common market but an ever closer union
    among the peoples of Europe over the longer term. The basic idea behind articles 85 and 86
    was that if you are to dismantle barriers between states within a common market, both tariff
    barriers and non-tariff barriers, you cannot risk having those barriers re-erected by private
    agreements or abuses of monopoly by private parties. See Christopher Bellamy, Some
    Reflections on Competition Law in the Global Market (1999) New England Law Review, Vol. 34,
    pp. 1519, at p. 16. See also Massimo Motta, supra note 14, at pp. 1314.
    38
    On the liberalisation of EC communications and the ONP framework, see infra Part 2,
    Chapter 4.

    50

    The Goals and Objectives of Communications Regulation

    for adoption of measures having as their object the establishment and


    functioning of the internal market.39
    The internal market is a European Community-specific goal that
    distinguishes EC antitrust from its US (or other national40) counterparts,
    where such an objective is absent.41 In the EC frame, [f]aced with a
    conflict between the narrow interests of a particular firm and the broader
    problem of integrating the market, the tendency [of the European
    institutions] will be to subordinate the former to the latter.42
    It should, however, be noted that the underlying market integration
    rationale, which dominated EC competition law at the outset of its
    development,43 has been increasingly eroded with the actual achievement
    of the single market. The generic benefits of competition, ie the pure
    economic rationale of competition for achieving efficiency, have
    gradually come to the fore. This economic turn44 is, however, to be seen
    together with the public turn towards formulation and pursuit of a
    multitude of policy objectives other than pure market integration.45
    The pursuit of both competition and market integration, as briefly
    outlined above, has been explicitly mentioned in the materiae of EC
    communications law as well. In the Notice on application of the
    competition rules to access agreements in the telecommunications sector
    (the Access Notice),46 the Commission pointed out that, [b]oth the
    39

    Article 95(1) of the EC Treaty (emphasis added).


    It should, however, be noted that some federal states, such as, for instance, Switzerland,
    do have regulation ensuring the creating and maintaining of a single market. See eg
    Bundesgesetz ber den Binnenmarkt of 6 October 1995, SR 943.02.
    41
    From the perspective of US antitrust, EC competition law is often criticised for not
    being efficiency-based and for pursuing non-economic goals. See eg Roger van den Bergh,
    Modern Industrial Organisation versus Old-Fashioned European Competition Law
    (1996) European Competition Law Review, Vol. 17, pp. 7587.
    42
    Richard Whish, supra note 13, at p. 21.
    43
    Seminal cases of the European Court of Justice on the broad interpretation of the internal
    market goal are Joined Cases 56 and 58/64 Consten and Grundig v. Commission [1966] ECR
    299, [1966] CMLR 418 and Case 14/68 Walt Wilhelm v. Bundeskartellamt [1969] ECR 1, [1969]
    CMLR 100.
    44
    On the economic turn of European competition law, see Mel Kenny, supra note 12, at pp. 101
    218. For arguments for an enhanced economic methodology in the application of Article 82
    EC, see Economic Advisory Group for Competition Policy (EAGCP), An Economic Approach
    to Article 82, EAGCP Report for DG COMP, July 2005.
    45
    See eg infra Section 3.2 on universal service. A similar public turn observation has
    been made by Herbert Burkert in the context of EC telecommunications policy. See Herbert
    Burkert, The Post-Deregulatory Landscape in International Telecommunications Law:
    A Unique European Union Approach (2002) Brooklyn Journal of International Law,
    Vol. XXVII:3, pp. 739816.
    46
    Commission Notice on the application of the competition rules to access agreements in
    the telecommunications sector, OJ C 265/3, 22 August 1998. The notice was issued as
    guidance for market players and national agencies at the end of the liberalisation process
    (continued...)
    40

    51

    EC Electronic Communications and Competition Law

    liberalisation legislation (the Article 90 Directives) and the harmonisation


    legislation (the ONP Directives) are aimed at ensuring the attainment
    of the objectives of the Community as laid out in Article 3 of the Treaty,
    and specifically, the establishment of a system ensuring that competition
    in the internal market is not distorted and an internal market
    characterised by the abolition, as between Member States, of obstacles
    to the free movement of goods, persons, services and capital.47
    As mentioned at the onset of this chapter, the current EC regime for
    electronic communications networks and services has also spelt out as
    underlying objectives to be pursued by the National Regulatory
    Authorities both the promotion of competition and development of
    the internal market.48 The former is to be achieved by:
    (a) ensuring that users derive maximum benefit in terms of choice, price
    and quality; (b) ensuring that there is no distortion or restriction of
    competition in the electronic communications sector; (c) encouraging
    efficient investment in infrastructure and promoting innovation; and
    (d) encouraging efficient use and ensuring effective management of radio
    frequencies and numbering resources;49 while the development of the
    internal market is pursued through: (a) removing remaining obstacles
    to the provision of electronic communications networks, associated
    facilities and services and electronic communications services at
    European level; (b) encouraging the establishment and development of
    trans-European networks and the interoperability of pan-European
    services and end-to-end connectivity; (c) ensuring that, in similar
    circumstances, there is no discrimination in the treatment of
    undertakings providing electronic communications networks and
    services; (d) cooperating with other NRAs and with the European
    Commission in a transparent manner to ensure the development of
    consistent regulatory practice and the consistent application of the
    Framework and the Specific Directives.50
    2.3

    Innovation

    In the context of the electronic communications industry and in


    accounting for its unique dynamism,51 it is perhaps worth placing
    and followed up the Commission guidelines on application of EEC competition rules in
    the telecommunications sector, OJ C 233/2, 6 September 1991.
    47
    Access Notice, at Introduction, at para. 2 (footnotes omitted). The liberalisation and the
    harmonisation Directives will be discussed infra in Part Two, Chapter 4.
    48
    Article 8 of the Framework Directive.
    49
    Article 8(2) of the Framework Directive.
    50
    Article 8(3) of the Framework Directive. With regard to the consolidation of the internal
    market for electronic communications, see also Article 7 of the Framework Directive.
    51
    See supra Chapter 1, Section 4.2.

    52

    The Goals and Objectives of Communications Regulation

    additional stress on innovation52 as a key objective among the economic


    goals of communications regulation. While innovation is undoubtedly
    important for the development of any sector of the economy,53 it is indeed
    critical for electronic communications, which are driven by and highly
    dependent on innovative advances.54 Article 8(2)(c) of the Framework
    Directive has accordingly included the promotion of innovation as
    an explicit policy objective for the NRAs (although little has been said
    about how it could actually be achieved).
    Taking a closer look at innovation as one of the aspects of competition
    will serve as an example, a model, illustrating the complexity of issues
    behind any single one of the economic goals of communications
    regulation and the subordinate regulatory decisions that need to be made
    in the specific environment of electronic communications.
    Innovation is associated with one of the generic benefits of competition,55
    namely the achievement of dynamic efficiency, under which firms have
    the appropriate incentives to improve the range and quality of products
    and services, invest and innovate. It could further be linked to the general
    goal of governments of achieving sustainability.56 If compared to the
    other static types of efficiency (ie productive and allocative), dynamic
    efficiency could, in the long term, lead to the greatest improvement in
    social welfare.57
    52

    The Oxford Advanced Learners Dictionary (6th edition, Oxford: Oxford University Press,
    2000) defines innovation as: (i) the introduction of new things, ideas or ways of doing
    something; (ii) a new idea, way of doing something, etc. A more politically loaded
    definition given by the organisation London Innovation reads: Innovation is the
    successful exploitation of new ideas and is a vital ingredient for competitiveness,
    productivity and social gain within businesses and organisations. See http://
    www.london-innovation.org.uk. In the present Section and throughout this work,
    innovation will be understood in its broadest meaning of research and development,
    invention and creation of new technologies, products and services (endogenous
    innovation), as well as the adoption of these by the relevant markets (exogenous
    innovation). On the roots of innovation, see Eric von Hippel, The Sources of Innovation,
    Oxford: Oxford University Press, 1988.
    53
    Paul Romer, Endogenous Technological Growth (1990) The Journal of Political Economy,
    Vol. 98, No 5, pp. S71S102.
    54
    For evidence, see Knut Blind et al., New Products and Services: Analysis of Regulations
    Shaping New Markets, Fraunhofer Institute Systems and Innovation Research Study funded
    by the European Commission, Karlsruhe, February 2004, at p. 76. See also Marc Bourreau
    and Pinar Dogan, Regulation and Innovation in the Telecommunications Industry (2001)
    Telecommunications Policy, Vol. 25, pp. 167184, at p. 169.
    55
    See supra Section 2.1.
    56
    See eg Robert N. Stavins, Alexander Wagner and Gernot Wagner, Interpreting
    Sustainability in Economic Terms: Dynamic Efficiency Plus Intergenerational Equity,
    Regulatory Policy Program Working Paper RPP-2002-02, Cambridge, MA: John F. Kennedy
    School of Government, Harvard University, May 2002.
    57
    Marc Bourreau and Pinar Dogan, supra note 54, at pp. 167168. On the importance of
    dynamic efficiency, see also Thomas Kiessling and Yves Blondeel, The Impact of Regulation
    on Facility-Based Competition in Telecommunications: A Comparative Analysis of Recent
    (continued...)
    53

    EC Electronic Communications and Competition Law

    Unfortunately, unlike other economic parameters (such as, eg output


    and productivity), innovation is notoriously difficult to measure.58 The
    economic theory itself contains contradictory views on the relation
    between competition and innovation, ranging from the Schumpeterian
    hypotheses,59 which stress the positive effects of market concentration
    and firm size on innovation60 to the suggestion of X-inefficiency of
    monopolies and cartels leading to their laziness and organisational
    slack.61 Empirical research has proven none of these extremes true.
    Rather, it tends to suggest that neither monopolists nor fierce
    competitors have a superior track record in this respect, but it would
    seem clear that the assertion that only monopolists can innovate is
    incorrect.62
    The relation between regulation and innovation has an equally shaky
    foundation.63 In general, regulation could affect the innovation of market
    players either through price regulations that would alter the industry
    profits and consequently, the stimulus to innovate or through entry
    regulation that would influence innovation decisions regarding new
    entry. 64 In the electronic communications sector, however, some
    exogenous and (above all) endogenous factors could make the traditional
    conclusions questionable.
    Developments in North America and the European Union, 1999, available at http://
    www.tik.ee.ethz.ch/~m3i/related-work/cm/Cost-Regulation-in-TelecomsKiess_Mar99.pdf, at
    p. 4.
    58
    See Patrick Van Cayseele and Roger Van den Bergh, supra note 11, at p. 471.
    59
    Joseph A. Schumpeter, Capitalism, Socialism and Democracy, New York: Harper, 1984
    (first published 1942).
    60
    An example in point are the Bell Laboratories founded by the US monopolist AT&T in
    1925, which had developed some ground-breaking technologies, such as inter alia the
    transistor, the laser, the cellular telephone technology, communications satellites and Unix
    operating system. On Bell Labs, see S. Millman (ed.), A History of Science and Engineering
    in the Bell System: Communication Sciences (19251980), Murray Hill, NL: Bell Laboratories,
    1984 and Narain Gehani, Bell Labs: Life in the Crown Jewel, Summit, NJ: Silicon Press, 2003.
    See also http://www.bell-labs.com.
    61
    Harvey Leibenstein, Allocative Efficiency vs. X-Efficiency (1966) American Economic
    Review, Vol. 56, pp. 392415 and X-Inefficiency Xists Reply to an Xorcist (1978)
    American Economic Review, Vol. 68, pp. 203211. For more on the relation between
    competition and innovation, see Patrick Van Cayseele, Market Structure and Innovation:
    a Survey of the Last Twenty Years (1998) De Economist, Vol. 146, pp. 391417. See also
    Frederic M. Scherer, Innovation and Growth: Schumpeterian Perspectives, Cambridge,
    MA: MIT Press, 1984; Frederic M. Scherer and David Ross, Industrial Market Structure and
    Economic Performance, 3 rd edition, Boston, MA: Houghton Mifflin, 1990.
    62
    Richard Whish, supra note 13, at p. 4 (emphasis added), referring also to Frederic M.
    Scherer and David Ross, ibid. at Chapter 17. On the uncertainty of the relation firms
    size innovation, see also Massimo Motta, supra note 14, at pp. 22 and 56 et seq.
    63
    Although it is definitely clear that regulation does influence innovation, its impact is
    difficult to assess and could be controversial. See eg Knut Blind et al., supra note 54, at
    p. 1 and pp. 7 et seq. For a comparison of the different types of regulation and their
    impact on innovation, see ibid. Table 2.4.2., at p. 16.
    64
    Marc Bourreau and Pinar Dogan, supra note 54, at p. 168.

    54

    The Goals and Objectives of Communications Regulation

    First and foremost, telecommunications markets bear the historical


    burden of monopoly. This means that in many markets, even now, after
    liberalisation,65 the incumbents are in a dominant or near-dominant
    position and would have, among other benefits, the first mover
    advantage.66 They could exploit this to enable them to invade new
    markets or colonise neighbouring ones with their own technology
    and/or standard. Due to the network effects inherent to the industry, it
    might be hard for other firms to overcome this substantial advantage of
    incumbents, even if they possess a technology of higher quality.67
    The historic monopoly burden of telecommunications is, by no means,
    their only peculiarity. As discussed in Chapter 1, communications exhibit
    network effects. These could have multiple ramifications,68 including
    such that might appreciably influence the process of innovation.
    When talking about innovation and accounting for the presence of
    network externalities in electronic communications, one has to consider,
    above all, the scope of the network in issue. Indeed, the size of the
    network is of primary significance both for market players and
    consumers in the process of making their strategic decisions and choices.
    Networks become more valuable the larger they are. Once they gain a
    certain critical mass, the owner of the network has the power to
    determine conditions and/or standards and because of the positive
    network effects, could grow even bigger, and consequently have more
    power.69 In the extreme, the winner takes all.70
    65

    On the EC liberalisation process and its success, see infra Part 2, Chapter 4.
    An example in point is the recently planned attempt of the Microsoft Corporation,
    having a near-monopoly position in operating systems, to invade voice communications
    with a new software called Office Communicator. See John Markoff, New Microsoft
    Products to Take Ground from Phones, The New York Times, 9 March 2005.
    67
    See eg Paul A. David, Clio and the Economics of QWERTY (1985) American Economic
    Review, Vol. 75, No 2, pp. 332337. See also Peter S. Menell, Intellectual Property: General
    Theories in Boudewijn Bouckaert and Gerrit De Geest, supra note 11, pp. 129188, at
    p. 136.
    68
    See supra Chapter 1, Section 4.1.2. Some of these ramifications will be reiterated for the
    sake of clarity and in the context of the discrete objective of the present Section.
    69
    Shapiro and Varian note in that regard that in network industries, [t]he key challenge
    is to obtain critical mass after that, the going gets easier. See Carl Shapiro and Hal R.
    Varian, Information Rules, Boston, MA: Harvard Business School Press, 1999, at p. 14. See
    also Case IV/M.1069, WorldCom/MCI, OJ L 116/1, 4 May 1999, especially at para. 126,
    where the Commission stated that, [b]ecause of the specific features of network
    competition and the existence of network externalities which make it valuable for
    customers to have access to the largest network, MCI WorldComs position can hardly be
    challenged once it has obtained a dominant position. The more its network grows, the
    less need it has to interconnect with competitors and the more they have to interconnect
    with the merged entity. Furthermore, the larger its networks becomes, the greater is its
    ability to control a significant element of the costs of any new entrant [].
    70
    Carl Shapiro and Hal R. Varian, ibid. at p. 177.
    66

    55

    EC Electronic Communications and Competition Law

    It is characteristic of network environments that the size of the network


    does not necessarily depend only on the quality and price of the services
    or products offered, which would normally convince consumers to make
    a certain choice, but also on the expectations about the size of the
    network. The larger the network, the more attractive it is and more people
    are willing to join in. In the words of Shapiro and Varian, [t]he beautiful
    if frightening implication [is that] success and failure are driven as much
    by consumer expectations and luck as by the underlying value of the
    product. A nudge in the right direction, at the right time, can make all
    the difference.71
    This rather unstable and erratic network environment has serious
    consequences for innovation. Under such circumstances, the demand
    for and the adoption of new technologies, which is an essential part of
    the innovation process,72 could be predetermined by the lock-in effects73
    of existing large networks (the most notorious example of this is the
    Windows operating system74). People would adopt a technology that
    others have already adopted or are expected to do so. Thus, a path
    dependence of adoption75 emerges in that regard, which is difficult to
    overcome, even in a situation where a hypothetically superior technology
    exists.
    Another complication of networks and the development of the network
    markets is that the winner-takes-all scenario is logically related to a
    loser-gets-nothing situation.76 This means that the bigger the size of
    71

    Carl Shapiro and Hal R. Varian, ibid. at p. 181. See also Massimo Motta, supra note 14,
    at pp. 8285.
    72
    See supra note 52. See also Marc Bourreau and Pinar Dogan, supra note 54, at p. 168.
    73
    Victor Stango defines a lock-in as a situation in which economic agents equilibrium
    decisions regarding standards adoption yield lower social welfare than an alternative.
    See Victor Stango, The Economics of Standards Wars (2004) Review of Network Economics,
    Vol. 1, Issue 1, pp. 119, at p. 4. See also Carl Shapiro and Hal R. Varian, supra note 69, at
    pp. 103171 and Hal R. Varian, Economics of Information Technology, Raffaele Mattioli
    Lectures, 2003, at pp. 20 et seq.
    74
    See Commission Decision of 24 March 2004 relating to a proceeding under Article
    82 of the EC Treaty, Case COMP/C-3/37.792 Microsoft, C(2004) 900 final and Order of
    the President of the Court of First Instance, Proceedings for interim relief Article 82
    EC in Case T-201/04 R Microsoft v. Commission of the European Communities, 22 December
    2004 (OJ C 69/16, 19 March 2005). On the Microsoft case, see infra Part 2, Chapter 4,
    Section 2.3.3.
    75
    Victor Stango, supra note 73, at p. 5. The development of demand for and adoption of
    new technologies could also be influenced by big customers, such as, notably, the
    government or the military. See eg John W. Berresford, How Government Can Bring
    New Communications to All Americans: Six Lessons of History, Program on Information
    Resources Policy, Harvard University, October 2004, available at http://
    www.pirp.harvard.edu, at p. 2.
    76
    Varian and Shapiro refer to that as the dark side of positive feedback: [the] necessary
    implication of winner-take-all is loser-gets-nothing. See Carl Shapiro and Hal R. Varian,
    supra note 69, at p. 188.

    56

    The Goals and Objectives of Communications Regulation

    the network, the stronger the firm, and thus the poorer the chances for
    the survival of other smaller networks or firms.77 This vicious circle from
    the viewpoint of the loser (and conversely, a virtuous one from the
    viewpoint of the winner)78 influences in its own right the stimuli for
    innovation and predetermines the adoption of a new technology, service
    or product. Hence, firms other than the dominant network owner, face
    extraordinary hurdles to surmount in network markets, which could
    seriously diminish their innovation potential. Firms could arguably
    improve their chances of survival or even future innovation-based
    breakthrough if their technologies are compatible with those of the larger
    network. This brings us to another issue of paramount importance in
    network industries in relation to innovation that of standardisation
    and interoperability (or compatibility).79 In fact, it has been proven that
    the trend towards standardisation 80 increases naturally 81 in the
    environment of networks.
    2.3.1 Standards
    Standards82 are generally perceived as socially beneficial.83 If applied to
    network markets, they allow, most notably, for the creation of network
    77

    There are plenty of examples in that regard. The most popular ones are certainly the
    QWERTY keyboard (against the likely better Dvorak version) and the VHS system (against
    the likely better Sony BETA version). A more recent example is the victory of Windows
    Internet Explorer over Netscape. On the latter battle between the browsers, see Carl
    Shapiro and Hal R. Varian, ibid. at pp. 289295.
    78
    Terminology used by Shapiro and Varian, ibid. at p. 176.
    79
    On the meaning of interoperability, see Microsoft, supra note 74, at paras 30 et seq.
    80
    On standardisation in the information economy, see generally Carl Shapiro and Hal R.
    Varian, supra note 69, at pp. 173296. For more in-depth economic analyses, see Stanley
    Besen and Joseph Farrell, Choosing How to Compete: Strategies and Tactics in
    Standardization (1994) Journal of Economic Perspectives, pp. 117131; Heli Koski and Tobias
    Kretschmer, Survey on Competing in Network Industries: Firm Strategies, Market
    Outcomes, and Policy Implications (2004) Journal of Industry, Competition and Trade (Bank
    Papers), pp. 531, at pp. 14 et seq.; Victor Stango, supra note 73; Knut Blind et al., supra
    note 54; Knut Blind, The Economics of Standards: Theory, Evidence, Policy, Cheltenham, UK:
    Edward Elgar Publishing, 2004; Joseph Farrell and Paul Klemperer, Coordination and
    Lock-In: Competition with Switching Costs and Networks Effects in Richard Schmalensee
    and Robert D. Willig (eds.), Handbook of Industrial Organization, Vol. 3, Amsterdam: NorthHolland (forthcoming).
    81
    Victor Stango, ibid. at p. 3. The International Telecommunication Union (ITU) being
    the oldest international organisation (created in 1865 under the name International
    Telegraph Union) is an indirect proof for the necessity of standardisation in
    telecommunications.
    82
    In the literature on standardisation, there are different categorisations of standards (see eg
    Knut Blind et al., supra note 54, at pp. 185 et seq.). In the context of network industries and
    innovation, this section focuses on compatibility and interface standards, as opposed to eg
    standards in relation to safety, quality or information, since the compatibility standards could
    have the most serious impact in networks. The general definition of a standard in the EC
    sense is a technical specification approved by a recognised standardisation body for repeated
    or continuous application, with which compliance is not compulsory and which is either
    international, European or national. See Article 1(4) of Directive 98/34/EC of the European
    (continued...)
    57

    EC Electronic Communications and Competition Law

    of networks and make interconnection within it smooth. By enhancing


    interoperability, standards also generate greater value for users by
    making the network larger.84 Furthermore, standards could substantially
    reduce uncertainty for the consumers, as well for the other market
    players. Consumers lock-in could be decreased and the locus of
    competition [shifts] from an early battle for dominance to a later battle
    for market share. Instead of competing for the market, companies
    compete within the market, using the common standards.85 Ultimately,
    [a] perfectly compatible system of networks prevents static welfare
    losses which might otherwise arise due to lessened competition and
    dynamic welfare losses which stem from reduced innovative
    incentives.86
    Standardisation as a process could be either regulation-driven or marketdriven. Under market conditions, there are generally a number of
    different strategies that firms87 undertake in order to negotiate a standard
    or win a standards war.88 These involve inter alia important decisions
    on whether firms should follow a revolutionary or evolutionary
    technological path, whether they will open their standard or maintain
    control of the technologies, whether they will be diplomatic or
    aggressive, search an alliance, settle for a truce or fight to the death.89
    Parliament and of the Council laying down a procedure for the provision of information in
    the fields of technical standards and regulations and of rules on information services, OJ L
    204/37, 21 July 1998, as amended by Directive 98/48/EC, OJ L 217/18, 5 August 1998. For an
    extensive definition of standards with references to relevant literature, see Andreas Neumann,
    The European Regulatory Framework for Standardisation in the Telecommunications Sector
    in Christian Koenig, Andreas Bartosch and Jens-Daniel Braun (eds.), EC Competition and
    Telecommunications Law, The Hague/London/Boston: Kluwer Law International, 2002, pp. 617
    690, at pp. 617622. On standards as type of regulation, see Anthony I. Ogus, supra note 4, at
    pp. 150 et seq.
    83
    See Carl Shapiro and Hal R. Varian, supra note 69, at pp. 228 et seq. See also Knut Blind
    et al., supra note 54, at p. xi and pp. 184 et seq. and Andreas Neumann, ibid. at pp. 622 et
    seq.
    84
    See European Commission, Communication on the role of European standardisation
    in the framework of European policies and legislation, COM(2004) 674 final, 18 October
    2004, at pp. 5 et seq.
    85
    Carl Shapiro and Hal R. Varian, supra note 69, at p. 231 (emphasis in the original). See
    also Carl Shapiro, Competition Policy and Innovation, OECD Science, Technology and
    Industry Working Paper DSTI/DOC(2002)11, Paris, 2002, at pp. 25 et seq.
    86
    Marc Bourreau and Pinar Dogan, supra note 54, at p. 173.
    87
    Shapiro and Varian identify seven key assets of market players in network markets
    important to win a standards war. These are: (i) control over installed base of users;
    (ii) intellectual property rights; (iii) ability to innovate; (iv) first-mover advantages;
    (v) manufacturing abilities; (vi) strength in complements; and (vii) brand name and
    reputation. See Carl Shapiro and Hal R. Varian, supra note 69, at pp. 270 et seq.
    88
    Hal R. Varian, supra note 73, at pp. 35 et seq. For examples of current standards wars,
    albeit not in telecommunications, see eg Claude Settele, Der Krieg der Formate (The
    War of the Formats), NZZ Folio, February 2005, pp. 28 et seq. For examples of standard
    wars of the recent past, see Knut Blind et al., supra note 54, at pp. 186199.
    89
    See Carl Shapiro and Hal R. Varian, supra note 69, at pp. 227296.

    58

    The Goals and Objectives of Communications Regulation

    Every one of these decisions could more or less dramatically change the
    market environment. What is of specific importance in the sense of our
    discussion on innovation and regulation is that these standards wars
    might not bring about the optimal result in terms of consumer welfare.
    Owing to the specifics of networks, the market might settle for a standard
    that is not necessarily the best possible.90
    In such situations, where the market chooses an inefficient standard, or
    is locked-in to an old standard even if confronted with a new superior
    one,91 there is a clear need for government intervention in order to
    promote standardisation or the migration to a new standard.92 On the
    other hand, it should be noted that setting a standard or assisting the
    process of achieving one through regulatory intervention could equally
    lead to situations where a wrong standard93 is chosen, or the natural
    market developments are seriously distorted.94 The dangers of hard
    lobbying and regulatory capture are also real and present. In the context
    of electronic communications characterised by extreme dynamism and
    lack of predictability, making technologically biased choices could be
    particularly harmful to innovation incentives.95
    It is important to note that in the context of the Communitys electronic
    communications, the process of standardisation96 is naturally enhanced:
    first, since the inherent EC pursuit of achieving and sustaining the
    internal market presupposes harmonisation and standardisation through
    90

    Notorious examples are QWERTY and the arguably better Dworkin keyboard, as well
    as VHS and the arguably better Beta videotaping format. See eg Paul A. David, supra
    note 67 and Stanley J. Liebowitz and Stephen E. Margolis, Network Externality: An
    Uncommon Tragedy (1994) Journal of Economic Perspectives, Vol. 8, No 2, pp. 126, at
    Section V.
    91
    See Andreas Neumann, supra note 82, at pp. 623624.
    92
    [I]t is important to note that regulating interoperability is essential for maintaining
    effective competition whenever there exists market power or a tendency for market
    dominance. For the markets in which there are no distortions due to market dominance
    or interface control, it might not be necessary to impose interoperability. Moreover, such
    control in these markets might have some important drawbacks in terms of innovation,
    as the operator who wishes to keep exclusive provision of its innovative services might
    be under an incentive to develop innovative and differentiated services. See Marc
    Bourreau and Pinar Dogan, supra note 54, at p. 174.
    93
    See eg Paul A. David, supra note 67, at p. 336.
    94
    Massimo Motta, supra note 14, at p. 484.
    95
    As will be discussed in Part 2, Chapter 4, technological neutrality is one of the underlying
    principles of the 2002 e-communications package. See Recital 18 and Article 8(1) of the
    Framework Directive.
    96
    See Directive 98/34/EC, supra note 82; Council Resolution of 28 October 1999 on the
    role of standardisation in Europe, OJ C 141/1, 19 May 2000; Council conclusions on
    standardisation of 1 March 2002, OJ C 66/1, 15 March 2002 and European Commission,
    Communication on the role of European standardisation, supra note 84. For extensive
    analysis of standardisation in the EC context, see Andreas Neumann, supra note 82,
    pp. 617690. In the context of European standardisation, there can be little argument that
    (continued...)
    59

    EC Electronic Communications and Competition Law

    the national and European standards bodies.97 The establishment of an


    area without inner frontiers for the free movement of goods, persons,
    services and capital would be otherwise endangered by diverging
    national standards or lack of such.98 In the absence of Community
    standards and/or specifications, Member States are further obliged to
    encourage the implementation of existing international standards
    adopted by the International Telecommunication Union (ITU), the
    International Organisation for Standardisation (ISO) or the International
    Electrotechnical Commission (IEC).99 The Community and its Member
    States have additionally entered into commitments in relation to
    standards and the regulatory framework of telecommunications
    networks and services within the frame of the World Trade
    Organization.100
    The second reason for the enhanced need for standardisation in electronic
    communications stems from their very nature as channels carrying
    information and enabling communication. Interoperability between
    telecom networks (if not necessarily between the various devices and
    applications attached to them101) is almost self-explanatory nowadays:
    its most significant success is the GSM (Global System for Mobile Communications)
    standard. Introduced as a digital cellular technology to replace a plethora of incompatible
    analogue systems in Europe, GSM has become a global success, serving over 1 bn users
    in more than 200 countries worldwide. For more, see http://www.gsmworld.com; http://
    www.newapproach.org; http://www.etsi.com; http://www.cenelec.org; http://
    www.cenorm.bel.
    97
    The three official European Standards Organisations (ESOs) are the European
    Telecommunications Standards Institute (ETSI), the European Committee for
    Standardisation (CEN) and the European Committee for Electrotechnical Standardisation
    (CENELEC). For a list of all national and European standardisation bodies, see Annex I
    and II of Directive 98/34/EC, ibid. An additional standardisation body for radio spectrum
    is the European Conference on Postal and Telecommunications Administrations (CEPT).
    See Decision 676/2002/EC of the European Parliament and of the Council of 7 March 2002
    on a regulatory framework for radio spectrum policy in the European Community (Radio
    Spectrum Decision), OJ L 108/1, 24 April 2002. On standardisation in the field of electronic
    communications, see Article 17 of the Framework Directive.
    98
    See Directive 98/34/EC, ibid. at Recitals 227. In its Communication on Integrated Product
    Policy, the Commission has further stressed that standards have a high potential of
    supporting sustainable development of the European Communities. See European
    Commission, Integrated product policy, COM(2003) 302 final, 18 June 2003.
    99
    Article 17(2) of the Framework Directive, at para. 3. The European standards
    organisations will normally follow the international standards, or the relevant parts of
    them, as a basis for the standards they develop, except where such international standards
    or relevant parts would be ineffective (ibid. at para. 5).
    100
    Recital 29 of the Framework Directive. On the commitments of the European Communities
    in the realm of the World Trade Organization, see infra Part 2, Chapter 5.
    101
    The current EC regime for electronic communications does not address standardisation
    (or any other type of regulation) of telecommunications equipment. The latter is regulated
    by Directive 1999/5/EC of the European Parliament and of the Council of 9 March 1999
    on radio equipment and telecommunications terminal equipment and the mutual
    recognition of their conformity, OJ L 91/10, 7 April 1999. The present work does not
    examine telecommunications equipment regulation.

    60

    The Goals and Objectives of Communications Regulation

    one takes it for granted that a contract with a provider and a telephone
    will give one a connection to the rest of the world. Thus, the telecom
    system must function as a single system [since] [u]sers desire end-toend services within apparently seamless communication network.102
    2.3.2 Intellectual Property Rights: Some Brief Remarks
    Talking about innovation and standardisation, we could not ignore the
    issue of intellectual property rights (IPRs), although we shall confine
    our account within the limits of a brief remark in the particular current
    context.103 This is due to the different scope of the present work and not
    to the lack of significance of IPRs in the Information Society.104
    On the contrary, IPRs105 do play a fundamental role with regard to
    innovation and creativity.106 They are meant to be the tool for their
    102

    William H. Melody, Interconnection: Cornerstone of Competition in William. H.


    Melody, supra note 6, at p. 49 (emphasis added). See also Alan Cunningham,
    Telecommunications, Intellectual Property, and Standards in Ian Walden and John Angel
    (eds.), Telecommunications Law and Regulation, 2nd edition, Oxford: Oxford University Press,
    2005, pp. 341375, at pp. 347 et seq.
    103
    Besides the complex relations between innovation, standardisation and IPRs, there are
    a number of other problematic issues related to intellectual property, particularly in new
    technological environments. See eg with regard to digital rights management and
    collective rights administration, Christoph Beat Graber, Carlo Govoni, Michael Girsberger
    and Mira Nenova, supra note 88. With regard to competition and IPRs, see eg Jonathan
    Faull and Ali Nikpay, supra note 12, at pp. 575633; Steven D. Anderman, EC Competition
    Law and Intellectual Property Rights, Oxford: Oxford University Press, 2001; Dorothea Senn,
    Competition Law Aspects of Digital and Collective Rights Management Systems in
    Christoph Beat Graber, Carlo Govoni, Michael Girsberger and Mira Nenova, ibid. pp. 123
    148. For an overview, see also Peter S. Menell, supra note 67, pp. 129188.
    104
    See Carl Shapiro, Cross Licences, Patent Pools, and Standard-Setting in Adam Jaffe,
    Joshua Lerner and Scott Stern (eds.), Innovation Policy and the Economy, Vol. 2, Cambridge,
    MA: MIT Press, 2001; Paul A. David, Economic Forces in the Coevolution of Information
    Technology and Intellectual Property Institutions, Technical Report, Stanford University,
    2002; Mark R. Patterson, Innovations, Industry Standards, and Intellectual Property
    (2002) Berkeley Technology Law Journal, Vol. 17, pp. 10431085; Mark A. Lemley, Intellectual
    Property Rights and Standard-Setting Organizations (2002) California Law Review, Vol. 90,
    pp. 889 et seq.; Joseph Farrell and Carl Shapiro, Intellectual Property, Competition and
    Information Technology, UC Berkeley Competition Policy Center Working Paper No CPC
    04-05, March 2004; Alan Cunningham, supra note 102.
    105
    Under IPRs as a general category, one understands the rights granted to creators and
    inventors to control the use made of their productions. They are traditionally divided
    into two main branches: (i) copyright and related (or neighbouring) rights for literary
    and artistic works and (ii) industrial property, which encompasses trademarks, patents,
    industrial designs, geographical indications, layout-designs of integrated circuits. For
    the EC regulation in the field, see, among others, Directive 2004/48/EC of the European
    Parliament and of the Council of 29 April 2004 on the enforcement of intellectual property
    rights, OJ L 195/16, 2 June 2004; Directive 2001/29/EC of the European Parliament and of
    the Council of 22 May 2001 on the harmonisation of certain aspects of copyright and
    related rights in the information society, OJ L 167/10, 22 June 2001; Directive 96/9/EC of
    the European Parliament and of the Council of 11 March 1996 on the legal protection of
    databases, OJ L 77/20, 27 March 1996; Council Directive 93/98/EEC of 29 October 1993
    (continued...)
    61

    EC Electronic Communications and Competition Law

    protection and promotion, while simultaneously balancing other


    generally recognised interests. The protection of intellectual property
    should allow the inventor or creator to derive a legitimate profit from
    his/her invention or creation. It should also allow the widest possible
    dissemination of works, ideas and new knowhow. At the same time, it
    should not hamper freedom of expression, the free movement of
    information, or the protection of personal data, including on the
    Internet.107
    In the field of communications, where, as already stressed, the role of
    innovation is critical, the use of IPRs is especially intensified. The
    technological developments of the last couple of decades have
    multiplied and diversified the vectors for creation, production and
    exploitation.108 Digitisation and the proliferation of networks, in
    particular the internet, have allowed for an unprecedented wave of
    innovation, which has led to calls for the protection of the newly created
    works. The liberalisation of communications markets, which has
    occurred worldwide over recent decades, has led to a multitude of
    market players and vigorous competition, which have completely
    changed the communications industries landscape. These technological
    and market developments have serious implications, inter alia, for
    standardisation. Now that telecommunication firms are competing
    nationally and internationally, IP rights are an important aspect of their
    arsenal, and as such now come to impinge on the standard setting
    process.109
    harmonising the term of protection of copyright and certain related rights, OJ L 290/9, 24
    November 1993 and Directive 91/250/EEC of 14 May 1991 on the legal protection of
    computer programmes, OJ L 122/42, 17 May 1991. The EC is also a party to IPR-related
    treaties at international level: First, within the framework of the World Trade Organization,
    the EC is party to the Agreement on Trade-Related Aspects of Intellectual Property Rights
    (TRIPs) (see Council Decision 94/800/EC of 22 December 1994, concerning the conclusion
    on behalf of the European Community, as regards matters within its competence, of the
    agreements reached in the Uruguay Round multilateral negotiations (19861994), OJ L
    336/191, 23 December 1994). Secondly, within the framework of the World Intellectual
    Property Organization (WIPO), the EC is contracting party in a number of conventions,
    such as the Berne Convention for the Protection of Literary and Artistic Works; the Paris
    Convention for the Protection of Industrial Property; the Rome Convention for the
    Protection of Performers, Producers of Phonograms and Broadcasting Organisations; the
    WIPO Copyright Treaty and the WIPO Performances and Phonograms Treaty. For all
    WIPO-administered treaties, see http://www.wipo.int/treaties/en/.
    106
    The US Constitution providing explicitly for copyrights and patents has put this rather
    poetically: Article I 8 states that, Congress shall have Power [] To Promote the Progress
    of Science and useful Arts, by securing for Limited Times to Authors and Inventors, the
    exclusive Right to their Writings and Discoveries.
    107
    Directive 2004/48/EC, supra note 105, at Recital 2. See also Peter S. Menell, supra note 67,
    at pp. 129 et seq.
    108
    Directive 2001/29/EC, supra note 105, at Recital 5.
    109
    Alan Cunningham, supra note 102, at p. 352 (abbreviation in the original).

    62

    The Goals and Objectives of Communications Regulation

    Although both IPRs and standards are largely beneficial and have been
    created to serve the public interest, one should acknowledge that they
    pursue inherently different objectives and may thus collide. Standards,
    as discussed above, are by definition, common, widely recognised and
    used. IPRs, on the other hand, are exclusionary. Indeed, they could be
    construed as mini-monopolies, 110 allowing the owner of the
    monopoly the control (albeit limited)111 over the intellectual property
    object. This divergence should be kept in mind when we consider the
    standard wars and the standard negotiations, discussed in the preceding
    Section, and their substantial impact on innovation. The presence of IPRs
    adds another level of complexity to these processes and allows for
    strategic games and configurations: The fact that someone has exclusive
    rights of use concerning that essential technology allows for the potential
    restriction of the standardization process, or the corruption of it,
    undermining its role for the purpose of private pecuniary gain.112 One
    should also acknowledge that the use of IPRs as strategic weapons in
    electronic communications is additionally aggravated by the fact that
    there are extremely large amounts of capital at stake.113
    To conclude this brief discussion of IPRs in the context of innovation as
    an objective of communications regulation, one can propose that there
    is a potential trade-off between the benefits of standardisation and the
    protection of intellectual property in a dynamic network environment.
    The regulators will clearly have to take these complex relationships into
    account. Answers to the discussion of whether the existing intellectual
    property regime functions as intended to stimulate innovation and
    thus promote long-run competition or whether the system is out of
    balance, granting excessive intellectual property rights, and could be
    improved so as to avoid retarding innovation and/or harming
    consumers114 will have to be sought. In the network environment of
    electronic communications, the threshold for intellectual property
    protection could prove to be higher than in traditional market settings
    so as to foster the adoption of standardized interfaces. In addition,
    compulsory licensing may be justified in particular circumstances to
    enable the full realization of network externalities.115 On the other hand,
    110

    Joseph Farrell and Carl Shapiro, supra note 104, at p. 6.


    The control is limited to a certain period of time (see eg with regard to copyright
    Council Directive 93/98/EEC, supra note 105). It is further limited in scope by certain
    exceptions, eg private use (see Directive 2001/29/EC, supra note 105, especially Article 5
    therein).
    112
    Alan Cunningham, supra note 102, at p. 353.
    113
    For examples of the use of IPRs as strategic weapons, see Joseph Farrell and Carl
    Shapiro, supra note 57 and Alan Cunningham, supra note 102, at pp. 358 et seq.
    114
    Joseph Farrell and Carl Shapiro, ibid. at p. 5.
    115
    Peter S. Menell, supra note 67, at p. 142, referring to Peter S. Menell, Tailoring Legal
    Protection for Computer Software (1987) Stanford Law Review, Vol. 39, pp. 13291372.
    111

    63

    EC Electronic Communications and Competition Law

    intellectual property protection may be required in network markets in


    order to provide adequate rewards for firms pursuing research and
    development of better standards, rather than settling for the current
    ones.116
    2.3.3 Facility-Based or Service-Based Competition?
    Another choice that has to be made in the framework of electronic
    communications of significance for defining the path of innovation, is
    between innovation for new services and innovation for new
    infrastructure.117 From a regulatory perspective, especially in the context
    of liberalisation, it was particularly important which of these (services
    or infrastructure) would receive a regulatory impetus and which would
    then be pursued as the ultimate goal.118
    Facility-based competition or competition between networks119 involves
    the building of alternative infrastructure or duplicating the infrastructure
    of the already existing operator. This type of competition is perceived
    as contributing to long-term efficiency and spurring investment and
    innovation.120 Consumers are not bound by the local network owned by
    116

    Ibid.
    The dilemma between facility-based and service-based competition is a complex one.
    It is not the purpose of this Section to analyse this complexity but merely to outline the
    two regulatory options and their implications for innovation. For a comprehensive
    examination of the issues, see eg Thomas Kiessling and Yves Blondeel, supra note 57;
    Jean-Jacques Laffont and Jean Tirole, Competition in Telecommunications: Munich Lectures
    in Economics, Cambridge, MA: MIT Press, 2000, at pp. 207215; Thomas M. Jorde, J.
    Gregory Sidak and David J. Treece, Innovation, Investment, and Unbundling (2000)
    Yale Journal on Regulation, Vol. 17, No 1, pp. 137; Mats A. Bergman, Competition in
    Services or Infrastructure-based Competition?, in Swedish Post and Telecom Agency,
    An Anthology of the Foundations for Competition and Development in Electronic Communications
    Markets, Stockholm: PTS, 2004, pp. 655; Marc Bourreau and Pinar Dogan, Service-based
    vs. Facility-based Competition in Local Access Networks (2004) Information Economics
    and Policy, Vol. 16, No 2, pp. 287306; Marc Bourreau and Pinar Dogan, Unbundling the
    Local Loop (2005) European Economic Review, Vol. 49, No 1, pp. 173199; Paul de Bijl and
    Martin Petz, Regulation and Entry into Telecommunications Markets, Cambridge: Cambridge
    University Press 2005, especially at pp. 87 et seq.
    118
    See eg European Commission, Green Paper on the development of the common market
    for telecommunications services and equipment: Towards a dynamic European economy,
    COM(1987) 290 final, 30 June 1987.
    119
    Kiessling and Blondeel differentiate additionally between inter-modal and intra-modal
    facility competition. The former meaning competition between different transmission
    media (eg copper and fibre), while the latter competition between facility-based
    operators using the same transmission medium. See Thomas Kiessling and Yves Blondeel,
    supra note 57, at p. 4.
    120
    Marc Bourreau and Pinar Dogan, supra note 54, at p. 178. On the implications of
    innovation policy for the third-generation internet, see further Franois Bar, Stephen
    Cohen, Peter Cowhey, Brad DeLong, Michael Kleeman and John Zysman, Access and
    Innovation Policy for the Third-Generation Internet (2000) Telecommunications Policy,
    Vol. 4, pp. 489518.
    117

    64

    The Goals and Objectives of Communications Regulation

    a single operator, but have a choice not only in terms of services but also
    of network provision. The benefits from flexibility and innovation
    obtainable under this state of affairs exceed by far those achievable under
    facility-sharing settlements.121 These benefits122 are, however, only one
    side of the coin: building new networks is an extremely costly and
    sometimes a risky undertaking. Firms face enormous sunk costs and
    have to confront (in most cases) the competition of the incumbent, who
    already has an installed base. Furthermore, building new facilities may
    be construed as a wasteful duplication123 of infrastructure.
    Service-based competition, on the other hand, takes place, as the name
    indicates, only with regard to the services or service-packages, offered
    over the already existing networks. In order to provide these, operators
    need to have access124 to the network of the incumbent. In essence, the
    new market players buy and resell incumbents services, trying to make
    profits by offering discounts on the incumbents retail tariffs and to attract
    customers by superior efficiency in marketing or billing.125 The entrants
    are, however, not free to launch new services, unless in collaboration
    with the incumbent, since the latter controls the network.
    121

    Marc Bourreau and Pinar Dogan, ibid. at p. 178. The Commission has confirmed this
    position in a recent Communication, stating that, [i]n the mid to long-term [facilitybased competition] is the best way to low prices and increased choice of services. It also
    stimulates innovation and creates resilience in communications infrastructure as a whole.
    See European Commission, Electronic communications: the road to the knowledge
    economy, COM(2003) 65 final, 11 February 2003, at p. 4.
    122
    For account of all the benefits associated with facility-based competition, see Thomas
    Kiessling and Yves Blondeel, supra note 57, at pp. 4 et seq. For an adequate example
    from Switzerland, see eg Neue Zrcher Zeitung, Aufbau bei Cablecom, Abbau bei
    Swisscom, 17/18 September 2005.
    123
    Mats A. Bergman, supra note 117, pp. 655.
    124
    The current Access Directive defines access as the making available of facilities and/
    or services, to another undertaking, under defined conditions, on either an exclusive or
    non-exclusive basis, for the purpose of providing electronic communications services. It
    covers inter alia: access to network elements and associated facilities, which may involve
    the connection of equipment, by fixed or non-fixed means (in particular this includes
    access to the local loop and to facilities and services necessary to provide services over
    the local loop), access to physical infrastructure including buildings, ducts and masts;
    access to relevant software systems including operational support systems, access to
    number translation or systems offering equivalent functionality, access to fixed and mobile
    networks, in particular for roaming, access to conditional access systems for digital
    television services; access to virtual network services. See Directive 2002/19/EC of the
    European Parliament and of the Council of 7 March 2002 on access to, and interconnection
    of, electronic communications networks and associated facilities, OJ L 108/7, 24 April
    2002 (the Access Directive), at Article 2(a). See also Rohan Kariyawasam, Interconnection,
    Access and Peering: Law and Precedent in Ian Walden and John Angel (eds.),
    Telecommunications Law, London: Blackstone Press, 2001, pp. 136223; Paul Nihoul and
    Peter Rodford, EU Electronic Communications Law, Oxford: Oxford University Press, 2004,
    at paras 3.01 et seq.
    125
    Kostis Christodoulou and Kiriakos Vlahos, Implications of Regulation for Entry and
    Investment in the Local Loop (2001) Telecommunications Policy, Vol. 25, pp. 743757, at
    p. 745.

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    EC Electronic Communications and Competition Law

    A prominent example of policing service-based competition is the


    opening of the local loop. The local loop, also known as the last mile,
    signifies the connection, the very last wires laid between the customer
    and local area exchange of the operators network. 126 These local
    networks constitute bottlenecks127 in themselves and are particularly
    uneconomic to duplicate.128 If firms were to build an alternative access
    network, this would require large traffic volumes to make up for the
    investment costs, which in residential networks might be non-existent.129
    On the other hand, these last metres of wire are crucial for reaching the
    end-consumers of any communications services.
    During the process of opening telecommunications markets, it was
    acknowledged that to promote competition in these local markets, an
    additional regulatory intervention was needed. Access to such networks
    was policed through the exercise of unbundling. This is a regulatory
    approach that in the EC context means providing mandatory access to
    the metallic local loops of notified operators designated as having
    significant market power in the fixed public telephone network supply
    market.130 As such, unbundling facilitates the entry into the market as
    firms may join without having to incur the high sunk and fixed costs of
    providing their own networks. This increases the number of market
    126

    Local loop means the physical circuit connecting the network termination point at
    the subscribers premises to the main distribution frame or equivalent facility in the fixed
    public telephone network. See Article 2(c) of the Access Directive. See also Recital 3 and
    Article 2(c) of Regulation 2887/2000/EC of the European Parliament and of the Council of
    18 December 2000 on unbundled access to the local loop, OJ L 336/4, 30 December 2000.
    127
    See supra Chapter 1, at note 57.
    128
    The Regulation on unbundling the local loop points in that regard that, [i]t would not
    be economically viable for new entrants to duplicate the incumbents metallic local access
    infrastructure in its entirety within a reasonable time. Alternative infrastructures such as
    cable television, satellite, wireless local loops do not generally offer the same functionality
    or ubiquity for the time being, though situations in Member States may differ. See recital
    6 of Regulation 2887/2000/EC, supra note 126. See also European Commission, Unbundled
    access to the local loop: Enabling the competitive provision of a full range of electronic
    communications services, including broadband multimedia and high-speed Internet, OJ
    C 272/55, 23 September 2000.
    129
    Paul Nihoul and Peter Rodford, supra note 124, at para. 1.134.
    130
    See Regulation 2887/2000/EC, supra note 126. For an excellent overview of the problems
    related to the unbundling the local loop, see OECD Working Party on Telecommunications
    and Information Services Policies, Developments in Local Loop Unbundling, DSTI/
    ICCP/TISP(2002)5/final, 10 September 2003. See also Jerry A. Hausman and J. Gregory
    Sidak, A Consumer-Welfare Approach to the Mandatory Unbundling of
    Telecommunications Networks (1999) The Yale Law Journal, Vol. 109, pp. 417505; Chris
    Doyle, Local Loop Unbundling and Regulatory Risk (2000) Journal of Network Industries,
    Vol. 1, pp. 3354; Juan Delgado, Jrme Fehrenbach and Robert Klotz, The Price of
    Access: Unbundling the Local Loop in the EU in Pierre A. Buigues and Patrick Rey
    (eds.), The Economics of Antitrust and Regulation in Telecommunications, Cheltenham, UK:
    Edward Elgar Publishing, 2004, pp. 169182; Paul W.J. de Bijl and Martin Peitz, Local
    Loop Unbundling in Europe: Experience, Prospects and Policy Challenges (2005) Tilburg
    Law and Economics Center (TILEC) Discussion Paper, DP 2005-008.

    66

    The Goals and Objectives of Communications Regulation

    players and the choice of services, allowing operators to build customer


    base and brand recognition.131 Under benevolent supply conditions, the
    actors are then stimulated to invest in alternative network structures in
    the long-run and move up the investment ladder.132 However, it should
    be acknowledged that by making entry too easy, unbundling might
    also undermine some incentives for building alternative networks.133
    The climbing of the investment ladder is not in itself an exercise, whose
    development is to be taken for granted stepping on to the ladder does
    not mean that one will automatically reach its top.134
    In terms of innovation, unbundling as a service-based promoter is
    beneficial and stimulating for new entrants in the short and mid-term,
    although its actual application in terms of pricing and timing is
    controversial.135 With regard to long-term competition, however, the
    incentives for innovation may well be diminished.136 The incentives for
    the incumbent will be determined by the pre- and post-entry
    regulation.137 Furthermore, it should be acknowledged that, to the extent
    that service-based and facility-based entry are perceived as substitute
    131

    Thomas Kiessling and Yves Blondeel, supra note 57, at p. 8, referring also to T. Randolph
    Beard, David L. Kaserman and John W. Mayo, The Role of Resale Entry in Promoting
    Local Exchange Competition (1998) Telecommunications Policy, Vol. 22, No 4/5, at pp. 316
    318. For an economic analysis, see Robert W. Crandall, Allan T. Ingraham and Hal J.
    Singer, Do Unbundling Policies Discourage Competitive Local Exchange Carriers
    Facilities-Based Investment (2004) Topics in Economic Analysis and Policy, Vol. 14, No 14,
    Article 14.
    132
    The Tenth Communications Report registers precisely such a development from services
    to facility-based competition. Therein, it formulates the investment ladder as a situation
    where a new entrant/alternative operator benefits initially from access products at
    different levels of the value chain in order to build customer base, and then progressively
    rolls out its own infrastructure towards the customer. See supra note 26, Vol. I, at p. 46,
    footnote 22.
    133
    Marc Bourreau and Pinar Dogan, supra note 54, at p. 178. See also Thomas Kiessling
    and Yves Blondeel, supra note 57, at pp. 10 et seq.
    134
    For a highly critical view of the investment ladder developments, see Alison Oldale
    and Atilano Jorge Padilla, From State Monopoly to the Investment Ladder: Competition
    Policy and the NRF in Mats A. Bergman and Arvid Nilsson (eds.), The Pros and Cons of
    Antitrust in Deregulated Markets, Stockholm: Swedish Competition Authority, 2004, at
    pp. 5177. See also Gnter Knieps, Europischer Regulierungseifer in der
    Telekommunikation, Neue Zrcher Zeitung, 16 February 2006.
    135
    See eg Chris Doyle, supra note 130, pp. 48 et seq.; Kostis Christodoulou and Kiriakos
    Vlahos, supra note 125, pp. 745 et seq. and Jean-Jacques Laffont and Jean Tirole, supra
    note 117, at pp. 207215; Juan Delgado, Jrme Fehrenbach and Robert Klotz, supra
    note 130.
    136
    When the incumbent sets too low a rental price for its loops; [] the entrant adopts the
    new technology too late from a social welfare perspective. The distortion may appear not
    only on the timing of technology adoption but also on the type (quality) of the new technology
    to be adopted. See Marc Bourreau and Pinar Dogan, Unbundling the Local Loop, supra
    note 117, at p. 173. See also Marc Bourreau and Pinar Dogan, Service-based vs. Facilitybased Competition in Local Access Networks, supra note 117, at pp. 288 et seq.
    137
    Marc Bourreau and Pinar Dogan, supra note 54, at p. 182.

    67

    EC Electronic Communications and Competition Law

    strategies by the entrants, regulatory policies that are aimed at each one
    of them may exhibit conflicts.138
    2.4

    Interim Conclusion on the Economic Goals

    In drawing a conclusion on the economic goals of communications


    regulation at this preliminary level of the discussion, one could propose
    that the intermediate objective of economic regulation is the creation of
    conditions for competition to exist and policing it to continue to
    exist.139 The latter leads to the achievement of the ultimate goal, which
    is consumer welfare and maximisation of wealth at the lowest possible
    cost for society.
    The internal market is another clear objective within the EC context that
    essentially influences all other Community policies. Although in
    principle, the achievement of competition and the pursuit of market
    integration should feed positively into each other, there might be
    situations where the single market policies will supersede pure economic
    rationales. On the other hand, the internal market objective enhances
    certain market developments, such as, most notably in the context of
    network industries, standardisation.
    In the environment of electronic communications with pronounced
    network effects, to achieve welfare (particularly in the long term) also
    means that the regulatory tools would have the capability to address
    the dynamic aspects of competition, ie innovation. In the words of
    Bourreau and Dogan, [t]o the extent that technological changes alter
    the organization of the industry, speed of innovation particularly in
    new markets should be reflected in any regulatory intervention. If
    regulatory authorities cannot respond fast enough to follow the rapid
    change of the market, many regulatory measures then become either
    inefficient or obsolete.140
    As the examination of some issues relevant to innovation showed,
    innumerable factors come into play in the pursuit of this dynamic aspect
    of competition. The relationship between these factors is however
    equivocal and offers no clear answers to what is right or wrong, although
    a tendency towards a facility-based approach is discernible. It is
    furthermore of primary importance to acknowledge that all these
    economic objectives do not exist in isolation, but rather exist
    simultaneously in the system of electronic communications. Due to the
    138

    Marc Bourreau and Pinar Dogan, Service-based vs. Facility-based Competition in


    Local Access Networks, supra note 117, at p. 287.
    139
    Tony Prosser, Law and the Regulators, Oxford: Clarendon Press, 1997, at p. 5.
    140
    Marc Bourreau and Pinar Dogan, supra note 54, at p. 169.

    68

    The Goals and Objectives of Communications Regulation

    network externalities and other specificities of the communications


    environment, any regulatory decision taken would have repercussions
    in various directions and these need to be considered with caution.
    Following this line of reasoning, one could propose that the real goal of
    regulation is to achieve a balance within the system. This will involve,
    among others, choices between static and dynamic efficiencies, strict
    economic and internal market rationales, market-driven and regulationsupervised (or assisted) standardisation, intellectually property
    protection and openness, infrastructure-based and service-based
    competition. The delicate balancing act between these options, and not
    only the movements of the invisible hand,141 will then ultimately bring
    the welfare aspired to.
    3.

    Societal Objectives

    The distinction between economic and social objectives is in many aspects


    only nominal since the economy is an inseparable part of the overall
    structure of society. It thus has a direct influence on all other societal
    systems. Following this line of reasoning, the economic objectives
    outlined in the previous Sections have a clear social dimension since
    they seek to avoid undesirable distribution of wealth and opportunity
    and since the ultimate beneficiaries of the market outcomes are the
    members of society.142
    Yet, there are goals beyond those that may or may not be met without
    additional regulatory intervention. These wider policy goals are aimed
    more directly at serving the public interest and may be economic in
    nature (such as the equitable distribution of resources) or less tangible
    (relating to education, culture, pluralism and democracy) and stemming
    from the fundamental rights as safeguarded in all constitutional models.
    For the purpose of this chapter, such goals will be referred to as societal.143
    Meeting them may involve, most notably, a departure from optimal
    economic outcomes and ancillary regulatory intervention, implying
    certain network regulatory costs. It should, however, be stressed that
    141

    Referring again to Adam Smith, supra note 11.


    Although typically US antitrust is pointed as an example of pursuing pure economic
    efficiency, the US Supreme Court stated in Spectrum Sports v. McQuillan that, [t]he purpose
    of the [Sherman] Act is not to protect businesses from the working of the market; it is to
    protect the public from the failure of the market. The law directs itself not against conduct
    which is competitive, even severely so, but against conduct which unfairly tends to destroy
    competition itself. It does so not out of solicitude for private concerns but out of concern
    for the public interest. See Spectrum Sports v. McQuillan, 506 US 447 (1993), at 458 (citations
    omitted; emphasis added).
    143
    Of or relating to the structure, organization, or functioning of society as defined by
    the American Heritage Dictionary, 4th edition, Boston, MA: Houghton Mifflin, 2000.
    142

    69

    EC Electronic Communications and Competition Law

    the accomplishment of the economic goals is often an essential


    prerequisite for the pursuit of those beyond.
    3.1

    Introduction

    Without any claims of being exhaustive, the following sections will


    attempt to delineate a few of the societal objectives that are of primary
    significance in electronic communications and should be taken into
    account when designing a model of regulation. In contrast to the previous
    Sections on the economic goals of regulation, which are generally valid
    for the majority of the sectors of the economy (or at least for those
    network-bound), the next paragraphs on the societal goals will be sector
    specific and focus exclusively on the communications environment. This
    change of approach is needed since, as already made clear in Chapter 1,
    the communications sector, unlike car industry or wheat markets,144
    has an additional special role within society as a platform of
    communication and distribution of information.
    3.2

    Universal Service

    When talking about societal goals, the first one that comes into mind in the
    specific context of telecommunications is universal service. Although it is
    not the purpose of this chapter to analyse but only to make visible the goals
    that stand before communications regulation, with regard to universal
    service, an exception is made. The following Sections will include some
    substantive issues and put some meat on the bone by elaborating briefly145
    on the development of and the current EC universal service regime. This
    will convey the proper parameters of the goal of universality and illustrate
    the evolution of the policy considerations behind it.
    3.2.1 The Roots of Universal Service Policies
    The concept and practice of universal service have their roots in certain
    notorious developments in the US at the dawn of the 20th century.146
    As the legend goes, it was Theodore Vail, the then chairman of the
    144

    A contrast used by Mark Naftel and Lawrence J. Spiwak, The Telecoms Trade War: The
    United States, the European Union and the World Trade Organization, Oxford/Portland,
    Oregon: Hart Publishing, 2000, at p. 2.
    145
    For a detailed analysis of universal service in European context and a comprehensive
    comparison between the old and the new regime, see Paul Nihoul and Peter Rodford,
    supra note 124, at paras 5.015.350. On the economic rationales behind universal service,
    see Jean-Jacques Laffont and Jean Tirole, supra note 117, at pp. 217264.
    146
    An excellent reference on the development of US telephone system and universal service
    is Milton L. Mueller, Universal Service: Competition, Interconnection, and Monopoly in the
    Making of the American Telephone System, Cambridge, MA: MIT Press, 1997. See also Milton
    L. Mueller, Universal Service in Telephone History: A Reconstruction (1993)
    Telecommunications Policy, Vol. 17, No 5, pp. 352369.

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    The Goals and Objectives of Communications Regulation

    American Telephone and Telegraph Company (AT&T), who convinced


    the government that a regulated monopoly with universal service
    obligation was a better model to adopt than a system of traffic
    interexchange among competing networks.147 Theodore Vail called for
    the creation of a single, common, uniform, nationwide,
    telecommunications network whose services would be available to all
    users at all locations.148 The subsequent adoption of the Willis-Graham
    Act in 1921 marked the end of the competitive era in US
    telecommunications markets and by exempting telephone companies
    from the Sherman Act, opened the way to monopoly, which was
    supposed to cater for universal service provision. The 1934
    Communications Act affirmed the subsidised universal penetration
    model. Although it made no explicit reference to universal service as
    such, it charged the Federal Communications Commission with the task
    of giving all US citizens a national and global telecommunications
    service, provided by AT&T at an affordable price.149
    In the European Union as a supranational entity, the conceptualisation
    of universal service and the need to formulate a comprehensive policy
    in that respect came understandably much later than in the US, with the
    liberalisation endeavours in the telecom sector. Until then, in the existing
    landscape of strictly national monopolies, there was no necessity for
    such a policy at the European level. Universal service obligations (USOs)
    did exist but they were considered a national matter of the Member
    States. The pre-liberalisation Post, Telegraph and Telephone (PTT)
    monopoly model had precisely as one of its core objectives, and indeed
    as its justification, the provision of universal service as part of the public
    service.150 It was widely assumed at the time that state ownership was
    147

    These networks were locally developed by some 6,000 independents across the US
    after the expiry of AT&Ts phone patents. The local networks varied in standards and
    quality and were (willingly or not) most often incompatible with one another.
    148
    The campaign launched by Theodore Vail was under the slogan One Policy, One
    System, Universal Service. The original document is available at http://www.att.com/
    history/milestone_ 1908.html.
    149
    For the purpose of regulating interstate and foreign commerce in communication by
    wire and radio so as to make available, so far as possible, to all the people of the United
    States, without discrimination on the basis of race, color, religion, national origin, or sex,
    a rapid, efficient, Nationwide, and world-wide wire and radio communication service
    with adequate facilities at reasonable charges. See Communications Act of 1934, Section
    1, 47 USC. 151.
    150
    Public service is a term usually used to mean services provided by government to
    its citizens, either directly (through the public sector) or by financing private provision
    of services. The term is associated with the common consensus that certain services should
    be available to all, regardless of income. On public service, see Antonio Bavasso,
    Communications in EU Antitrust Law, The Hague/London/Boston: Kluwer Law
    International, 2003, at pp. 354 et seq. See also Mark Freedland and Silvana Sciarra (eds.),
    Public Services and Citizenship in European Law, Oxford: Oxford University Press, 1998;
    European Commission, Liberalisation of Network Industries: Economic Implications and
    (continued...)
    71

    EC Electronic Communications and Competition Law

    sufficient to secure PTT action in the public interest. [T]he state was
    seen as a stopgap for tasks that the private sector could not provide151
    and the PTTs were viewed accordingly as instruments of government
    policy contributing to macroeconomic and microeconomic policy goals,
    including the provision of universal service.152
    In reality, most PTTs never came remotely close to providing universal
    service in the sense of access to the public telephone network to all at all
    locations. The levels of economics efficiency of the PTTs and their
    responsiveness to customer needs were poor and in almost all aspects,
    the idealistic theory of public service failed dramatically in practice.153
    Similarly, even in the US, although the AT&T, provided through crosssubsidisation between long-distance and local call traffic local telephony
    below cost, it did not in practice address universal geographical rollout of its services. In fact, it took until the 1960s for appropriate levels of
    penetration to be reached due mostly to a reduction in connection costs
    faced by service providers and a vigorous market demand.154
    3.2.2 The EC Universal Service Regime
    a.

    Before the 2002 Regulatory Package

    As mentioned earlier, the EC did not have a clear-cut universal service


    policy since the provision of the so-called public services was deemed a
    national matter until the beginning of the opening of telecommunications
    to competition. With the formulation of European telecommunications
    policy, however, which commenced symbolically with the Green Paper
    on the Development of the Common Market for Telecommunications
    Services and Equipment155 in 1987, the idea of providing certain basic
    services was taken into consideration.156 Within the Open Network
    Main Policy Issues, Report of the DG for Economic and Financial Affairs No 4, Brussels, 1999,
    at pp. 168 et seq.; Tony Prosser, The Limits of Competition Law: Markets and Public Services,
    Oxford: Oxford University Press, 2005, at pp. 96 et seq. On the public utility model, see
    supra Chapter 1, Section 4.1.
    151
    Johannes Bauer, Universal Service in the European Union (1999) Government
    Information Quarterly, Vol. 16, No 4, pp. 329343, at p. 332.
    152
    Ibid.
    153
    William H. Melody, supra note 6, at p. 14.
    154
    See Paschal Preston and Roderick Flynn, Rethinking Universal Service: Citizenship,
    Consumption Norms and the Telephone (2000) The Information Society, Vol. 16, pp. 91
    98, at pp. 9293, as referred to by Seamus Simpson, Universal Service Issues in
    Converging Communications Environments: The Case of the UK (2004)
    Telecommunications Policy, Vol. 28, pp. 233248, at p. 235. See also Nicholas Garnham,
    Universal Service in William. H. Melody (ed.), Telecom Reform: Principles, Policies and
    Regulatory Practices, Lyngby: Technical University of Denmark, 1997, pp. 199204, at p. 200.
    155
    European Commission, Green Paper on the development of the common market for
    telecommunications services and equipment, supra note 118.
    156
    See Green Paper on the development of the common market for telecommunications
    services and equipment, ibid. at p. 42. The document did not mention universal service
    (continued...)
    72

    The Goals and Objectives of Communications Regulation

    Provision (ONP) model, which provided for harmonisation during the


    liberalisation process of European telecommunications,157 universal
    service was for the first time regulated at the Communitys level. It was
    founded on three major principles,158 namely:
    (i)
    (ii)
    (iii)

    continuity, ie a specified quality must be offered all the time,


    equality, ie access must be offered independently of location, and
    affordability, ie a certain price level for basic services affordable
    for all must be assured.

    These principles were later built into Directive 97/33/EC159 and Directive
    98/10/EC, 160 which regulated USOs in the fully liberalised EC
    telecommunications environment. The Directives identified universal
    service as a defined minimum set of services of specified quality which
    is available to all users independent of their geographical location and,
    in the light of specific national conditions, at an affordable price.161
    Pursuant to Directive 98/10/EC, this minimum set of services included:
    (i) access to the fixed public telephone network at a fixed location;
    (ii) access to fixed public telephone services enabling users to make and
    as such but discussed the possibility of maintaining exclusive or special rights with respect
    to the provider of a limited number of basic services.
    157
    On the liberalisation of the EC telecommunications sector and the ONP framework,
    see infra Part 2, Chapter 4, Section 3.1.
    158
    These principles were in fact identified as early as in 1993. See European Commission,
    Communication on the consultation on the review of the situation in the
    telecommunications services sector, COM(1993) 159 final, 26 April 1993 and European
    Commission, Developing universal service for telecommunications in a competitive
    environment, COM(1993) 543, 15 November 1993.
    159
    Directive 97/33/EC of the European Parliament and of the Council of 30 June 1997 on
    interconnection in telecommunications with regard to ensuring universal service and
    interoperability through application of the principles of the Open Network Provision
    (ONP), OJ L 199/32, 26 July 1997 (Directive 97/33). Directive 97/33/EC regulated notably
    the mechanisms for financing the Universal Service provision. These mechanisms were
    put in place to compensate the providers for the losses they incurred from providing
    services under USO, since in most cases the provision of those was not profit-making
    under normal market conditions. The financing schemes included financing through
    public funds, sharing mechanisms and financing through supplementary charge added
    to the interconnection charge. See Directive 97/33/EC, in particular Article 5 and Annex
    III. See also European Commission, Communication on the assessment criteria for national
    schemes for the costing and financing of universal service in telecommunications and
    guidelines for the Member States on operation of such schemes, COM(1996) 608 final, 27
    November 1996.
    160
    Directive 98/10/EC of the European Parliament and of the Council of 26 February 1998
    on the application of open network provision (ONP) to voice telephony and on universal
    service for telecommunications in a competitive environment, OJ L 101/24, 1 April 1998
    (Directive 98/10). The ONP Directives were based to a great extent on the concepts laid
    down by the Commission Directive 96/19/EC on full competition (OJ L 74/13, 22 March
    1996), which amended and added Article 4(c) to Commission Directive 90/388 on
    competition in the markets for telecommunications services, OJ L 192/10, 24 July 1990.
    161
    Article 2(1)(g) of Directive 97/33/EC and Article 2(2)(f) of Directive 98/10/EC.
    ..)
    73

    EC Electronic Communications and Competition Law

    receive national and international calls, supporting speech, facsimile


    and/or data communications;162 (iii) directory services;163 (iv) public pay
    phones;164 and (v) certain measures for disabled users and users with
    special social needs.165
    Member States were free to extend the scope of the universal service
    beyond the above-mentioned services, as long as this was done in line
    with EC competition law and the general principles of transparency,
    proportionality and non-discrimination. Such additional services were
    however not eligible for universal service financing mechanisms fed by
    mandatory contributions of market players.166
    b.

    The 2002 Universal Service Regime

    Although, as we shall see below, the parameters of USOs have not


    substantially changed under the 2002 regime, some other ingredients of
    the overall universal service policy have. Benefiting from hindsight, one
    could say that during the liberalisation period, some of the rationales
    for universal service provision were incited by the politics of
    transformation, rather than based on pure economic and social grounds
    or, to put it radically, in the words of Nicholas Garnham, the idea of
    universal access was mobilised as an attempted defence of the telephone
    monopoly.167
    Indeed, the transition of the telecommunications market from monopoly
    to competition involved also a shift from telecommunications as a public
    service to telecommunications as a normal service provided on a
    competitive basis. Now that this transition path has been walked down,
    in a post-liberalisation environment characterised by technological
    dynamism, wide variety of services and a new role assigned to the
    market, the idea of access takes new dimensions.
    162

    Article 5 of Directive 98/10/EC. See also Annex I of Directive 97/33/EC clarifying the
    characteristics of these services.
    163
    Article 6 of Directive 98/10/EC.
    164
    Article 7 of Directive 98/10/EC.
    165
    Article 8 of Directive 98/10/EC.
    166
    See Article 4(3) of Directive 98/10/EC and European Commission, Universal service
    for telecommunications in the perspective of a fully liberalised environment, COM(1996)
    73 final, 13 March 1996.
    167
    Nicholas Garnham, supra note 154, at p. 200. See also Thomas Hart, A Dynamic
    Universal Service for a Heterogeneous European Union (1998) Telecommunications Policy,
    Vol. 22, No 10, pp. 839852, at p. 840 and Jean-Jacques Laffont and Jean Tirole, supra
    note 117, at p. 218. The universal service argumentation is still used as a defence for State
    control in some countries even after the liberalisation of communications markets. The
    developments in Switzerland at the end of 2005 are a good illustration in this context.
    See eg Christian Levrat, Der Bund ist der richtige Swisscom-Aktionr, Neue Zrcher
    Zeitung, 2 December 2005.

    74

    The Goals and Objectives of Communications Regulation

    The existing network effects, the possible use of communications services


    as substitute for other services (eg transport) and the increasing value
    placed on communications in the Information Society as providing access
    to other goods and services, including public ones, are among the several
    reasons for proving a new case for universal service.168 Furthermore,
    the transition from state-owned monopoly to competition does not mean
    that the ideas of continuity, equality and affordability have been rendered
    obsolete. These fundamental societal objectives remain valid. In the
    words of Nihoul and Rodford, Member States and European
    authorities have [not] given up public service objectives in the new
    markets. Where modified, these objectives appear to have been revised
    only in the light of the changes that have occurred in the economic,
    social and technological context. In fact, the reform has mainly affected
    the measures that were used to implement these objectives, not the
    objectives themselves.169
    Thus, in the new context of competitive electronic communications,
    universal service obligations are not to be construed anymore as another
    tool for monopoly justification, or a goal induced by politicians, but
    should be seen as one of a range of regulatory interventions designed
    to achieve economic or socially desirable outcomes that would not be
    achieved by market players if left to their own unregulated devices.170
    In contrast to the old public service rationale, however, this additional
    regulatory intervention is to be implemented only in cases of market
    failure and has to be the least possible in order to prevent the undesirable
    distortion of economic incentives and competition.
    c.

    The Universal Service Directive

    The current European Community universal service regime is contained


    primarily in Directive 2002/22/EC on universal service and users rights
    relating to electronic communications networks and services.171 The latter
    was adopted as part of the 2002 reformation package alongside the
    Framework, Access and Interconnection, and Authorisation Directives.172
    As stated by the Universal Service Directive, it concerns the provision
    of electronic communications networks and services to end-users with
    the aim [] to ensure the availability throughout the Community of
    168

    See Nicholas Garnham, ibid. at p. 201.


    Paul Nihoul and Peter Rodford, supra note 124, para. 5.01.
    170
    Nicholas Garnham, supra note 154, at p. 200.
    171
    Directive 2002/22/EC of the European Parliament and of the Council of 7 March 2002
    on universal service and users rights relating to electronic communications networks
    and services (the Universal Service Directive), OJ L 108/51, 24 April 2002.
    172
    Directive 2002/20/EC of the European Parliament and of the Council of 7 March 2002
    on the authorisation of electronic communications networks and services, OJ L 108/21, 24
    April 2002. For a detailed discussion of the 2002 regulatory package, see infra Part 2,
    Chapter 4, Section 3.2.
    169

    75

    EC Electronic Communications and Competition Law

    good quality publicly available services through effective competition


    and choice and to deal with circumstances in which the needs of endusers are not satisfactorily met by the market.173 In the pursuit of this
    goal, the Universal Service Directive defines the minimum set of
    services of specified quality to which all end-users have access, at an
    affordable price in the light of specific national conditions, without
    distorting competition.174
    The latter definition reflects the afore-mentioned guiding principles of
    universal service (continuity, equality and affordability) and is, in fact,
    only marginally different from the definition given under the old
    regime.175 The scope of the defined minimum set of services to be
    provided universally and the compensatory financing mechanisms176
    are not dissimilar from the ONP regime either.177 Pursuant to Directive
    2002/22/EC, the minimum set of services includes: (i) access location to
    the public telephone network; (ii) access to publicly available telephone
    services at a fixed location enabling end-users to make and receive local,
    national and international telephone calls, facsimile and data
    173

    Article 1(1) of the Universal Service Directive.


    Article 1(2) of the Universal Service Directive.
    175
    As mentioned above, Directive 97/33/EC and Directive 98/10/EC identified universal
    service as a defined minimum set of services of specified quality which is available to
    all users independent of their geographical location and, in the light of specific national
    conditions, at an affordable price. See Article 2(1)(g) of Directive 97/33/EC and 2(2)(f) of
    Directive 98/10/EC. Empirically there are equally no signs that universal service
    obligations were compromised in liberalised markets. See Economic Policy Committee,
    Annual Report on Structural Reforms 2002, ECFIN/EPC/117/02-EN, Brussels, 5 March
    2002, at p. 17.
    176
    As mentioned above, ensuring universal service may involve the provision of some
    services to some end-users at prices that depart from those resulting from normal market
    conditions. Pursuant to Article 12 of the Universal Service Directive, NRAs should
    calculate the net cost of USOs, taking into account any market benefit, which accrues to
    the undertaking, designated to provide universal service. Where, on the basis of this
    calculation, the NRAs find that the undertaking in issue is subject to an unfair burden,
    Member States shall, upon request from the designated undertaking, decide: (i) to
    introduce a mechanism compensating that undertaking for the determined net costs under
    transparent conditions from public funds; and/or (ii) to share the net cost of universal
    service obligations between providers of electronic communications networks and
    services. In the latter case, Member States are to establish a sharing mechanism
    administered by the NRA or another independent body under the supervision of the
    NRA. The sharing mechanisms are to respect the principles of transparency, least market
    distortion, non-discrimination and proportionality. It is outside of the scope of this work
    to discuss the intricacies of the calculation of net costs, the financing mechanisms and
    their conformity with EC law. On these issues, see Articles 12, 13 and Annex IV of the
    Universal Service Directive; European Commission, Communication on the assessment
    criteria for national schemes, supra note 159; Case C-53/00 Ferring SA v. Agence centrale
    des organismes de scurit sociale (ACOSS) [2001] ECR I-9067; Case C-280/00 Altmark Trans
    GmbH v. Nahverkehrsgesellschaft Altmark GmbH [2003] 3 CMLR 12 and Case C-340/99 TNT
    Traco SpA v. Poste Italiane SpA [2001] ECR I-4109. For an excellent analysis, see also Paul
    Nihoul and Peter Rodford, supra note 124, at paras 5.1385.219.
    177
    Compare with the enumeration supra in Section 3.2.2 based on Articles 58 of Directive
    98/10/EC.
    174

    76

    The Goals and Objectives of Communications Regulation

    communications;178 (iii) directory services,179 (iv) public pay telephones180


    and (v) certain specific measures for disabled users,181 those with low
    income or special social needs.182
    Despite the similarities between the previous and the current USO
    regimes, as mentioned at the outset of this Section, the new framework
    includes some significant novel elements.
    First and most importantly, there is a definite emphasis on the role of
    market forces for the achievement of the defined universal service
    objectives. The competitive market is assigned with the priority role of
    assuring universal service over any other intervention: Member States
    shall determine the most efficient and appropriate approach for ensuring
    the implementation of universal service, whilst respecting the principles
    of objectivity, transparency, non-discrimination and proportionality.
    They shall seek to minimise market distortions, in particular the
    provision of services at prices or subject to other terms and conditions
    which depart from normal commercial conditions, whilst safeguarding
    the public interest. 183 As stressed above, the additional active
    intervention comes into play only in cases of market failures after
    monitoring market developments and the extent to which through these
    market developments the desired objectives are achieved.184
    Secondly, and as a consequence of the above, no market player is now a
    priori excluded from designation for provision of USOs. Whereas under
    the ONP framework, the universal service providers were principally
    the undertakings operating public telecommunications networks,185
    178

    Article 4 of the Universal Service Directive.


    Article 5 of the Universal Service Directive.
    180
    Article 6 of the Universal Service Directive.
    181
    Article 7 of the Universal Service Directive.
    182
    Article 9(2) and Annex I, Part A of the Universal Service Directive.
    183
    Article 3(2) of the Universal Service Directive.
    184
    The least market distortion by the provision of universal service is emphasised also
    by the Commissions Consolidated Competition Directive. See Commission Directive 2002/
    77/EC of 16 September 2002 on competition in the markets for electronic communications
    networks and services, OJ L 249/21, 17 September 2002, at Article 6.
    185
    See Article 4(c)(1) of Commission Directive 90/388 on competition in the markets for
    telecommunications services, OJ L 192/10, 24 July 1990, introduced by the amendment by
    Commission Directive 96/19/EC on full competition (supra note 160). The ONP
    Interconnection Directive 97/33 extended, however, the universal service obligation to
    undertakings providing public voice telephony services (see Article 5(1) of the
    Directive). This debate between the institutions was eventually resolved with the
    Statement to the Minutes of the 1910th Meeting of the Council (Telecommunications) on
    27 March 1996 on who contributes to universal service, attached as Annex C to
    Communication on the Assessment Criteria for National Schemes for the Costing and
    Financing of Universal Service in Telecommunications and Guidelines for the Member
    States on Operation and Such Schemes, COM(1996) 608 final, 27 November 1996. See
    Paul Nihoul and Peter Rodford, supra note 124, at paras 1.1251.128.
    179

    77

    EC Electronic Communications and Competition Law

    ie the incumbents, all undertakings present on the electronic


    communications markets are currently eligible under an efficient,
    objective, transparent and non-discriminatory designation mechanism.186
    The appointed operators must not necessarily be of the nationality of
    the Member State and undertakings from other geographical markets
    (eg US or Swiss companies) or other sectors (eg from the electricity
    industry187) could enter the designation procedures. Member States may
    further designate more than one undertaking, or designate different
    undertakings or sets of undertakings to provide different elements of
    the universal service and/or to cover different parts of the national
    territory.188 This fragmentation of the mandate allows for a higher level
    of flexibility and opens a possibility for competition between
    undertakings in the provision of USOs.
    Thirdly, although the scope of universal service is not drastically
    changed, some modifications have definitely been introduced. The first,
    rather minor, modification regards mobile technology. While access to
    mobile networks and mobile communications services is not in itself
    considered (at least until now189) an element of universal service, the
    specific reference to fixed technology has been removed from the
    definition of access to public voice telephone network and public voice
    telephone services as an essential part of the USO.190
    The second modification concerns data communications as part of the
    universal service package. Pursuant to Article 4(2) of the Universal
    Service Directive, the data rate of those should be sufficient to permit
    functional Internet access, taking into account prevailing technologies
    used by the majority of subscribers and technological feasibility. This
    functional Internet access 191 is not an immense step forward,
    186

    Article 8(2) of the Universal Service Directive.


    See European Commission, High-speed Internet Access via the Electricity Grid:
    Commission Seeks to Create New Market Opportunities, IP/05/403, Brussels, 8 April
    2005. See also Draft Commission Recommendation of 6 April 2005 on broadband electronic
    communications through powerlines, C(2005) 1031, 6 April 2005.
    188
    Article 8(1) of the Universal Service Directive.
    189
    See European Commission, On the review of the scope of universal service in accordance
    with Article 15 of Directive 2002/22/EC, COM(2005) 203, 24 May 2005 and European
    Commission, Report regarding the outcome of the Review of the scope of universal service
    in accordance with Article 15(2) of Directive 2002/22/EC, COM(2006) 163 final, 7 April
    2006.
    190
    Compare the definitions given in Article 5 of Directive 98/10/EC of the old framework
    and the current Universal Service Directive, at Article 4. See also Recital 8 of the Preamble
    of the Universal Service Directive, where it states that, [t]here should be no constraints
    on the technical means by which the connection is provided, allowing for wired or wireless
    technologies, nor any constraints on which operators provide part or all of universal
    service obligations.
    191
    The requirement is limited to a single narrowband network connection, the provision
    of which may be restricted by Member States to the end-users primary location/residence,
    (continued...)
    187

    78

    ..)

    The Goals and Objectives of Communications Regulation

    considering the Information Society policies and the related broadband


    penetration plans,192 but it nonetheless provides for a minimum niveau
    throughout the Community.
    The flexibility of the new regime is further enhanced by the possibility
    for review of the scope of universal service, as contained in Article 15 of
    the Universal Service Directive.193 The latter review is to be undertaken
    in the light of social, economic and technological developments, taking
    into account, inter alia, mobility and data rates in the light of the
    prevailing technologies used by the majority of subscribers.194 The
    review process could thus, accounting for new developments in society,
    in terms of needs for and spread of technologies, and the new
    developments in technology itself (although remaining technologically
    neutral), adjust the parameters of universal service at the EC level.195
    and does not extend to the Integrated Services Digital Network (ISDN), which provides
    two or more connections capable of being used simultaneously. Connections to the public
    telephone network at a fixed location should be capable of supporting speech and data
    communications at rates sufficient for access to online services such as those provided
    via the public internet. The speed of internet access experienced by a given user may
    depend on a number of factors including the provider(s) of internet connectivity as well
    as the given application for which a connection is being used. The data rate that can be
    supported by a single narrowband connection to the public telephone network depends
    on the capabilities of the subscribers terminal equipment as well as the connection. For
    this reason, the Universal Service Directive does not mandate a specific data or bit rate at
    Community level. See Recital 8 of the Universal Service Directive.
    192
    See Paul Nihoul and Peter Rodford, supra note 124, at paras 5.2335.234. On the
    European Information Society policy goals, see infra Section 3.5.
    193
    Article 15(1) of the Universal Service Directive.
    194
    Article 15(2) of the Universal Service Directive. Annex V thereof gives some additional
    guidelines as to the review criteria: In considering whether a review of the scope of
    universal service obligations should be undertaken, the Commission is to consider: (i) the
    social and market developments in terms of the services used by consumers and, (ii) the
    social and market developments in terms of the availability and choice of services to
    consumers, technological developments in terms of the way services are provided to
    consumers. In considering whether the scope of universal service obligations should be
    changed or redefined, the Commission is to consider: (i) are specific services available to
    and used by a majority of consumers and does the lack of availability or non-use by a
    minority of consumers result in social exclusion, and (ii) does the availability and use of
    specific services convey a general net benefit to all consumers such that public intervention
    is warranted in circumstances where the specific services are not provided to the public
    under normal commercial circumstances.
    195
    In accordance with its obligation under Article 15 of the Universal Service Directive,
    the Commission has already conducted a first assessment of the need for change or
    redefinition of the scope of universal service launching a broader policy debate on the
    issue. The findings of the Commission are that the scope of the universal service should
    remain unchanged, although it puts forward for discussion some interesting long-term
    issues for redefinition of the universal service obligations (eg exclusion of public
    payphones and directory services or separation of access to infrastructure from access to
    services). See European Commission, On the review of the scope of universal service and
    European Commission, Report regarding the outcome of the Review of the scope of
    universal service in accordance with Article 15(2) of Directive 2002/22/EC, supra note 189.

    79

    EC Electronic Communications and Competition Law

    The scope of the universal service obligations could additionally be, in


    application of the principle of subsidiarity, extended at any time at
    national level. Member States may include items other than the ones
    identified in the Universal Service Directive.196 As under the previous
    USO package, however, in such circumstances, no compensations
    mechanism involving specific undertaking may be imposed,197 ie the
    added obligations could only be financed through public funds but not
    through compensation mechanisms.198
    d.

    Interim Conclusion on Universal Service

    The insertion of the services, outlined in the above Section, as part of the
    current USOs is warranted by the importance of communication, inclusion
    and cohesion in a contemporary society. In that sense, the provision of
    communications services is extended not just to the limit of economic
    efficiency, but to the limit of social need,199 even if satisfying the latter
    deviates from the strict economic raison dtre. As stated by the First EC
    Communication on Services of General Interest, [t]he real challenge is to
    ensure a smooth interplay between, on the one hand, the requirements of
    the single market and free competition in terms of free movement, economic
    performance and dynamism and, on the other, the general interest
    objectives.200 In facing this challenge, the new universal service regime
    departs from the broad concept of public service (as something essentially
    provided by the state201) and moves towards a flexible USOs system where
    the market delivers most of the benefits with some additional regulatory
    corrections made.202 As Nihoul and Rodford note, the new universal service
    could be indeed defined as a form of public service in a competitive
    environment203 achieving some redistribution between users (of different
    locations and/or income groups) and [contributing] toward realisation of
    some public goods (like universal communications networks).204
    One should however not equate the universal service regimes (current
    or previous) with the societal goals behind USO.205 It is important to
    196

    See Articles 49 of the Universal Service Directive.


    Article 32 of the Universal Service Directive.
    198
    See supra note 176.
    199
    William H. Melody, supra note 6, at p. 13.
    200
    European Commission, Services of general interest in Europe, OJ C 281/3, 26 September
    1996, at para. 19.
    201
    See supra note 150.
    202
    Paul Nihoul and Peter Rodford, supra note 124, para. 5.05.
    203
    Paul Nihoul and Peter Rodford, ibid. at para. 5.324. For a comparison between public
    service and universal service, see ibid. paras 5.3185.324.
    204
    European Commission, Liberalisation of Network Industries: Economic Implications
    and Main Policy Issues, supra note 150.
    205
    See eg Milton L. Mueller, Universal Service Policies as Wealth Distribution (1999)
    Government Information Quarterly, Vol. 16, No 4, pp. 353358 and Nicholas Garnham, supra
    note 154, pp. 199204.
    197

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    The Goals and Objectives of Communications Regulation

    understand this history and how, different stages of development of


    telecommunications networks, universal service will have different
    meaning and emphases.206 Upon closer examination of these different
    stages,207 one could see that although the meaning of universal service
    and how it is pursued vary widely, there is an underlying unity of
    aim. 208 Equity, continuity and affordability as values innate to
    citizenship209 remain as its intact objectives (albeit pursued with different
    stress and intensity).
    Thus, one could conclude that universal service is a tool for the
    achievement of other societal goals. It is also a dynamic concept, [b]y
    its nature [] prone to evolution, 210 and could accommodate,
    depending on the political environment, different concrete objectives.211
    Although until now, universal service coincides in practice with plain
    old telephone service (POTS), we should think of it as an empty
    concept based on the principles of continuity, equity and affordability
    that may be filled in the future with additional content.212
    Following this line of reasoning, universal service could then be stretched
    to include broadband or other internet applications (especially in view
    of the European Information Society policies213) or assigned entirely
    different task(s) related to access to information rather than simply
    dealing with conventional access to networks.214 USOs could further be
    206

    Colin R. Blackman, supra note 8, p. 172.


    Claire Milne, Stages of Universal Service Policy (1998) Telecommunications Policy,
    Vol. 22, No 9, pp. 775780, at p. 776.
    208
    Claire Milne, ibid. at p. 777. Claire Milne identifies the following common elements:
    (i) universal service is desired for social or political reasons and includes a notion of
    equity; (ii) achievement of universal service is apparently not commercially viable;
    (iii) it is recognised that definitions will change as society and technology change;
    (iv) definitions cover what are seen as basic telecoms services, ie well established,
    relatively cheap, and very important to ordinary people; (v) adequate quality of service
    is defined or understood; (vi) service must be affordable by those for whom it is designed.
    209
    Paul Nihoul and Peter Rodford, supra note 124, at para. 5.319. See also Giuliano Amato,
    Citizenship and Public Services: Some General Reflections in Mark Freedland and
    Silvana Sciarra (eds.), supra note 150, pp. 145156.
    210
    Paul Nihoul and Peter Rodford, supra note 124, at para. 5.78.
    211
    For a critique of the possibility for pursuit of other political objectives, see eg Milton L.
    Mueller, supra note 205 and Nicholas Garnham, supra note 154, pp. 199204.
    212
    See eg The Economist, Hearing Voices, 28 October 2004.
    213
    See infra Section 3.5.
    214
    Robin Mansell remarks in that regard: There is a shift away from policy discussions
    about the access to networks and towards debates about the availability and affordability
    of information applications. A distinction between basic access to networks at reasonable
    prices and basic access to information needs to be made. The issue is whether network
    operators and service suppliers who control the gateways for accessing customers should
    be permitted to screen out certain kinds of information that may be regarded by public
    policy as essential to the conduct of business and everyday life. Decisions are needed on
    whether provisions need to be made to ensure access to certain kinds of public information
    (eg health, education, transport, government information) and whether the governments
    (continued...)
    207

    81

    EC Electronic Communications and Competition Law

    seen as a driver of innovation,215 taking into consideration the aforementioned importance of innovation in itself and the specificities of
    communications as a network industry.216 As such, universal service
    could stimulate the creation of a broad-based society of lay users for
    advanced ICT [Information and Communication Technologies], whose
    participation in successful interaction with suppliers is key to the breadth
    of the ICT innovation process [] increas[ing] the total range and
    number of information technology innovations and at the same
    decreas[ing] the proportion of unsatisfactory innovations.217
    The above paragraphs on universal service clearly show that a certain
    regulatory objective can evolve over time and while, remaining based
    on the same public interest rationales, acquire new content.
    3.3

    Consumer Protection

    Consumer218 protection is another societal objective that one could clearly


    identify, both as a general concept valid for all economic sectors and
    with a communications-specific meaning. Consumer protection is in fact
    a notion that covers a wide variety of policies ranging from very precise
    and exhaustive rules (eg contract conditions, labelling requirements etc)
    to more general ones (eg universal service policy). If we construe
    consumer protection in its broadest sense, all of the objectives, outlined
    in the preceding Sections, namely competition in its static and dynamic
    aspects, universal service and all the policy choices made for their
    achievement regarding liberalisation, innovation, standardisation or
    definition of USOs should lead to protection of the consumers. Indeed
    consumers are meant to be the ultimate beneficiaries, both individually
    and collectively, as members of the socium.
    of member states or the European Union should underwrite the costs of ensuring that
    this information is accessible. See Robin Mansell, Designing Networks to Capture
    Customers: Policy and Regulation Issues for the New Telecom Environment in William.
    H. Melody (ed.), Telecom Reform: Principles, Policies and Regulatory Practices, Lyngby:
    Technical University of Denmark, 1997, pp. 7790, at pp. 8586.
    215
    Franois Bar and Annemarie Munk Riis, From Welfare to Innovation: Toward a New
    Rationale for Universal Service, Conference Paper presented at the 26 th
    Telecommunications Policy Research Conference, Alexandria, VA, 3rd5th October 1998,
    available at http://tprc.org/agenda98.htm.
    216
    See supra Section 2.3.
    217
    Franois Bar and Annemarie Munk Riis, supra note 215, at p. 17.
    218
    The current Framework Directive defines consumer for the purposes of the EC
    electronic communications regime as any natural person who uses or requests a publicly
    available electronic communications service for purposes which are outside his or her
    trade, business or profession. User, on the other hand, is defined as a legal entity or
    natural person using or requesting a publicly available electronic communications
    service. See Article 2(1), letters (h) and (i) of the Framework Directive. Within this Section,
    consumer will be used in its most general colloquial meaning as a person who uses in
    any way communications services.

    82

    The Goals and Objectives of Communications Regulation

    As mentioned above, the achievement of the economic goals is often an


    essential basis for the pursuit of other goals. This, however, does not
    imply a primacy of the economic goals over the societal (non-economic)
    ones. The latter must be guaranteed in parallel, constantly and without
    compromise. The roots of the principle of consumer protection may be
    traced back to the constitutional human rights, such as the right to the
    integrity of the person,219 the right to liberty and security,220 the right to
    property,221 the right to protection of personal data,222 and to nondiscrimination,223 among others.224
    Transparency, objectivity, proportionality and non-discrimination are
    additional general principles that permeate the entire EC law and are
    equally valid for the regulatory framework for electronic
    communications networks and services, both for the service providers
    and the regulating agencies.225 Timeliness and impartiality are further
    norms for the actions of the regulatory authorities. 226 So are their
    competence227 and independence.228 Securing these essential principles
    of both commercial behaviour and good governance, as distinct rules
    and in their totality, ultimately guarantees the safeguarding of
    consumers interests.

    219

    European Convention on Human Rights, Charter of Fundamental Rights of the


    European Union, OJ C 364/1, 18 December 2000, at Article 3.
    220
    Ibid. at Article 6.
    221
    Ibid. at Article 17.
    222
    Ibid. at Article 8.
    223
    Ibid. at Article 21. The above rights have their counterparts in the European Convention
    for Human Rights (Council of Europe, Convention for the Protection of Human Rights
    and Fundamental Freedoms, Rome, 4 November 1950, as amended by Protocol No 11,
    ETS No 155) and build upon the Universal Declaration of Human Rights (GA Resolution
    217 A (iii), UN Doc. A/810, 10 December 1948), the International Covenant on Civil and
    Political Rights (GA Resolution 2200 A (xxi), UN Doc. A/6316, 1966), entered into force 23
    March 1976 and the International Covenant on Economic, Social and Cultural Rights
    (GA Resolution 2200 A (xi), UN Doc. A/6316, 1966, entered into force 3 January 1976).
    224
    The Data Protection Directive, for instance, states explicitly as its aim to respect the
    fundamental rights and observes the principles recognised in particular by the Charter
    of fundamental rights of the European Union. In particular, this Directive seeks to ensure
    full respect for the rights set out in Articles 7 and 8 of that Charter. See Directive 2002/
    58/EC of the European Parliament and of the Council of 12 July 2002 concerning the
    processing of personal data and the protection of privacy in the electronic communications
    sector, OJ L 201/37, 31 July 2002 (Directive on Privacy and Electronic Communications), at
    recital 2.
    225
    See eg recital 19, 20, 22, Articles 3 and 9(1) of the Framework Directive, recitals 30, 31,
    Articles 14, 21 of the Universal Service Directive.
    226
    Article 3(3) of the Framework Directive prescribes an obligation for the Member States
    to ensure that national regulatory authorities exercise their powers impartially and
    transparently.
    227
    Article 3(1) of the Framework Directive.
    228
    Article 3(2) of the Framework Directive.

    83

    EC Electronic Communications and Competition Law

    The EU Charter of Fundamental Rights229 contains a special provision


    addressing consumers interests, which obliges the Union to ensure a
    high level of consumer protection.230 Article 153 of the EC Treaty is a
    concrete expression of this obligation231 that gives a legal basis for the
    adoption of a comprehensive Community-wide consumer protection
    regime.232
    Accounting for the above, one could submit that consumer protection
    has been clearly recognised as a goal of regulation and is taken into
    consideration when designing, interpreting and applying the law. In
    the specific environment of electronic communications, however, the
    objective of protecting the consumer takes equally specific dimensions
    and calls for specific tools to address them. The examples below convey
    this idiosyncrasy and the complexity of the task of guaranteeing
    consumers protection in electronic communications.
    First, it should be recalled that the Framework Directive of the 2002 ecommunications regime identifies, pursuant to Article 8, consumer
    protection as one of the major policy objectives233 to be pursued by the
    NRAs. Reflecting our thoughts on the human rights basis of consumer
    protection, Article 8(4) of the Framework Directive construes it broadly
    and speaks of promoting the interests of the citizens of the European
    Union rather than merely those of the consumers, as defined in Article
    2 of the Directive.234
    229

    See supra note 219. The charter has been now incorporated into the Treaty establishing a
    Constitution for Europe (provisional consolidated version), OJ C 310/1, 16 December 2004.
    230
    Article 38 of the charter reads: Union policies shall ensure a high level of consumer
    protection.
    231
    Article 153 EC reads as follows:
    1. In order to promote the interests of consumers and to ensure a high level of consumer
    protection, the Community shall contribute to protecting the health, safety and economic
    interests of consumers, as well as to promoting their right to information, education and
    to organise themselves in order to safeguard their interests.
    2. Consumer protection requirements shall be taken into account in defining and
    implementing other Community policies and activities.
    3. The Community shall contribute to the attainment of the objectives referred to in para. 1
    through: (a) measures adopted pursuant to Article 95 in the context of the completion of
    the internal market; (b) measures which support, supplement and monitor the policy
    pursued by the Member States.
    4. The Council, acting in accordance with the procedure referred to in Article 251 and
    after consulting the Economic and Social Committee, shall adopt the measures referred
    to in para. 3(b).
    5. Measures adopted pursuant to para. 4 shall not prevent any Member State from
    maintaining or introducing more stringent protective measures. Such measures must be
    compatible with this Treaty. The Commission shall be notified of them.
    232
    See Article 153(3) EC.
    233
    The other two being the promotion of competition and the development of the internal
    market. See Article 8(2) and (3) of the Framework Directive. See also supra Section 2.2.
    234
    See Article 2(1)(h) of the Framework Directive and supra note 218.

    84

    The Goals and Objectives of Communications Regulation

    Pursuant to Article 8(4) of the Framework Directive, NRAs are to take


    all reasonable measures235 aimed at promoting the interest of the citizens
    inter alia by: (i) ensuring access to universal service; (ii) a high level of
    protection for consumers in their dealings with suppliers, in particular
    by ensuring the availability of simple and inexpensive dispute resolution
    procedures; (iii) a high level of protection of personal data and privacy;
    (iv) promoting the provision of clear information, in particular requiring
    transparency of tariffs and conditions, (v) addressing the needs of
    specific social groups, in particular disabled users; and (vi) ensuring
    that the integrity and security of public communications networks are
    maintained.
    The specific instruments that warrant the achievement of these objectives
    are the Universal Service Directive236 and the Directive on Privacy and
    Electronic Communications,237 although all Specific Directives238 contain
    provisions on and considerations of consumer protection.239
    Secondly, we should acknowledge one distinctive characteristic of
    consumer protection in e-communications that could be of primary
    importance when designing the concrete safeguard instruments. Namely,
    that it is a dynamic concept both because of the transformed market
    environment of electronic communications resulting from the
    liberalisation of the sector and because of the rapidly changing
    technologies intrinsic to the new electronic communications.
    With regard to the former point, as discussed above, the liberalisation
    of telecommunications meant also their transformation from public
    services to normal commercial activities. Prior to this transformation,
    telecommunications services were provided by the public operators,
    which were organised as administrations and were often state-owned.
    Since the liberalisation, however, the relations between the provider and
    the consumers are no longer of an administrative nature (ie between the
    235

    Article 8(1) of the Framework Directive (emphasis added).


    See supra note 171. Besides the USO provisions, which are a form of consumer
    protection in themselves, the Universal Service Directive contains specific rules on the
    rights of end-users and the corresponding obligations on undertakings providing publicly
    available electronic communications networks and services (Article 1(2) of the Universal
    Service Directive).
    237
    See the Directive on Privacy and Electronic Communications. To all other matters
    concerning protection of fundamental rights and freedoms, which are not specifically
    the latter, the applicable instrument is Directive 95/46/EC of the European Parliament
    and of the Council of 24 October 1995 on the protection of individuals with regard to the
    processing of personal data and on the free movement of such data, OJ L 281/31, 23
    November 1995.
    238
    See recital 5 of the Framework Directive.
    239
    See eg recital 5, Articles 1 and 13 of the Access Directive, as well as recital 7 and Article
    11 of the Authorisation Directive.
    236

    85

    EC Electronic Communications and Competition Law

    state and the citizens) but rather based on common commercial terms
    (ie upon contractual relationships).240 This development, which tolerates
    greater commercial freedom, also calls for a higher level of protection
    and mechanisms put in place to ensure this.241
    Furthermore, liberalisation allowed new players to enter markets, which
    accordingly gave consumers the opportunity to choose between
    operators, service packages and/or networks. This freedom of choice
    was created and is largely guaranteed by the competitive processes in
    the markets 242 (and thus indirectly by the antitrust rules). In
    communications, however, due to some technical predeterminations,
    this freedom might be harmed and needs to be secured through
    additional regulation. Number portability and carrier selection and
    preselection rules243 could be seen as expressions of this need.244
    The plurality of market players has a definite positive effect on consumer
    choice both in terms of more, better and innovative services and in terms
    of lower prices.245 It could, however, also have negative repercussions
    240

    See Paul Nihoul and Peter Rodford, supra note 124, at paras 7.04 et seq.
    See Articles 20 and 34(1) of the Universal Service Directive. In addition, the requirements
    of existing Community consumer protection legislation relating to contracts, in particular
    Council Directive 93/13/EEC of 5 April 1993 on unfair terms in consumer contracts (OJ L
    95/29, 21 April 1993) and Directive 97/7/EC of the European Parliament and of the Council
    of 20 May 1997 on the protection of consumers in respect of distance contracts (OJ L 144/
    19, 4 June 1997) apply to consumer transactions relating to electronic networks and
    services.
    242
    See recital 26 of the Universal Service Directive.
    243
    The number portability provisions ensure that all subscribers of publicly available
    telephone services, including mobile ones, can retain upon request their numbers (not
    only for the sake of pure convenience but also since numbers could be of significant
    economic or social value), independently of the undertaking providing the service (Article
    30 of the Universal Service Directive). Carrier selection and preselection rules, on the
    other hand, enable access through the network of the incumbent to other (than the
    incumbent) operators for the provision of connection to and use of the public telephone
    network at a fixed location. This access could be granted on a call-by-call basis by dialling
    a certain code or by means of preselection, ie with a facility that overrides the preselected
    choice on a call-by-call basis (Article 19(1) of the Universal Service Directive).
    244
    It should be noted that although both number portability and carrier selection and
    carrier pre-selection are viewed here as expression of consumer protection, they have
    different legal nature. Pursuant to the Universal Service Directive, number portability is
    seen as an aspect of end-user rights, while carrier selection and preselection are forms of
    ex ante obligation that might be imposed on an undertaking with significant market
    power (Article 19). For detailed analysis of the SMP designation and imposition of ex
    ante obligations, see infra Part 2, Chapter 4, Section 3.2.4.
    245
    The Tenth Communications Report notes: The pattern of increasing consumer benefits,
    in terms of lower prices, greater choice and more innovative services, that has been evident
    since e-communications markets were first liberalised, is continuing as a result of the more
    competitive environment and the flexibility provided by the new regulatory framework.
    This year [2004] has seen increased choice through the entry of new operators into the market
    and more options for broadband. As competitive pressure intensifies, prices have fallen in
    some segments. See supra note 26, at Summary, at p. 8 (footnotes omitted). This development
    has been confirmed by the Eleventh Communications Report, supra note 26, at p. 14.
    241

    86

    The Goals and Objectives of Communications Regulation

    that would require additional intervention in order to protect consumers.


    A pertinent example is the quality of the services offered. In that regard,
    the Universal Service Directive prescribes a procedure, whereby
    undertakings are to publish comparable, adequate and up-to-date
    information for end-users on the quality of their services.246 NRAs may
    additionally specify the quality of service parameters to be measured,
    and the content, form and manner of information to be published, in
    order to ensure that end-users have access to comprehensive, comparable
    and user-friendly information.247
    Another possibly harmful consequence of the multiplicity of market
    players, which stems from the network nature of electronic
    communications, is the occurrence of negative network effects. As
    discussed in Chapter 1,248 because of the very structure of networks, if
    one node of the network breaks down or is congested, the negative effects
    spread across the whole system causing it to fail. In view of this, Article
    23 of the Universal Service Directive obliges the Member States to take
    all necessary steps to ensure the integrity of the public telephone network
    at fixed locations and, in the event of catastrophic network breakdown
    or in cases of force majeure, the availability of the public telephone
    network and publicly available telephone services at fixed
    locations.249 The security of networks is clearly also of significance
    as regards the data being carried over them.250
    The second dimension of the dynamic concept of consumer protection
    in electronic communications environments relates to the rapid
    technological advances of the communications sector itself. Sophisticated
    digital networks, the possibilities of instant data transfer, the access of
    more and more people to these networks and their accordingly increased
    use for business and communication create a new reality and call for
    suitably up-to-date modes of protection.251 Delicate issues related to
    246

    Article 22(1) of the Universal Service Directive.


    Article 22(2) of the Universal Service Directive. See also Annex III thereof and Article
    4 of the Directive on Privacy and Electronic Communications Directive. Generally, on
    quality of service, see Paul Nihoul and Peter Rodford, supra note 124, at para. 7.11.
    248
    See supra Chapter 1, Section 4.1.3.
    249
    Article 23 of the Universal Service Directive.
    250
    Security of networks and communications is a major area of concern for the
    development of the digital economy. Networks and information systems are now
    supporting services and carrying data of great value which can be vital to other critical
    infrastructures. Increased protection of the networks and information systems is therefore
    necessary against various types of attacks on their availability, authencity, integrity and
    confidentiality. See European Commission, Electronic communications: The road to the
    knowledge economy, COM(2003) 65 final, 11 February 2003, at p. 13.
    251
    Recital 6 of the Directive on Privacy and Electronic Communications, for instance,
    notes: The Internet is overturning traditional market structures by providing a common,
    global infrastructure for the delivery of a wide range of electronic communications
    (continued...)
    247

    87

    EC Electronic Communications and Competition Law

    privacy, such as location data252 and the confidentiality of information,253


    have to be properly dealt with in an environment that is increasingly
    unpredictable and by its very nature constantly evolving.254
    Assuring an appropriate level of consumer protection could feed back
    positively into the development of new technologies, particularly since
    the adoption of the latter is dependent on consumers expectations and
    characterised by network effects.255 Furthermore, on a more general level,
    [t]he establishment of consumer confidence and trust are a prerequisite
    for consumer acceptance of, and participation in, the information
    society.256 The latter may be of particular importance for developing
    and fostering the new type of participatory culture.257
    To summarise the above paragraphs, one could suggest that the
    protection of the interests of the citizens of the European Union in the
    environment of electronic communications might be a particularly
    difficult task. Although, in principle, the market will cater for the interests
    of the consumers delivering the generic benefits of competition, a high
    degree of protection will necessitate decisions against the market forces
    to safeguard consumers. In order to meet the objective of consumer
    protection properly, the regulatory instruments should form a multilevel, coordinated and flexible system that will be capable of addressing
    communications-specific situations and can adjust swiftly to new
    circumstances. The technological and market evolution of the
    communications and their intensified inclusion in the modern personal
    and social lives may further warrant the formulation of new consumer
    protection sub-objectives in order effectively to safeguard the public
    interest.
    services. Publicly available electronic communications services over the internet open
    new possibilities for users but also new risks for their personal data and privacy. The
    need for a new type of protection has been acknowledged also by Council Resolution of
    19 January 1999 on the consumer dimension of the Information Society, OJ C 23/1, 28
    January 1999.
    252
    See recital 35 and Articles 6 and 9 of the Directive on Privacy and Electronic
    Communications.
    253
    Article 5 of Directive on Privacy and Electronic Communications.
    254
    See eg Decision 854/2005/EC of the European Parliament and of the Council of 11 May
    2005 establishing a multiannual Community Programme on promoting safer use of the
    internet and new online technologies, OJ L 149/1, 11 June 2005.
    255
    As discussed supra in Section 2.3.
    256
    Council Resolution on the consumer dimension of the Information Society, supra
    note 251, at Recital 5.
    257
    See eg Urs Gasser and Silke Ernst, From Shakespeare to DJ Danger Mouse: A Quick
    Look at Copyright and User Creativity in the Digital Age, Berkman Center for Internet
    and Society Research Publication No 2006-05, June 2006. See also Yochai Benkler, The Wealth
    of Networks: How Social Production Transforms Markets and Freedom, New Haven/London:
    Yale University Press, 2006.

    88

    The Goals and Objectives of Communications Regulation

    3.4

    On a Higher Level

    Talking about communications and the goals that stand before


    communications regulation, we should distance ourselves from the
    concrete parameters of the regulatory regime(s) and their increasing
    technical complexity in order to see the development of electronic
    communications from a broader perspective. Below, we attempt to
    outline some higher objectives that should be considered in electronic
    communications, in particular in view of the phenomena of digitisation,
    convergence and globalisation. One could equally interpret them as an
    elaboration of consumer protection in a higher, human rights context.
    In this Section, communications are considered not only as transmission
    systems,258 but above all, in their special role as channels carrying and
    disseminating information and content.259
    Undoubtedly, as argued at the outset of Chapter 1, the
    telecommunications sector has changed. The evolution of ecommunications and the continuing development of new technologies
    for the transmission and storage of information [have led] to
    organisational, commercial, technical and legal innovations that are
    having a profound impact on society in general.260 We should also note
    that, [a]s the use of [information and communication technology] grows,
    so does its impact on society.261 Thus, both the quantitative and the
    qualitative ICT-based ramifications for society are clearly immense.
    If we are however willing to speak of the Information Society as a general
    societal phenomenon, it will be rather superficial (and largely untrue)
    to relate its creation and development solely to the advances in
    information and communication technologies.262 Indeed, we should take
    into account the wider social, political and cultural processes that have
    led (and continuously lead) to this networked, knowledge-based
    environment that we live in.
    The Information Society263 is no longer subject to speculations and hype
    and most people take its existence and their involvement in it for granted.
    258

    Article 2(a) of the Framework Directive.


    See supra Chapter 1, Section 4.5.
    260
    Council Resolution on the consumer dimension of the Information Society, supra
    note 251, at recital 1.
    261
    European Commission, i2010 A European Information Society for growth and
    employment, COM(2005) 229 final, 1 June 2005, at p. 9.
    262
    The Information Technology Revolution DID NOT create the network society. But
    without technology, the Network Society would not exist. See Manuel Castells, An
    Introduction to the Information Age in Frank Webster (ed.), The Information Society Reader,
    London: Routledge, 2004, pp. 138149, at p. 139 (upper case in the original).
    263
    The concept of Information Society has allegedly come into being some forty years
    ago. The economist Fritz Machlup, while examining the US patent system postulated the
    (continued...)
    259

    89

    EC Electronic Communications and Competition Law

    Despite this self-explicability of the phenomenon (which often leads to


    its misuse for political purposes), there is no single and universally accepted theory of the Information Society. It is beyond the scope of the
    present work to engage in examination of all the theories of the Information Society264 and/or to attempt their consolidation. For the purpose
    of this Section, we shall use a simplified working definition of the
    Information Society with an emphasis on its spatial and cultural aspects265
    and their implications for the objectives of communications regulation.
    With this caveat in mind, the Information Society could be defined as a
    society in which the creation, distribution and manipulation of
    information has become the most significant economic and cultural
    activity. Information is however to be understood not only in the sense
    of mere facts but also, more broadly, as knowledge.266
    In its spatial aspect, the Information Society could then be construed as
    information networks which connect locations and in consequence have
    dramatic effects on the organisation of time and space.267 These effects
    could be seen both as stemming from the globalisation of marketplaces268
    and the technologies allowing instant communications and data transfer,
    which ultimately result in a shrinking world.269 These time/space
    existence of a knowledge economy and stressed the role of information. See Fritz
    Machlup, The Production and Distribution of Knowledge in the United States, Princeton,
    NJ: Princeton University Press, 1962.
    264
    For theories of the Information Society, see Daniel Bell, The Coming of Post-Industrial
    Society: A Venture in Social Forecasting, New York: Basic Books, 1999 (first published 1973);
    Manuel Castells, The Information Age: Economy, Society and Culture, Vol. 1: The Rise of the
    Network Society, 2nd edition, Oxford: Blackwell Publishing, 2000. For a critique, see
    Nicholas Garnham, Information Society Theory as Ideology: A Critique (2001) Studies in
    Communications Sciences, Vol. 1, pp. 129166. For an overview of the different theories,
    see Frank Webster, Theories of Information Society, London: Routledge, 1995 and Frank
    Webster (ed.), The Information Society Reader, London: Routledge, 2004. See also Alistair S.
    Duff, Information Society Studies, London: Routledge, 2001 and Christopher May, The
    Information Society: A Sceptical View, Cambridge, UK: Polity Press, 2002.
    265
    Building upon the analysis of Frank Webster, who identifies five definitions of an
    Information Society, namely: (i) technological; (ii) economic; (iii) occupational; (iv) spatial
    and (v) cultural. See Frank Webster (1995), ibid. at pp. 6 et seq.
    266
    William H. Dutton, Social Transformation in an Information Society: Rethinking Access to
    You and the World, Paris: UNESCO, 2004, at p. 27.
    267
    Frank Webster (1995), supra note 264, at p. 18.
    268
    On globalisation (in particular economic globalisation), see Peter van den Bossche, The
    Law and Policy of the World Trade Organization, Cambridge: Cambridge University Press,
    2005, at pp. 3 et seq. See also an excellent collection of contributions on globalisation in
    David Held and Anthony McGrew (eds.), The Global Transformations Reader, 2nd edition,
    Cambridge, UK: Polity Press, 2003.
    269
    See The Shrinking World: The Impact of Transportation Technology on Effective
    Distance in Anthony G. Oettinger, Information Technologies, Government and
    Governance: Some Insights from History, Incidental Paper, Program on Information Resources
    Policy, Harvard University, September 1998, available at http://www.pirp.harvard.edu.
    See also John B. Thompson, The Globalization of Communication in David Held and
    Anthony McGrew, ibid. pp. 246259.
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    The Goals and Objectives of Communications Regulation

    compressions270 have numerous repercussions and mostly notably in


    our context lead to increasing interconnectedness within the information
    networks. The emergence of all-encompassing global networks, on the
    other hand, underlines the significance of the flow of information,271 ie
    the content that spreads through them.
    Indubitably, the global reach and technological potency of these
    infrastructures have allowed for vast amounts of information to be
    disseminated. Especially now that digitisation has become ubiquitous,
    all types of content (audio, video or text) expressed in ones and zeros
    could be distributed over any network (telephone, cable or mobile) at
    the speed of light.272 New forms of communication are emerging (such
    as, for instance, weblogs273) and together these developments have led
    to a fundamental shift in the traditional channels of distribution of
    content.
    The means of distribution have accordingly changed the content being
    distributed. In the words of Jean Baudrillard, there is more and more
    information, and less and less meaning. 274 The emergence of
    transnational communication conglomerates as key players in the global
    system of communication and information diffusion275 have led to a
    simultaneous transformation of the type and variety of content being
    distributed. Formats and contents of TV programmes, films and shows
    have become increasingly homogeneous.276 Although this globalisation
    270

    As referred to by Anthony Giddens. See Anthony Giddens, Modernity and Self-Identity: Self
    and Society in the Late Modern Age, Cambridge, UK: Polity Press, 1991. On the Age of
    Simultaneity, see Neal M. Rosendorf, Social and Cultural Globalization: Concepts, History,
    and Americas Role in Joseph S. Nye and John D. Donahue (eds.), Governance in a Globalizing
    World, Washington, DC: Brookings Institution Press, 2000, pp. 109134, at pp. 115 et seq.
    271
    Frank Webster (1995), supra note 264, at p. 19, referring to Manuel Castells, The
    Informational City: Information Technology, Economic Restructuring, and the Urban Regional
    Process, Oxford: Blackwell Publishing, 1989.
    272
    See supra Chapter 1, Section 1.3 for a discussion of the major technological
    breakthroughs (digitisation, optical fibres and transistors) that transformed the
    communications industry.
    273
    Dan Gillmor, We the Media: Grassroots Journalism by the People, for the People, Sepastobol,
    CA: OReilly Media, 2004.
    274
    Jean Baudrillard, Symbolic Exchange and Death, London: Sage Publishing, 1993, at p. 5, as
    referred to by Frank Webster (1995), supra note 264, at p. 22. On the multi-channel paradox,
    whereby despite the diversity of channels, there is no actual diversity of content, see Mnica
    Ario, Competition Law and Pluralism in European Digital Broadcasting: Addressing the
    Gaps (2004) Communications and Strategies, No 54, pp. 97128, at pp. 98 et seq.
    275
    See eg Robert W. McChesney, The New Global Media in David Held and Anthony
    McGrew, supra note 268, pp. 278285 and Christoph Beat Graber, Handel und Kultur im
    Audiovisionsrecht der WTO. Vlkerrechtliche, konomische und kulturpolitische Grundlagen einer
    globalen Medienordnung, Berne: Staempfli Publishers, 2003, at pp. 45 et seq.
    276
    For a critique of the cultural industries and on the homogeneity of content, see Christoph
    Beat Graber, ibid. at pp. 18 et seq. For arguments against homogeneity, see Gaetano
    Romano, Technologische, witschaftliche und kulturelle Entwicklungen der
    audiovisuellen Medienmrkte in den letzten Jahren in Christoph Beat Graber, Michael
    (continued...)
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    EC Electronic Communications and Competition Law

    and uniformisation of content do not necessarily (and automatically)


    mean a cultural desert, where diversity has perished and the rules are
    made by transnational corporations,277 they do lead to a completely
    changed media and communications environment that we are now faced
    with.278 An environment that has the potential of affecting acutely and
    changing our culture.279
    To use the words of Manuel Castells, [f]or all the science fiction ideology
    and commercial hype surrounding the emergence of the so-called
    information superhighway, we can hardly underestimate its
    significance. The potential integration of text, images, and sounds in
    the same system, interacting from multiple points, in chosen time (real
    and delayed) along a global network, in conditions of open and
    affordable access, does fundamentally change the character of
    communication. And communication decisively shapes culture, because,
    as Postman writes, we do not see reality as it is, but as our
    languages are. And our languages are our media. Our media are our
    metaphors. Our metaphors create the content of our culture.280
    Without engaging in (the rather difficult281) analysis of the concept of
    culture,282 for the purposes of this Section, we can conclude that the
    Girsberger and Mira Nenova, Free Trade versus Cultural Diversity: WTO Negotiations in the
    Field of Audiovisual Services, Zurich: Schulthess, 2004, pp. 113, at pp. 4 et seq. For an
    interesting comment on the global power of American popular culture (influencing
    through attraction rather than coercion), see Neal M. Rosendorf, supra note 270, at pp. 117
    et seq. A converged communications industry with few voices was in fact predicted as
    early as 1947, when Theodor Adorno and Max Horkheimer saw a fusion of all arts into
    one work in the production by the communications industry in the United States of
    cultural products for the undifferentiated masses that would result in standardisation of
    the product. They feared this result would drive out individual creativity and cultural
    diversity. See Theodor Adorno and Max Horkheimer, Dialectic of Enlightenment, London:
    Verso Press, 1979 (first published 1947).
    277
    See eg Herbert Schiller, Striving for Communication Dominance: A Half-Century
    Review in Daya Kishan Thussu (ed.), Electronic Empires: Global Media and Local Resistance,
    London: Edward Arnold, 1998, at pp. 1726.
    278
    John B. Thompson, The Globalization of Communication in David Held and Anthony
    McGrew, supra note 268, pp. 246259. Thompson suggests notably that, the appropriation
    of globalized symbolic materials involves [] the accentuation of symbolic distancing from
    the spatial-temporal contexts of everyday life. Ibid. at p. 256 (emphasis in the original). See
    also Christoph Beat Graber, supra note 275, at pp. 22 et seq.
    279
    Manuel Castells, The Information Age: Economy, Society and Culture, supra note 264, at
    p. 357 (emphasis added).
    280
    Ibid. at p. 356, referring to Neil Postman, Amusing Ourselves to Death: Public Discourse in the
    Age of Show Business, New York: Penguin Books, 1985, at p. 15 (abridged in the original). See
    also in that sense, Ludwig Wittgenstein, Tractatus Logico-Philosophicus, London: Routledge,
    1999 (also available at http://www.gutenberg.org/etext/5740), who famously noted at para. 5.6.
    that: The limits of my language mean the limits of my world (in the original: Die Grenzen
    meiner Sprache bedeuten die Grenzen meiner Welt).
    281
    It was in 1952 when Kroeber and Kluckholn compiled a list of more than 200 different
    definitions of culture (see Alfred L. Kroeber and Clyde Kluckholn et al., Culture: A Critical
    (continued...)
    92

    ..)

    The Goals and Objectives of Communications Regulation

    Information Society is a new type of society that has multiple


    ramifications to media and communications, and consequently to
    culture. It is moreover not just a given reality but also a process, an
    evolution, which could be further shaped. Regulatory frameworks
    should thus address the present ramifications of Information Society,
    while simultaneously providing for the protection of a certain package
    of values in this development and their constant reassertion. This set of
    values forms precisely what we formulated at the beginning of the
    Section as higher objectives.
    The changing dynamics of the communications industries in the context
    of Information Society does not however mean that everything has
    changed and the old values have been emptied of their content.283 We
    do not necessarily have to formulate new rights to respond to the new
    modes of communication.284 It is, on the contrary, perhaps now more
    important than ever to affirm the innate human values. As stated in a
    key Background Note of the World Summit on the Information Society,
    [t]he human rights standards developed on the basis of the United
    Review of Concepts and Definitions, Cambridge, MA: Peabody Museum, 1952). Since then
    the concept has only gained in complexity and controversies despite the ample literature
    discussing it.
    282
    For a comprehensive analysis of the concept of culture and the relevant theories, see
    Christoph Beat Graber, supra note 275, at pp. 11 et seq. See also Nicholas Garnham,
    Emancipation, the Media, and Modernity: Arguments about the Media and Social Theory, Oxford:
    Oxford University Press, 2000, at pp. 140 et seq.; Anthony D. Smith, Towards a Global
    Culture in David Held and Anthony McGrew, supra note 268, pp. 278285.
    283
    P.H. Longstaff remarks in that regard that, [a] fallacious idea of the so-called
    Information Revolution is that everything has changed and that the old rules no longer
    apply. This is not the first time a new technology has made a new means of communication
    possible and, at the same time, made it possible for existing communications systems to
    evolve and merge into one another. Those who thought everything was new had an
    underdeveloped knowledge of history. The fundamentals of communication, networks
    and competition have not changed. Its the technology (and to some extent the broader
    scope) thats different. See P.H. Longstaff, The Communications Toolkit, Cambridge, MA:
    MIT Press, 2002, at p. 2.
    284
    Jan van Cuilenburg and Pascal Verhoest suggest, for instance, in the framework of
    discussing convergence, the formulation of new concepts, namely freedom of
    communication and access. The former is to mean the right to send or not to send, and to
    receive or not receive messages without any hindrance by any third party, while access signifies
    the possibility for individuals, groups and organisations to share societys communications
    resources. See Jan van Cuilenburg and Pascal Verhoest, Free and Equal Access: In Search
    of Policy Models for Converging Systems (1998) Telecommunications Policy, Vol. 22, No 3,
    pp. 171181. In the course of the preparatory works of the WSIS, there was also an attempt
    to formulate a new right, the right to communicate. The draft declaration on the right
    to communicate stressed the necessity of a new human right, partly embracing existing
    rights and partly composed of new ones, such as the right to access to technologies or the
    right of protection against cyber crimes and cyber terrorism. This approach encountered,
    however, heavy criticism because of its supposed too far-reaching consequences and did
    not materialise in the WSIS final documents. See WSIS, Statement on the Right to
    Communicate by Article 19 Global Campaign for Free Expression, WSIS/PC-2/CONTR/
    95-E, London, 14 February 2003.

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    EC Electronic Communications and Competition Law

    Nations Charter and the Universal Declaration of Human Rights


    constitute a set of internationally adopted norms, relevant to all spheres
    of life, including the Information Society.285
    Despite the fact that, [a]ll human rights are universal, indivisible and
    interdependent and interrelated,286one could identify the right to freedom
    of opinion and expression as the most central287 of these standards288 in the
    realm of communications.289 Its specific interpretation in the sense of
    pluralism290 is particularly important in the contemporary media society.
    Furthermore, human rights could be viewed as guarantees and enablers
    of cultural diversity,291 the protection of which is critical considering the
    285

    WSIS, Background Note on the Information Society and Human Rights, WSIS/PC-3/
    CONTR/178-E, 27 October 2003, at p. 2 (emphasis added).
    286
    All human rights are universal, indivisible and interdependent and interrelated. The
    international community must treat human rights globally in a fair and equal manner,
    on the same footing, and with the same emphasis. See UN Vienna Declaration and
    Programme of Action, A/CONF. 157/23, 25 June 1993, at para. 5, reiterated by the World
    Summit on Information Society, WSIS Declaration of Principles, Document WSIS-03/
    Geneva/Doc/4-E, 12 December 2003, at para. 3.
    287
    The centrality of the right to freedom of expression and information is reiterated in the
    WSIS, Background Note on the Information Society and Human Rights, supra note 285,
    especially at pp. 23. See also United Nations, Promotion and protection of the right to
    freedom of opinion and expression, Report of the Special Rapporteur Abid Hussain,
    pursuant to Commission on Human Rights Resolution 1993/45, E/CN.4/1995/32, 14
    December 1994, at para. 35.
    288
    Other specifically relevant to the Information Society human rights are, among others,
    the prohibition of discrimination (Article 7 UDHR), the right to privacy (Article 12 UDHR),
    intellectual property rights (Article 27 UDHR), the right to standard of living (Article 25,
    para. 1 UDHR) and the right to education (Article 26 UDHR). See WSIS, Background
    Note on the Information Society and Human Rights, ibid. and Deborah Hurley, Pole Star:
    Human Rights in the Information Society, Montreal: International Centre for Human Rights
    and Democratic Development, 2003.
    289
    The right of freedom of opinion and expression is formulated in Article 19 of the
    Universal Declaration of Human Rights (GA Resolution 217 A (iii), UN Doc. A/810, 10
    December 1948) as including freedom to hold opinions without interference and to seek,
    receive and impart information and ideas through any media and regardless of frontiers.
    It is reiterated in Article 19 of the International Covenant on Civil and Political Rights
    (supra note 223), thereby making it binding and fully applicable to the parties (until 1
    September 2005 154 countries were parties to the Covenant). The freedom of opinion and
    expression has been explicitly reaffirmed at European level as well. See Article 10 of the
    Council of Europe, Convention for the Protection of Human Rights and Fundamental
    Freedoms, Rome (supra note 223) and Article 11 of the Charter of Fundamental Rights of
    the European Union (supra note 219).
    290
    See European Court of Human Rights, Informationsverein Lentia and Others v. Austria,
    24 November 1993, Application No 13914/88 and 15041/89, 17 EHRR 93. At para. 38
    therein, the Court noted that, [imparting] information and ideas of general interest []
    cannot be successfully accomplished unless it is grounded in the principle of pluralism.
    For a comprehensive analysis, see also Christoph Beat Graber, supra note 275, at pp. 110
    et seq.
    291
    See Articles 4 and 5 of the Universal Declaration on Cultural Diversity, adopted at the
    31st Session of the General Conference of UNESCO, 2 November 2001, Paris and Article
    4(1) of the Convention on the Protection and Promotion of the Diversity of Cultural
    (continued...)
    94

    The Goals and Objectives of Communications Regulation

    above outlined implications of the changed communications


    environment: Freedom of expression, media pluralism,
    multilingualism, equal access to art and to scientific and technological
    knowledge, including in digital form, and the possibility for all cultures
    to have access to the means of expression and dissemination are the
    guarantees of cultural diversity.292
    The above covers only a tiny fraction of the complex and diverse issues
    emerging from the cultural aspects of Information Society and their
    relation to human rights standards.293 The purpose of this Section was
    not to provide an exhaustive commentary on the debate, but rather to
    show that there are indeed higher goals with immediate relevance to
    communications. We should acknowledge that infrastructure could
    influence the content being carried over it, or alter the transport
    environment in ways that have a considerable impact on the content
    and/or on the access to this content. Consequently, technical
    transformations (such as, notably, digitisation) could have grave effects
    on the innate human values, such as freedom of expression and
    information and ultimately, cultural diversity and identity.
    Considering the institutional aspect of human rights and not construing
    them simply as individual rights,294 they need to be reflected both in the
    regulatory regime for electronic communications and in its interpretation
    and application.
    As parties to the International Covenant on Civil and Political Rights,295
    the International Covenant on Economic, Social and Cultural Rights,296
    the European Convention for the Protection of Human Rights and
    Expressions, adopted at the 33rd Session of the General Conference of UNESCO, 20 October
    2005. On cultural diversity, see Christoph Beat Graber, supra note 275, at pp. 73 et seq.;
    Joost Smiers, Arts under Pressure, New York: Zed Books, 2004 and the collection of
    contributions in Christoph Beat Graber, Michael Girsberger and Mira Nenova (eds.), Free
    Trade versus Cultural Diversity, supra note 276. On the binding UNESCO Convention on
    the Protection of Cultural Diversity, see Christoph Beat Graber, The New UNESCO
    Convention on Cultural Diversity: A Counterbalance to the WTO, (2006) Journal of
    International Economic Law, Vol. 9, No 3, pp. 553574
    292
    Article 6 of the Universal Declaration on Cultural Diversity and Article 2(1) of the
    Convention on the Protection and Promotion of the Diversity of Cultural Expressions,
    ibid.
    293
    For a comprehensive analysis of the cultural rights at global and regional levels, see
    Christoph Beat Graber, supra note 275, at pp. 99 et seq.
    294
    Christoph Beat Graber, ibid, referring also to Walter Klin, Menschenrechtsvertrge
    als Gewhrleistung einer objektiven Ordnung in Walter Klin et al. (eds.), Aktuelle
    Probleme des Menschenrechtsschutzes, Berichte der Deutschen Gesellschaft fr Vlkerrecht,
    Vol. 33, Heidelberg: C.F. Mller, 1994, at pp. 27 et seq.
    295
    United Nations, International Covenant on Civil and Political Rights, supra note 223.
    296
    United Nations, International Covenant on Economic, Social and Cultural Rights, supra
    note 223.

    ..)
    95

    EC Electronic Communications and Competition Law

    Fundamental Freedoms,297 the Charter of Fundamental Rights of the


    European Union298 and of the UNESCO Convention on the Protection
    and Promotion of the Diversity of Cultural Expressions,299the Members
    of the European Community have clearly taken obligations with regard
    to the protection of human rights. The EC has also formulated explicit
    provisions for the promotion of culture300 and provided in the current
    regime for electronic communications that, [n]ational regulatory
    authorities may contribute within their competencies to ensuring the
    implementation of policies aimed at the promotion of cultural and
    linguistic diversity, as well as media pluralism.301 It remains to be seen
    however how, in reality, these intangible values will be effectively
    protected against the sweeping technological and market developments
    of electronic communications, especially considering the existing
    fragmentation of legal instruments at the international level.302
    3.5.

    The eEuropean Goals

    The notion of Information Society was used in the preceding paragraphs


    in its sociological connotation. In the European Union context, however,
    the term has also a clear policy value. Although reflecting some of the
    characteristics of Information Society as a social phenomenon, it has a
    political content and a programme nature. This type of project is not
    exclusively a European one303 and in fact, one of the reasons for the
    launching of the EU Information Society agenda was the fear of lagging
    297

    Council of Europe, Convention for the Protection of Human Rights and Fundamental
    Freedoms, Rome, supra note 223.
    298
    Charter of Fundamental Rights of the European Union, supra note 219.
    299
    See supra note 291. See also Council Decision on the Conclusion of the Convention on
    the Protection and Promotion of the Diversity of Cultural Expressions, 8668/1/06,
    REV1(en), Brussels, 11 May 2006. For more information and further developments, see
    http://ec.europa.eu/culture/portal/ action/diversity/unesco_en.htm#.
    300
    Article 151(1) of the EC Treaty, for instance, states: The Union shall contribute to the
    flowering of the cultures of the Member States, while respecting their national and regional
    diversity and at the same time bringing the common cultural heritage to the fore. Para. 4
    of the same Article states further that, [t]he Community shall take cultural aspects into
    account in its action under other provisions of this Treaty, in particular in order to respect
    and promote the diversity of its cultures. On the duties of the EC institutions in the field
    of culture, see Bruno de Witte, Trade in Culture: International Legal Regimes and EU
    Constitutional Values in Grinne de Brca and Joanne Scott (eds.), The EU and the WTO
    Legal and Constitutional Issues, Oxford/Portland, Oregon: Hart Publishing, 2003, pp. 237
    255, at pp. 252 et seq.
    301
    See Article 8(1) of the Framework Directive, at para. 3.
    302
    Christoph Beat Graber, supra note 275, at p. 113.
    303
    See eg Manuel Castells, The Information Age: Economy, Society and Culture, Vol. 1, supra
    note 264, at pp. 394395. It was as early as in 1971 when the Japanese Government
    formulated as a national target the realisation of the Information Society. See Japanese
    Computer Usage Development Institute, The Plan for an Information Society: National
    Goal Towards the Year 2000, Tokyo, 1971, as referred to in Alistair S. Duff, The Past,
    Present and Future of Information Policy: Towards a Normative Theory of Information
    Society, (2004) Information, Communication and Society, Vol. 7, No 1, pp. 6987.

    96

    The Goals and Objectives of Communications Regulation

    behind in the utilisation of information and communication technologies,


    in particular from the US.304
    Historically, the European Information Society project could be traced
    back to the run-up of the 1992 internal market programme in the early
    1980s, in particular its R&D [research and development] dimension.305
    However, the policy document that gave real outlines and political
    impetus to the Communitys agenda was the seminal Bangemann Report
    of 1994, Europe and the Global Society.306 The latter acknowledged
    that, [t]hroughout the world, information and communication
    technologies are generating a new industrial evolution already as
    significant and far-reaching as those in the past. It is a revolution based
    on information, itself the expression of human knowledge []. This
    revolution adds huge new capacities to human intelligence and
    constitutes a resource which changes the way we work together and the
    way we live together.307 The Bangemann Report had a significant
    contribution to the rapid opening of the EC telecommunications markets
    to competition, but more importantly in our present context, it revealed
    the potential of the Information Society.
    Subsequently, building upon the fundamentals of the Bangemann
    Report, the European Council of 23 and 24 March 2000 in Lisbon
    launched what has become known as the Lisbon strategy. It set for
    the European Union a new strategic goal for the next decade: to
    become the most competitive and dynamic knowledge-based
    economy in the world, capable of sustainable economic growth with
    more and better jobs and greater social cohesion. 308 This grand
    project, whose calibre equals those of the Economic and Monetary
    304

    In 1993 under the Clinton administration, Vice-President Al Gore launched the National
    Information Infrastructure (NII) Program with the purpose of creating a seamless web
    of communications networks, computers, databases, and consumer electronics that will
    put vast amounts of information at users fingertips [] [and] change forever the way
    people live, work, and interact with each other. See US Department of Commerce, The
    National Information Infrastructure: Agenda for Action, Washington, DC, 15 September
    1993, at Executive Summary. See also eg Herbert Kubicek, William H. Dutton and Robin
    Williams (eds.), The Social Sharing of Information Superhighways: European and American
    Roads to the Information Society, Frankfurt: Campus, 1997.
    305
    Wolf Sauter, EU Regulation for the Convergence of Media, Telecommunications, and
    Information Technology: Arguments for a Constitutional Approach?, Zentrum fr
    Europische Rechtspolitik an der Universitt Bremen (ZEPR) Diskussionspapier, 1/98, at p. 5.
    For an overview of the origins of the European Information Society Project, see ibid. at
    pp. 3 et seq.
    306
    Europe and the Global Society: Report of the High Level Group on the Information
    Society, May 1994 (European Commission, EUR-OP 1994). The High Level Group was
    chaired by Martin Bangemann, at that time Member of the European Commission
    responsible for industrial affairs and information and telecommunications technologies.
    307
    Ibid. at Chapter 1 (emphasis added).
    308
    European Council, Presidency Conclusions, Lisbon, 23 and 24 March 2000, at para. 5
    (emphasis added).
    97

    EC Electronic Communications and Competition Law

    Union and the EU Enlargement,309 developed in parallel with the


    liberalisation of the European communications sector and its
    technological and regulatory modernisation, and fed positively into
    their accomplishment.
    In the pursuit of the Lisbon goal and recognising the crucial role of ICTs,
    a specific initiative eEurope: Information Society for All was launched.
    Its underlying objective is to utilize the power of ICTs and integrate
    them in every facet of the society. The first phase, the eEurope 2002 Action
    Plan, agreed at the Feira European Council in 2000, focused mainly on
    promoting internet availability and literacy,310 while the second phase,
    eEurope 2005, was a more far-reaching undertaking. It concentrated on
    exploiting broadband technologies to deliver online services in both the
    public and private sectors by fostering progress in seven eEurope policy
    priorities, namely Broadband, eBusiness, eGovernment, eHealth,
    eInclusion, eLearning and Security.311
    The Commission subsequently prepared a new initiative,312 which
    succeeded the eEurope 2005 Action Plan and was meant to meet the
    challenges of the changed ICT context marked by new technological
    developments (such as 3G, Ipv6, convergence, more advanced generation
    of computers and ambient intelligent scenarios) and new market situation
    (defined by multiple economic players, better internal market regulation
    and new public-private partnerships). The newly coined i2010 strategy (or
    European Information Society 2010)313 coincides with the mid-term review
    of the Lisbon strategy314 and identifies new objectives within the framework
    309

    Wolf Sauter, supra note 305, at p. 4.


    See European Commission, eEurope 2002: An Information Society for all, Action Plan
    prepared by the Council and the European Commission for the Feira European Council,
    19-20 June 2000. For the subsequent reviews and other documents related to the eEurope
    2002 Action Plan, see http://europa.eu.int/information_society/eeurope/2002/action_plan/
    index_en.htm.
    311
    See European Commission, eEurope 2005: An Information Society for all, Action Plan
    to be presented in view of the Sevilla European Council, 21 and 22 June 2002, COM(2002)
    263 final, 28 May 2002. For the subsequent reviews and other documents related to the
    eEurope 2005 Action Plan, see http://www.europa.eu.int/information_society/eeurope/
    2005/index_en.htm.
    312
    European Commission, i2010 A European Information Society for growth and
    employment, supra note 261. Further related documents are available at http://
    ec.europa.eu/information_society/eeurope/i2010/index_en.htm.
    313
    For an explanation of the newly created term of i2010 and its different connotations,
    see Viviane Reding, i2010: The European Commissions New Programme to Boost
    Competitiveness in the ICT Sector, speech at the Microsofts Government Leaders Forum
    (SPEECH/05/61), Prague, 31 January 2005, especially at pp. 35.
    314
    See European Council, Presidency Conclusions, Brussels, 23 March 2005 (7619/1/05/
    Rev. 1). For the preparatory documents, see European Commission, Communication to
    the Spring European Council, Working Together for Growth and Jobs: A New Start for
    the Lisbon Strategy, COM(2005) 24, 2 February 2005 and Facing the Challenge: The Lisbon
    Strategy for Growth and Employment, Report from the High Level Group chaired by
    (continued...)
    310

    98

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    The Goals and Objectives of Communications Regulation

    of the latter. The current focus on ICT in the renewed Lisbon Agenda is
    based on the recognition of the pivotal role of Knowledge and Innovation.315
    The i2010 priorities are accordingly formulated as: (i) the completion of a
    Single European Information Space, which promotes an open and
    competitive internal market for information society and media; (ii)
    strengthening Innovation and Investment in ICT research to promote growth
    and more and better jobs; and (iii) achieving an Inclusive European
    Information Society that promotes growth and jobs in a manner that is
    consistent with sustainable development and that prioritises better public
    services and quality of life.316
    It is not our purpose to analyse the above policy projects, their dimensions
    and concrete agendas. It is important to recognise that these initiatives entail
    the achievement of various policy goals that are distinct from the ones
    discussed as general goals of communications regulation. These policy
    programmes are indicative of another peculiarity of electronic
    communications: Namely, that besides having their own specific objectives,
    they have been instrumentalised for the achievement of other policy goals.
    The latter are predominantly economic in nature317 but also cover a plethora
    of societal targets such as, for instance, better inclusion and quality of life.
    Another vivid example of the instrumentalisation of communications
    for the achievement of other goals, albeit out of the EU frame, is the
    already mentioned in the context of Chapter 1, World Summit on the
    Information Society (WSIS).318 The latter initiative of the United Nations
    and the International Telecommunication Union (ITU) aiming to build
    a people-centred, inclusive and development-oriented Information
    Society319 is not the first but definitely the most far-reaching endeavour
    to exploit the benefits of ICTs at global level.320
    Wim Kok, November 2004. For an overview of the diverse policy undertakings within
    the review of the Lisbon strategy, see Roadmap of the new Lisbon strategy for 2005/2006
    in European Commission, Working Together for Growth and Jobs: Next Steps in
    Implementing the Revised Lisbon Strategy, SEC(2005) 622/2, 29 April 2005, at Annex 1.
    315
    European Council, Presidency Conclusions, Brussels, 23 March 2005 (7619/1/05/Rev. 1),
    at pp. 3 et seq.
    316
    European Commission, i2010 A European Information Society for growth and
    employment, supra note 261, at p. 4 (emphasis in the original). See also i2010 - Annual
    Information Society Report, COM(2007) 146 final, 30 March 2007.
    317
    The Commission has acknowledged repeatedly that, a modern, cost effective
    communications infrastructure is a key driver for the European economy. See European
    Commission, Connecting Europe at high speed: Recent developments in the sector of
    electronic communications, COM(2004) 61, 3 February 2004, at p. 10.
    318
    See supra Chapter 1, Section 4.5. For the relevant references, see ibid. at note 119.
    319
    WSIS Declaration of Principles, Document WSIS-03/Geneva/Doc/4-E, 12 December 2003,
    at para. 1.
    320
    For a full account of previous international and regional fora on Information Society
    (such as the Okinawa Charter on Global Information Society, 2000 or the G-7 Information
    Society Conference, 1995), see http://www.itu.int/osg/spu/wsis-themes/Access/
    IS_Principles.html.
    99

    EC Electronic Communications and Competition Law

    Thus, beyond the rhetoric of the European (or other) institutions, it is


    important to account for the fact that communications are both a goal
    and an instrument for achieving other goals (although with time the
    precise content of the policy objectives might change). Being an end in
    themselves and a means for achieving other ends, both of economic and
    societal nature, reaffirms our conclusion from Chapter 1 on the special
    significance and role of the electronic communications sector.
    3.

    Chapter 2: Conclusion

    A full account of the goals standing before regulation and in particular,


    before communications regulation, is not possible. To use the vivid
    comparison of Mel Kenny, any attempt at identifying the precise goals
    of regulation could be indeed similar to nailing a jellyfish.321
    Our analysis, based on elements of the primary and secondary EC law,
    but seen from a broader perspective, although not exhaustive, clearly
    reveals the multiplicity and diversity of objectives that can be
    conceptualised in the regulatory environment of electronic
    communications. These range from the conventional pursuit of consumer
    welfare through universal service to some higher goals of specific
    importance in communications, such as protection of freedom of
    expression and cultural diversity.
    It is important to acknowledge that these goals cannot be framed into a
    neat hierarchical system where the policy makers and/or the regulatory
    agencies could order their tasks in such terms as firstly deal with
    competition on the markets; secondly, with innovation; thirdly, with
    culture, etc. There is indeed a simultaneous first priority quality of all
    the objectives, both economic and societal, which renders the design of
    an adequate toolbox fairly intricate. Furthermore, one can observe
    intense positive and negative dependencies (trade-offs) between the
    different objectives in that they feed into each others achievement
    (eg internal market promotion and standardisation), or conversely, one
    is accomplished to the detriment of another (eg intellectual property
    protection and standardisation). As the somewhat deeper analysis of
    innovation further proved, there are a number of factors stemming from
    the specificities of electronic communications that complicate the pursuit
    of a single goal. The example of universal service showed, on the other
    hand, that the policy goals can evolve and be filled with new substance.
    A possible conclusion to be drawn from the systematic examination of
    the objectives standing before communications regulation is that there
    321

    Mel Kenny, supra note 12, at p. 101. Mel Kenny makes the comparison in the context
    of the objectives of competition law and not in a general sense, as we take the liberty to
    do here.

    100

    The Goals and Objectives of Communications Regulation

    are complex linkages between them that ultimately form a system of


    variable interdependence, where a specific objective may change in
    response to a particular change within the system, thereby influencing
    all other elements. Thus, reiterating our interim conclusions, the
    regulatory framework will have to achieve above all balance within the
    system.322
    The latter pursuit of balance will further have to take into consideration
    the dynamism of electronic communications, as discussed in Chapter 1.
    The objectives would thus have to be maintained, while balancing also
    between the flexibility to meet new situations and the certainty inherent
    to regulation.323 The dynamism of communications that brings about
    both technological and market changes should however not be
    overstated. As shown, some values do remain intact.
    As a conclusion to this chapter, one can submit that economic efficiency
    and public interest objectives form two fundamental and complementary
    sets against which the likely performance of markets should be judged
    and specific regulatory criteria developed. Identifying regulatory criteria
    in this way will allow any corresponding measures to be clearly targeted
    at meeting the defined objectives, thus minimising possible distortionary
    and secondary effects on the market. However, since communications
    are such a system of technological, economic and social linkages that
    profoundly influence the way we live, an adequate regulatory
    framework should also be able to take account of and address the
    relevant higher objectives, taken in the broad context of social welfare.
    Indeed, the new global social, economic and cultural dynamics, which
    are, among others, epitomised by the new communications, demand
    thoughts in a broader framework on what the desired communications
    infrastructure of the society is and how we could bring it about, efficiently
    and coherently at national, regional and global level.

    322

    P.H. Longstaff notes in that regard that, [s]trategies that are good for an individual
    agent are often a disaster for the group. See P.H. Longstaff, supra note 283, p. 19.
    323
    See Damien Geradin and Michel Kerf, Controlling Market Power in Telecommunications,
    Oxford: Oxford University Press, 2003, at pp. 338 et seq.

    101

    PART 2:
    THE INSTRUMENTS OF COMMUNICATIONS REGULATION

    CHAPTER 3
    TYPOLOGY OF THE REGULATORY TOOLS
    1.

    Introduction

    In the economic and legal literature, there is no fixed and allencompassing definition of regulation.1 For the purposes of this work,
    the definition given by the Encyclopaedia of Law and Economics will
    be used and regulation will be understood broadly as the employment
    of legal instruments for the implementation of socio-economic policy
    objectives.2 Characteristic of these legal instruments is that individuals,
    companies or organisations can be compelled by the government (or
    other authority) to comply with the prescribed behaviour under penalty
    of sanctions.3
    In the above sense, through the application of diverse legal instruments,
    governments regulate industries in a variety of ways in an attempt to
    achieve a number of different objectives.4 Few industries have been,
    amongst the others, selected for a special treatment because of their
    unique importance to society. As already discussed in Part 1,
    telecommunications are precisely such an industry. They have always
    been considered of special interest, at least to governments, if not
    consistently to the general public as well. Viewed initially as important
    to national security and defence, telecommunications were appended
    in the majority of countries, as the acronym PTT (Post, Telegraph and
    Telephone5) shows, to the established postal system and followed the
    standard natural monopoly regulatory model.
    As we discussed in the preceding chapters, when one looks back at the
    history of (tele)communications regulation, one can discern that almost
    all countries made a specific policy choice as to how telegraph and
    telephone should be treated when these new services were introduced
    and considered them primarily as governmental social services, rather
    1

    Johan den Hertog, General Theories of Regulation in Boudewijn Bouckaert and Gerrit
    De Geest (eds.), Encyclopaedia of Law and Economics, Cheltenham, UK: Edward Elgar
    Publishing, 2000, pp. 223270, at p. 223.
    2
    Johan den Hertog, ibid. See also Anthony I. Ogus, Regulation: Legal Form and Economic
    Theory, Oxford: Clarendon Press, 1994, at pp. 1 et seq.
    3
    Johan den Hertog, ibid.
    4
    As exemplified supra in Part 1, Chapter 2.
    5
    On the PTT model, see supra Part 1, Chapter 1, at note 8; Damien Geradin and Michel
    Kerf, Controlling Market Power in Telecommunications, Oxford: Oxford University Press, 2003,
    at pp. 67.

    105

    EC Electronic Communications and Competition Law

    than as services to be supplied by private businesses in normal markets.


    The comprehensive monopoly and quasi-monopoly regulation of
    telecommunications that developed accordingly in the course of a
    century followed the public utility principle established as early as in
    1877 in the case of Munn v. Illinois, where the right of the government to
    regulate was tested. The US Supreme Court stated therein:
    When, therefore, one devotes his property to a use in which the
    public has an interest, he, in effect, grants to the public an interest
    in that case, and must submit to be controlled by the public for
    the common good, to the extent of the interest he has thus created.6

    Today, as already discussed, these views have changed7 and the public utility
    monopolistic status of communications is largely rendered part of the
    regulatory history of the sector. It is, nevertheless, significant for the purposes
    of this part to acknowledge the fact that the telecommunications industry
    has always had a special regulatory status, has always been and still is, a
    heavily regulated sector.8 The nature of the regulatory instruments and
    their focus have however changed due to the radical changes that occurred
    in the industry itself and in the economic perceptions of it.
    Interestingly, despite the long existing special regulatory status of
    telecommunications, it is only recently that we speak of telecommunications
    law as such. Indeed, at the turn of the millennium it is interesting to reflect
    that the current telecommunications regulatory regime in the [EC Member
    States] and those of many other countries came into existence less than
    twenty years ago.9 This recently developed branch of law is a work in
    progress and its attempt to follow the dynamic drive of the communications
    industry poses multiple regulatory challenges that are to be examined in
    the course of this Part and Part 3. But first, let us concentrate on the tools
    that could (or not) meet these challenges.
    2.

    The Communications Regulation Toolkit

    As already mentioned and as will be further elaborated on in this Part,


    the regulatory tools applied to communications markets could be
    broadly identified as competition law and sector specific rules.
    Throughout the history of the sector, they have been applied with various
    6

    Munn v. Illinois, 94 US 113 (1877), at 126, as quoted by William H. Melody, Policy


    Objectives and Models of Regulation in William. H. Melody (ed.), Telecom Reform:
    Principles, Policies and Regulatory Practices, Lyngby: Technical University of Denmark, 1997,
    pp. 11 24, at p. 13 (emphasis added).
    7
    See supra Part 1, Chapter 2, note 22.
    8
    Jean-Jacques Laffont and Jean Tirole, Competition in Telecommunications: Munich Lectures
    in Economics, Cambridge, MA: MIT Press, 2000, at p. 16.
    9
    David Gillies and Roger Marshall, Telecommunications Law, Vol. 1, 2nd edition, London:
    Butterworths LexisNexis, 2003, at p. 1.

    106

    Typology of the Regulatory Tools

    degrees of intensity, the visible line of development being from sectoral


    regulation only, through introduction of competition and multiple hybrid
    models to (hypothetically) pure competition law supervision in the
    future. This line of development, as well as the exact characteristics of
    each type of rules, differ to a certain extent from country to country but
    one could still discern this evolutionary pattern. The following
    examination of competition and sectoral rules is based exclusively on
    the European Communitys experience but since it will focus on the main
    characteristics of the instruments, certain level of abstraction will be
    achieved and the arguments given will also hold true in most other
    contexts.10 The next Sections will present the existing regulatory options,
    ie competition law and sectoral regulation as distinct tools of regulatory
    intervention and will seek to assess their regulatory potential. The
    analysis will be abstract and by reducing the complexity of the
    instruments will try to pinpoint their most essential characteristics.
    2.1

    Competition Law

    Competition laws refer generally to legislation, regulations and court


    decisions that relate either to (i) agreements between firms that restrict
    competition; (ii) to abuse of dominant position by a firm or (iii) to firms
    merging together. The rules established by these laws are intended to
    ensure that the competitive process is not hindered through the creation
    of dominance or agreements between competitors that prevent, restrict
    or distort competition. The term competition policy, however, has a
    broader meaning and refers to a set of measures and instruments used
    by governments that determine the overall conditions of competition
    that are likely to be met in specific markets. As such, competition law is
    a subset of competition policy. The broader package of instruments
    influencing competition policy could include privatisation, deregulation,
    liberalisation, foreign investment policy and subsidies. Viewed in this
    way, domestic competition policy is also affected by regional and
    international agreements.11 Competition policy may thus even lead to a
    restriction of competition in cases where it is argued that this entails
    greater efficiency. In that sense, competition policy can also be seen as a
    political process, where multiple stakeholders interact (both in
    government and in the various industries). On the business side,
    competition policy could equally be identified as a social and economic
    process.12 The purpose of the paragraphs that follow is to concentrate
    10

    The same approach has been used by Paul Nihoul and Peter Rodford in their key work
    on EU electronic communications law. For their argumentation in that regard, see Paul
    Nihoul and Peter Rodford, EU Electronic Communications Law, Oxford: Oxford University
    Press, 2004, at para. 1.11.
    11
    See eg infra Chapter 5 on the influence of WTO rules on the EC legal order.
    12
    P.H. Longstaff, The Puzzle of Competition in the Communications Sector: Can Complex
    Systems be Regulated or Managed?, Program on Information Resources Policy, Harvard
    University, July 2003, available at http://www.pirp.harvard.edu, at p. 10.
    107

    EC Electronic Communications and Competition Law

    exclusively on the competition law rules as instruments of regulation


    and will attempt to reveal some of their typical features.
    At European Community level, the main general competition rules are
    contained in Article 81 EC prohibiting anti-competitive agreements,
    Article 82 EC prohibiting abuse of dominant position, Article 86 EC
    regarding undertakings with special or exclusive rights, Article 87 EC
    on state aids and the Merger Regulation.13 A specific feature of EC
    competition law is that, in contrast to national competition systems and
    in particular to US antitrust, where the law is to be found in diverse or
    codified statutes, European antitrust rules are contained in a Treaty.14
    As part of the EC Treaty,15 the European competition rules are part of
    the whole system establishing what was initially called the European
    Economic Community (now European Community16) and thus serve to
    the achievement of the internal market along with the other Treaty
    provisions.17 The EC competition rules could thus be perceived as one
    of the instruments of negative integration together with the four
    freedoms,18 the principle of mutual recognition and the elimination of
    restraints of trade and competition.19 Being part of the overall EC policies
    structure, competition law and its implementation are accordingly
    influenced (to a different extent) by the rest of the Communitys policies.20
    Often have the Community institutions interpreted the competition
    13

    For all references and a detailed elaboration on the EC competition rules, see infra
    Chapter 4.
    14
    Before the adoption of a specific merger control Regulation (currently Council
    Regulation (EC) 139/2004 of 20 January 2004 on the control of concentrations between
    undertakings, OJ L 24/1, 29 January 2004), merger rules were based on Article 82 EC. See
    Case 6/72 Europemballage and Continental Can v. Commission [1973] ECR 215, [1973] CMLR
    1999.
    15
    Initially in the Treaty establishing the European Economic Community, Rome, 25 March
    1957. Now in the Treaty establishing the European Community, consolidated version, OJ
    C 325/33, 24 December 2002. The provisions on competition form also an integral part of
    the future Constitution of the European Union. See Treaty establishing a Constitution for
    Europe (provisional consolidated version, OJ C 310/1, 16 December 2004), Part III, Articles
    III-161 to III-166. On the development of EC competition law, see eg Piet Jan Slot, A
    View from the Mountain: 40 Years of Developments in EC Competition Law (2004)
    Common Market Law Review, Vol. 41, pp. 443473.
    16
    Ibid. Renamed European Community with the Treaty of Maastricht (OJ C 191/1, 29
    July 1992). See Treaty establishing the European Community, consolidated version 1992,
    OJ C 224/1, 31 August 1992.
    17
    On the internal market objective, see supra Part 1, Chapter 2, Section 2.2.
    18
    That is, the free movement of goods, services, persons and capital. See Articles 2331
    and 3960 of the EC Treaty.
    19
    In contrast to positive integration, under which category harmonisation and
    liberalisation rules fall. On the relation positive/negative integration, see Fritz W. Scharpf,
    Governing in Europe: Effective and Democratic?, Oxford: Oxford University Press, 1999, at
    Chapter 2.
    20
    [Competition policy] [] is not managed in a sort of vacuum [] but in relation to the
    other policies of the EEC Treaty conducted by the European Commission [] [and] can
    be influenced by other policies such as industrial and agricultural policy, research policy,
    (continued...)
    108

    Typology of the Regulatory Tools

    provisions in view not only of the particular case but also teleologically,
    in the broader framework of Articles 2 and 3(1)(g) of the EC Treaty.21
    Another particular characteristic of EC competition law, being
    established at supranational level, is that its substantive norms are
    directed both at the public and private undertakings, as well as at the
    Member States. Consequently, the competition rules provide a legal
    instrument that is not (or at least less) reliant, in comparison to EC
    secondary legislation, on Member States for application and which can
    equally be applied against them by virtue of Article 10 EC.22
    For the sake of the comparison between competition rules and sector
    specific ones, the focus will be exclusively on Article 82 EC since it applies
    to the unilateral conduct of undertakings and not to agreements,
    decisions or concerted practices of undertakings, where concurrence of
    wills is needed. The latter, although clearly an integral part of
    competition law, bears less significance to our discussion of antitrust as
    an instrument of regulatory intervention directed at market power and
    particularly, in the context of comparison with sectoral rules. Logically,
    in the context of this work, the examples for both antitrust and sector
    specific rules application will stem from the communications sector.
    Any guidelines that clarify the implementation of general competition
    rules, where these guidelines apply equally to all economic sectors will
    be included in the definition of EC competition law (such as, for instance,
    the Commission Notice on the definition of the relevant market for the
    purposes of Community competition law).23 The liberalisation directives,
    although adopted on the basis of Article 86(3) EC (ie primary antitrust
    provision) will not fall under the competition law category used for the
    comparison, since they introduce general obligations regarding
    telecommunications and in that quality come close to sectoral rules. The
    ONP (Open Network Provision) harmonisation directives, adopted on
    the basis of Article 95 EC will definitely be considered a part of the
    sectoral regulation.
    transport policy, environment policy, consumer protection policy. See Jean-Franois
    Verstrynge, Current Anti-Trust Policy Issues in the EEC: Some Reflections on the Second
    Generation of Competition Policy (1984) Fordham Corporate Law Institute (Annual
    Proceedings), pp. 673 et seq., at p. 678, as quoted by Mel Kenny, The Transformation of Public
    and Private EC Competition Law, Berne: Staempfli Publishers, 2002, at p. 31.
    21
    See eg Cases C-68/94 and 30/95 France v. Commission [1998] ECR I-1375, [1998] 4 CMLR
    829, at paras 169 et seq.
    22
    Antonio Bavasso, Communications in EU Antitrust Law, The Hague/London/Boston:
    Kluwer Law International, 2003, at p. 8. See also Richard Whish, Competition Law, 5th
    edition, London: Butterworths LexisNexis, 2003, at pp. 212 et seq.
    23
    European Commission, Notice on the definition of the relevant market for the purposes
    of Community competition law, OJ C 372/5, 9 December 1997.

    ..)
    109

    EC Electronic Communications and Competition Law

    2.2

    Sector Specific Regulation

    The body of law that is referred to as sector specific regulation consists of


    rules and instruments, which were adopted in view of the specific issues
    appearing on specific markets, ie in our case, in view of the specificities of
    the communications markets.24 As a result, they apply only to [] [the
    latter], although they provide a model for the establishment of rules
    regarding other, but similar, sectors25 (eg for other network industries,
    such as electricity, post or gas). As discussed in Chapter 1, the
    telecommunications industry being perceived as a natural monopoly was
    regulated primarily by sector specific rules before the liberalisation process.
    Sectoral rules were used as a surrogate for the pressure that competitive
    forces would exert to deliver economic efficiency, and in effect mimic the
    market. The regulatory framework as such was rather simple and its
    administration easy since the monopoly supplier provided a single focal
    point for effective implementation of government objectives. The overall
    results of this mimicking were, nevertheless, fairly poor.
    In the European Community context, sector specific rules constitute
    secondary legislation, ie rules not contained explicitly in the Treaty and
    deriving their legitimacy from the legislative mandate of the
    Communities. They are primarily adopted on the basis of Article 95 EC
    as a means of harmonisation (ie positive integration) and in the form of
    directives26 that prescribe certain goals and parameters of the instruments
    for the achievement of these goals. Member States are required to adapt
    accordingly their national legislation, which normally involves the
    adoption, amendment or withdrawal of laws, regulations and/or
    administrative provisions.27 In that sense, it should be made clear that
    when one talks about EC communications law, besides the rules created
    24

    For an excellent overview of diverse national communications laws and regulations, see
    Colin D. Long (general ed.), Global Telecommunications Law and Practice, London: Sweet and
    Maxwell, 20002004. See also Jos Dumortier (ed.), Cyber Law, Vol. 1 and 2 in Roger Blanpain
    (general ed.), International Encyclopaedia of Laws, The Hague/London/Boston: Kluwer Law
    International, 2005.
    25
    Paul Nihoul and Peter Rodford, supra note 10, at para. 1.46.
    26
    Although the typical instrument of regulation in EC telecommunications is the directive,
    other binding instruments, depending on the purpose, can be embodied in decisions
    and/or regulations. The former can be directed at other EC institutions, Member States,
    physical and legal persons and are binding to their addressees only (see eg Decision 676/
    2002/EC on a regulatory framework for radio spectrum policy in the European
    Community, OJ L 108/1, 24 April 2002). Regulations, on the other hand, unlike directives,
    are directly applicable in the Member States and become automatically part of their legal
    systems without any further national transformation act (see eg Regulation 2887/2000/
    EC of the European Parliament and of the Council of 18 December 2000 on unbundled
    access to the local loop, OJ L 336/4, 30 December 2000). On the effect of the Community
    instruments, see generally Article 249 EC.
    27
    On harmonisation as a purposive instrument for the realisation of market integration,
    see Piet Jan Slot, Harmonisation (1996) European Law Review, Vol. 21, pp. 378396;
    (continued...)
    110

    ..)

    Typology of the Regulatory Tools

    at the Community level, there are in reality a variety of pieces of national


    legislation implementing those rules.
    Within the comparison between competition rules and sector specific
    regulation that follows, sometimes a distinction will be made between the
    old communications regulations (under the 1998 framework) and under
    the new sectoral rules (under the 2002 and the 2007 package) since the
    latter often converge with the competition law in methodology and
    assessment and in that sense diverge from what may be construed as
    classical sectoral regulation.28
    2.3

    Comparison of the Regulatory Tools

    In order to facilitate the comparison between competition law and sector


    specific regulation as instruments of intervention, the comparison will
    be conducted according to simplified sets of opposite characteristics.29
    Each pair will be consecutively elaborated upon in order to establish
    the pros and cons these characteristics might have when projected onto
    the dynamic environment of electronic communications. To achieve
    visibility of the advantages or disadvantages of both instruments the
    contrast between regulation and antitrust will be sharpened, although,
    in truth, as we shall see below, the real boundaries are not as manifest.

    Catherine Barnard, The Substantive Law of the European Union, Oxford: Oxford University
    Press, 2004, at pp. 493 et seq. On the conceptual pair positive/negative integration and
    the related institutional conditions, see Fritz W. Scharpf, supra note 19, at Chapter 2.
    28
    For a more detailed comparison between the 2002 communications specific regime and
    general competition rules, see infra Chapter 4, Section 3.2.4.
    29
    See infra Figure 1. These characteristics are framed as opposite only for the sake of the
    comparison. The two sets of instruments are essentially much more versatile in nature
    and application. The comparison follows an outline suggested by Theon Van Dijk,
    General or Specific Competition Rules for Network Utilities? (2001) Journal of Network
    Industries, Vol. 2, pp. 93111. For a different strategy in comparing sectoral and competition
    rules, see Damien Geradin and Michel Kerf, supra note 5, at pp. 1823. See also European
    Commission, Liberalisation of Network Industries: Economic Implications and Main
    Policy Issues, Report of the DG for Economic and Financial Affairs No 4, Brussels, 1999, at
    pp. 36 et seq. and pp. 123 et seq.

    111

    EC Electronic Communications and Competition Law

    Figure 1: Key Features of General Competition Rules and Sector


    Specific Regulation
    GENERAL COMPETITION RULES

    SECTOR SPECIFIC RULES

    General and abstract framework

    Tailored rules

    Reactive in nature

    Pro-active nature

    Designed to protect competition

    Power to promote or restrict


    competition

    One-off interventions

    Long-term perspective

    Narrowly focused objectives

    Broad range of objectives

    Limited instruments

    Broad range of instruments

    Antitrust expertise

    Communications industry expertise

    Source: Theon Van Dijk30

    2.3.1 General and Abstract versus Tailored Rules


    Generic competition rules are normally set out in broad and abstract
    terms. In the European context, they are contained in the EC Treaty in
    no more than two core provisions.31 Mel Kenny notes in that regard
    that, the basic provisions of competition law share the terse
    formulation and indeterminacy characteristic of a trait cadre: Articles
    81 and 82 only chart the substantive principles for private undertakings
    when conduct affects trade.32 The existing formulae are thus designed
    and able to capture anti-competitive practices in all sectors of the
    economy (exceptions being allowed only under restrictive conditions).33
    The concepts used, as will be elaborated upon in the next chapter, as
    undertaking, dominance, abuse, etc. can apply across the board to all
    industries and with the development of the Community law and practice
    have received a certain unified meaning. In that sense, the Treaty Articles
    give the basis and the initial shape of the rules that have been gradually
    filled with content by the practice of the European courts, further shaping
    the law and reaffirming the basis. Theon van Dijk argues in that regard
    that given the broad terms, the application of these general competition
    30

    Based on Theon Van Dijk, ibid. at p. 95. The table is used as a model although the
    argumentation based upon it does not necessarily follow Theon Van Dijks reasoning.
    For a different graphic representation of the specific characteristics of competition and
    sectoral rules, see the World Bank, Telecommunications Regulation Handbook, Module
    5: Competition Policy, Washington, DC: The World Bank, 2000, at p. 56.
    31
    See infra Chapter 4.
    32
    Mel Kenny, supra note 20, at p. 29 (emphasis added).
    33
    In the EC, such exceptions applied before to the public utility sectors (including
    telecommunications) and are still applicable eg to agriculture (see Articles 32 to 38 EC).
    See also Richard Whish, supra note 22, at pp. 920924 with references to the relevant
    literature at p. 20, footnote 6.
    112

    Typology of the Regulatory Tools

    rules is inevitably less predictable, exposing firms to more regulatory


    risk.34 In fact, this is true only to a certain extent. One could argue that
    the basis of almost fifty years legal practice and the intensified alignment
    of antitrust with economic theory are steady and coherent enough to
    exclude surprising developments and decisions of the courts.35
    As far as network industries are concerned, such as notably,
    communications, there could be, nonetheless, possibilities for uncertainty
    stemming from reliance on competition rules. Without detailed
    regulations to follow, the undertakings would need to judge what level
    of prices would be regarded as abusive by the authorities. This would
    involve an assessment of the competition authoritys likely view of
    reasonable network access prices, which are notoriously difficult to
    calculate considering the very large fixed costs in network industries.36
    In that sense, the 2002 Community regime for electronic communications
    networks and services provides, as we shall see below, a reliable
    mechanism for transition to competition rules since the undertakings
    will have the possibility to see what the approach of the regulatory
    authorities with regard to imposition of specific obligations is and gather
    experience.
    What the broadly formulated competition legal provisions definitely
    allow is flexibility. Since there is no explicit focus on a certain technology
    or certain constellation of facts, new situations can be subsumed under
    the general rule. The rules are thus not bound by the policy of the
    particular period (or at least, less than sectoral regulation) and could
    serve in the long term to the achievement and sustainment of effective
    competition.
    The sector specific rules, on the other hand, are by definition designed
    to apply in one unique context [] [and] can be shaped to take account
    of particular technical and economic characteristics.37 Consequently,
    they allow for more precise regulatory intervention and could address
    specific problems with specifically designed for the purpose tools. The
    affected undertakings could also have a clear understanding of the
    parameters of this regulatory intervention and act accordingly.

    34

    Theon Van Dijk, supra note 29, at p. 95.


    On the development and transformation of EC competition law, see Mel Kenny, supra
    note 20, especially Chapters 2 and 4.
    36
    See Jean-Jacques Laffont and Jean Tirole, Access Pricing and Competition (1994)
    European Economic Review, Vol. 38, pp. 16731710, as referred to by Theon Van Dijk, supra
    note 29, at p. 96. See also OECD, Access Pricing in Telecommunications, Paris: OECD
    Publishing, 2004.
    37
    Theon Van Dijk, ibid. at p. 95.
    35

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    EC Electronic Communications and Competition Law

    Yet, in a sector as dynamically changing as electronic communications,


    this very specificity of the sectoral tools would prevent them from
    following the technological and market developments and render them
    outdated within a relatively short period of time. A new market situation
    would naturally call for a new regulation. The frequent amendments of
    the sector specific regime might then interfere with the legal expectations
    of the undertakings and seriously harm their long-term market strategies
    and the overall development of the sector.
    In addition, the change of the regulatory framework might not be as
    quick as necessary to address the changed reality. Considering that
    Article 86(3) EC is no longer available as a legal basis for adopting
    directives,38 whereby the Commission acts alone, the standard Article
    95 EC co-decision procedure39 might be prohibitively long. In that sense,
    it seems that the clarity of the specific rules has a substantial downside
    in the lack of flexibility towards new situations. The latter reasoning
    was inter alia one of rationales behind the reform undertaken in EC
    telecommunications regulation. As will be discussed below, what is
    sought within the new regime is a regulatory potential to handle new
    developments within a coherent framework.
    A third point that could be made with regard to the pair general and
    abstract competition rules v. tailored sectoral rules concerns the
    implementation of those. It is quite understandable that the specific rules
    being clearly defined and generally excluding interpretation of concepts
    and/or facts or further analysis are easier to implement.40 Moreover, in
    that context, they are also faster to implement and thus allow for
    addressing in a swift manner urgent issues. The competition rules being
    broadly defined give substantial room for interpretation and one could,
    applying the same rules in different contexts, reach different conclusions.
    Competition rules require generally in-depth analysis, including analysis
    of past facts. This renders them far more difficult to apply and demands
    more time and resources. What is, nonetheless, achieved through the
    competition law analysis is also a more complete picture of the situations
    and relationships at issue. Such a complete picture is of great significance
    in the electronic communications sector where the relationships between
    undertakings and/or markets can be particularly complex, especially
    against the background of convergence and the importance of emerging
    38

    For extensive analysis on the use of Article 86(3) EC in a liberalised environment, see
    Pierre Larouche, Competition Law and Regulation in European Telecommunications, Oxford/
    Portland, Oregon: Hart Publishing, 2000, at pp. 91107. See also infra Chapter 4 on the
    liberalisation process and the legal basis used.
    39
    Article 95 EC is the standard harmonisation legal basis. The procedure for adoption of
    measures under it is co-decision, involving the Council and the European Parliament.
    See generally Article 251 EC.
    40
    Having in mind classical sector specific regulation such as the ONP rules.

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    Typology of the Regulatory Tools

    markets. The implementation of competition rules in such a


    comprehensive way would, however, be normally quite protracted in
    time. The possibility of appeal before the Courts ensures the legality of
    the decisions taken but reduces considerably the ability for quick
    responses to urgent matters.
    The 2002 sector specific regime for electronic communications, in contrast
    to the 1998 ONP rules, being based on competition law methodology is
    equally hard to implement since it involves a full-scale market analysis,
    which is further to be conducted on a forward-looking basis.
    Nevertheless, as will be shown in detail in the next chapter, it could be
    submitted that the new sectoral regime finds a middle way between
    classical specific rules and competition law in that it provides an indepth analysis of the sector, while also applying a clear set of rules on
    an ongoing basis.
    2.3.2

    Reactive versus Pro-Active Nature

    Generally, competition authorities determine whether certain behaviour


    is abusive on an ex post basis (excluding mergers and acquisitions where
    an ex ante analysis is conducted).41 The rationale for this reactive nature
    of competition law is the presumption that actual and potential rivalry
    between undertakings exists and naturally sustains competition on the
    markets. Antitrust authorities intervene only when this competition is
    in some manner distorted, restricted or prevented.
    In contrast to antitrust interventions, which are undertaken in response
    to evidence of banned anti-competitive behaviour, sector specific rules
    are applied ex ante, ie before any concrete evidence of harmful events.
    Sectoral rules normally define a narrow range of acceptable conduct
    and as Theon Van Dijk notes in this regard, [b]y setting out the range
    of acceptable conduct in great detail in advance, a well-functioning set
    of sector specific rules can provide considerable certainty to the regulated
    utilities.42 Although this is true, one should not forget that the existence
    of sectoral rules does not preclude (at least in the European Community
    41

    There are indeed a number of seminal decisions taken on an ex ante basis especially
    notifications to obtain exemption under Article 81(3) EC or clearance under the Merger
    Control Regulation. Important breakthrough cases taken on an ex ante basis in the field
    of EC communications law were eg the WorldCom decisions (Decision 1999/287 of 8 July
    1998, Case IV/M.1069, WorldCom/MCI, OJ L 116/1, 4 May 1999 and Decision 2003/790 of
    28 June 2000, Case IV/M.1741, MCI WorldCom/Sprint, OJ L 300/1, 18 November 2003. The
    latter cases remain, however, out of the scope of the present analysis since the latter
    concentrates on Article 82 rules and cases. For a critique of the ex post ex ante comparison,
    see Pierre Larouche, A Closer Look at Some Assumptions Underlying EC Regulation of
    Electronic Communications (2002) Journal of Network Industries, Vol. 3, pp. 129149, at
    pp. 130135.
    42
    Theon Van Dijk, supra note 29, at p. 96.

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    EC Electronic Communications and Competition Law

    legal order43) the application of competition rules and thus abiding by


    the sector specific regime is by no means an excuse for abusive practices
    under general competition law.
    Furthermore, as far as the sector specific rules within the new regulatory
    framework are concerned, one should note that the distinction between
    ex post and ex ante is not as rigid as before. The National Regulatory
    Authorities (NRAs) will have to conduct market definition and market
    analysis based on competition law methodology and although the
    analysis should be forward-looking, the authorities will undoubtedly
    take account of past and present facts and behaviour44 and in a way
    wait for the market to provide an indication that intervention is
    necessary before they act.45 The initial procedure of market selection
    conducted by the Commission within the new market definition process
    is likewise based on observations of existing problematic situations and
    thus present and/or likely distortions and restrictions of competition.46
    Indubitably, the proactive nature of sectoral regulation provides a better
    position for remedying knotty situations by addressing them before an
    actual abuse occurs. As we shall see below, this could be crucial for the
    promotion of competition in the electronic communications sector (in
    handling, for instance, complex access issues). There is, however, a
    certain danger stemming from the pro-activity of sectoral rules. The latter
    might be influenced by wrong policy choices and promote competition
    with anti-competitive means or simply continue to apply when
    intervention is no longer needed.47 In fact, even good policy choices
    43
    In some legal orders the relationship lex specialis lex generalis is decisive and the sector
    specific rules prevail over the general competition rules. Such is the case, for instance,
    under Swiss law. See Christoph Beat Graber, The Lost Highway Bleibt KMU der
    Zugang zur Breitbandkommunikation verbaut? Wege zur Marktffnung nach
    schweizerischem und internationalem Recht in Daniel Girsberger and Jrg Schmid (eds.),
    Rechtsfragen rund um die KMU, Zurich: Schulthess, 2003, pp. 217 et seq.
    44
    The Commission Guidelines on market analysis and the assessment of significant market
    power under the Community regulatory framework for electronic communications
    networks and services (OJ C 165/6, 11 July 2002) state in that context at para. 20 that, [i]n
    carrying out the market analysis under the terms of Article 16 of the Framework Directive,
    NRAs will conduct a forward looking, structural evaluation of the relevant market, based on
    existing market conditions. NRAs should determine whether the market is prospectively
    competitive, and thus whether any lack of effective competition is durable, by taking
    into account expected or foreseeable market developments over the course of a reasonable
    period. The actual period used should reflect the specific characteristics of the market
    and the expected timing for the next review of the relevant market by the NRA. NRAs
    should take past data into account in their analysis when such data are relevant to the
    developments in that market in the foreseeable future (footnote omitted; emphasis
    added).
    45
    Pierre Larouche, supra note 41, at p. 132.
    46
    See infra Section 3.2.4. for details on the market selection procedure.
    47
    See eg Jon Stern, Regulatory Forbearance: Why Did OFTEL Find It So Hard? (2004)
    Telecommunications Policy, Vol. 28, pp. 273294.

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    Typology of the Regulatory Tools

    might lead to dubious long-term outcomes. In particular, in a sector


    such as electronic communications, marked by network externalities,
    the market might settle at an inferior standard or reach unsatisfactory
    level of development of competition, failing to realise full economies of
    scale.48 Finally, in the context of proactivity, it should be noted that the
    implementation of the ex ante analysis might be particularly difficult in
    communications markets if there is a lack of data or turbulent
    developments.49
    2.3.3 To Protect versus to Promote or Restrict Competition
    Generic competition rules focus primarily on the protection of
    competition by identifying and rectifying behaviour leading to
    distortion, prevention or restriction of competition. Competition law
    has thus limited powers to impose controls, which substitute for
    competition where competition is either impossible or sub-optimal.50
    The latter impotence of generic competition rules is precisely the reason
    for designing sector specific regimes.51 Sectoral rules allow interventions
    that go beyond the normal protection of competition52 and could actively
    promote it. In that sense, they embody concrete policy choices directed
    at certain markets and could lead through asymmetrical regulation to a
    relatively swift transition to competition. The downside of the latter
    policy is that as market forces develop, the imposed obligations might
    become unreasonably heavy and/or lead to negative outcomes (eg crosssubsidisation or cream-skimming).53
    2.3.4 One-Off Interventions versus Long-Term Perspective
    Competition law intervention, as mentioned above, is meant to restore
    the inherently competitive market conditions. The initial position being
    notabene that such competitive conditions exist. The interventions are
    then intended to be one-off events with regard to a particular
    48

    See supra Chapter 1, Section 4.1 and Chapter 2, Section 2.3.


    See eg Commission Guidelines on market analysis and the assessment of significant
    market power, supra note 44, at para. 70.
    50
    Theon Van Dijk, supra note 29, at p. 96.
    51
    Commission Recommendation of 11 February 2002 on relevant product and service
    markets within the electronic communications sector susceptible to ex ante regulation in
    accordance with Directive 2002/21/EC of the European Parliament and of the Council on
    a common regulatory framework for electronic communication networks and services,
    OJ L 114/45, 8 May 2003 (Relevant Market Recommendation).
    52
    The Access Notice (Commission Notice on the application of the competition rules to
    access agreements in the telecommunications sector, OJ C 265/3, 22 August 1998), for
    instance, states at para. 15 in that regard that, [i]t is important to note that the ONP
    Directives impose on TOs having significant market power certain obligations of
    transparency and non-discrimination that go beyond those that would normally be imposed
    under Article 86 of the Treaty [now Article 82 EC] (emphasis added).
    53
    For the respective definitions, see supra Chapter 1, notes 38 and 39.
    49

    117

    EC Electronic Communications and Competition Law

    constellation of facts. This approach is well-suited for markets where


    the need for supervision is sporadic in the sense of punishing anticompetitive practices and bringing things back to normal. The
    interventions set further a pattern as to how prevention, distortion or
    restriction of competition are interpreted and addressed.
    The sectoral provisions function in a different way. They set out in (relatively)
    stable terms rules that apply for a (relatively) long time until a certain goal
    is achieved. An example in point is the ONP framework that managed the
    transition, together with the liberalisation directives, from monopoly to
    competitive markets in European telecommunications.54 Relying on a
    detailed framework in a transition environment reduces uncertainty and
    allows for making long-term commitments and investments that are critical
    for the success of the very transition. Under the 2002 regulatory package,
    which has the purpose to sustain the achieved level of competition in
    communications and promote it, the NRAs are equally required to supervise
    the markets regularly, on an ongoing basis,55 rather than to intervene
    sporadically when distortion occurs.
    2.3.5 Narrowly Focused Objectives versus Broad Range of
    Objectives
    As discussed in the Chapter 2, competition is believed to ensure
    consumer welfare, which involves allocative, productive and dynamic
    efficiencies. The objective of competition law in that sense could be
    broadly defined as protection of that competition. As stated in the EC
    Treaty, the Community competition law is a system ensuring that
    competition in the internal market is not distorted.56 Thus, European
    competition rules (and accordingly the national competition laws) focus
    on the prohibition of agreements that prevent, restrict or distort
    competition (as enshrined in Article 81 EC) and on conduct constituting
    an abuse of dominant position (as enshrined in Article 82 EC). In fulfilling
    their so-defined tasks, the national and Communitys competition
    authorities achieve in fact a wide variety of economic and societal goals.57
    Nevertheless, in fulfilling these tasks under competition law, authorities
    are to concentrate only on the protection of competition in economic
    sense. Indeed, it is very important that the objectives of competition law
    remain so narrowly defined. In the converse situation, the legitimacy of
    the law would be questioned and politics would interfere to the
    achievement of broader set of objectives.58
    54

    See infra Chapter 4, Section 3.1, especially Section 3.1.2 therein.


    See infra Chapter 4, Section 3.2.4.
    56
    Article 3(1)(g) of the EC Treaty.
    57
    See supra Chapter 2.
    58
    See supra Chapter 2 (the commentary at the very beginning) and Damien Neven,
    Working Paper on Competition Policy Objectives in Claus Dieter Ehlermann and Laraine
    (continued...)
    55

    118

    ..)

    Typology of the Regulatory Tools

    Sector specific regulation, on the other hand, could legitimately be


    intended to achieve precisely the latter broader objectives. This allows
    regulators to stray from the pure competition law rationale and focus
    on broader efficiency/welfare criteria in order to promote competition
    in the long term. Additionally, the regulation of a specific industry can
    be used to pursue other extraneous policy goals, such as societal and
    distributional ones.59 The associated risk is that a set of wide (and
    possibly conflicting) objectives provides scope for unpredictable and
    discretionary interventions, thus causing regulatory uncertainty.60 The
    danger of regulatory capture61 in view of the possibility of pursuing
    other goals needs also to be accounted for. This danger is particularly
    portentous in communications being a network industry, where the
    opportunity of tipping markets and earning monopoly profits
    encourages lobbying.62 In contrast to the sectoral agencies, [u]ndue
    influence by the industry over the competition authorities is less likely
    because they are not in continuous contact with any one sector.63
    Consequently, if sector specific rules are to be reviewed within a certain
    period of time, [s]uch a review process should be carried out by an
    economy-wide body rather than sector-specific agency whose raison
    L. Laudati (eds.), European Competition Law Annual 1997: Objectives of Competition Policy,
    Oxford/Portland, Oregon: Hart Publishing, 1998, at pp. 111112. See also Lawrence J.
    Spiwak, Antitrust, the Public Interest and Competition Policy: The Search for Meaningful
    Definition in a Sea of Analytical Rhetoric (1997) Antitrust Report, pp. 223.
    59
    Cave and Crowther confirm this reasoning. They point out that, [t]he competitive
    process is relied upon to provide goods and services at acceptable conditions of price
    and quality, with only a relatively minimal intervention to correct specific market failures.
    Traditional regulation, on the other hand has been employed to achieve specifically
    defined social and political objectives, for instance to impose universal service
    obligations. See Martin Cave and Peter Crowther, Regulating Interconnection Charges
    from a Competition Law Perspective, Conference Paper, ITS 11th Biennial Conference,
    Seville, 1996, as referred to by Marc Bourreau and Pinar Dogan, Regulation and
    Innovation in the Telecommunications Industry (2001) Telecommunications Policy, Vol. 25,
    pp. 167184, at p. 170.
    60
    Theon Van Dijk, supra note 29, at p. 98.
    61
    Regulatory capture stresses the fact that industries can influence policy makers in
    taking decisions in their interests rather in those of society. Regulatory capture was
    one of the concepts used by the Chicago School as an argument against government
    intervention. See eg George J. Stigler, The Theory of Economic Regulation (1971) Bell
    Journal of Economic and Management Science, Vol. 2, pp. 321 and Richard A. Posner,
    Theories of Economic Regulation (1974) Bell Journal of Economics and Management Science,
    Vol. 5, pp. 335358. It should additionally be noted that regulatory capture has been a
    recurrent phenomenon throughout the history of telecommunications regulation. See
    eg supra Chapter 2, Section 3.2 on the history universal service. See also Raymond De
    Bondt and Patrick Van Cayseele, Government Policy Towards Industrial Innovation
    (1985) Maandschrift Economie, Vol. 49, No 3, pp. 214226, as referred to by Patrick Van
    Cayseele and Roger Van den Bergh, Antitrust Law in Boudewijn Bouckaert and Gerrit
    De Geest (eds.), Encyclopaedia of Law and Economics, Cheltenham, UK: Edward Elgar
    Publishing, 2000, pp. 467497, at p. 470.
    62
    See supra Chapter 2, Section 2.3.
    63
    European Commission, Liberalisation of Network Industries, supra note 29, at pp. 36
    37.
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    EC Electronic Communications and Competition Law

    dtre might depend on the very existence of such rules.64 In the same
    line of reasoning, definite sunset provisions regarding the powers of
    national regulatory authorities may be critical in ensuring that
    regulation for the sake of regulation alone does not continue when no
    longer needed.65
    2.3.6. Limited Instruments versus Broad Range of Instruments
    General competition authorities do not have a particularly sizeable toolkit
    for their interventions. The possibilities for designing a specific remedy for
    a specific problem are limited. On the one hand, by the formal constraint of
    competition law legislation and on the other hand, partly due to the
    restricted potential to process complex industry-specific information needed
    for detailed remedies.66 Moreover, sectoral rules could go beyond the
    limitations of a certain case and regulate re-occurring situations in a
    consistent manner assuring long-term remedy of thorny issues.67
    Being, as discussed above, often intended for the achievement of broader
    objectives and allowing for imposing obligations that could go beyond
    those normally imposed under competition law, sector specific
    instruments could be designed and targeted at a specific problem.68
    Sectoral agencies know-how of the communications industry and the
    characteristics of the national market in question could further contribute
    to finding the right tools, behavioural and/or structural.
    2.3.7 Antitrust Expertise versus Communications Industry
    Expertise
    The NRAs entitled with the task of communications specific rules
    application and the national competition authorities (NCAs) application
    of the domestic and Community antitrust rules at Member State level
    64

    Damien Geradin and Michel Kerf, supra note 5, at p. 338.


    Mark Naftel and Lawrence J. Spiwak, The Telecoms Trade War: The United States, the
    European Union and the World Trade Organization, Oxford/Portland, Oregon: Hart
    Publishing, 2000, at p. 360.
    66
    See infra Chapter 4, Section 2.3.2 on the difficulties related to the application of the
    essential facilities doctrine.
    67
    An example in point could be the unbundling of the local loop whereby by sector
    specific rules assured access to the local markets held by the former public
    telecommunications operators. See Regulation 2887/2000/EC of the European Parliament
    and of the Council of 18 December 2000 on unbundled access to the local loop, OJ L 336/
    4, 30 December 2000 and supra Chapter 2, Section 2.3.3.
    68
    For some examples on the limitations of general competition rules versus sectoral ones
    regarding number portability; retail price control for residential customers; network
    charge control; interconnection obligations; and price control over mobile termination
    rates, see Edward Pitt, Competition Law in Telecommunications in Ian Walden and
    John Angel (eds.), Telecommunications Law, London: Blackstone Press, 2001, pp. 249278,
    at pp. 265268 and infra Part 3.
    65

    120

    Typology of the Regulatory Tools

    differ in a number of ways. Most noteworthy in the context of our present


    discussion, is the divergence of their expertise. Due to their sectoral focus,
    NRAs hold naturally superior knowledge with regard to the mechanisms
    of the industry and to the firms active in the diverse communications
    markets. NRAs have full understanding of the specificities of electronic
    communications networks and services in the sense of network effects,
    economies of scale and scope, innovation, dynamism, new and emerging
    markets, and possible convergence implications.69 They have the means,
    the developed methodology and the communications specific knowhow enabling them to gather and process data critical for any further
    analyses and the design of regulatory intervention. If the NCAs are
    endowed with the task of supervising the communications markets, the
    detection of anti-competitive behaviour may be obstructed due to the
    restricted information that these institutions hold.70 Due to the sporadic
    nature of interventions of the competition authorities, it would be further
    difficult for them to build up the necessary communications expertise,
    even in a longer period of time.71
    On the other hand, the antitrust agencies have superior experience in
    dealing with typical competition law situations and applying the Treatys
    competition rules and those developed through the practice of the
    European Court of Justice and the Court of First Instance. Elaborate
    analytical exercises, such as product/services and geographical market
    definitions through application of the SSNIP test,72 market analyses and
    application of complex dominance concepts, belong very much to the
    everyday job of the competition authorities. Consequently, once detected,
    the anti-competitive behaviour would be better assessed by the NCAs
    and the concrete intervention could be more adequate. This could
    additionally feed positively back to the legal certainty (for the
    communications market players) and to the continuity of antitrust law
    and practice in general. Being active in all sectors of the economy, the
    NCAs could also utilise cross-sectoral experience when faced with new
    situations and respond more flexibly to these than the overly specialised
    NRAs. Especially as network industries are concerned, the NCAs could
    69

    Arlan Gates, Convergence and Competition: Technological Change, Industry


    Concentration and Competition Policy in the Telecommunications Sector (2000)
    University of Toronto Faculty of Law Review, Vol. 58, Issue 2, pp. 83120, at p. 94.
    70
    Marc Bourreau and Pinar Dogan, supra note 59, at p. 170. Geradin and Kerf summarise
    their analysis in that regard, noting that, [a]ntitrust authorities and courts should not be
    relied upon to take decisions on untested, complex, telecommunications-specific issues,
    on the basis of general antitrust rules. The fact that those authorities tend to intervene ex
    post, that judicial proceedings are likely to be long, and that contradictory decisions may
    be taken by different bodies is likely to raise uncertainty to unacceptable levels. See
    Damien Geradin and Michel Kerf, supra note 5, at p. 341.
    71
    European Commission, Liberalisation of Network Industries, supra note 29, at p. 36.
    72
    On the SSNIP (Small but Significant Non-transitory Increase in Price) test, see infra
    Chapter 4, Section 2.2.1.

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    EC Electronic Communications and Competition Law

    use the valuable experience gathered in markets with more advanced


    competition (eg communications) and transfer it to other network sectors
    (eg electricity or post).
    With the transformation of the EC telecommunications regime, the
    differences in expertise are made in fact more pronounced and the
    potential ramifications of these are aggravated. This submission is true
    since under the 2002 Community communications regime, the sector
    specific rules are aligned with the traditional EC antitrust methodology.
    While under the old framework, NRAs simply had to apply the rules,
    as identified in the ONP Directives,73 with little possibility for deviation,
    now they are to carry out the complex tasks of full-scale market
    definition, market analysis and remedies design.74 While the current
    alignment of sectoral regulation with competition law formulae and thus,
    with economic rationales, is largely a positive development, it does entail
    certain dangers. Martin Cave and Pierre Larouche have stressed these
    in the particular context of the application of the SSNIP test, noting that,
    [w]hile this approach is conceptually helpful, it is difficult to apply in
    practice, particularly across 15 markets.75 Indeed, we shall see in the
    following chapter that the SSNIP test is hardly the only challenge for
    the implementation agencies.
    The simple fact that the NCAs have applied the Community law for
    over forty years now is also not to be underestimated. Throughout this
    considerable period of time, they have developed a certain sensitivity
    for the European mechanisms and strengthened the relationships with
    the other EC institutions, most notably the European Commission and
    the courts.
    3.

    Chapter 3: Conclusion

    Considering the foregoing comparison between competition law and


    sector specific rules, it could be safely concluded that there are certain
    pros and cons inherent to both sets of instruments. The benefits
    associated with sectoral rules boil down mainly to their potential for
    accounting for sector specific economic and technological factors and
    for designing detailed regulatory interventions aiming precisely and
    efficiently at a certain problem. Sectoral regulation comprises in that
    sense a more elaborate and targeted set of provisions, which embodies
    73

    See infra Chapter 4, Section 3.1.4.


    For detailed analysis of NRAs tasks under the new Significant Market Power regime,
    see infra Chapter 4, Section 3.2.4.
    75
    Martin Cave and Pierre Larouche (Rapporteurs), European Communications at the
    Crossroads, Report of the CEPS (Centre for European Policy Studies) Working Party on
    Electronic Communications, Brussels: Centre for European Policy Studies, October 2001, at
    p. 7.
    74

    122

    Typology of the Regulatory Tools

    more clearly pronounced policy choices. Where competition has not yet
    advanced, sector specific rules can actively promote its development
    and/or additionally foster the achievement of wider societal objectives.
    Equally, where the barriers of entry are extremely high and/or markets
    exhibit network effects or other natural monopoly characteristics, sectoral
    rules could address and surmount these more effectively than general
    competition law. Most notably, they could also tackle situations
    stemming not only from dominance.
    On the other hand, the asymmetric treatment inherent to sector specific
    regulation could distort the natural development of competitive markets
    preventing efficient undertakings responses to evolving competition.
    Furthermore, the extraneous policy concerns may seriously reduce
    efficiency and allow for regulatory capture. Sectoral rules can also be
    quite rigid in the face of rapid technological and market developments
    and may, due to regulatory inertia, sometimes continue to apply without
    proper justification.76
    In contrast, competition law could be fairly flexible to new situations.
    Competition rules have the advantages of a legal system focused on a
    narrow range of objectives, applied according to a set procedure and
    built upon a multitude of precedents. Competition rules are, however,
    hardly capable of swift and/or tailored remedies to urgent problems.
    Their reactive nature could additionally mean that even where
    competition is in principle able to develop, there could be considerable
    time delays before competition is actually achieved. A textbook example
    in this regard is the liberalisation of the New Zealands
    telecommunications market. The light-handed approach chosen by New
    Zealand and based predominantly on competition rules failed to address
    properly the transition from monopoly to competition, led to lengthy
    lawsuits77 and substantially slowed the access of new communications
    providers.78
    The costs associated with both sets of regulatory tools do not point to an
    unequivocal finding either: Deregulation will normally reduce or
    76

    As Naftel and Spiwak eloquently state, [a]uthorising regulators to forebear from


    regulations is a sound policy, but one that regulators are loath to follow. See Mark Naftel
    and Lawrence J. Spiwak, supra note 65, at p. 350. The authors prove their submission
    with an example of the US telecommunications regulation history. The FCC was granted
    power under the 1996 Telecommunications Act to forebear from regulating in an area
    where it had certain authority, but there were no visible actual abdications from authority.
    77
    See Telecom Corporation of New Zealand Ltd v. Clear Communications Ltd [1995] 1 NZLR
    385.
    78
    See Theon Van Dijk, supra note 29, at p. 101; Malcolm Webb and Martyn Taylor, LightHanded Regulation of Telecommunications in New Zealand: Is Generic Competition Law
    Sufficient? (1999) International Journal of Communications Law and Policy, Issue 2; Damien
    Geradin and Michel Kerf, supra note 5, at pp. 119162.

    123

    EC Electronic Communications and Competition Law

    eliminate the administrative costs related to traditional rate-of-return


    and incentive regulation, as well as the costs associated with the specific
    regulator s staff. 79 Entrusting the economic regulation of
    telecommunications (and possibly other network industries) to an
    economy-wide regulatory body could be then an overall cost-reducing
    factor. Sectoral authorities, however, should not necessarily be perceived
    as an overly expensive undertaking. Entrusting specialised authorities
    with the regulatory task, while limiting judicial processes to appeals
    on legal grounds only, limiting the number of sector-specific rules and
    keeping them as simple as possible, discouraging delaying tactics,
    streamlining procedures and adopting time-limits,80 can in fact lead to
    a reduction of the length and costs of regulatory processes.81
    Thus again, the reiterated conclusion is that certain advantages and
    disadvantages could be found in the application of both sectoral and
    competition law rules. A derivative conclusion in the general context of
    regulatory tools is that it is perhaps more sensible to approach the two
    sets of instruments not necessarily as opposing and exclusionary but
    rather as complementary. The latter approach will allow using both tools
    for different situations beyond the rhetoric of regulation against
    deregulation.82 Without the misleading labelling of bad or good,
    both instruments could be used in hybrid regulatory models to the
    achievement of the pursued goals. Bourreau and Dogan confirm this
    mixed approach with specific regard to innovation. They acknowledge
    that, [e]ither of the two mechanisms [sector specific or competition
    rules] may provide a more efficient control depending on the relevant
    market structure. For example, one might think that the flexible nature
    of ex post measures stimulates the incentives to innovate, and hence
    should be used for the new markets in which the ultimate aim is to
    promote market growth and the incumbent has no important dominance.
    On the other hand, a stricter control by ex ante regulation may be more
    suitable for the old markets in which abuse of the dominant position by
    the incumbent should not be tolerated even for the sake of higher market
    growth.83
    As we shall see below in the chapter that follows, EC communications
    law has developed precisely as such a hybrid system using sector specific
    regulation and simultaneously applying competition law. While the
    present chapter provided an abstract, broadly-sketched picture of the
    79

    J. Gregory Sidak and Daniel F. Spulber, Deregulation and Managed Competition in


    Network Industries (1998) Yale Journal on Regulation, Vol. 15, No 1, pp. 117147, at p. 121.
    80
    Damien Geradin and Michel Kerf, supra note 5, at p. 350.
    81
    Ibid. at pp. 347 et seq.
    82
    On the false assumptions of regulation, see Pierre Larouche, supra note 41, at pp. 134
    135.
    83
    Marc Bourreau and Pinar Dogan, supra note 59, at p. 170.

    124

    Typology of the Regulatory Tools

    regulatory instruments, the next one will analyse them in more concrete
    terms, further revealing their regulatory potential and contributing to
    properly addressing the question: Can competition law do it all?

    125

    CHAPTER 4:
    EUROPEAN COMMUNITY COMMUNICATIONS LAW
    1.

    Introduction

    The Treaty establishing the European Economic Community1 did not


    mention telecommunications as such and until the early 1980s
    telecommunications was not considered a priority sector for the EC. The
    European Commission equally had no distinct policy approach towards
    the sector.2 Telecommunications were almost identical with the provision
    of the plain voice telephony service carried out by the national Public
    Telecommunications Operators (PTOs).3 As mentioned in the course of
    the previous chapters, these were exempted from national and European
    Community competition law and fell under the category of
    undertakings, which had been granted special or exclusive rights in the
    general economic interest in the sense of Article 86(1) EC.4
    1

    Treaty establishing the European Economic Community (Rome, 25 March 1957). It is


    adequate at this early stage of the elaboration on EC law to make a remark as to the
    terminology that will be used throughout the work. The document most often referred
    to and the primary source of EC telecommunications law is the Treaty establishing the
    European Community (consolidated version, OJ C 325/33, 24 December 2002). The
    abbreviation used for the latter is EC or EC Treaty. EC will also be used to signify
    the European Community, which is the name given to the European Economic
    Community with the Treaty on European Union (Maastricht Treaty, OJ C 191/1, 29 July
    1992). The Maastricht Treaty established the European Union, which will be shortly
    referred to as EU. Following Maastricht and Amsterdam Treaties (OJ C 340/1, 10
    November 1997), the EC is one of the three constituent pillars of the EU, the other two
    being the Common Foreign and Security Policy and the Cooperation in Justice and
    Home Affairs. The latter two are of inter-governmental nature in contrast to the EC,
    which is a supranational entity. The Treaty of Amsterdam changed further, among other
    things, the numbering of the EC Treaty. To avoid confusion, we shall refer to the EC
    Treaty using the post-Amsterdam numbering system, even in cases of pre-Amsterdam
    applications. Where appropriate references will also be made to the recently adopted
    but not yet ratified Treaty establishing a Constitution for Europe (provisional consolidated
    version, OJ C 310/1, 16 December 2004).
    2
    Volker Schneider and Raymund Werle, Regime oder korporativer Akteur? Die EG in
    der Telekommunikationspolitik, Max-Planck-Institute Discussion Paper No 88/4, 1988,
    pp. 1746, as referred to by Oliver Stehmann, Network Competition for European
    Telecommunications, Oxford: Oxford University Press, 1995, at p. 147. The first measure
    attempting to give some kind of Community dimension was Recommendation 84/549/
    EEC of 12 November 1984 concerning the implementation of harmonisation in the field
    of telecommunications, OJ L 298/49, 16 November 1984.
    3
    Oliver Stehmann, ibid. at p. 147.
    4
    On services of general economic interest, see Paul Nihoul and Peter Rodford, EU Electronic
    Communications Law, Oxford: Oxford University Press, 2004, at paras 5.265 et seq. For
    account of the forces at play at that time at Member State and EC level, see Mark Thatcher,
    (continued...)
    127

    EC Electronic Communications and Competition Law

    The latter exemption was for the first time put to the test in the British
    Telecommunications case.5 In that case, the European Court of Justice (ECJ)
    confirmed the position of the Commission6 that EC competition rules
    did apply to the telecommunications sector and thus established legal
    limits to the monopoly structure of the sector. The ECJ made it clear that
    it would favour a narrow interpretation of the scope of derogation under
    Article 86(2) EC (ex Article 90(2) EEC) from obligations under
    competition law and that the application of Art. 90(2) of the Treaty is
    not left to the discretion of the Member State, which has entrusted an
    undertaking with the operation of a service of general economic interest.
    Art. 90(3) assigns to the Commission the task of monitoring such
    matters.7
    British Telecommunications is a groundbreaking case for the EC
    communications sector.8 It is of significance in at least three aspects:
    (i) first, for acknowledging the application of EC competition rules to
    telecommunications and thus challenging the position of the European
    PTOs; (ii) secondly, for stressing the role of the Commission as regards
    services of general economic interest;9 and (iii) thirdly, as a first sign of
    the distinct telecommunications policy that the Community was to adopt
    and persistently pursue in the years that followed in the direction of
    liberalising and deregulating the European telecommunications
    markets.10
    The EC communications law, as will be discussed in the following Sections,
    is a product of the latter policy that has accordingly evolved through time.
    The Europeanisation of Regulation: The Case of Telecommunications, EUI Working
    Paper RSC No 1999/22.
    5
    Commission Decision of 10 December 1982, British Telecom, OJ 1987 L 360/36, [1987] 1
    CMLR 457; confirmed in Case 41/83 Italy v. Commission (British Telecommunications) [1985]
    ECR 873, [1985] 2 CMLR 368.
    6
    Ibid. The Commission found that BT, at that time like the other PTOs still a state-owned
    monopoly, had abused its dominant position in the telecommunications market by taking
    measures to hinder private forwarding agencies from relaying telex messages between
    foreign countries over the UK network and offering the service at prices lower than those
    charged by BT for its international telex service. One of the main issues was how far
    Article 86(2) EC (ex Article 90(2) EEC) could be applied to exempt BTs abuse of its
    dominant position. The ECJ confirmed the view of the Commission that the retransmission
    of telex messages was not covered by Article 86(2) exception for public service obligations
    and that the network operator was not entitled to restrict third parties use of the network
    for commercial services in competition with the network operator or with network
    operators in other Member States.
    7
    Case 41/83 Italy v. Commission (British Telecommunications), supra note 5, at para. 30.
    8
    Although it did not directly lead to opening of the telecommunications markets. See
    Pierre Larouche, Competition Law and Regulation in European Telecommunications, Oxford/
    Portland, Oregon: Hart Publishing, 2000, at p. 3.
    9
    See further infra Section 3.1.1.
    10
    On deregulation and the concrete liberalisation and harmonisation measures for EC
    telecommunications, see infra Section 3.1.

    128

    European Community Communications Law

    It involved a multiplicity of regulatory models to manage the transition to


    competition,11 whereby each regulatory model has been building upon the
    previously existing ones, preserving certain elements of them, and
    constantly in evolution.12 In that sense, telecommunications law should be
    viewed as a dynamic rather than a static mixture of pieces of regulation.13
    Moreover, besides its dynamism and evolving nature, EC
    communications law is characterised by its unique multi-level and
    multifarious14 structure. Indeed, the existing Community regulatory
    framework for e-communications does not consist of a single body of
    law. It represents a fairly complex system, where several bodies of law
    have to be considered. These are (i) the EC competition rules; (ii) the
    communications sector specific regulation; and (iii) the obligations of
    the European Communities as party to the WTO multilateral
    agreements.15 In addition, there is the level of national legislation of the
    Member States implementing the EC primary and secondary law16 that
    one has to bear in mind. Since, however, the Community rules take
    precedence over the national ones17 and could be directly applied by
    the national regulatory agencies and the courts,18 we shall concentrate
    our analysis on the European Community level only.19 This exercise in
    11

    See supra Part 1, Chapter 1, Section 1.3 The Metamorphosis and infra Section 3.1.
    Pierre Larouche, supra note 8, at p. 1.
    13
    See eg Commission Guidelines on market analysis and the assessment of significant
    market power under the Community regulatory framework for electronic communications
    networks and services, OJ C 165/6, 11 July 2002, at para. 13.
    14
    An expression used by Ian Walden. See Ian Walden, Telecommunications Law and
    Regulation: An Introduction in Ian Walden and John Angel (eds.), Telecommunications
    Law and Regulation, 2nd edition, Oxford: Oxford University Press, 2005, pp. 122, at p. 13.
    15
    Other Treaty Articles having regard to EC telecommunications, apart from the ones on
    competition, are Article 16 EC on services of general economic interest, Article 154156
    introduced by the Maastricht Treaty (OJ C 191/1, 29 July 1992) on Trans-European Networks
    and Article 157 introduced by the Treaty of Nice (OJ C 280/1, 10 March 2001) on Industry.
    16
    See eg recital 9 of Council Regulation (EC) 1/2003 of 16 December 2002 on the
    implementation of the rules on competition laid down in Articles 81 and 82 of the Treaty,
    OJ L 1/1, 4 January 2003. For an account of the different national competition law
    legislation, see Richard Whish, Competition Law, 5th edition, London: Butterworths
    LexisNexis, 2003, at pp. 57 et seq. For an account of the different communications specific
    legislation, see Colin D. Long (general ed.), Global Telecommunications Law and Practice,
    London: Sweet and Maxwell, 20002004.
    17
    See eg Case 6/64 Costa v. ENEL [1964] ECR 585, [1964] CMLR 425; Case 14/68 Walt
    Wilhelm v. Bundeskartellamt [1969] ECR 1, [1969] CMLR 100; Case C-213/89 R v. Secretary of
    State for Transport (Factortame II) [1991] 1 AC 603, [1990] 3 CMLR 1; Case C-221/89 R v.
    Secretary of State for Transport (Factortame III) [1991] ECR I-3905, [1991] 3 CMLR 589.
    18
    See eg Case 26/62 Van Gend en Loos v. Nederlanse Administratie der Belastingen [1963] ECR
    1; Case 43/75 Defrenne v. Sabena (II) [1976] ECR 455; Case 41/74 Van Duyn v. Home Office
    [1974] ECR 1337. See also recitals 8 and 9 and Article 3 of the Council Regulation (EC) 1/
    2003 on the implementation of the rules on competition laid down in Articles 81 and 82
    of the Treaty, supra note 16.
    19
    On the relationship between EC competition law and national competition laws, see
    Richard Whish, supra note 16, at pp. 75 et seq. and 283 et seq. Generally, on the relationship
    (continued...)
    12

    129

    EC Electronic Communications and Competition Law

    reducing the complexity of the EC communications law will also allow


    us to discern clearly the model(s) of regulation.
    The first step into the mazes of European Community communications
    law will be to outline the main provisions of EC competition law.
    2.

    European Community Competition Law

    The EC competition rules are found in Title VI of the Treaty establishing


    the European Community20 along with the provisions relating to tax
    and approximation of laws. Chapter 1 therein is entitled Rules on
    Competition and comprises Articles 81 to 89. As already established in
    Chapter 3, the two central provisions of EC competition law are Articles
    81 and 82 EC (ex Articles 85 and 86 EEC), which deal respectively with
    anti-competitive agreements and abuse of dominant position. Article
    86 EC (ex Article 90 EEC) on public undertakings and undertakings with
    special or exclusive rights has come to play a special role in the
    telecommunications sector, since it was made instrumental by the
    Commission for the opening of the state-protected telecommunications
    markets to competition.21 EC competition law applies further through
    the Merger Regulation22 to all concentrations with a Community
    dimension.23
    Since EC competition law in itself is not the core subject of this work,
    the examination that follows will be selective and put in the context of
    our overall aim to examine the potency of competition rules in the specific
    ecosystem of communications and their relationship to sectoral rules.
    The analysis will concentrate on Article 82 EC as the principal tool for
    controlling unilateral behaviour of dominant firms. The discussion will
    be based on the primary and secondary EC law, the jurisprudence of the
    Community Courts, the practice of the European Commission and
    guidance provided by it in some soft-law documents. In the framework
    between Community and national law, see Paul Craig and Grinne de Brca, EU Law:
    Text, Cases and Materials, 2nd edition, Oxford: Oxford University Press, 1998, at pp. 163 et
    seq. (on direct effect) and pp. 255 et seq. (on supremacy).
    20
    See supra note 1. On EC competition law, see Jonathan Faull and Ali Nikpay, The EC
    Law of Competition, Oxford: Oxford University Press, 1999; Valentine Korah, EC Competition
    Law and Practice, 7th edition, Oxford/Portland, Oregon: Hart Publishing, 2000; P.M. Roth
    (ed.), Bellamy and Child European Community Law of Competition, 5th edition, London: Sweet
    and Maxwell, 2001; Richard Whish, supra note 16.
    21
    See infra Section 3.1.
    22
    Council Regulation (EC) 139/2004 of 20 January 2004 on the control of concentrations
    between undertakings, OJ L 24/1, 29 January 2004. The latter applies as of 1 May 2004
    and replaced as part of the modernisation of EC competition law the previous Council
    Regulation (EEC) 4064/89 of 21 December 1989 on the control of concentrations between
    undertakings, OJ L 395/1, 30 December 1989.
    23
    Ibid. at Article 1.

    130

    European Community Communications Law

    of Article 82 EC, some major antitrust concepts, such as market definition


    and market power, will be elaborated upon, which will also be of use
    for the examination of the current EC sectoral regime for electronic
    communications networks and services since the latter is based on
    antitrust methodology.
    2.1

    Article 82 EC

    If we say roughly that competition law is about collusion and dominance,


    then Article 82 EC is directed at the latter. Article 82 EC is a distinct but
    not the sole antitrust instrument and is an important companion to
    Article 81.24 Together, they ensure the protection of competition in the
    context of Article 3(1)(g) of the Treaty. While Article 81 EC is concerned
    with agreements, decisions and concerned practices, ie concurrence of
    wills, which are harmful to competition, Article 82 EC is targeted at the
    unilateral conduct of dominant firms, who use their market power in
    an exploitative or anti-competitive manner.25
    It should be noted at the very onset of our analysis of competition rules
    that market power is in itself not necessarily a bad thing. It is normally
    acquired through efficiency of the firms and a punishment of such
    efficiency will in fact contradict the very notion of competition.26
    Nevertheless, market power presents undertakings with the possibilities
    of limiting output and raising prices, reducing quality or rate of
    innovation, which are clearly detrimental to consumer welfare. Article
    82 EC must ensure that if undertakings use any of these possibilities,
    such use, or the attempt thereof, will be punished and corrected.
    As a tool of market power control, Article 82 EC is especially important
    for the telecommunications sector. Indeed, the monopolistic history of
    the industry, the persisting de facto (if not anymore de jure) dominance
    of the incumbents and the network externalities intrinsic to
    communications markets call for its vigilant application.

    24

    Richard Whish, supra note 16, at p. 175.


    On the respective roles of Article 81 and 82 EC, see Case T-41/96 Bayer v. Commission
    [2000] ECR II 3383, [2001] 4 CMLR 126, at paras 174175.
    26
    The Chicago School of economic thought is especially keen on the idea of efficiency.
    See Robert H. Bork, The Antitrust Paradox: A Policy at War with Itself, New York: The Free
    Press, 1993 (first published New York: Basic Books, 1978) and Richard Posner, Antitrust
    Law, 2nd edition, Chicago/London: University of Chicago Press, 2001.
    25

    131

    EC Electronic Communications and Competition Law

    2.2

    Constituent Elements of Article 82 EC

    Upon the textual basis of Article 82 as contained in the EC Treaty,27 one


    can identify the following constituent elements that need to be present
    in order for an abuse of dominance to be established:
    (i)
    (ii)
    (iii)

    a dominant position held by one or more undertakings in the


    common market or substantial part thereof;
    an abuse of that dominant position; and
    an actual or potential effect on trade between Member States.

    The next paragraphs concentrate on the concepts of dominance and


    abuse of dominance in the specific environment of electronic
    communications. As for the notion of undertaking, 28 a
    telecommunications enterprise, state-owned or otherwise, will with high
    probability qualify as an undertaking insofar as it carries an economic
    activity.29 The fact that an undertaking has a monopoly conferred upon
    it by statute will not exclude it from the scope of application of Article
    27

    The text of Article 82 EC is as follows:


    Any abuse by one or more undertakings of a dominant position within the common
    market or in a substantial part of it shall be prohibited as incompatible with the common
    market in so far as it may affect trade between Member States. Such abuse may, in
    particular, consist in:
    (a) directly or indirectly imposing unfair purchase or selling prices or other unfair trading
    conditions;
    (b) limiting production, markets or technical development to the prejudice of consumers;
    (c) applying dissimilar conditions to equivalent transactions with other trading parties,
    thereby placing them at a competitive disadvantage;
    (d) making the conclusion of contracts subject to acceptance by the other parties of
    supplementary obligations which, by their nature or according to commercial usage,
    have no connection with the subject of such contracts.
    28
    The EC Treaty provides no explicit definition of what constitutes an undertaking.
    The term has been interpreted broadly by the Community courts to mean any natural or
    legal person that carries on (or has the ability to carry on) an economic activity, regardless
    of its legal status or the way in which it is financed (see eg Case C-41/90 Hfner & Elser v.
    Macrotron [1991] ECR I-1979, [1993] 4 CMLR 306 and Case 170/83 Hydrotherm v. Compact
    [1984] ECR 2999, [1985] 3 CMLR 224. It is irrelevant whether the undertaking has in fact
    a profit motive (see eg Case C-55/96 Job Centre (No 2) [1997] ECR I-7119, [1998] 4 CMLR
    708). See Commission Notice on the concept of undertakings concerned, OJ C 66/14, 2
    March 1998. See also Richard Whish, supra note 16, at pp. 8090 and 177; Jonathan Faull
    and Ali Nikpay, supra note 20, at paras 2.21 et seq.
    29
    See eg Case 41/83 Italy v. Commission (British Telecommunications), supra note 5. The
    1991 Guidelines state that, TOs [telecommunications organisations] are undertakings
    within the meaning of Articles 85 and 86 [now 81 and 82 EC] to the extent that they exert
    an economic activity, for the manufacturing and/or sale of telecommunications equipment
    and/or for the provision of telecommunications services, regardless of other facts such
    as, for example, whether their nature is economic or not and whether they are legally
    distinct entities or form part of the State organization. See Guidelines on the application
    of EEC competition rules in the telecommunications sector, OJ C 233/2, 6 September 1991,
    at para. 20 (footnote omitted).

    132

    European Community Communications Law

    82 EC.30 The third criterion of an effect on intra-Community trade, which


    is in essence a jurisdictional standard defining the scope of application
    of Community competition law,31 will normally be fulfilled in electronic
    communications cases, since the abusive practices of communications
    firms32 will easily meet the appreciability test of having an actual,
    potential, direct or indirect influence on the pattern of trade between
    Member States.33 The relevant geographic market is not a defining factor
    in this context and trade between Member States may be equally affected
    in cases where the relevant market is national or sub-national.34
    2.2.1 Dominance
    The first element of the legal test of Article 82 EC and a key concept of
    antitrust is the finding of dominance. The Court of Justice has defined
    dominance for the purposes of Article 82 EC as:
    a position of economic strength enjoyed by an undertaking
    which enables it to hinder the maintenance of effective
    competition on the relevant market by allowing it to behave to
    an appreciable extent independently of its competitors and
    customers and ultimately of consumers.35
    30

    See Case 311/84 Centre Belge dEtudes de March Tlmarketing v. CLT [1985] ECR 3261,
    [1986] 2 CMLR 558, at para. 16 and Case C-18/93 Corsica Ferries [1994] ECR I-1783, at
    para. 43.
    31
    See Joined Cases 56/64 and 58/64 Consten and Grundig [1966] ECR 429, [1966] CMLR 418
    and Joined Cases 6 and 7/73 Istituto Chemioterapico Italiano SpA and Commercial Solvents
    Corp v. Commission [1974] ECR 223, [1974] I CMLR 309. Effect on trade is also the criterion
    that determines the scope of application of Article 3 of Regulation 1/2003 on the
    implementation of the rules on competition laid down in Articles 81 and 82 EC (supra
    note 16).
    32
    The effect on trade test is common for both Articles 81 and 82 EC. In the case of Article
    82 EC, it is the abuse that must affect trade between Member States. This does not imply,
    however, that each element of the behaviour must be assessed in isolation. Conduct that
    forms part of an overall strategy pursued by the dominant undertaking must be assessed
    in terms of its overall impact. Where a dominant undertaking adopts various practices in
    pursuit of the same aim, for instance, practices that aim at eliminating or foreclosing
    competitors, in order for Article 82 EC to be applicable to all the practices forming part of
    this overall strategy, it is sufficient that at least one of these practices is capable of affecting
    trade between Member States. See Case 85/76 Hoffmann-La Roche v. Commission [1979]
    ECR 461, [1979] 3 CMLR 211, at para. 126.
    33
    The test was first defined in Case 56/65 Socit Technique Minire v. Maschinenbau Ulm
    [1966] ECR 235, [1966] CMLR 357. See also Case 172/80 Zchner v. Bayerische Vereinsbank
    AG [1981] ECR 2021, [1982] 1 CMLR 313, at para. 18; Case 319/82 Kerpen and Kerpen [1983]
    ECR 4173; Joined Cases 240/82 etc. Stichting Sigarettenindustrie [1985] ECR 3831, at para. 48;
    Joined Cases T-25/95 etc. Cimenteries CBR [2000] ECR II-491, at para. 3930.
    34
    The Commission Guidelines on the effect on trade provide a thorough examination of
    the case law in this respect. See Guidelines on the effect on trade concept contained in
    Articles 81 and 82 of the Treaty, OJ C 101/81, 27 April 2004, at paras 77 et seq.
    35
    Case 27/76 United Brands v. Commission [1978] ECR 207, [1978] 1 CMLR 429, at para. 65;
    Case 85/76 Hoffmann-La Roche v. Commission [1979] ECR 461, [1979] 3 CMLR 211, at para. 38.

    133

    EC Electronic Communications and Competition Law

    Pursuant to this definition, determining whether a firm holds a dominant


    position involves essentially three interrelated analytical stages:
    (i)

    (ii)

    (iii)

    market definition, ie defining the relevant product and geographic


    market in which the market power of the allegedly dominant
    undertaking is to be assessed;
    market share analysis, ie establishing the market share of the
    undertaking in question on the so defined relevant market; and
    closely related;
    an analysis of competitive constraints, ie assessing the significance
    attributable to the market share of the undertaking and in
    particular, whether it is likely to be eroded by actual or potential
    competitors within a certain time frame and analysis of other
    factors allowing the undertaking to behave independently of its
    competitors and customers and ultimately of consumers.36
    a.

    Market Definition

    It is important always to bear in mind that the concept of dominance is


    not an abstract one. An undertaking can only have dominance upon a
    certain market for the supply of particular goods or services.37 Thus,
    [t]he definition of the relevant market is of essential significance for
    the finding of dominance.38 Other things being equal, the narrower the
    product or service market, the easier it is to conclude that an undertaking
    has the requisite dominance for the purposes of Article 82 EC.39
    The Commissions Notice on the definition of the relevant market for
    the purposes of Community competition law (the Relevant Market
    Notice40) clarifies the role and process of market definition. Paragraph 2
    of the notice states:
    Market definition is a tool to identify and define the boundaries
    of competition between firms. It serves to establish the framework
    36

    Ibid.
    See eg Case C-209/98 Enteprenrforeningens Affalds/Miljsektion (FFAD) v. Kbenhavns
    Kommune [2000] ECR I-3743, at para. 57 and Case C-242/95 GT-Link [1997] ECR I-4449, at
    para. 36.
    38
    Joined Cases T-125/97 and T-127/97 The Coca-Cola Company and Others v. Commission [2000]
    ECR II-1733, [2000] 5 CMLR 467, at paras 81-83. Market definition is needed not only for the
    purposes of applying Article 82 EC. See Richard Whish, supra note 16, at pp. 2627.
    39
    A textbook example in that regard is the United Brands case (supra note 35) where the
    applicant argued that bananas were in the same market as other fruit. The ECJ noted that
    this issue depended on whether the banana could be singled out by such special features
    distinguishing it from other fruits that it is only to a limited extent interchangeable with
    them and is only exposed to their competition in a way hardly perceptible (see para. 22
    of the judgment). For a case, where extremely narrow market definition was applied, see
    eg Football World Cup 1998, OJ [2000] L 5/55, [2000] 4 CMLR 963.
    40
    OJ C 372/5, 9 December 1997.
    37

    134

    European Community Communications Law

    within which competition policy is applied by the Commission.


    The main purpose of market definition is to identify in a
    systematic way the competitive constraints that the undertakings
    involved face. The objective of defining a market in both its product
    and geographic dimension is to identify those actual competitors
    of the undertakings involved that are capable of constraining those
    undertakings behaviour and of preventing them from behaving
    independently of effective competitive pressure.41

    As we shall see below in the course of this chapter, market definition is


    by no means an automatic exercise, especially in the communications
    sector, where technology evolves and changes at a substantial pace and
    new markets constantly emerge. It may require the use of sophisticated
    econometrics methods, as well as a thorough understanding of the
    functioning and specificities of the particular market under scrutiny.
    The standard approach of the European Commission and the
    Community courts to the definition of the relevant market has been to
    focus on three main sources of competitive constraints: demand
    substitutability, supply substitutability and potential competition42 that
    firms are subject to. The following Sections take a closer look at these,
    trying to pinpoint some of the inherent communications specificities in
    that context.
    i.

    Demand Substitutability

    The Commission has pointed out that, [f]rom an economic point of


    view, for the definition of the relevant market, demand substitution
    constitutes the most immediate and effective disciplinary force on the
    suppliers of a given product, in particular to their pricing decisions.43
    The analysis of demand substitutability is hence an indispensable and
    defining element of the process of market definition. Its test is meant to
    determine which products or services are sufficiently similar in function,
    price and attributes, so as to be regarded by users as reasonable
    substitutes for each other.
    According to the settled case law, the relevant product/service market
    comprises all those products or services that are sufficiently
    interchangeable or substitutable to the consumer, not only in terms of
    their objective characteristics, by virtue of which they are particularly
    suitable for satisfying the constant needs of consumers, their prices or
    their intended use, but also in terms of the conditions of competition
    41

    Emphasis added.
    Relevant Market Notice, at para. 13 (emphasis added). The same rule is reiterated in
    the Commission Guidelines on market analysis, supra note 13, at para. 38.
    43
    Relevant Market Notice, at para. 13 (emphasis added).
    42

    135

    EC Electronic Communications and Competition Law

    and/or the structure of supply and demand on the market in question.44


    Products or services, which are only to a small or relative degree
    interchangeable with each other do not form part of the same market.45
    In practice, the way to apply the above fairly abstract definition is the
    following. After an initial determination of a group of products or
    services that are used by consumers for the same purpose (end use), the
    Relevant Market Notice proposes a test, a speculative experiment,46
    whereby it becomes possible to determine whether particular products
    or services are indeed within the same market. The latter test is known
    as the SSNIP test, ie Small but Significant Non-Transitory Increase in
    Price (also referred to as the hypothetical monopolist test) and was
    first deployed by the US Department of Justice.47 Its algorithm is as
    follows. Starting with the products immediately in issue, additional
    products are included in or excluded from the market definition
    depending on the extent to which competition from such products is
    capable of influencing the pricing of the products under scrutiny. If a
    hypothetical small (in the range of 5-10 per cent) permanent increase in
    the price of product A (eg Swisscom prepaid mobile package) would
    result in customers switching to product B (eg Orange prepaid mobile
    package) as a readily available alternative,48 and doing so to an extent
    44

    The test of sufficient substitutability or interchangeability was first laid down by the
    ECJ in Case 6/72 Europemballage and Continental Can v. Commission [1973] ECR 215, [1973]
    CMLR 1999, at para. 32. See also Case 85/76 Hoffmann La-Roche v. Commission supra note 35,
    at para. 23; Case C-333/94 P Tetra Pak v. Commission [1996] ECR I-5951, [1997] 4 CMLR
    662, at para. 13; Case 31/80 LOral [1980] ECR 3775, [1981] 2 CMLR 235, at para. 25; Case
    322/81 Michelin v. Commission [1983] ECR 3461, [1985] 1 CMLR 282, at para. 37; Case C62/86 Akzo Chemie v. Commission [1991] ECR I-3359, [1993] 5 CMLR 215; Case T-504/93
    Tierc Ladbroke v. Commission [1997] ECR II-923, [1997] 5 CMLR 309, at para. 81; T-65/96
    Kish Glass v. Commission [2000] ECR II-1885, [2000] 5 CMLR 229, at para. 62; Case C-475/
    99 Ambulanz Glckner v. Landkreis Sdwestpfalz [2001] ECR I-8089, [2002] 4 CMLR 726, at
    para. 33.
    45
    Case C-333/94 P Tetra Pak v. Commission, ibid. at para. 13; Case 66/86 Ahmed Saeed
    Flugreisen v. Zentrale zur Bekampfung Unlauteren Wettbewerbs [1989] ECR 803, [1990] 4 CMLR
    102, at paras 39 and 40; Case 27/76 United Brands v. Commission, supra note 35, at paras 22
    and 29 and 12; Case T-229/94 Deutsche Bahn v. Commission [1997] ECR II-1689, [1998] 4
    CMLR 220, at para. 54.
    46
    Relevant Market Notice, at para. 15.
    47
    The SSNIP test was introduced by the US Department of Justice with the 1982 Merger
    Guidelines. The latter have been amended by the 1984 Guidelines and superseded in
    their entirety (except for Section 4) by the present Horizontal Merger Guidelines issued
    by the US Department of Justice and the Federal Trade Commission in 1992 and revised
    in April, 1997. For an overview on the development of the SSNIP test, see Gregory J.
    Werden, The 1982 Merger Guidelines and the Ascent of the Hypothetical Monopolist
    Paradigm, Antitrust Division Papers, June 2002. On the SSNIP test in EC law, see Doris
    Hildebrand, The European School of EC Competition Law (2002) World Competition,
    Vol. 25, No 1, pp. 323, at pp. 11 et seq.
    48
    It is not necessary that all consumers switch to the competing product; it suffices that
    enough or sufficient switching takes place so that a relative price increase is not profitable.
    This requirement corresponds to the principle of sufficient interchangeability laid down
    in the case law of the Court of Justice (supra note 45).
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    European Community Communications Law

    sufficient to make the price increase unprofitable, then product B is


    included with product A within the relevant market.49 The same test is
    then applied to products A and B within this expanded market and
    products C, D, etc. until the set of products included is such that the
    hypothetical price increase for the included products would be profitable
    because no sufficient alternatives remain to which customers could
    switch.50
    With regard to the application of the SSNIP test to communications
    markets, a few specificities should be accounted for. In principle, the
    hypothetical monopolist test is relevant only with regard to products or
    services, the price of which is freely determined and not subject to
    regulation. The working assumption is that current prevailing prices
    are indeed set at competitive levels. If, however, in a sector like
    communications, where some type of price regulation exists, a service
    or product may be offered at a regulated, cost-based price. In the absence
    of indications to the contrary, it is then presumed that such a price is set
    at what would otherwise be a competitive level and should therefore be
    taken as the starting point for applying the SSNIP test. Prices resulting
    from price regulation however, which does not aim at ensuring that
    prices are cost-based, but rather at ensuring an affordable offer within
    the context of universal service, should not be presumed to be set at a
    competitive level, nor could they serve as a starting point for applying
    the SSNIP test.51
    Under normal circumstances, if the demand elasticity52 of a given product
    or service is significant (even at relative competitive prices), the firm in
    question lacks market power. If, however, elasticity is high even at
    current prices, that may mean only that the firm in question has already
    exercised market power to the point that further price increases will not
    increase its profits. In this case, the prevailing price does not correspond
    to a competitive price and the application of the hypothetical monopoly
    test may lead to a different market definition from the one, which would
    be produced if the prices were set at a competitive level. The Commission
    Guidelines on market definition and assessment of significant market
    power in electronic communications point explicitly to this drawback
    49

    Relevant Market Notice, at paras 1518 and 5658.


    Another factor that must be taken into consideration when applying the SSNIP test are
    the existing switching costs which may hinder the substitution of products. In a situation
    where end users face significant switching costs in order to substitute product A for
    product B, these two products should not be included in the same relevant market. See
    Guidelines on market analysis, supra note 13, at para. 50.
    51
    Ibid. at para. 42.
    52
    Demand elasticity or price elasticity of demand is an elasticity that measures the
    responsiveness of the quantity demanded of a good to its price. See eg N. Gregory Mankiw,
    Principles of Economics, Mason, Ohio: South-Western, 2004, at Chapter 5.
    50

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    of the SSNIP test a situation known in antitrust practice as the


    cellophane fallacy.53
    Faced with such a situation, the Commission recommends relying on
    other criteria for assessing demand and/or supply-side substitution such
    as functionality of services and technical characteristics. Evidence of
    past anti-competitive behaviour or dominance may also serve as an
    indication that the current prices are not under competitive constraint
    and possibly set above the competitive level.54
    The use of the SSNIP test could be particularly difficult in electronic
    communications and other high-technology industries. Such
    industries are dynamic by their nature, while the SSNIP test draws
    its conclusions on the basis of a static picture of the market. The
    difficulties stemming from this discrepancy relate above all to the
    proper identification of the level of prices to be taken as a benchmark.
    As Jorge Padilla notes, [h]igh-tech products are highly differentiated,
    exhibiting substantial price and performance variations. For example,
    firms offer various versions of the same underlying product, each of
    which is tailored to a specific group of users. Different versions have
    different prices and also different functionalities. This heterogeneity
    makes it very hard, if not practically impossible, to define an
    appropriate benchmark. 55 We shall elaborate upon some other
    distinct difficulties in the course of this chapter.
    ii.

    Supply Substitutability

    While demand substitutability focuses on the interchangeable character


    of products and services from the buyers (consumers) point of view,
    proper delineation of the relevant market may require further
    consideration of potential substitutability from the supply side, ie from
    other producers. Supply substitutability is however not always an
    essential element of the market definition process and is more often taken
    into account at the level of market analysis, once the relevant market
    has already been identified. In the Relevant Market Notice, the
    Commission provides guidance as to the circumstances under which it
    53

    The name cellophane fallacy stems from a US case, United States v. El du Ponte de
    Nemours and Co, 351 US 377 (1956), which concerned packaging materials, including
    cellophane. On the cellophane fallacy, see ibid. at para. 42 and footnote 31. See also Richard
    Whish, supra note 16, at pp. 30 et seq.
    54
    Ibid.
    55
    Atilano Jorge Padilla, The Role of Supply-Side Substitution in the Definition of the
    Relevant Market in Merger Control, A Report for DG Enterprise A/4, Madrid, June 2001,
    at p. 68, referring also to Christopher Pleatsikas and David Teece, The Analysis of Market
    Definition and Market Power in the Context of Rapid Innovation (2001) International
    Journal of Industrial Organization, Vol. 19, Issue 5, pp. 665693.

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    considers that supply-side substitutability can become part of the market


    definition.56
    At paragraph 20 therein, the Commission states that where suppliers
    are able to switch production to the relevant products and market them
    in the short term57 without incurring significant additional costs or
    risks in response to small and permanent changes in relative prices, then
    the market may be broadened to include the products that those
    suppliers are already producing.58 Account should also be taken of any
    existing legal, statutory or other regulatory requirements, which could
    deter a time-efficient entry into the relevant market and as a result
    discourage supply-side substitution.59
    The fact that a rival firm possesses some of the assets required to provide
    a given service is immaterial if significant additional investment is
    needed to market and offer profitably the products or services in
    question.60 Furthermore, it should be positively established that a given
    supplier would actually use or switch its productive assets to produce
    the relevant product or offer the relevant service. Mere hypothetical
    supply-side substitution is not sufficient for the purposes of market
    definition. Where supply substitution is complex and difficult to
    ascertain, it should be regarded as a matter of determining dominance
    rather than establishing the market.61
    iii.

    Potential Competition

    The market power of an undertaking can be also constrained by the


    existence of potential competitors.62 This competitive constraint relates
    to the likelihood that undertakings not currently active on the relevant
    market may in the medium term decide to enter it following a small but
    56

    Relevant Market Notice, at paras 2023.


    Short term is according to the Relevant Market Notice such a term that does not
    entail a significant adjustment of existing tangible and intangible assets. Ibid. at footnote 4.
    58
    The example given by the Commission is the production of paper, whereby suppliers
    can change relatively swiftly between producing one particular type of paper to producing
    another. See Relevant Market Notice, at para. 21.
    59
    In the electronic communications sector such barriers could be delays and obstacles in
    concluding interconnection or co-location agreements, negotiating any other form of
    network access, or obtaining rights of ways for network expansion. See Guidelines on
    market analysis, supra note 13, at paras 5254.
    60
    See eg Case C-333/94 P Tetra Pak v. Commission, supra note 44, at para. 19.
    61
    Relevant Market Notice, at paras 14 and 23. See also Commission Notice on the
    application of the competition rules to access agreements in the telecommunications sector,
    OJ C 265/3, 22 August 1998 (hereinafter the Access Notice), at para. 41.
    62
    See eg Decca Navigator System, OJ [1987] L 43/27 and Magill TV Guide/ITP, BBC, RTE
    [1989] OJ L 78/43. See also Case 22/78 Hugin Kassaregister AB v. Commission [1979] ECR
    1869, [1979] 3 CMLR 345; Case 226/84 British Leyland v. Commission [1986] ECR 3263, [1987]
    1 CMLR 184.
    57

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    EC Electronic Communications and Competition Law

    significant non-transitory price increase. Although one could note certain


    similarities between potential competition and supply-side substitution,
    as described above, they are indeed distinct categories. What delineates
    them is above all the length of time from the price increase to the
    commencement of supply and hence entry into the particular market,
    as well as the costs related to that entry. With regard to the length of
    time, supply-side substitution responds swifter to price increases, while
    potential entrants may take longer than a year or so to commence
    supplying the market with their products and/or services. With regard
    to the entry costs, supply-side substitution means entry without
    substantial and irreversible investment, while potential entry refers to
    entry at a substantial sunk cost.63
    The Commission has pointed out with reference to communications
    markets that, [d]istinguishing between supply-side substitution and
    potential competition [] may be more complicated than in other
    markets given the dynamic character of the former. What matters
    however is that potential entry from other suppliers is taken into
    consideration at some stage of the relevant market analysis, that is, either
    at the initial market definition stage or at the subsequent stage of the
    assessment of market power (SMP).64
    Indeed, in the industries of the new economy, the consideration of
    supply-side developments may be crucial.65 Such industries function
    differently, as we discussed in Chapter 1, and it is frequently the case
    that the main competitive constraint comes not from available demand
    substitutes but originates from new, superior products, whose time of
    introduction is most often uncertain.66 Although in practice supplyside substitution and potential competition are attributed a secondary
    63

    For an excellent analysis of the differences between potential competition and supplyside substitution, see Atilano Jorge Padilla, supra note 55, at pp. 19 et seq.
    64
    Guidelines on market analysis, supra note 13, at footnote 24. This is in fact a novel
    acknowledgement by the Commission that potential competition can also be taken into
    account at the level of defining the market. The statement is slightly at odds with the
    Relevant Market Notice, where, at para. 24, the Commission explained that, [t]he third
    source of competitive constraint, potential competition, is not taken into account when
    defining markets, since the conditions under which potential competition will actually
    represent an effective competitive constraint depend on the analysis of specific factors
    and circumstances related to the conditions of entry. If required, this analysis is only
    carried out at a subsequent stage, in general once the position of the companies involved
    in the relevant market has already been ascertained, and when such position gives rise to
    concerns from competition point of view.
    65
    For a definition of the industries of the new economy and their salient features, see
    supra Chapter 1, Section 4.6. A pertinent example is the invention of platforms, such as
    Skype, offering free software for voice connections over the internet, thus putting in danger
    conventional fixed-line telephony. See The Economist, The Meaning of Free Speech, 15
    September 2005.
    66
    Atilano Jorge Padilla, supra note 55, at p. 66. For an extensive discussion of market
    definition, supply-side substitution and the new economy, see ibid. at pp. 6579.
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    role for the definition of market in comparison with demand


    substitutability,67 this hierarchy may be questionable in electronic
    communications or other industries geared by technological advances.68
    Indeed, in network industries driven by innovation, where the
    competition is for the market rather than in it, an account of competitors
    pending to enter could be crucial for the proper definition of the market
    (and later for the proper finding of market power). An analysis based
    on a mere snapshot of the current market situation without capturing
    its development over time may have chilling effects on improving
    efficiency and innovation.
    iv.

    The Geographical Market

    The relevant market has not only product/service dimension but also a
    geographical one. In deciding whether a firm has market power for the
    purpose of Article 82 EC, it is necessary to consider the geographical
    scope of the market on which it operates in order to determine from
    which other undertakings it faces competition. According to wellestablished case law, the relevant geographic market comprises an area
    in which the undertakings concerned are involved in the supply and
    demand of the relevant products or services, in which area the conditions
    of competition are similar or sufficiently homogeneous and which can
    be distinguished from neighbouring areas in which the prevailing
    conditions of competition are appreciably different.69
    Some products and services can be supplied without difficulty from
    state to state, throughout the Community or the world (such as typically
    communications services), while others are of such nature that due to
    technical or practical reasons can only be distributed to a narrower area.
    Transport costs are a factor of obvious importance in this regard.
    In some instances, the scope of the geographical market will be relatively
    straightforward. Such was the case in British Telecommunications,70 where,
    67

    See eg Relevant Market Notice, at para. 14.


    Atilano Jorge Padilla, supra note 55, at p. 9, referring to Ira Horowitz, Market Definition,
    Market Power, and Potential Competition (1992) Quarterly Review of Economics and
    Business, Vol. 22; Andrew C. Hruska, A Broad Market Approach to Antitrust Product
    Market Definition in Innovative Industries (1992) Yale Law Journal, Vol. 102; Herbert
    Hovenkamp, Federal Antitrust Policy, 2nd edition, St. Paul, Minn: West Group, 1999. See
    also Jordi Gual, Market Definition in the Telecommunications Markets Industry in Pierre
    A. Buigues and Patrick Rey (eds.), The Economics of Antitrust and Regulation in
    Telecommunications, Cheltenham, UK: Edward Elgar Publishing, 2004, pp. 4570.
    69
    Guidelines on market analysis, supra note 13, at para. 56. See also Case 27/76 United Brands,
    supra note 35, at para. 44; Case 322/81 Michelin v. Commission, supra note 44, at para. 26; Case
    247/86 Alsatel v. Novasam [1988] ECR 5987, [1990] 4 CMLR 434, at para. 15; Tierc Ladbroke v.
    Commission, supra note 44, at para. 102 and the Relevant Market Notice, at para. 8.
    70
    Commission Decision of 10 December 1982, British Telecom, supra note 5; confirmed in
    Case 41/83 Italy v. Commission (British Telecommunications), ibid. as discussed in Section 1.
    68

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    EC Electronic Communications and Competition Law

    as discussed, the issue was whether BT had abused its dominant position
    with regard to message-forwarding agencies in the United Kingdom.
    The geographical market was then determined to be the United
    Kingdom, since at the time, BT had a monopoly over it for the provision
    of telecommunications services.71
    In the absence of particular factors, such as special or exclusive rights
    granted for a certain territory or transport costs,72 the relevant geographic
    market could be held to be the entire European Union.73 In the recent
    Microsoft decision,74 the Commission defined the geographic markets
    for PC operating systems,75 work group server operating systems76 and
    media players77 to be worldwide. It stated therein that, [n]either import
    restrictions, transport costs or technical requirements constitute
    significant limitations. Language-specific demand characteristics
    regarding the relevant software exist but, in so far as the supply-side is
    concerned, do not constitute an obstacle for swift supply on a global
    basis in accordance with language-related preferences. The entire world
    can therefore be regarded as the relevant geographic market.78
    The Relevant Market Notice describes the actual mechanism for
    determining the geographical scope of the market. At paragraph 28, it
    states that the Commission will take a preliminary view [] on the
    basis of broad indications as to distribution of market shares between
    the parties and their competitors, as well as a preliminary analysis of
    71

    Ibid. at para. 2.
    See eg Napier Brown-British Sugar (Commission Decision 88/518, OJ [1988] L 284/41,
    [1990] 4 CMLR 196.
    73
    See eg Case C-53/92 P Hilti AG v. Commission [1994] ECR I-667, [1994] 4 CMLR 614.
    74
    Commission Decision of 24 March 2004 relating to a proceeding under Article 82 of the
    EC Treaty, Case COMP/C-3/37.792 Microsoft, C(2004) 900 final. In that decision, the
    Commission identified three distinct product markets and found that Microsoft had a
    dominant position on two of them (client PC operating system market and work group
    server operating system market). The Commission then identified two types of abusive
    conduct by Microsoft on those markets, namely refusal to supply interoperability
    information (paras 546791 of the decision) and tying (paras 792989 of the decision).
    Consequently, the Commission imposed a fine of 497 196 304 and a number of remedies
    on Microsoft, among others, notably, to provide its competitors with interoperability
    information and to unbundle Windows Media Player from Windows operating system.
    After a dismissal of the application for interim measures (see Order of the President of
    the Court of First Instance of 22 December 2004 in Case T-201/04 R Microsoft Corporation
    v. Commission of the European Communities, OJ L 69/16, 19 March 2005), the case is currently
    before the Court of First Instance after Microsoft challenged the Commissions decision
    in all essential points (see Action brought on 7 June 2004 by Microsoft Corporation against
    the Commission of the European Communities, Case T-201/04, OJ L C 179/18, 10 July
    2004). On the Microsoft case in terms of abuse of dominance, see infra Section 2.3.
    75
    Ibid. in particular paras 324342.
    76
    Ibid. in particular paras 343401.
    77
    Ibid. in particular paras 402425.
    78
    Ibid. at para. 427.
    72

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    pricing and price differences at national and Community or EEA


    [European Economic Area] level. This initial view will be used as a
    working hypothesis that will be enriched with further analysis of national
    or local preferences, current patterns of customers purchases and
    product differentiation. This survey is to be conducted along the lines
    of the SSNIP test (as sketched in the framework of product/service market
    definition), the difference being that, in the case of geographic market
    definition the question asked is whether, faced with an increase in price,
    consumers located in a particular area would switch their purchases to
    suppliers farther away. As far as supply-side substitution is concerned,
    where it can be established that producers, who are not currently present
    on the relevant market, will decide to enter it in the short term in the
    event of a relative price increase, then the market definition should be
    expanded to incorporate those producers as well.
    In the electronic communications sector, the geographical scope of the
    relevant market has traditionally been determined according to two main
    criteria,79 namely: (i) the area covered by a network80 and (ii) the existence
    of legal or other regulatory instruments.81 With the advanced process of
    digitisation and global interconnectedness, the geographical dimension
    naturally expands. Linguistic differences remain however relevant.82
    On the basis of these criteria, geographic markets, including such in
    electronic communications, can be considered to be local, regional,
    national, covering territories of the two or more countries or, as in the
    case of Microsoft, global.
    79

    See eg Case No IV/M.1025 Mannesmann/Olivetti/Infostrada, [1998] 4 CMLR 407, at


    para. 17 and Case No COMP/JV.23 Telefnica Portugal Telecom/Mdi Telecom. For a detailed
    analysis of geographical aspect of communications markets, see Pierre Larouche,
    Relevant Market Definition in Network Industries: Air Transport and
    Telecommunications (2000) Journal of Network Industries, Vol. 1, pp. 407445, at pp. 417
    et seq.
    80
    In practice, this area will correspond to the limits of the area in which an operator is
    authorised to operate. In Case No COMP/M.1650 ACEA/Telefnica, at para. 16, the
    Commission pointed out that since the notified joint venture would have a licence limited
    to the area of Rome, the geographical market could be defined as local.
    81
    For instance, the fact that mobile operators can provide services only in the areas where
    they have been authorised to and that a network architecture reflects the geographical
    dimension of the mobile licences explains why mobile markets are considered national
    in scope. The extra connection and communications costs that consumers face when
    roaming abroad, coupled with the loss of certain additional service functionalities (such
    as lack of voice mail) further support this definition. See Case No IV/M.1439 Telia/Telenor,
    at para. 124; Case No IV/M.1430 Vodafone/Airtouch, at paras 1317; Case No COMP/JV.17
    Mannesmann/Bell Atlantic/Omnitel, at para. 15.
    82
    Guidelines on market analysis, supra note 13, at para. 58. The linguistic factor is
    especially powerful in the broadcasting markets. See E. Jane Carter, Market Definition
    in the Broadcasting Sector (2001) World Competition, Vol. 24, No 1, pp. 93124, at pp. 121
    et seq.

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    b.

    Relevant Communications Markets

    The specificities of the electronic communications sector are naturally


    mirrored in specificities of defining the relevant markets within it. As
    repeatedly stressed, the communications industry is an innovation-based
    and highly dynamic one. The development of the markets is driven
    however as much by technological advances as by the expectations of
    the consumers, which adds a certain degree of unpredictability intrinsic
    to the evolution.83 Furthermore, the communications sector is a converging
    one. In response to the process of convergence, leading to the
    deterioration of boundaries between media, information technology and
    telecommunications industries, new business models are constantly
    emerging and the existing value chains are being transformed.84 The
    obvious complexity of defining relevant markets in such environment
    is enhanced by the fact that while the new offerings and services
    packages may be distinct from a technological point of view, that is not
    conclusive for the purposes of defining the relevant market, since the
    main criterion is sustainability in the eyes of the customer.85
    The case law of the Court of Justice and the Court of First Instance dealing
    with communications specific situations, especially with abuse of
    dominance under Article 82 EC is limited.86 The European Commission
    has however adopted a number of decisions under Regulation 1787 and
    the Merger Control Regulation,88 some of which are of particular
    relevance to the methodology of market definition in electronic
    communications.89 The Commission Guidelines on market analysis and
    83

    See supra Chapter 1, Section 4.2.


    See supra Chapter 1, Section 4.3. A relevant example is the acquisition of Skype a
    company distributing software enabling people to make free phone calls over the Internet,
    by eBay the world largest online marketplace. See The Economist, The Meaning of Free
    Speech, 15 September 2005.
    85
    Pierre Larouche, supra note 79, at p. 415 (emphasis added). Pierre Larouche states further
    that, [g]iven the wide range of offerings and the ease with which they may be broken
    down or combined into new packages, the demand-side picture can vary widely from
    one customer to the other, depending on its needs.
    86
    Paul Nihoul and Peter Rodford, supra note 4, at paras 4.114.12.
    87
    Council Regulation (EC) 1/2003 of 16 December 2002 on the implementation of the
    rules on competition laid down in Articles 81 and 82 of the Treaty, supra note 16.
    88
    Council Regulation (EC) 139/2004 on the control of concentrations between
    undertakings, supra note 22.
    89
    The Commission has, inter alia, made references in its decisions to the existence of the
    following markets: international voice-telephony services (Case No IV/M.856 British
    Telecommunications/MCI (II), OJ L 336, 8 December 1997); advanced telecommunications
    services to corporate users (Case No IV/35.337 Atlas, OJ L 239, 19 September 1996, at
    paras 57; Case No IV/35617 Phoenix/Global/One, OJ L 239, 19 September 1996, at para. 6;
    Case IV/34.857 British Telecommunications/MCI (I), OJ L 223, 27 August 1994); standardised
    low-level packet-switched data-communications services, resale of international
    transmission capacity (Case No IV/M.975 Albacom/BT/ENI, at para. 24); audioconferencing (Albacom/BT/ENI, at para. 17); satellite services (Case IV/350518 Iridium,
    (continued...)
    84

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    the assessment of significant market power in e-communications (the


    SMP Guidelines),90 the current Recommendation on relevant product
    and service markets within the electronic communications sector
    susceptible to ex ante regulation (the Relevant Market
    Recommendation) 91 and the attached Explanatory Memorandum92
    provide further valuable guidance with regard to the methodology of
    the Commission and summarise its practice hitherto. These documents
    are however to be used with caution, first, since they are soft-law
    instruments93 and, secondly, since they are primarily directed at the
    National Regulatory Agencies, which conduct ex ante analysis for the
    purposes of the communications specific regulation.94
    An important caveat that has to be made with regard to market definition
    in the electronic communications sector is that the relevant markets are
    per definition bound to change. As the Commission itself submitted,
    [g]iven the pace of technological change in this sector, any attempt to
    define particular product markets [] would run the risk of rapidly
    becoming inaccurate or irrelevant.95 Consequently, our approach will
    not be to engage in a concrete analysis of the case law96 but rather to
    OJ L 16, 18 January 1997); (enhanced) global telecommunications services (Case No IV/
    JV.15 BT/AT&T; Case No COMP/M.1741 MCI WorldCom/Sprint, at para. 84; Case
    No COMP/M.2257 France Telecom/Equant, at para. 18); directory-assistance services (Case
    No IV/M.2468 SEAT Pagine Gialle/ENIRO, at para. 19; Case No COMP/M.1957 VIAG
    Interkom/Telenor Media, at para. 8); Internet-access services to end users (Case No IV/M.1439
    Telia/Telenor; Case No COMP/JV.46 Blackstone/CDPQ/Kabel Nordrhein/Westfalen, at
    para. 26; Case No COMP/M.1838 BT/Esat, at para. 7); top-level or universal internet
    connectivity (Case No COMP/M.1741 MCI WorldCom/Sprint, at para. 52); seamless panEuropean mobile telecommunications services to internationally mobile customers (Case
    No COMP/M.1975 Vodafone Airtouch/Mannesmann; Case No COMP/M.2016 France
    Telecom/Orange, at para. 15); wholesale roaming services (Case COMP/M.1863 Vodafone/
    Airtel, at para. 17) and market for connectivity to the international signalling network
    (Case No COMP/2598 TDC/CMG/Migway JV, at paras 1718). These cases are referred
    to in the Guidelines on market analysis, supra note 13, at footnote 51.
    90
    Ibid.
    91
    Recommendation on relevant product and service markets within the electronic
    communications sector susceptible to ex ante regulation in accordance with Directive
    2002/21/EC, OJ L 114/45, 8 May 2003.
    92
    Explanatory Memorandum of the Recommendation on relevant product and service
    markets within the electronic communications sector susceptible to ex ante regulation in
    accordance with Directive 2002/21/EC, OJ L 114/45, 8 May 2003.
    93
    See infra Section 3.2.1.b.
    94
    For an analysis of the communications framework, the market definition procedure
    and its relation to generic competition law, see infra 3.2.4.
    95
    Access Notice, at para. 47. Reiterated in the SMP Guidelines, at para. 63.
    96
    In the communications sector there are at least two types of relevant markets to consider
    that of a service to be provided to end users the services market, and that of access to
    the facilities necessary to provide that service to end users (information, physical network,
    etc.) the so-called access market. In the context of any particular case, within these two
    broad market definitions further market distinctions may be made depending on the
    demand and supply patterns. A helpful rule of thumb for the analysis could be the division
    (continued...)
    145

    EC Electronic Communications and Competition Law

    point at some specificities of market definition methodology for ecommunications. Indeed, in the process of defining communications
    markets, while applying the standard model of demand, supply
    substitutability and potential competition, there are a few
    communications specific issues that have the potential of altering
    standard rationales and need to be accounted for.97
    First, although conventionally the end use of a product or service is
    closely related to its physical characteristics, in communications,
    different kind of products or services may be used for the same end. For
    instance, consumers may use dissimilar services, such as cable and
    satellite connections for identical purposes, namely to access the Internet.
    In such a case, both services may be included in the same product market,
    although they are technologically distinct. Conversely, paging services
    and mobile telephony services, which may both appear to be capable of
    offering the same service, ie sending two-way short messages, may be
    found to belong to different product markets in view of the different
    perceptions by consumers as regards their functionality and end use.
    Similarly, although mobile telephony and fixed telephony services
    appear almost identical as to their end use, they have been (at least until
    now) considered as distinct markets.98
    Secondly, differences in pricing models and offerings for a given product
    or service may also imply different groups of consumers. Thus, based
    on prices, separate markets for business and residential customers may
    be defined notably, for the provision of essentially the same service.
    Business users may be possibly broken down further into a market for
    professional, small and medium sized business customers and another
    for large businesses.99
    between services provided at fixed locations and those provided to non-fixed locations,
    as well as the division between voice services and non-voice (data) services, although
    these distinctions do not imply an advance judgement that these services constitute in
    fact separate markets. For further guidance, see the Access Notice, at paras 39 et seq.; the
    SMP Guidelines, in particular at paras 63 et seq. and Explanatory Memorandum of the
    Recommendation on relevant product and service markets within the electronic
    communications sector, supra note 92, in particular Section 4. See also Pierre Larouche,
    supra note 79, at pp. 425 et seq. and David Gillies and Roger Marshall, Telecommunications
    Law, Vol. 1, 2nd edition, London: Butterworths LexisNexis, 2003, at pp. 48 et seq., 84 et
    seq., 91 et seq.
    97
    The following paragraphs are based on the SMP Guidelines, at paras 45 et seq. For an
    economic analysis of the problems related to market definition in communications, see
    Jordi Gual, supra note 68, at pp. 53 et seq.
    98
    Case No COMP/M.2574 Pirelli/Edizione/Olivetti/Telecom Italia, at para. 33. With regard
    to fixed telephony and Internet telephony, see European Commission, Voice over
    Broadband in France: No Regulation on Internet Telephony Required, IP/05/1146,
    Brussels, 15 September 2005.
    99
    The Commission has identified separate markets for services offered to large
    multinational corporations given the significant differences in the demand (and supply)
    (continued...)
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    European Community Communications Law

    The price of the communications products under scrutiny may not


    always be an indication of their demand substitutability. This means
    essentially that in order for products to be viewed as substitutes, it is
    not necessary that they are offered at the same price. A low quality
    product or service sold at a low price could well be an effective substitute
    for a higher quality product sold at corresponding higher prices. What
    matters in this case is the likely response of consumers following a
    relative price increase. For instance, in case of a relative price increase,
    consumers of a lower quality/price service may switch to a higher
    quality/price service if the cost of doing so (the premium paid) is offset
    by the price increase. Conversely, consumers of a higher quality product
    may no longer accept a higher premium and switch to a lower quality
    service.100
    Furthermore in the context of pricing, since electronic communications
    are often characterised by high sunk costs and continuous innovation,
    the benchmark price based on the marginal cost and a small mark-up (5
    to 10 per cent), as practised with the SSNIP test, may be insufficient to
    recoup these fixed costs and therefore would lead to a too narrow market
    definition.101 In the context of the SSNIP, one can note an additional,
    rather practical, difficulty of applying the test in communications. This
    difficulty stems (again) from the specificities of the e-communications
    of services to this group of customers compared to other retail (business) customers. See
    Case No IV/JV.15 BT/AT&T; Case No COMP/M.1741 MCI WorldCom/Sprint; Case
    No COMP/M.2257 France Tlcom/Equant. The 2002 Relevant Market Recommendation
    distinguishes also between the retail services provided to residential and non-residential
    customers. The experience gathered in the course of applying the Recommendation
    showed however that such a differentiation is not always justified. On this basis, the
    Commission proposes in the revised Recommendation, for instance, to define one single
    narrowband access market for residential and non-residential customers. See European
    Commission, Draft Commission Recommendation on relevant product and service
    markets within the electronic communications sector susceptible to ex ante regulation in
    accordance with Directive 2002/21/EC of the European Parliament and of the Council on
    a common regulatory framework for electronic communication networks and services
    (second edition), SEC(2006) 837, 28 June 2006, at p. 20.
    100
    SMP Guidelines, at footnote 34.
    101
    See Jordi Gual, supra note 68, at p. 52. The possibility for too narrow market definitions
    can be easily exemplified by the mobile voice call termination market. In mobile markets
    the prevalent tariff principle is that the calling-party-pays, ie the party who calls (who
    usually cannot choose the network whom she/he calls) has to pay for the call. There is
    thus a dichotomy between the person who pays and the one who chooses, or in other
    words, the called party imposes a negative externality on the calling party. In this sense,
    it is plausible that the called network may increase profitably its termination charges
    from 5 to 10 per cent (ie the wholesale charges that the calling network pays to the called
    network to terminate a call) because, on the one hand, the calling network (and ultimately
    the calling customer) has no choice but to use the called network, and on the other hand,
    the called customer will not switch to another network as she/he does not pay the
    termination charge. Each network may thus be defined as a separate market with regard
    to wholesale termination. See the Relevant Market Recommendation (market 16) and
    Commission Decision of 10 July 2002, Telia/Sonera, Case No COMP/M. 2803, at para. 31.

    ..)
    147

    EC Electronic Communications and Competition Law

    environment and the inherent possibilities of new markets emergence


    and the related lack of evidence to substantiate the test. In many
    situations, such evidence may be completely missing, where certain
    communications products and services are really novel (or not yet
    launched) and markets not yet fully developed.102 Indeed, there can be
    particular situations, where the SSNIP test is not applicable at all, since
    the availability of free products makes the hypothetical monopolist test
    impotent.103
    Thirdly, it is important that one acknowledges the costs of switching between
    available substitutes. It may often be the case that the possibility for
    consumers to substitute a product or a service for another due to the small,
    but significant lasting price increase is hindered by the considerable
    switching costs involved. Consumers who have invested in technology or
    made any other necessary investments in order to receive a service or use a
    product may be unwilling to incur any additional costs involved in
    switching to an otherwise substitutable service or product. Network effects
    may additionally contribute to locking-in both end users and operators.104
    In such situations, where consumers face significant switching costs in order
    to substitute product A for product B, these two products should not be
    included in the same relevant market.105 On the other hand, where a market
    is still growing, total switching costs for already captured consumers
    may not be significant and will normally not deter demand or supply-side
    substitution.106
    Another factor that is of significance and may call for wider market
    definitions (both on the basis of demand and supply-side analysis) is
    the already elaborated upon process of convergence.107 The latter
    facilitates entry of new products into the relevant market and, in
    particular, it increases the number of potential points of entry into the
    market in response to a price increase.108 Owing to the digitisation and
    102

    Such was the case in British Interactive Broadcasting, OJ [1999] L 312/1 [2000] 4 CMLR
    901), where the Commission stated that it could not delineate the markets for interactive
    broadcasting services by application of the SSNIP test, since the product had not been
    launched yet.
    103
    The Commission has been confronted with such cases in broadcasting, where the SSNIP
    could not be applied because of the availability of free-to-air public broadcasting (see eg
    Case No IV/M.553 RTL/Veronica/Endemol OJ [1996] L 134/32). One could imagine that cases
    could emerge in electronic communications as well, where there is a new tendency towards
    offering free products and services.
    104
    See supra Part 1, Chapter 1, Section 4.1.1 and Chapter 2, Section 2.3.
    105
    The Commission has stressed that such switching costs are non-strategic. Switching
    costs stemming from strategic choices by undertakings rather than from exogenous factors
    should be considered, together with other form of entry barriers, at the stage of analysis
    of dominance. See the SMP Guidelines, at para. 50.
    106
    Ibid.
    107
    See supra Part 1, Chapter 1, Section 4.3.
    108
    Atilano Jorge Padilla, supra note 55, at p. 77.

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    European Community Communications Law

    the process of convergence there is in fact an increasing similarity in the


    performance and characteristics of network services using distinct
    technologies109 and an increased level of product substitutability. The
    positioning of the enterprises along the entire value chain and across
    sectors equally intensifies the supply-substitutability. This essentially
    alters the ecosystem of electronic communications.
    To conclude radically, in the words of Jorge Padilla, [m]ost indicia typically
    used by competition authorities, and in particular the European
    Commission, to define relevant markets have limited value in hightechnology industries. These include the so-called SSNIP test, the physical
    characteristics of product and intended use, the product prices, and
    consumer preferences or cross-elasticity of demand.110 To conclude less
    radically, one can submit that the specificities of the communications
    industry have serious ramifications for the process of defining relevant
    markets within it. Bearing this in mind and the extraordinary dynamism of
    the sector, markets will have to be cautiously delineated on a case-by-case
    basis taking into account the particular circumstances of the case.
    c.

    Market Analysis

    Once the product and geographical dimensions of the relevant market


    have been defined, it then has to be decided whether the undertaking
    under scrutiny is dominant in that sphere. This involves, as mentioned
    above, an examination of the competitive constraints that the firm faces
    in the relevant market with the purpose of establishing whether it could
    indeed behave to an appreciable extent independently of its competitors
    and customers and ultimately of consumers.111
    i.

    Market Shares

    The European Court of Justice and the Court of First Instance have
    regarded market shares as an important indicator of market power.
    Although market shares are not conclusive and other factors indicating
    dominance must also be taken into account, they are definitely a good
    109

    A classical example is the similarity between fixed telephony and VoIP (voice over
    internet protocol). See eg Communication from the Commission Status of voice on the
    Internet under Community law, and in particular, under Directive 90/388/EEC
    Supplement to the Communication by the Commission to the European Parliament and
    the Council on the status and implementation of Directive 90/388/EEC on competition in
    the markets for telecommunications services, OJ C 369/3, 22 December 2000.
    110
    Atilano Jorge Padilla, supra note 55, at p. 68. Jorge Padilla goes on to suggest a new
    approach for identifying markets in the industries of the new economy (see ibid. at pp. 70
    et seq.). For a new approach toward market definition in network industries, see Pierre
    Larouche, supra note 79, at pp. 421 et seq.
    111
    Case 27/76 United Brands v. Commission, at para. 65; Case 85/76 Hoffmann-La Roche v.
    Commission, at para. 38, both supra note 35.

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    EC Electronic Communications and Competition Law

    basis to start with the analysis of dominance.112 The ECJ considers that
    high market shares may in fact be evidence of dominance in their own
    right. In Hoffmann-La Roche, the court stated in that sense that,
    although the importance of the market shares may vary from one
    market to another the view may legitimately be taken that very large
    shares are in themselves, and save in exceptional circumstances, evidence
    of the existence of a dominant position. An undertaking which has a
    very large market share and holds it for some time [] is by virtue of
    that share in a position of strength.113 The court held eventually in
    the particular case of Hoffmann-La Roche that the market shares ranging
    between 75 and 87 per cent were so large that they are in themselves
    evidence of a dominant position.114
    The question of what constitutes a very large market share was further
    addressed in AKZO. There the court referred to the above quoted passage
    in Hoffmann-La Roche and found that a market share of 50 per cent held
    over at least three years could also be taken as very large so that, in the
    absence of exceptional circumstances, the undertaking with such a share
    will be considered dominant.115 The undertaking under scrutiny will
    have the burden of establishing the opposite.116
    Following the above line of reasoning, a logical question then is at what
    point a firms share is so small that it could not be considered dominant.117
    Both the ECJ and the Commission held in United Brands118 that an
    undertaking with a market share in the range of 40-45 per cent could
    still be dominant. In that case, other factors were however considered
    significant and the market share alone might not have been sufficient to
    sustain a finding of dominance. The Commission has further pointed
    out that there may be cases where, depending on the concrete
    circumstances, a dominant position can be found to exist at levels of 3540 per cent market share and even below these.119 A proof that this is
    indeed possible was the Commissions decision in Virgin/British
    Airways,120 where British Airways was found dominant in the UKs air
    112

    See Relevant Market Notice, at paras 5355, where the Commission explains the
    methods of calculating market shares.
    113
    Hoffmann-La Roche v. Commission, supra note 35, at paras 4041 (emphasis added).
    114
    Ibid. at para. 56.
    115
    C-62/86 Akzo Chemie BV v. Commission, supra note 44, at para. 60.
    116
    The CFI applied this test in Hilti AG v. Commission (Case T-30/89 [1991] ECR II-1439,
    [1992] 4 CMLR 16).
    117
    For an excellent overview of market share thresholds, see Richard Whish, supra note 16,
    at pp. 46-48.
    118
    See supra note 35.
    119
    European Commission, X Report on Competition Policy, 1980, at para. 50. See also
    European Commission, DG Competition Discussion Paper on the Application of Article
    82 of the Treaty to Exclusionary Abuses, Brussels, December 2005, at para. 31.
    120
    Virgin/British Airways, OJ [2000] L 30/1, [2000] 4 CMLR 999, on appeal Case T-219/99
    British Airways plc v. Commission [2004] 4 CMLR 19. See Sven B. Vlcker, Developments
    (continued...)
    150

    European Community Communications Law

    travel agency services market with a share of 39.7 per cent. In such
    situations, what can be of particular relevance are the structure of the
    market and the market shares of the competitors,121 as well as the length
    of the time period over which the large market shares are maintained.122
    Market shares are, however, not the sole criterion in determining whether
    a firm has market power.123 Market share figures do not show relative
    efficiencies and do not necessarily mean that similar market shares can
    be sustained in the future. They represent only a snapshot of the current
    market situation without capturing their development over time. In
    communications and other emerging or fast-growing markets, high
    market shares are less indicative of dominance than in mature or slowgrowing markets.124 In fact, the incumbent will typically have a large
    market share, as competition in communications industries often exhibits
    so-called winner-takes-all features.125 These large market shares are,
    however, under the permanent pressure of innovating firms not yet
    operating on the market but with the capacity to enter.126
    ii.

    Barriers to Entry

    Barriers to entry are of primary significance when it comes to factors


    indicating dominance other than market shares. In fact, barriers to entry
    should not just come as a second thought after the obligatory market
    shares analysis but are to be acknowledged as a pivotal issue in the
    determination of market power.127 From an economic point of view, if
    there are no barriers to entry to the market in question, the dominance,
    in EC Competition Law in 2003: An Overview (2004) Common Market Law Review, Vol. 41,
    pp. 10271072, at pp. 1051 et seq.
    121
    In Case No COMP/M.1741 MCI WorldCom/Sprint, it was found, for instance, that the
    merged entity would have in the market for the provision of top-level internet connectivity
    an absolute combined market share of more than 3545 per cent, several times larger
    than its closest competitor, enabling it to behave independently of its competitors and
    customers (see in particular paras 114, 123, 126, 146, 155 and 196 of the case).
    122
    In Hoffmann-La Roche (supra note 35), the firms share of the vitamin B3 market had
    been fluctuating over a three-year period between 29 and 51 per cent but this was not
    considered as sufficient evidence of dominance.
    123
    The Commission has noted, albeit in the context of ex ante analysis, [a]s far as the
    SMP assessment is concerned, it is fair to say that the market shares identified by NRAs
    remain an important indicator for the finding or non-finding of SMP. However, the
    Commission would like to stress again that the existence of a dominant position cannot
    be established on the sole basis of large market shares. See European Commission,
    European Electronic Communications Regulation and Markets 2004, COM(2004) 759 final,
    2 December 2004, Vol. I, Annex I, at p. 74.
    124
    European Regulators Group for electronic communications networks and services
    (ERG), Working Paper on the SMP Concept for the New Regulatory Framework, ERG(03)
    09rev2, May 2003, at p. 3. See also Atilano Jorge Padilla, supra note 55, at pp. 65 et seq.
    125
    See supra Part 1, Chapter 2, Section 2.3.
    126
    Atilano Jorge Padilla, supra note 55, at p. 67.
    127
    Robert H. Bork, supra note 26, at pp. 310311.

    ...)
    151

    EC Electronic Communications and Competition Law

    if one exists, is not likely to persist128 and should not be consequently


    punished.
    The view of the ECJ, however, does not necessarily correspond to the
    economic concept of entry barriers.129 Pursuant to the courts practice,
    the concept of barriers to entry has been construed fairly widely and
    without any precise economic underpinnings. According to the case law,
    the following factors have been deemed indicative of dominance as
    presenting barriers to the entry of competitors in a particular market:
    (i)

    (ii)

    (iii)
    128

    Certain legal provisions of the Member States have been considered


    as amounting to an entry barrier. For instance, in Hugin Kassaregister,130
    the ECJ found dominance in the market of spare parts for cash
    registers being influenced by the fact that other firms could not
    produce such spare parts for fear of breaching the, then valid, UK
    Design Copyright Act 1968. In the same way, the ownership of
    patents, trademarks and other intellectual property may constitute
    barriers to entry.131
    Economies of scale have also been regarded as relevant in
    assessing the market power of a particular firm,132 as has the capital
    strength of the undertaking and its access to capital markets.133
    The superior technology of a firm may also be considered, when
    assessing market power.134

    The importance of barriers to entry for competition from an economic perspective was
    first stressed by Joe S. Bain (Joe S. Bain, Barriers to New Competition, Cambridge, MA:
    Harvard University Press, 1956). Bain outlined four specific entry barriers: scale economy,
    product differentiation, absolute cost and capital requirement. The later theory of
    contestable markets (see the seminal work of William J. Baumol, John C. Panzar and
    Robert D. Willig, Contestable Markets and the Theory of Industry Structure, New York:
    Harcourt Brace Jovanovich, 1982) pointed further the significance of sunk costs as barriers
    to entry. For a concise introduction to the economic theories of barriers to entry, see Richard
    Whish, supra note 16, at pp. 4648 and Jonathan Faull and Ali Nikpay, supra note 20, at
    paras 1.43 et seq.
    129
    Economists would generally take a more restricted view of what constitutes a barrier to
    entry than the courts and the Commission. Matters characterised as barriers according to
    the court might be framed as merely indicative of superior efficiency of the incumbent firm.
    See Robert H. Bork, supra note 26, at pp.310 et seq.; Sarah Turnbull, Barriers to Entry, Article
    86 and the Abuse of a Dominant Position: An Economic Critique of European Community
    Competition Law (1996) European Competition Law Review, Vol. 2, pp. 96103.
    130
    Case 22/78 Hugin Kassaregister AB v. Commission, supra note 62.
    131
    See eg Hilti AG v. Commission (supra note 116) and on appeal to the ECJ (supra note 73).
    132
    United Brands v. Commission, supra note 35.
    133
    See United Brands v. Commission, ibid. and Continental Can Co Inc. OJ [1972] L 7/25,
    [1972] CMLR D11.
    134
    See eg United Brands and Hoffmann-La Roche, supra note 35; Case 322/81 Michelin v.
    Commission, supra note 44. This is an issue of certain controversy since a new firm wishing
    to enter the market will not face any greater cost than the alleged dominant firm, which
    had to invest money and take risks in building up its technical know-how. Moreover, the
    newcomer may benefit if patents or know-how of the allegedly dominant firm have fallen
    into the public domain.

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    European Community Communications Law

    (iv)

    (v)

    Vertical integration is regarded as another important indicator of


    dominance. In United Brands, for instance, the ECJ described the
    extent to which the activities of the United Brands Company (UBC)
    were integrated and stated that this provided the investigated
    firm with commercial stability, which was a significant advantage
    over its competitors.135 In Hoffmann-La Roche, the court pointed to
    Roches highly developed sales network as a relevant factor
    conferring upon it a commercial advantage over its rivals.136
    Product differentiation has also been considered with regard to
    finding dominance. In that context, in United Brands,137 the ECJ
    deemed that the companys brand image (Chiquita bananas) and
    costly advertising campaigns were evident factors of market
    power.

    With regard to telecommunications, the Commission has provided


    guidance as to some concrete matters, which it is likely to consider as
    barriers to entry. These include: (i) whether an operator has privileged
    access to facilities, which cannot be reasonably duplicated within an
    appropriate time and the extent of the rights given operator has been
    granted by Member States authorities;138 (ii) whether a given operator
    has dependent customers; and (iii) whether it owns intellectual property
    rights or holds confidential information concerning protocols or
    interfaces necessary to ensure inter-operability of software and
    hardware.139
    The above list is however merely illustrative and by no means exhaustive.
    A compilation of all the factors that the Commission and the courts may
    take into account in assessing dominance is indeed hardly possible. In
    view of our analysis of communications markets, we should however
    acknowledge explicitly the role that these other factors could play.
    As stressed above, the nature of the electronic communications industry
    is such that market shares will be frequently not an appropriate gauge
    for assessing market power. Barriers to entry, on the other hand, will be
    a typical phenomenon in communications markets due to the high sunk
    costs, the network externalities and the inherent economies of scale.140
    135

    Ibid. at paras 6981 and 8590.


    Ibid. at para. 48.
    137
    Ibid. at paras 9194.
    138
    Access Notice, at paras 7475.
    139
    Guidelines on the application of EEC competition rules in the telecommunications
    sector, supra note 29, at paras 8182.
    140
    See supra Chapter 1, Section 4.1.1. In the Microsoft decision, the Commission considered
    network effects as possible barriers to entry. It noted that, [t]he network effects
    characterising the media software markets [] translate into entry barriers for new
    entrants. See Case COMP/C-3/37.792 Microsoft, supra note 74, at para. 420
    (footnote omitted).
    136

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    EC Electronic Communications and Competition Law

    The importance of barriers to entry in communications is evident from


    the fact that they are the principal criterion for the assessment of the
    necessity of ex ante regulation pursuant to current EC regulatory regime,
    as we shall see below.141
    With regard to the assessment of significant market power conducted
    by the national regulatory authorities, the European Commission has
    indicated that, in addition to market shares, the market power of an
    undertaking can be measured according to the following criteria:
    (i) overall size of the undertaking; (ii) control of infrastructure not easily
    duplicated; (iii) technological advantages or superiority; (iv) absence
    of low countervailing buying power; (v) easy or privileged access to
    capital markets/financial resources; (vi) product/services diversification
    (eg bundled products or services); (vii) economies of scale;
    (viii) economies of scope; (ix) vertical integration; (x) a highly developed
    distribution and sales network; (xi) absence of potential competition;
    and (xii) barriers to expansion.142 A dominant position can derive from
    a combination of these criteria, which taken separately may not
    necessarily be determinative.143 These criteria reflect the practice of the
    Commission and the courts, as mentioned above and stress further the
    centrality of barriers to entry for assessing dominance in electronic
    communications markets.
    iii.

    Conduct and Performance

    In determining dominance, the court may additionally take into account


    the conduct of the firm, which is alleged to have abusive behaviour,
    notwithstanding the apparent circularity that this entails (in the sense
    that the conduct is used as a proof of the abusive conduct itself). In
    Michelin, for instance, the price discrimination of the company was
    deemed to be an indicator of its dominance, even though the circularity
    involved thereby was explicitly noted by the Commission.144 In EurofixBauco v. Hilti, the Commission regarded Hiltis behaviour as witness to
    its ability to act independently of, and without due regard to, either
    competitors or customers.145 In AKZO, it found further that the
    141

    See infra Section 3.2.4.


    SMP Guidelines, at para. 78. All these criteria have been discussed by the European
    Regulators Group for electronic communications networks and services (ERG), which is
    a forum of the National Regulatory Authorities and the European Commission. See ERG,
    Working Paper on the SMP Concept for the New Regulatory Framework, supra note 124
    and Revised Working Paper on the SMP Concept for the New Regulatory Framework,
    ERG(03) 09rev1, October 2004.
    143
    SMP Guidelines, at para. 79.
    144
    Case 322/81 Michelin v. Commission, supra note 44.
    145
    Eurofix-Bauco v. Hilti, OJ [1988] L 65/19, [1989] 4 CMLR 677, at para. 71.
    142

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    European Community Communications Law

    undertakings ability to weaken or eliminate troublesome competitors


    was an indicator of dominance.146
    The economic performance of an undertaking may also be a factor
    indicating dominance. The fact that a firm had idle capacity, for instance,
    was regarded as significant in Hoffmann-La Roche.147 So was the ability
    of the undertaking to increase its prices, which the market subsequently
    followed, as found in Napier Brown-British Sugar.148
    In communications, owing to the strategies that market players develop
    in pursuit of tipping markets and/or locking-in partners or consumers,149
    an assessment of the conduct of the firm under scrutiny could be of
    importance. The Commissions decision in the Microsoft case is a recent
    proof in that regard.150
    2.2.2. A Position of Dominance within the Common Market or in
    a Substantial Part of It
    Once the market has been defined and accordingly it is established that
    a firm has a dominant position on that market, one further question
    needs to be answered before turning to the issue of abuse. The question
    is whether the dominant position of the undertaking(s) under scrutiny
    is held within the common market or in a substantial part of it.151 It
    should be noted that this question is not the same as the delineation of
    the relevant geographical market. As discussed above, it is rather the
    equivalent of the de minimis doctrine under Article 81 EC,152 whereby
    agreements of minor importance are excluded from the scope of Article
    81(1) EC.153
    In Suiker Unie v. Commission, the Court of Justice addressing this test
    under Article 82 EC stated that, the pattern and volume of the
    production and consumption of the said product as well as habits and
    146
    ECS/AKZO OJ [1985] L 374/1, [1986] 3 CMLR 273, at para. 56, upheld on appeal Akzo
    Chemie BV v. Commission, supra note 44, at para. 61.
    147
    Hoffmann-La Roche, supra note 35.
    148
    Napier Brown-British Sugar, supra note 72.
    149
    See supra Part 1, Chapter 2, Section 2.3.
    150
    Case COMP/C-3/37.792 Microsoft, supra note 74, at paras 638 et seq.
    151
    Article 82 EC (emphasis added).
    152
    Richard Whish, supra note 16, at p. 191.
    153
    The de minimis doctrine was established by the ECJ in Case 5/69 Vlk v. Vervaecke
    [1969] ECR 295, [1969] CMLR 273. The Commission has published a number of notices to
    that effect setting out the circumstances in which it considers an agreement of minor
    importance and thus not restricting competition to an appreciable extent. The latest notice
    was published at the end of 2001. See Commission Notice on agreements of minor
    importance, which do not appreciably restrict competition under Article 81(1) of the Treaty
    establishing the European Community (de minimis), OJ C 368/13, 22 December 2001, in
    particular at paras 79.

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    EC Electronic Communications and Competition Law

    economic opportunities of vendors and purchasers must be


    considered.154 As the practice of the European Community courts has
    shown, a Member State will almost always be deemed a substantial part
    of the common market and parts of a Member State, as established in
    Suiker Unie, can also be held substantial.155 Indeed, very small markets
    were found to satisfy the substantiality test for the purposes of Article
    82 EC, such as the port of Genoa156 or the Frankfurt airport.157 Considering
    that communications cases will normally involve the provision of
    services or infrastructure over national, regional or multi-national
    networks, they will promptly fulfil the criterion of being dominant within
    the common market or a substantial part thereof.
    2.3

    Abuse: Types of Abusive Practices

    Once it has been decided that a firm has a dominant position in a


    substantial part of the common market, it is necessary to consider
    whether it has abused that position. Article 82 EC mentions as examples
    of abuse the imposition of unfair prices (Article 82(2)(a) EC); limiting
    production, market or technical development (Article 82(2)(b) EC);
    discrimination (Article 82(2)(c) EC); and tying (Article 82(2)(d) EC). The
    given list is however far from being exhaustive.158 In fact, as we shall see
    below, Article 82 EC has proved to be a multi-functional instrument
    addressing diverse situations framed as abuses of market power.
    As mentioned at the outset of our analysis of Article 82 EC, dominance
    as such is not prohibited. However, the ECJ has pointed out in Michelin
    that a firm in a dominant position has a special responsibility not to
    allow its conduct to impair undistorted competition on the common
    market.159 Examining the case law of the Communitys courts, it would
    in fact appear that this responsibility becomes greater, the greater the
    market power, so that a finding of abuse is more likely, where the firm
    under scrutiny is not merely dominant but enjoys a position of
    dominance approaching a monopoly.160 The latter scheme could be of
    154

    Cases 40/73 etc. Suiker Unie v. Commission [1975] ECR 1663, [1976] 1 CMLR 295, at
    para. 371.
    155
    Ibid. With regard to the southern part of Germany, at paras 445448.
    156
    Case C-179/90 Merci Convenzionali Porto di Genova v. Siderurgica Gabriella [1991] ECR I5889, [1994] 4 CMLR 422.
    157
    Flughafen Frankfurt/Main, OJ [1998] L 72/30, [1998] 4 CMLR 779.
    158
    On the types of abuses caught by Article 82 EC, see Jonathan Faull and Ali Nikpay,
    supra note 20, at paras 3.20 et seq.
    159
    Case 322/81 Michelin v. Commission, supra note 44, at para. 57 (emphasis added). See
    also Case C-250/92 Gttrup-Klim v. Dansk Landbrugs Grovvareselskab AmbA [1994] ECR I5641, [1996] 4 CMLR 191, in particular at para. 49.
    160
    See para. 136 of the Opinion of AG Fennelly in Cases C-395/96 P etc. Compagnie Maritime
    Belge Transport SA and Dafra-Lines v. Commission [2000] ECR I-1365, [2000] 4 CMLR 1076.
    Richard Whish formulates a concept of super-dominance, when a firm has dominance
    nearing monopoly. See Richard Whish, supra note 16, 2003, at pp. 189190.
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    European Community Communications Law

    particular significance for communications operators who tend to have


    substantial market shares due either to the remnants of exclusive or
    special rights161 and/or to the network structure of the market and the
    resultant winner-takes-all scenarios.162
    The abuse of dominant position is nonetheless not pre-determined by
    the mere finding of dominance, even one close to monopoly. From an
    economic perspective, if there are no entry barriers to the market in
    question, monopoly profits will in fact attract new market players, thus
    leading to increased, rather than lessened, competition in the long term.163
    In an Article 82 analysis, one should consequently always recall the
    finding of the court that, [t]he concept of abuse is an objective concept
    relating to the behaviour of an undertaking in a dominant position
    []164 and weigh this behaviour against the background of the concrete
    circumstances.
    Since dominance is an objective concept, there is further no need of
    establishing causation between the firms behaviour and the actual
    abuse.165 Intent is indeed not a defining element of Article 82 EC, albeit
    it might be required in certain types of abuse.166
    Furthermore, it should be noted that Article 82 EC catches not only
    behavioural but also structural abuses of dominant position. The court
    established the latter in the seminal Continental Can167 judgment with
    regard to mergers, ie structural changes in the market and found them
    within the scope of Article 82 EC. Although since that case, there has
    been only one other decision condemning a merger under Article 82
    and mergers are now dealt with under the Merger Control Regulation,168
    Continental Can remains the authority for the proposition that there is
    an abuse in altering the competitive structure of a market, where
    competition on the market is already weakened as a result of the very
    161

    See Guidelines on application of EEC competition rules in the telecommunications


    sector, supra note 29.
    162
    See Carl Shapiro and Hal R. Varian, Information Rules, Boston, MA: Harvard Business
    School Press, 1999, at pp. 177 et seq. See also supra Chapter 2, Section 2.3.
    163
    See supra note 128 on contestable markets.
    164
    Hoffmann-La Roche, supra note 35, at para. 91 (emphasis added).
    165
    See eg Continental Can, supra note 44 and Hoffmann-La Roche, supra note 35. On
    causation, see Thomas Eilmansberger, How to Distinguish Good from Bad Competition
    under Article 82 EC: In Search of Clearer and More Coherent Standards for AntiCompetitive Abuses (2005) Common Market Law Review, Vol. 42, pp. 129177, at pp. 140
    et seq.
    166
    A finding of predatory pricing below average variable cost, for instance, does require
    the finding of intent.
    167
    Continental Can v. Commission, supra note 44.
    168
    Council Regulation (EC) 139/2004 on the control of concentrations between
    undertakings, supra note 22.

    157

    EC Electronic Communications and Competition Law

    presence of the dominant undertaking in it. 169 It is sufficient to


    demonstrate that the conduct is likely to produce such an effect or, as
    the court put it in Commercial Solvents, that it risks producing it.170
    The conduct of a dominant firm is deemed abusive if it has exploitative
    and/or anti-competitive effects. Exploitation suggests in broad terms
    the earning of monopoly profits at the expense of customers, while anticompetitive (or exclusionary) conduct is directed at competitors.171
    Article 82 EC has been, in practice, far more regularly applied to
    behaviour, which the Commission or the courts consider anticompetitive.172 Such cases are normally also the ones causing more
    controversy than those on exploitation, since the dominant firm will
    typically assert that it is simply competing as it should173 whereas
    the complainant (or the Commission) will try to ascertain that the firm
    has departed from competition on the merits and is guilty of abusive
    behaviour against its competitors. The line between these two positions
    is often very fine, sometimes indiscernible. Most cases in the electronic
    communications sector will tend to fall under this controversial on the
    line category because of the multiplicity of factors at play.174
    The following Sections explore some types of abuse under Article 82 EC
    based on the case law of the Community courts and the practice of the
    European Commission. Without the strict categorisation of exploitative
    and anti-competitive practices, which is in itself not always a clear-cut
    demarcation,175 the analysis will concentrate on refusal to supply (in
    particular, the essential facilities doctrine) and tying. This focused, rather
    than the extensive analysis of all Article 82 incompatible practices, will
    allow us to convey the complexity of issues when applying antitrust
    tools to communications markets in context and to assess their regulatory
    potential. The abusive pricing practices,176 although of particular interest
    169

    See also Hoffmann-La Roche, supra note 35, at paras 91 et seq.


    Cases 6 and 7/73 Commercial Solvents Corp v. Commission, supra note 31, at para. 25.
    171
    In Continental Can (supra note 44, at para. 26) the Court made it clear that Article 82 EC
    is not only aimed at practices, which may cause damage to consumers directly, but also
    at those which are detrimental to them through their impact on an effective competition
    structure. For a comprehensive analysis, see Eleanor M. Fox, What is Harm to
    Competition? Exclusionary Practices and Anticompetitive Effect (2002) Antitrust Law
    Journal, Vol. 70, pp. 371411 and We Protect Competition, You Protect Competitors
    (2003) World Competition, Vol. 26, No 2, pp. 159165.
    172
    Jonathan Faull and Ali Nikpay, supra note 20, at para. 3.22.
    173
    See eg Case T-228/97 Irish Sugar plc v. Commission [1999] ECR II-2969, [1999] 5 CMLR
    1300, at para. 112.
    174
    As a recent example, see Case COMP/C-3/37.792 Microsoft, supra note 74. See infra the
    following Sections.
    175
    See eg Richard Whish, supra note 16, at pp. 194195.
    176
    A collective term that essentially refers to excessive, predatory, discriminatory pricing
    and price squeeze. On excessive pricing, see Access Notice, at paras 106109. On predatory
    (continued...)
    170

    158

    European Community Communications Law

    in communications 177 (especially for economists, if not always for


    lawyers), will regretably remain out of the scope of the current work,
    while the concepts of complex dominance will only be elaborated upon
    in context.
    2.3.1 Refusal to Supply
    Firms that are not dominant are generally free to choose for themselves the
    parties with whom they wish to enter in contractual relations. Freedom of
    contract is indeed a basic rule of the free market economy.178 In the case of
    dominant undertakings, however, that freedom may be curtailed and a
    refusal to deal may constitute an abuse of dominance if this weakens
    competition in the particular market.179 There are three basic scenarios
    involving refusal to supply, namely: (i) a withdrawal of supply of an existing
    customer; (ii) a refusal to supply a new customer; and derivative from the
    latter (iii) a refusal to grant access to an essential facility.180
    The refusal to supply an existing customer as a classic set-up was first
    established as an abuse in the Commercial Solvents judgment.181 There
    the court upheld the Commissions decision182 that Commercial Solvents,
    a US undertaking, had abused its dominant position by refusing to
    supply aminobutanol to Zoja, an Italian pharmaceutical company, which
    needed the substance for the production of a certain anti-tuberculosis
    drug. Commercial Solvents was not only the dominant supplier of
    aminobutanol but its refusal to supply also coincided with the emergence
    of its own subsidiary, ICI, on the downstream market for anti-TB drugs.
    Thus, the anti-competitive aspect of Commercial Solvents behaviour
    was particularly clear where the refusal to supply would eliminate the
    pricing, see Access Notice, at paras 110116. For a recent example from the networkbound sectors, see Commission Decision 2001/354, Deutsche Post, OJ L 125/27, 5 May
    2001, [2001] 5 CMLR 99, at para. 35 and Case T-175/99 UPS Europe SA v. Commission [2000]
    ECR II-1915, [2002] 5 CMLR 67. For an extensive analysis of Deutsche Post, see David E.
    M. Sappington and J. Gregory Sidak, Competition Law for State-Owned Enterprises
    (2003) Antitrust Law Journal, Vol. 71, pp. 779523, at pp. 485 et seq. On price discrimination,
    see Access Notice, at paras 121122 and 125126. On price squeeze, see Access Notice, at
    paras 117119.
    177
    Improper allocation of costs and interference with transfer pricing could in fact occur
    often in the communications industry, where firms are normally active in more than one
    market. The monopolistic past of the sector is also a factor to be considered in this context.
    178
    See Adam Smith, An Enquiry into the Nature and Causes of the Wealth of Nations, New
    York: Modern Library, 1937 (first published 1776), available at http://www.gutenberg.org/
    etext/3300.
    179
    Jonathan Faull and Ali Nikpay, supra note 20, at paras 3.149 et seq.
    180
    For the relevant scenarios in the field of access agreements, as identified by the
    Commission, see Access Notice, at para. 84. The fourth possible scenario of refusal to
    supply, where the undertaking does not deal with one customer, while dealing with other,
    falls under discrimination as type of abuse.
    181
    Cases 6 and 7/73 Commercial Solvents Corp v. Commission, supra note 31.
    182
    Zoja/CSC-ICI, OJ [1972] L 299/51, [1973] CMLR D50 (text not available in English).

    ..)
    159

    EC Electronic Communications and Competition Law

    only serious competitor that ICI would face in the downstream


    market.183 In its judgment, the Court of Justice ascertained that it was
    an abuse to refuse to supply an existing customer, who would be, as a
    result, eliminated from the downstream market.184
    The court articulated further that only objective grounds could justify a
    refusal to supply an existing customer. This principle was affirmed in a
    line of subsequent cases, inter alia, by United Brands 185 and
    Tlmarketing.186 In the latter, the Court extended the scope of refusal to
    supply to services187 as well, and stated that, an abuse within the
    meaning of Article 86 [now 82 EC] is committed where, without any
    objective necessity, an undertaking holding a dominant position on a
    particular market reserves to itself or to an undertaking belonging to
    the same group of ancillary activity which might be carried out by
    another undertaking as part of its activities upon a neighbouring but a
    separate market, with the possibility of eliminating all competition from
    such undertaking.188

    183

    See Richard Whish, supra note 16, at p. 664.


    The court stated that, an undertaking which has a dominant position on the market
    in raw materials and which, with the object of reserving such raw material for
    manufacturing its own derivatives, refuses to supply a customer, which is itself a
    manufacturer of these derivatives, and therefore risks eliminating all competition on the
    part of this customer, is abusing its dominant position within the meaning of Article 86
    [now 82 EC]. See Cases 6 and 7/73 Commercial Solvents Corp v. Commission, supra note 31,
    at para. 25.
    185
    United Brands, supra note 35. In this case, the court condemned a producer of bananas
    for his refusal to supply Olesen, a distributor who had participated in an advertising
    campaign by one of the competitors of United Brands. Interestingly, it was not effectively
    proven that Olesen would be eliminated from the market.
    186
    Case 311/84 CBEM v. CLT and IPB (Tlmarketing), supra note 30. Tlmarketing was a
    case where an undertaking that dominated the market for television advertising stopped
    accepting spot advertisements that indicated a telephone number to be used by the public
    to obtain further information, unless the number given for Belgium was that of its own
    subsidiary specialised in providing such telemarketing services. In Tlmarketing, the court
    confirmed the Commercial Solvents judgment and held, notably that it could also apply to
    a service which is indispensable for the activities of another undertaking on another
    market. Ibid. at para. 26 (emphasis added).
    187
    Ibid. at para. 26.
    188
    Tlmarketing, ibid. at para. 27. Objective necessity could be, for instance, found to
    exist, when the undertaking in dominant position refuses to supply a customer from
    whom payment is overdue (see eg Leyland DAT v. Automotive Products [1994] 1 BCLC 245
    (CA)). If a dominant undertaking refuses to supply in response to a competitive challenge,
    its response must be fair and proportional to the threat. It cannot thus withdraw all its
    supplies immediately from a long-standing customer only because that customer has
    become associated with a competitor (see eg BBI/Boosey & Hawkes, OJ [1987] L 286/36,
    [1988] 4 CMLR 67). Finally, commercial justification for a policy will not necessarily
    constitute an objective justification such as to avoid a finding of abuse, as was the case in
    Tlmarketing.
    184

    160

    European Community Communications Law

    In addition to the above constellations of refusal to supply a raw


    material189 and services,190 pursuant to the case law of the Community
    courts, a refusal to supply as a technique for dividing markets;191 a refusal
    to supply spare parts,192 a refusal to supply proprietary information,193
    as well as, under some exceptional circumstances,194 a refusal to license
    intellectual property rights195 were held abuses of dominance under
    Article 82 EC. It is only under specific conditions that a refusal to supply
    a new customer (as supposed to existing ones) will qualify as an abuse.
    Exceptions are nonetheless possible, where, for instance, such a refusal
    is based on the nationality of the customer196 or in the case of essential
    facility, as we shall see below.
    2.3.2 The Essential Facilities Doctrine
    a.

    The Concept of Essential Facilities and the EC Legal


    Doctrine

    The concept of essential facilities and its application as a means of


    controlling market power has been clarified in some
    telecommunications-specific soft law instruments. Both the Access
    Notice (adopted under the 1998 communications regime) and the
    Commission SMP Guidelines (adopted under the 2002 framework for
    electronic communications networks and services) provide insightful
    and useful guidance. Bizarrely, while the Access Notice stresses the
    potential significance of the essential facilities doctrine for the
    communications sector that will in many cases be of relevance in
    determining the duties of dominant TOs [Telecommunication
    Operators],197 the SMP Guidelines suggest precisely the opposite.198 This
    peculiar divergence is due to the fact, as admitted by the SMP Guidelines,
    that in the electronic communications sector essential-facilities-like
    situations will normally presently be dealt with under the ex ante specific
    regulation rather than under general competition law.199
    189

    See Commercial Solvents, supra note 31. See also Napier Brown-British Sugar, supra note 72.
    Tlmarketing, supra note 30.
    191
    Case 226/84 British Leyland v. Commission, supra note 62.
    192
    Hugin Kassaregister, supra note 62.
    193
    See eg Decca Navigation System, supra note 62.
    194
    See infra the following Section.
    195
    Case T-69/89 Radio Telefis Eireann v. Commission v. Commission [1991] ECR II-485, [1991]
    4 CMLR 586; Case T-70/89 BBC Enterprises Ltd v. Commission [1991] ECR II-535, [1991] 4
    CMLR 669; Case T-76/89 Independent Television Publications v. Commission [1991] ECR II575, [1991] 4 CMLR 745; Joined Cases C-241/91 P and C-242/91 P RTE and ITP v. Commission
    (Magill) [1995] ECR I-743; Case C-481/01 IMS Health GmbH & Co v. NDC Health GmbH &
    Co KG [2004]; Case COMP/C-3/37.792 Microsoft, supra note 74.
    196
    See eg Case 7/82 GVL v. Commission [1983] ECR 483, [1983] 3 CMLR 645.
    197
    Access Notice, at para. 68.
    198
    SMP Guidelines, at paras 8182.
    199
    Ibid.
    190

    161

    EC Electronic Communications and Competition Law

    This only enhances the importance of our discussion of the essential


    facilities doctrine, since, if competition law were to be the sole regulator
    of the communications sector, it would have to address ex post such
    essential facilities situations in a sufficiently effective manner. In this
    context, the following paragraphs elaborate upon the essential facilities
    doctrine in EC law and figure out its mechanism and possible application
    to e-communications markets as a tool of control of market power and
    of access to bottleneck situations. Since access issues in the
    communications sector are recurrent and not occasional,200 the potency
    of this intervention could indeed be critical.
    The refusal to grant access to an essential facility is a central concept
    within the broader category of refusal to supply and the antitrust
    theory, which developed with regard to it, is known as the essential
    facilities doctrine (EFD). Before examining this (more or less) established
    doctrine in the law of the European Community,201 it is helpful to see
    what is (or might constitute) such an essential facility. Colloquially, the
    term suggests access to a physical infrastructure, such as port, airport,
    pipeline or cable network,202 where due to its physical characteristics
    access thereto is somehow limited but essentially needed. The term has
    been however used to signify, as will be shown below, not only physical,
    but also other structures and/or constellations. As a general definition
    capable of matching different real life situations, it could be thus
    appropriate to use the definition given by Massimo Motta. He suggests
    that, [a]ny input which is deemed necessary for all industry participants
    to operate in a given industry and which is not easily duplicated might
    be seen as an essential facility.203
    200

    Bernard Amory and Alexandre Verheyden, Article 82 (ex 86): Fair and Efficient Terms
    of Access to Bottleneck Network Facilities? in Claus Dieter Ehlermann and Louisa
    Gosling (eds.), European Competition Law Annual 1998: Regulating Telecommunications,
    Oxford/Portland, Oregon: Hart Publishing, 2000, pp. 6783.
    201
    On the essential facilities doctrine, see inter alia Katherine Schindler, Wettbewerb in
    Netzen als Problem der kartellrechtlichen Missbrauchaufsicht: Die Essential FacilityDoktrin im amerikanischen, europischen und schweizerischen Kartellrecht, Berne/
    Frankfurt/Brussels: Peter Lang, 1998; Jerry A. Hausman and J. Gregory Sidak, A
    Consumer-Welfare Approach to the Mandatory Unbundling of Telecommunications
    Networks (1999) The Yale Law Journal, Vol. 109, pp. 417505; Barry Doherty, Just What
    Are Essential Facilities? (2001) Common Market Law Review, Vol. 38, pp. 397436; Robert
    Pitofsky, Donna Patterson and Jonathan Hooks, The Essential Facilities Doctrine under
    US Antitrust Law (2002) Antitrust Law Journal, Vol. 70, pp. 443462; Damien Geradin,
    Limiting the Scope of Article 82 EC: What Can the EU Learn from the US Supreme
    Courts Judgment in Trinko in the Wake of Microsoft, IMS and Deutsche Telekom (2004)
    Common Market Law Review, Vol. 41, pp. 15191553; Cyril Ritter, Refusal to Deal and
    Essential Facilities: Does Intellectual Property Require Special Deference Compared to
    Tangible Property? (2005) World Competition, Vol. 28, No 3, pp. 281298.
    202
    Richard Whish, supra note 16, at p. 666.
    203
    Massimo Motta, Competition Policy: Theory and Practice, Cambridge: Cambridge
    University Press, 2004, at p. 66 (emphasis in the original).

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    European Community Communications Law

    The essential facilities doctrine originates from US antitrust.204 In the


    European Community context, there have been a number of cases subsumed
    under it205 but the doctrine is not unequivocal, both in the US206 and in the
    EC.207 In EC law, it could be argued that the EFD stems from the approach
    of the Court of Justice in Hoffmann-La Roche, categorising as abusive conduct,
    which has the effect of hindering the maintenance of the degree of
    competition still existing in the market or the growth of that competition.208
    It can also be discerned in subsequent judgments of the ECJ and CFI such
    as Tlmarketing209 and Magill.210 Richard Whish suggests that the EFD should
    not be viewed as an independent doctrine but rather as evolved from the
    principle elaborated in Commercial Solvents, where, as commented above,
    the refusal to supply a competitor in a downstream market, where the effect
    of doing so would be to eliminate all competition in the downstream market,
    was deemed an abuse of Article 82 EC.211 Indeed, some judgments typically
    labelled as essential facility ones, such as Oscar Bronner,212 do not necessarily
    204

    United States v. Terminal Railroad Association, 224 US 383 (1912). Other major cases in US
    antitrust developing the essential facilities doctrine are Eastman Kodak Co v. Southern Photo
    Materials Co, 273 US 359 (1927); Lorain Journal Co v. United States, 342 US 143 (1951); Otter
    Tail Power Co v. United States, 410 US 366 (1973); Aspen Skiing Co v. Aspen Highlands Skiing
    Corp, 472 US 585 (1985); Eastman Kodak Co v. Image Technical Services Inc., 504 US 451
    (1992). The leading case that applied the EFD in the telecommunications industry shortly
    before the AT&T divesture was MCI Communications Corp v. AT&T, 708 F.2d 1081, 1132
    33 (7th Circuit 1983). For an excellent overview of the origins and development of the
    EFD in US antitrust, see Abbott B. Lipsky, Jr. and J. Gregory Sidak, Essential Facilities
    (1999) Stanford Law Review, Vol. 51, pp. 11871249, at pp. 1195 et seq. See also Robert
    Pitofsky, Donna Patterson and Jonathan Hooks, supra note 201, at pp. 445 et seq.; Barry
    Doherty, supra note 201, at pp. 398 et seq.
    205
    See eg John Temple Lang, Defining Legitimate Competition: Companies Duty to
    Supply Competitors and Access to Essential Facilities (1994) Fordham Law Journal, Vol. 18,
    pp. 437 et seq. See also Case C-7/97 Oscar Bronner GmbH & Co KG v. Mediaprint Zeitungsund Zeitschriftenverlag GmbH & Co KG etc. [1998] ECR I-7791, [1999] 4 CMLR 112, Opinion
    of Advocate General Jacobs, at paras 35 et seq.
    206
    There is a line of critique against the US EFD. See eg Philip E. Areeda, Essential
    Facilities: An Epithet in Need of Limiting Principles (1990) Antitrust Law Journal, Vol. 58,
    pp. 841 et seq.; Donald Baker, Compulsory Access to Network Joint Ventures under the
    Sherman Act: Rules or Roulette? (1993) Utah Law Review, Vol. 4, pp. 9991019; Einer
    Elhauge, Defining Better Monopolization Standards (2003) Stanford Law Review, Vol. 56,
    pp. 253344. The Supreme Court did in fact expressly refer to the Areedas article in the
    case of Trinko (Verizon Communications Inc v. Law Offices of Curtis V. Trinko, LLP, 540 US 682
    (2004)), which limited the EFD and distinguished the case from the classical Aspen Skiing
    Co v. Aspen Highlands Skiing Corp (supra note 204).
    207
    Damien Geradin, supra note 201; Cyril Ritter, ibid.
    208
    Hoffmann-La Roche, supra note 35, at para. 44.
    209
    Tlmarketing, supra note 30.
    210
    Case T-69/89 RTE v. Commission; Case T-70/89 BBC v. Commission and Case T-76/89 ITP
    v. Commission, upheld on appeal Joined Cases C-241/91 P and C-242/91 P RTE and ITP v.
    Commission, all supra note 195.
    211
    See Richard Whish, supra note 16, at p. 664 and pp. 667 et seq.
    212
    Oscar Bronner, supra note 205. Advocate General Jacobs does however refer to the EFD.
    So do the parties to the case.

    163

    EC Electronic Communications and Competition Law

    refer to the doctrine and the Court of Justice has not yet relied upon it in an
    explicit manner. The European Commission has however done so.
    The Commission explicitly used the concept of essential facility for the
    first time with regard to harbour (ie physical) infrastructure in Sea
    Containers v. Stena Sealink and defined it for the purposes of the case as
    a facility or infrastructure, without access to which competitors cannot
    provide services to their customers.213 In that very first EFD case, the
    Commission dealt with a complaint against Sealink a company that
    owned and operated the Holyhead port in Northern Wales, providing
    also a ferry service to and from Ireland. B&I was a rival ferry operator
    and claimed that Sealink had organised the ports sailing schedules in
    such a manner that caused maximum disruption to B&Is services, while
    giving advantage to Sealink. The Commission found ultimately that there
    was a prima facie case of abuse.214 It held that, [a]n undertaking which
    occupies a dominant position in the provision of an essential facility
    and itself uses that facility [] and which refuses other companies access
    to that facility without objective justification or grants access to
    competitors only on terms less favourable than those which it gives its
    own services, infringes Article 86 [now 82 EC].215 The Commissions
    decision was (unfortunately) not appealed but its importance as the first
    application of the essential facilities doctrine remains considerable.216
    Subsequently, the Commission adopted a number of decisions dealing
    with physical essential facilities, in particular harbour facilities217 and
    some air transport related ones.218 An important follow-up of these EFDbased decisions, although in rather different domain, namely intangible
    intellectual property rights, is the Magill case.219 In the latter, the
    Commission considered that three major television broadcasters in
    Ireland held dominant positions on the markets for the supply of their
    programme listings (which were copyright protected). The companies
    refused to supply the content of their programme listings to other
    213

    Sea Containers v. Stena Sealink Interim Measures, OJ [1994] L 15/8, [1995] 4 CMLR 84, at
    para. 41. The Access Notice (at para. 68) defines an essential facility as a facility or
    infrastructure which is essential for reaching customers and/or enabling competitors to
    carry on their business, and which cannot be replicated by any reasonable means.
    214
    Sea Containers v. Stena Sealink, ibid. at para. 78. In fact the interim measures against
    Stena Sealink Line and Stena Sealink Ports were rejected because Sealink had in the
    meantime made an offer to Sea Containers, which enabled it to use the slot times, which
    it regarded as essential for the operation of a commercially viable service (ibid. at paras 79
    et seq.).
    215
    Sea Containers v. Stena Sealink, ibid. at para. 66.
    216
    Paul Nihoul and Peter Rodford, supra note 4, at para. 4.331.
    217
    See Port of Rdby, OJ [1994] L 55/52, [1994] 5 CMLR 457; Porto di Genova, OJ [1997] L 301/
    27; XXVI Report on Competition Policy, 1996, at paras 131132.
    218
    See eg London European-Sabena, OJ [1988] 317/47 and Flughafen Frankfurt am Main AG,
    OJ [1998] L 72/30.
    219
    Magill TV Guide/ITP, BBC, RTE, supra note 62.

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    European Community Communications Law

    magazines more than a day in advance. Essentially, this made it


    impossible for independent publishers to produce a weekly magazine
    covering all TV and radio programmes. The Commission condemned
    the behaviour of the broadcasters as an abuse of dominance and ordered
    compulsory licensing in favour of the independent weekly TV magazine
    Magill. The decision was confirmed by both the Court of First Instance220
    and the Court of Justice.221
    The ECJ stated that, the refusal by the owner of an exclusive right to
    grant a licence, even if it is the act of an undertaking holding a dominant
    position, cannot in itself constitute abuse of a dominant position.222 It
    added however that, the exercise of an exclusive right by the proprietor
    may, in exceptional circumstances, involve abusive conduct.223
    There were three sets of exceptional circumstances identified in Magill:
    (i) Firstly, the Court of Justice underlined that the dominant
    undertakings refusal prevented the appearance of a new product, which
    the dominant undertakings did not offer and for which there was a
    potential consumer demand. As such, the refusal was inconsistent in
    particular with Article 82(2)(b) of the Treaty, which provides that an
    abuse may consist in limiting production, markets or technical
    development to the prejudice of consumers;224 (ii) Secondly, along the
    lines of Commercial Solvents,225 the Court pointed out that the conduct
    at issue enabled the dominant undertakings to reserve to themselves
    the secondary market of weekly television guides by excluding all
    competition on that market; 226 (iii) Thirdly, the refusal was not
    objectively justified. This strict test was more recently confirmed in the
    IMS Health judgment227 (although it remains an open issue whether
    indeed the list of exceptional circumstances is exhaustive).228
    220

    See supra note 195.


    Joined Cases C-241/91 P and C-242/91 P RTE and ITP v. Commission, ibid.
    222
    Ibid. at para. 49.
    223
    Ibid. at para. 50 (emphasis added).
    224
    Ibid. at para. 54.
    225
    Cases 6 and 7/73 Commercial Solvents Corp v. Commission, supra note 31.
    226
    Joined Cases C-241/91 P and C-242/91 P RTE and ITP v. Commission, supra note 195, at
    paras 5556.
    227
    See supra note 195. On the IMS Health case, see eg Estelle Derclaye, The IMS Health Decision:
    A Triple Victory (2004) World Competition, Vol. 27, pp. 397 et seq.; Estelle Derclaye, The IMS
    Health Decision and the Reconciliation of Copyright and Competition Law, (2004) European
    Law Review, Vol. 29, pp. 87 et seq.; Vassilis Hatzopoulos, Case Law of the Court of Justice:
    Case C-418/01 IMS Health GmbH v. NDC Health GmbH, Judgment of the Fifth Chamber of 29
    April 2004 (2004) Common Market Law Review, Vol. 41, pp. 16131638; Donna M. Gitter, Strong
    Medicine for Competition Ills: The Judgment of the European Court of Justice in the IMS
    Health Action and its Implications for Microsoft Corporation (2005) Duke Journal of Comparative
    and International Law, Vol. 15, pp. 153192.
    228
    In Microsoft, which is the latest case dealing with refusal to supply intellectual property
    rights (supra note 74, in particular at paras 546791), although the Commission did follow
    (continued...)
    221

    165

    EC Electronic Communications and Competition Law

    Against the background of the above sketched decisions and despite


    the relatively stringent test of Magill as far as intellectual property
    rights are concerned, it might appear that the EFD is a rather
    convenient way of receiving supply from a dominant undertaking. 229
    However, as proven by the courts later judgments and as we shall
    see in the following paragraphs, the essential facilities doctrine is
    hardly a self-executing formula, granting access to third parties under
    all circumstances.
    The judgment of the CFI in Tierc Ladbroke,230 a case concerning the
    Belgian horse betting market,231 indicated the need for clearer limits in
    the application of the essential facilities doctrine. Although the Court of
    First Instance agreed in principle that essential resources must be shared,
    it pointed out that a refusal to supply could not fall within the prohibition
    of Article 82 EC unless it concerned a product or a service which was
    either essential for the exercise of the activity in question, in that there
    was no real substitute, or was a new product whose introduction might
    be prevented, despite specific, constant and regular potential demand
    on the part of the consumers.232
    The seminal judgment of Oscar Bronner v. Mediaprint Zeitungs- und
    Zeitschriftenverlag233 confirmed the trend set in Ladbroke for defining the limits
    of the EFD and for developing a clearer, stricter test. The facts of that
    particular case brought before the ECJ for a preliminary ruling under Article
    234 EC were that Oscar Bronner, a publisher of the newspaper Der
    Standard desired to have access to the highly developed home-delivery
    the Magill test, it stated (rather confusingly) that, there is no persuasiveness to an
    approach that would advocate the existence of an exhaustive checklist of circumstances
    of exceptional character that may deserve to be taken into account when assessing a
    refusal to supply (ibid. at para. 555). It is also noteworthy that in applying the test, the
    Commission did not pay sufficient attention to the new product criterion. See Damien
    Geradin, supra note 201, at pp. 1532 et seq. and the arguments of Microsoft expressed in
    its appeal and application for interim relief (supra note 74).
    229
    In fact, the Magill judgment has been subject to much criticism. For an interesting
    view, see James Turney, Defining the Limits of the EU Essential Facilities Doctrine on
    Intellectual Property Rights: The Primacy of Securing Optimal Innovation (2005)
    Northwestern Journal of Technology and Intellectual Property, Vol. 3, No 2, pp. 179202, at
    pp. 193 et seq. Turney suggests that the decision of the Court was based on the particular
    facts of the concrete case concerning the copyright protected TV programme listings and
    the court was sceptical about the existence of copyright on such TV listings (which were
    unworthy of protection). Indeed, the UK and Irish copyright laws were the only ones
    EU-wide that allowed for TV listings to be copyright protected.
    230
    Case T-504/93 Tierc Ladbroke v. Commission, supra note 44.
    231
    The case concerned a Commissions rejection of a complaint by the leading operator in
    the Belgian horse betting market against the refusal by an undertaking holding the video
    and audio rights to horse races in France to license these rights for use by Ladbrokes
    betting shops in Belgium.
    232
    Tierc Ladbroke v. Commission, supra note 44, at para. 131 (emphasis added).
    233
    Bronner, supra note 205.

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    European Community Communications Law

    distribution system of its much larger competitor, Mediaprint. Bronner


    complained that a refusal to grant such an access amounted to an
    infringement of the Austrian analogue of Article 82 EC. He argued further
    that, postal delivery, which generally does not take place until the late
    morning, does not represent an equivalent alternative to home-delivery,
    and that, in view of its small number of subscribers, it would be entirely
    unprofitable for it to organise its own home-delivery system.234
    On the question of whether access to the distribution system of
    Mediaprint could be considered essential (or indispensable, in the
    language of the judgment) the ECJ stated that, [i]t should be emphasised
    in that respect that, in order to demonstrate that the creation of such a
    system is not a realistic potential alternative and that access is
    indispensable, it is not enough to argue that it is not economically viable
    by reason of the small circulation of the daily newspaper or newspapers
    to be distributed. For such an access to be capable of being regarded as
    indispensable, it would be necessary at the very best to establish []
    that it is not economically viable to create a second home-delivery scheme
    for the distribution of daily newspapers with a circulation comparable
    to that of the daily newspapers distributed by the existing scheme.235
    Thus, in order for a facility such as the Mediaprints home delivery
    scheme to be essential, it does not suffice that such a scheme exceeds
    the economic capacity of a smaller competitor (such as Bronner). The
    ECJ had in effect raised the threshold for economic viability farther away
    from the subjective position of the complainant, (beyond the notion of
    objective competitor found in European Night Services236) towards a
    standard of an objective competitor comparable in size to the holder of
    the alleged essential facility. To use the words of Advocate General
    Jacobs, [i]t seems [] that intervention of that kind [granting access],
    whether understood as an application of the essential facilities doctrine
    or, more traditionally, as a response to a refusal to supply goods or
    services, can be justified in terms of competition policy only in cases in
    which the dominant undertaking has a genuine stranglehold on the
    related market. That might be the case for example where duplication
    234

    Bronner, ibid. at para. 8.


    Bronner, ibid. at paras 45 and 46 (emphasis added). The narrow definition of essentiality
    as made in Bronner was reaffirmed by the IMS Health judgment (supra note 195, in
    particular at paras 2829).
    236
    In European Night Services the court stated that, neither the parent undertaking nor
    the joint venture thus set up may be regarded as being in possession of infrastructure,
    products or services which are necessary or essential for entry to the relevant market
    unless such infrastructure, products or services are not interchangeable and unless, by
    reason of their special characteristics in particular the prohibitive cost of and/or time
    reasonably required fro reproducing them there are no viable alternatives available to
    potential competitors of the joint venture, which are thereby excluded from the market.
    See Cases T-374, T-375, T-384 and T-388/94 European Night Services v. Commission [1998]
    ECR II-3141, [1998] 5 CMLR 718.
    235

    167

    EC Electronic Communications and Competition Law

    of the facility is impossible or extremely difficult owing to physical,


    geographical or legal constraints or is highly undesirable for reasons of
    public policy. It is not sufficient that the undertakings control over a
    facility should give it a competitive advantage.237
    The Access Notice, although adopted before the actual Bronner judgment,238
    follows the above stringent test and suggests that in order to determine
    whether access to a facility should be ordered under the competition rules,
    the following elements, taken cumulatively, should be considered:
    (i)

    (ii)
    (iii)

    (iv)

    (v)

    237

    whether access to the facility in question is generally essential in


    order for companies to compete on that related market. In this regard,
    it will not be sufficient that the position of the company requesting
    access would be more advantageous if access were granted but
    refusal of access must lead to the proposed activities being made
    either impossible or seriously and unavoidably uneconomic;
    whether there is sufficient capacity available to provide access;
    whether the facility owner fails to satisfy demand on an existing
    service or product market, blocks the emergence of a potential
    new service or product, or impedes competition on an existing or
    potential service or product market;
    whether the company seeking access is prepared to pay the
    reasonable and non-discriminatory price and will otherwise in all
    respects accept non-discriminatory access terms and conditions; and
    whether there is no objective justification for refusing to provide
    access. Such a justification could include an overriding difficulty
    of providing access to the requesting company, or the need for a
    facility owner, which has undertaken investment aimed at the
    introduction of a new product or service to have sufficient time
    and opportunity to use the facility in order to place that new
    product or service on the market.239

    Bronner, supra note 205, AG Jacobs Opinion, at para. 65 (emphasis added). Pierre
    Larouche notes that, even though none of the Courts has developed its reasoning as far,
    one could conclude that upon Bronner a two-pronged test in order to determine whether
    a facility is essential emerged: (i) on the basis of relevant market analysis, lack of access
    to a facility such as the alleged essential facility must have an effect on competition on
    the relevant market (interchangeability prong) and (ii) it must not be economically
    viable for an objective competitor comparable in size to the holder of the alleged
    essential facility to replicate or duplicate the actual facility in question (viable alternative
    prong). See Pierre Larouche, supra note 8, at pp. 193196.
    238
    The judgment of the court is of 26 November 1998, the AG Jacobs Opinion of 28 May
    1998, while the Access Notice was published in the Official Journal on 22 August 1998.
    239
    Access Notice, at para. 91. The test of the Access Notice follows closely the test
    developed under US antitrust, where in order to establish liability under the essential
    facilities doctrine, a party must prove four factors: (1) control of the essential facility by
    a monopolist; (2) competitors inability practically or reasonably to duplicate the essential
    facility; (3) the denial of the use of the facility to a competitor; and (4) the feasibility of
    providing the facility to competitors. See MCI Communications Corp v. AT&T, supra
    note 204.
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    European Community Communications Law

    b.

    Observations on the EFD and Its Application

    Against the backdrop of the above case law and practice of the
    Community institutions, it seems that the hopes of the proponents of
    the use of competition law for control of market power and access in
    network sectors through application of the essential facilities doctrine
    have been dashed. The Bronner judgment in particular, interpreted the
    latter doctrine fairly restrictively and thus lent further credence to the
    argument that competition law on its own is insufficient to deal with
    complex access issues.240 Even though the standard of assessment is not
    as high as genuine monopoly, as suggested by Lipsky and Sidak,241 the
    essential facilities doctrine may not be relied upon as a universal solution
    for questions involving access, especially in the light of the technological
    advances in the communications sector, which make the duplication of
    facilities more feasible.
    Even if the facilities in question are indeed bottlenecks, allowing the
    owner or operator to exercise a genuine stranglehold242 over the
    market, issues of access to such facilities raise complex pricing issues.
    Generic competition law offers little guidance on such issues and there
    is a need for specialised regulatory intervention in order to determine
    the fair access prices. In fact, this dark side of the application of the
    EFD was already stressed upon by Advocate General Jacobs in his
    Bronner Opinion. In paragraph 69 thereof, he suggested that, [t]o accept
    Bronners contention would be to lead the Community and national
    authorities and courts into detailed regulation of the Community
    markets, entailing the fixing of prices and conditions for supply in large
    sectors of the economy. Intervention on that scale would not only be
    unworkable but would also be anti-competitive in the longer term and
    indeed would scarcely be compatible with a free market economy.243
    Although the focus of his argumentation was different, Advocate General
    Jacobs acknowledged nonetheless the need for regulating after access
    had been granted under the EFD. The measure of just compensation for
    240

    Piet Jan Slot and Andrew Skudder, Common Features of Community Law Regulation
    in the Network-Bound Sectors (2001) Common Market Law Review, Vol. 38, No 1, pp. 93
    97. See also Leigh Hancher, Case Law of the Court of Justice: Case C-7/97 Bronner v.
    Mediaprint [1998] ECR I-7791 (1999) Common Market Law Review, Vol. 36, 1999, pp. 1289
    1307.
    241
    Lipsky and Sidak noted that, where the owner of the facility has no monopoly
    power, there is no basis for antitrust intervention of any kind. The standard for
    identification of an essential facility should be at least as stringent as the standard of
    proof of monopoly power. Abbott B. Lipsky, Jr. and J. Gregory Sidak, supra note 204, at
    p. 1220. See also Robert Pitofsky, Donna Patterson and Jonathan Hooks, supra note 201,
    at p. 450.
    242
    As formulated by AG Jacobs in his Bronner opinion, supra note 205.
    243
    AG Jacobs Opinion, Bronner, ibid. at para. 69.

    169

    EC Electronic Communications and Competition Law

    mandatory access is in itself not unproblematic. It must essentially mimic


    the outcome of voluntary exchange244 and this could be, from economic
    point of view, a fairly complex task.245 Although it is presently agreed
    upon that the TELRIC (total element long-run incremental cost) provides
    a good basis,246 there is in practice considerable disagreement over its
    correct measurement, the correct measurement of and the time horizon
    of the forward-looking common costs, as well as over the correct method
    for determining the share of the common costs that may be reasonably
    recovered in the price for the particular unbundled network element.247
    Beyond the complexity of calculating the access price,248 the mere
    [r]ecognition that the essential facilities doctrine, where properly
    applicable, requires extensive judicial regulation of monopoly conduct
    raises important policy and even constitutional questions.249 It is
    certainly not for the judges to regulate.
    Finally, the application of the EFD should be viewed in its relationship
    with broader antitrust policy.250 In the pursuit of consumer welfare, the
    competition authorities and the courts should not simply apply the EFD
    244

    Abbott B. Lipsky, Jr. and J. Gregory Sidak, supra note 204, at p. 1231. Lipsky and Sidak
    stated that, [t]he central economic and legal difficulty with mandatory access regimes is
    that they rest upon involuntary exchange rather the voluntary exchange that is more
    familiar to a capitalist economy. In takings law, compensation for government confiscation
    of property is deemed to be constitutionally just if it equals the price to which a willing
    buyer and a willing seller would agree. Just compensation mimics the outcome of
    voluntary exchange. With regard to just compensation in the US Microsoft case, see Abbott
    B. Lipsky, Jr. and J. Gregory Sidak, ibid. at pp. 1231 et seq.
    245
    For an overview of all pricing methodologies, see Damien Geradin and Michel Kerf,
    Controlling Market Power in Telecommunications, Oxford: Oxford University Press, 2003, at
    pp. 3445.
    246
    See Implementation of the Local Competition Provisions in the Telecommunications
    Act of 1996, CC Docket No 9698, First Report and Order, 11 FCC Rcd 15499 (1996) (Local
    Competition Order), affd in part and vacated in part sub nom. Comp. Tel. Assoc. v. FCC, 117
    F.3d 1068 (8th Cir. 1997) and Iowa Utils. Bd. v. FCC, 120 F.3d 753 (8th Cir. 1997), affd in part
    and remanded, AT&T v. Iowa Utils. Bd., 525 US 366 (1999); on remand Iowa Utils. Bd. v. FCC,
    219 F.3d 744 (8th Cir. 2000) (Iowa Utilities II), reversed in part sub nom. Verizon Communications
    Inc v. FCC, 535 US 467 (2002).
    247
    Abbott B. Lipsky, Jr. and J. Gregory Sidak, supra note 204, at p. 1232. See also Marcel
    Canoy, Paul de Bijl and Ron Kemp, Access to Telecommunications Networks in Pierre
    A. Buigues and Patrick Rey (eds.), The Economics of Antitrust and Regulation in
    Telecommunications, Cheltenham, UK: Edward Elgar Publishing, 2004, pp. 135168 and
    Juan Delgado, Jrme Fehrenbach and Robert Klotz, The Price of Access: Unbundling
    the Local Loop in the EU, ibid. pp. 169182.
    248
    See eg Jean-Jacques Laffont and Jean Tirole, Competition in Telecommunications: Munich
    Lectures in Economics, Cambridge, MA: MIT Press, 2000; OECD, Access Pricing in
    Telecommunications, Paris: OECD Publishing, 2004. See also Telecom Corporation of New
    Zealand Ltd v. Clear Communications Ltd [1995] 1 NZLR 385.
    249
    Abbott B. Lipsky, Jr. and J. Gregory Sidak, supra note 204, at p. 1223 (emphasis in the
    original).
    250
    Robert Pitofsky, Donna Patterson and Jonathan Hooks, supra note 201, at pp. 451 et seq.

    170

    European Community Communications Law

    case law but carefully balance the interests of the parties involved,
    especially in industries where innovation is crucial and the rhythm of
    evolution fast,251 such as in electronic communications. In this sense and
    from the viewpoint of innovation as a one of the goals of economic
    regulation, the whole discussion on the essential facilities doctrine could
    be construed along the lines of the dilemma between service-based or
    facility-based competition,252 as discussed in Chapter 2.
    The above line of reasoning was interestingly followed in the 2004 case
    of the US Supreme Court, Verizon Communications Inc. v. Law Offices of
    Curtis V. Trinko (Trinko).253 In that case, the Supreme Court made, among
    others, three important conclusions that are pertinent to the present
    context: (i) first, it substantially narrowed down the possibilities for
    granting mandatory access and held that its ruling in Aspen Skiing,254
    which is normally identified as the epitome of the essential facilities
    doctrine, was at or near the outer boundary of Section 2 liability.255
    Indeed, it dismissed the EFD itself as crafted by some lower courts;256
    (ii) secondly, the Court argued that mandatory access may conflict with
    one of the objectives of antitrust by reducing incentives to invest;257 and
    (iii) thirdly, it found that if antitrust courts were to grant access to
    essential products or services, this would force them to act as central
    planners, since they would essentially need to engage in pricing and
    other regulatory discussions for which they are ill-suited.258
    251

    For a proposal for new type of application of the EFD. See James Turney, supra note 229,
    at pp. 198 et seq.
    252
    Mats Bergman noted in this context that, the effect of the doctrine is similar to the
    effect of a price regulation of that stage of production ie, prices will be reduced, which
    is likely to bring price reduction in the related market as well. There is a short-run positive
    effect on competition, from which consumers will benefit. However, the price reduction
    will decrease the profit of the monopolist, which, in turn, is likely to reduce the
    monopolists incentives to invest. Therefore, long-run negative effects from reduced
    incentives to invest are likely. See Mats A. Bergman, The Role of Essential Facilities
    Doctrine (2001) Antitrust Bulletin, Vol. 46, pp. 403 et seq., at p. 422.
    253
    See supra 206. On the Trinko case, see eg Damien Geradin, supra note 201; Philip J.
    Weiser, The Relationship of Antitrust and Regulation in a Deregulatory Era (2005)
    Antitrust Bulletin, Vol. XX, pp. 129; Nicholas Economides, Vertical Leverage and the
    Sacrifice Principle: Why the Supreme Court Got Trinko Wrong, Stern School of Business
    Working Paper 0505, August 2005; Jonathan L. Rubin, The Truth About Trinko (2005)
    Antitrust Bulletin, Vol. XX, pp. 113; James E. Scheuermann and William D. Semins, A
    New Method for Regulatory Antitrust Analysis? Verizon Communications Inc. v. Trinko
    (2005) Richmond Journal of Law and Technology, Vol. XII, Issue I.
    254
    See supra note 204.
    255
    See Trinko, supra 206, at p. 9.
    256
    Ibid. at p. 11.
    257
    Ibid. at pp. 11 et seq.
    258
    Ibid. at p. 8. In the words of the Supreme Court: Enforced sharing also requires antitrust
    courts to act as central planners, identifying the proper price, quantity, and other terms
    of dealing a role for which they are ill-suited. See Damien Geradin, supra note 201, at
    pp. 1524 et seq.

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    EC Electronic Communications and Competition Law

    2.3.3 Tying
    a.

    The Concept of Tying in EC Law

    Normally, abuses within the meaning of Article 82 EC can only be


    committed in the market where the dominant position is established.
    However, under special conditions, a dominant undertaking may
    commit an abuse in neighbouring markets to that where it holds a
    dominant position. In Tetra Pak II, for instance, the CFI259 and the ECJ260
    confirmed the Commissions finding261 that Tetra Pak had committed
    abuses in the markets for non-aseptic packaging machines and nonaseptic cartons, while its dominant position had only been established
    in the market for aseptic machines and cartons.262 In that most prominent
    case of leverage of market power, the court did however explicitly
    acknowledge that, the application of Article 86 [now 82 EC] to conduct
    found on the associated, non-dominated markets and having effects on
    that associated market can only be justified by special circumstances.263
    Such special circumstances may often be found to exist in the
    communications industry where market players operate in multiple
    markets. The Access Notice264 stresses therefore that the concept of
    leveraging market power developed in Tetra Pak II could be important
    in the communications sector. It refers to the finding of the Court of
    Justice therein that in a situation of extremely close links between the
    dominated and non-dominated market, and given the extremely high
    market share on the dominated market, Tetra Pak was in a situation
    comparable to that of holding a dominant position on the markets in
    question as a whole.265 The notice goes on and extends the proposition
    of Tetra Pak II, which concerned horizontal markets, to closely related
    vertical markets as well (which are, in fact, common situations in
    communications, since operators often have an extremely strong position
    on infrastructure markets and on markets downstream of that
    infrastructure).266
    Leveraging of market power could take different forms. Article 82(2)(d)
    EC proscribes a particular type of leveraging, namely the making the
    conclusion of contracts subject to acceptance by the other parties of
    259

    Case T-83/91 Tetra Pak v. Commission (Tetra Pak II) [1994] ECR II-755, [1997] 4 CMLR 726.
    Tetra Pak II, OJ 1992 L 72/1, [1992] 4 CMLR 551.
    261
    Case C-333/94 P Tetra Pak v. Commission (Tetra Pak II), supra note 44.
    262
    Where in fact it had a market share of nearly 90 per cent.
    263
    Case T-83/91 Tetra Pak v. Commission (Tetra Pak II), supra note 259, at para. 27 (emphasis
    added).
    264
    See also SMP Guidelines, at paras 8385.
    265
    Access Notice, at para. 65, referring to Tetra Pak II, supra note 44.
    266
    Access Notice, at paras 6567.
    260

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    European Community Communications Law

    supplementary obligations which, by their nature or according to


    commercial usage, have no connection with subject of such contracts.267
    Such an abuse is often referred to as tying and it deprives, in effect,
    customers of a realistic choice to purchase the product being tied from
    other sources, or not to buy at all.268 The main negative effect of tying on
    competition is the possible foreclosure on the market of the tied
    product.269 It may further lead to creation of artificial economies of scale;
    raising rival costs; decreasing rival benefits; leveraging of market power;
    protection of market power on the first (tied) market;270 hidden pricing
    or a mixture of these.271
    Tying could be of particular importance in electronic communications
    as a competitive strategy. 272 At least three factors determine the
    importance of tying in communications markets: (i) first,
    communications services and/or products are extremely diverse and
    could be relatively easily provided in packages; (ii) secondly, because
    communications are to a great extent driven by customers expectations
    (which are not necessarily predictable in advance), 273 there is a
    pronounced willingness from the producers side to offer as many
    variations as possible in order to meet these expectations and appeal to
    the broadest of public; and (iii) thirdly, because of the inherent network
    267

    Tying may also be abusive under Article 81 EC as part of horizontal agreements or


    concerted practices between competing suppliers who make the sale of one product
    conditional upon the purchase of another distinct product. Tying may also constitute a
    vertical restraint falling under Article 81 EC where it results in a single branding type of
    obligation for the tied product. See European Commission, Guidelines on vertical
    restraints, OJ C 291/1, 13 October 2000, at paras 215 et seq.
    268
    In his report to the Department of Trade and Industry (DTI), Nalebuff makes a
    distinction between tying and bundling and defines these practices in much detail. See
    Barry Nalebuff, Bundling, Tying, and Portfolio Effects, DTI Economics Paper No 1, Part I:
    Conceptual Issues, February 2003, at pp. 13 et seq.
    269
    Dennis W. Carlton and Michael Waldman, The Strategic Use of Tying to Preserve and
    Create Market Power in Evolving Industries, available at http://gsbwww.uchicago.edu/
    research/ cses/WorkingPapersPDFs/145.pdf, also published in (2002) RAND Journal of
    Economics, Vol. 3, No 2, pp. 194220, at pp. 22 et seq.
    270
    Dennis W. Carlton and Michael Waldman, ibid. at pp. 6 et seq.
    271
    For a full account, see Barry Nalebuff, supra note 268, at pp. 39 et seq. See also
    Guidelines on vertical restraints, supra note 267, at para. 217; Michael D. Whinston,
    Tying, Foreclosure, and Exclusion (1990) American Economic Review, Vol. 80, No 4,
    pp. 837859 and Dennis W. Carlton and Michael Waldman, supra note 269.
    272
    The Access Notice stresses the importance of tying, saying that, [t]his is of particular
    concern where it involves the tying of services for which the TO is dominant with those
    for which it is not. Where the vertically integrated dominant network operator obliges
    the party requesting access to purchase one or more services without adequate
    justification, this may exclude rivals of the dominant access provider from offering those
    elements of the package independently. This requirement could thus constitute an abuse
    under Article 86 [now 82 EC].
    273
    See supra Chapter 1, Section 4.1.1.

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    EC Electronic Communications and Competition Law

    effects and the possibility of tipping markets,274 tying could be an


    adequate tool for a company already dominant in one market to attempt
    conquering another.275
    Tying could take multiple actual expressions and may be of products
    with their accessories needed for their functioning,276 between products
    in the same range277 or tying of a product and related services.278 Pricing
    practices having a tying effect have also been condemned as abusive:
    loyalty rebates,279 across the board rebates,280 target discounts,281 uniform
    delivered pricing282 and top slice rebates283 have all been found in
    breach of Article 82 EC.
    Pursuant to the law and practice of the European Commission and the
    Community courts, an analysis of a tying case involves a five-pronged
    test.284 The following paragraphs will shed some light upon these five
    constituent elements of the tying test. We shall use examples from the
    Commissions decision in Microsoft,285 a case that is also an illustration
    of antitrust application to new economy sectors.286
    274

    See supra Chapter 1, Section 4.1.2 and Chapter 2, Section 2.3.


    Dennis W. Carlton and Michael Waldman, supra note 269, at p. 35. See also Maurits
    Dolmans and Thomas Graf, Analysis of Tying under Article 82 EC: The European
    Commissions Microsoft Decision in Perspective (2004) World Competition, Vol. 27, No 2,
    pp. 225244, at pp. 234 et seq.
    276
    Eurofix-Bauco v. Hilti, supra note 145; upheld in Case T-30/89 Hilti AG v. Commission,
    supra note 116 and Case C-53/92 P Hilti AG v. Commission, supra note 73. See also Tetra
    Pak II, supra note 260.
    277
    Hoffmann-La Roche, supra note 35.
    278
    Napier Brown-British Sugar, supra note 72.
    279
    See eg Hoffmann-La Roche, supra note 35.
    280
    Ibid.
    281
    Case 322/81 Michelin v. Commission, supra note 44.
    282
    Napier Brown-British Sugar, supra note 72.
    283
    Soda-Ash Solvay OJ 1991 L 152/51 and Soda-Ash ICI OJ 1991 L 152/40, [1994] 4 CMLR
    645 (both annulled on procedural grounds by the CFI in Case T-30/91 Solvay SA v.
    Commission [1995] ECR II-1775, [1996] 5 CMLR 57).
    284
    Maurits Dolmans and Thomas Graf, supra note 275, at p. 226. See also Jonathan Faull
    and Ali Nikpay, supra note 20, at paras 3.197 et seq. and Case COMP/C-3/37.792 Microsoft,
    supra note 74, at para. 794.
    285
    Case COMP/C-3/37.792 Microsoft, ibid. in particular at paras 792989. On the Microsoft
    Decision, see further Maurits Dolmans and Thomas Graf, supra note 275; David S. Evans
    and Atilano Jorge Padilla, Tying under Article 82 EC and the Microsoft Decision (2004)
    World Competition, Vol. 27, No 4, pp. 503512; Oliver Sitar, The EU Microsoft Decision
    (2004) Medien und Recht (international edition), Vol. 1, pp. 25; Roberto Pardolesi and
    Andrea Renda, The European Commissions Case against Microsoft: Kill Bill? (2004)
    World Competition, Vol. 27, No 4, pp. 513566; Franois Lvque, Innovation, Leveraging
    and Essential Facilities: Interoperability Licensing in the EU Microsoft Case (2005) World
    Competition, Vo. 28, No 1, pp. 191; Valentine Korah, Intellectual Property Rights and the
    EC Competition Rules, Oxford/Portland, Oregon, 2006, at pp. 150167.
    286
    See supra Chapter 1, Section 4.6.
    275

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    European Community Communications Law

    (i)
    The first indispensable element is dominance of the seller in the
    market for the tying product. Only a company holding a dominant
    position in a given market can successfully impose tying on its customers
    since the latter are dependent on this company for the supply of at least
    one of these products.287 A dominance of the seller was found, for
    instance, in Hilti.288 In this classic example of tying, Hilti, the well-known
    producer of nail guns attempted to use its market power on the markets
    for Hilti-compatible cartridge strips and nail guns to eliminate
    independent producers of Hilti-compatible nails (where it was
    potentially most vulnerable to new competition).289 In a more recent case,
    Microsoft was found guilty of making the availability of the Windows
    Operating System conditional on the simultaneous acquisition of the
    Windows Media Player (WMP).290 As the dominant tying product, the
    Commission clearly identified PC (personal computers) operating
    systems, where, as ascertained, Microsoft had the mammoth market
    share of around 95 per cent kept over a long period of time.291
    (ii)
    The second element is the existence of a tied product that is
    separate from the tying one. In order to establish tying as an abuse within
    the scope of Article 82 EC, it must be thus demonstrated that the products
    or services being tied together are independent from one another there
    must be a distinct demand for both of them.292 Such a conclusion could
    normally be reached by analysing the nature of the products or services
    in question and their commercial usage.293 The presence of suppliers
    offering the tied product is a strong indicator that a distinct demand for
    it exists.294
    This delineation exercise is however not always easy in practice,
    especially with relation to new products. Indeed, deciding whether a
    new product is by nature a single unit, or whether each of its components
    should be considered an independent product, may become a rhetorical
    question. Indeed, if the product is new, there is no commercial usage to
    287

    The Commission pointed in Hilti that, the ability to carry out its illegal policies stems
    from its power on the market for Hilti-compatible cartridge strips and nail guns (where
    its market position is strongest and the barriers to entry are highest) and aims at reinforcing
    its dominance on the Hilti-compatible nail market (where it is potentially more vulnerable
    to competition). See Eurofix-Bauco v. Hilti, supra note 145, at para. 74.
    288
    Eurofix-Bauco v. Hilti, ibid. upheld in Case T-30/89 Hilti AG v. Commission, supra note 116
    and Case C-53/92 P Hilti AG v. Commission, supra note 73.
    289
    Eurofix-Bauco v. Hilti, ibid. at para. 74.
    290
    Case COMP/C-3/37.792 Microsoft, supra note 74.
    291
    Ibid. at paras 431 et seq.
    292
    Case T-86/95 Compagnie Generale Maritime [2002] ECR II-1011, at para. 159.
    293
    See Case T-83/91 Tetra Pak v. Commission (Tetra Pak II), supra note 259.
    294
    Maurits Dolmans and Thomas Graf, supra note 275, at p. 227. The Commissions
    Guidelines on vertical restraints (supra note 267) state at para. 216 that two products are
    distinct if, in the absence of tying, from the buyers perspective, the products are purchased
    by them on two different markets.

    175

    EC Electronic Communications and Competition Law

    look at. In these cases, the weight of the analysis shifts from the question
    of whether the products sold together are independent, to the question
    of whether it is objectively justified to sell them together.295
    In the Microsoft decision, the software applications allowing users to
    play streamed and downloaded digital audio and video content, known
    as media players, were identified as the separate tied product, distinct
    from the PC operating systems.296
    (iii) The third constituent element is coercion, ie conduct forcing
    customers to buy the tied product together with the tying. This is a
    defining element of the abuse. In the absence of it, even a dominant
    company is allowed to sell two products or services together. However,
    when the consumers are forced, coerced, to buy them together, then the
    tying falls under the prohibition of Article 82 EC. The degree of coercion
    could vary in reality. It could be contractual, 297factual, 298through
    withdrawal of benefits, through pricing incentives 299 or through a
    combination of those. In the case of Microsoft, for instance, it was
    ascertained that the company gave the customers no choice to obtain
    Windows Operating Systems without the Windows Media Player,
    coercing the customers both contractually and technically to acquire
    both products together.300
    One should however bear in mind that the perceptions as to what
    constitutes separate products, and what not, could evolve over time and
    products that were previously viewed as distinct ones, could be later
    taken as one. Air conditioning for cars is a typical case exemplifying
    this development. While, once automobiles and air conditioning systems
    for automobiles had been perceived as two separate products, now they
    are taken as a whole.301
    (iv) A restrictive effect on competition for the tied product is the next
    constituent element of tying under Article 82 EC. Tying should affect or
    be able to affect competition in the tied market.302 It is however not always
    295

    Jonathan Faull and Ali Nikpay, supra note 20, at para. 3.200.
    Case COMP/C-3/37.792 Microsoft, supra note 74, at paras 800825. The Commission
    distinguished between downloading and streaming audiovisual content and concluded
    that software programmes that allow for streaming media constitute a separate relevant
    market.
    297
    Case T-83/91 Tetra Pak v. Commission (Tetra Pak II), supra note 259.
    298
    Case T-30/89 Hilti AG v. Commission, supra note 116.
    299
    Ibid.
    300
    Case COMP/C-3/37.792 Microsoft, supra note 74, at paras 826834.
    301
    Maurits Dolmans and Thomas Graf, supra note 275, at p. 227; Richard Whish, supra
    note 16, at p. 661.
    302
    [F]or the purposes of establishing an infringement of Article 82 EC, it is not necessary
    to demonstrate that the abuse in question had a concrete effect on the markets concerned.
    (continued...)
    296

    176

    European Community Communications Law

    clear how much effect on competition is needed in order to justify an


    intervention.303 The specific characteristics of the market under scrutiny
    will certainly have to be accounted for. Markets characterised by network
    externalities may be in that sense more vulnerable to tying and/or tying
    could have more appreciable effects. This is due to the fact, as discussed
    in Chapter 1, that in such markets the number of consumers, who acquire
    the product influences the future demand of the product. The greater
    the thereby created network, the more attractive it becomes to join.304
    In such cases, a tie will have an impact beyond the tied customer share
    because the increased distribution share resulting from the tie will also
    impact on future demand for the tied product.305
    The effect on markets driven by innovation or emerging ones should
    also be properly considered. This was the argumentation used by the
    Commission in the Microsoft decision, where it held that the tying at
    issue shields Microsoft from effective competition from potentially
    more efficient media player vendors which could challenge its position.
    Microsoft thus reduces the talent and capital invested in innovation of
    media players, not least its own and anti-competitively raises barriers
    to market entry. Microsofts conduct affects a market which could be a
    hotbed for new and exciting products springing forth in a climate of
    undistorted competition.306
    (v) The final element of tying, negatively formulated, is the absence of
    an objective and proportionate justification for the coercion. The Court
    has held that, even where tied sales of two products are in accordance
    with commercial usage, or there is a natural tie between the two products
    in question, such sales may still constitute abuse within the meaning of
    Article 86 [now 82 EC] unless they are objectively justified. 307
    Enhancement of efficiency (productive or distributive) or guaranteeing
    of quality and safety are often given as reasons for the tying, and
    sometimes are genuine reasons. The dominant undertaking will have
    It is sufficient in that respect to demonstrate that the abusive conduct of the undertaking
    in a dominant position tends to restrict competition, or, in other words, that the conduct
    is capable of having, or likely to have, such an effect. See T-219/99 British Airways plc v.
    Commission, ECR [2003] II-05917, at para. 293.
    303
    See Maurits Dolmans and Thomas Graf, supra note 275, at pp. 233 et seq.
    304
    See supra Part 1, Chapter 1, Section 4.1.1 and Chapter 2, Section 2.3. In the Microsoft
    case, the Commission pointed out that, in view of the indirect network effects obtaining
    in the media player market, the ubiquitous presence of the WMP code provides it with a
    significant competitive advantage, which is liable to have harmful effect on the structure
    of competition in that market. See Case COMP/C-3/37.792 Microsoft, supra note 74, at
    para. 878.
    305
    Maurits Dolmans and Thomas Graf, supra note 275, at p. 234.
    306
    Case COMP/C-3/37.792 Microsoft, supra note 74, at para. 981 (footnote omitted;
    emphasis added).
    307
    Case C-333/94 P Tetra Pak v. Commission (Tetra Pak II), supra note 44, at para. 37.

    ..)
    177

    EC Electronic Communications and Competition Law

    the burden to prove whether the tying is indeed objectively justified


    and proportionate.308
    b.

    Observations on Tying as an Abuse

    It seems that the above five-element test provides a clear (albeit complex)
    basis for addressing leverage of market power through tying products
    and/or services. Upon closer examination, this might not however be
    the case. Although the constituent elements of a tie may be duly fulfilled,
    the treatment of tying practices as an abuse of dominant position and
    the resultant antitrust intervention is not clear-cut and subject to frequent
    criticism.309
    Tying may indeed be essential for reasonable purposes, such as
    maintaining the efficiency of the tying product, which does not function
    as well with other additives or materials, or to enable economies of
    scale.310 It could also be a legitimate strategy of offering a variety of
    products and/or services for the sake of competing on the merits.311 Most
    notably in our context, it seems that in dynamic industries characterised
    by network effects, tying could not simply be taken as an abuse per se
    but will have to be examined following a rule of reason.
    Such was the conclusion drawn at least at the other side of the Atlantic in a
    case very similar to our working example of European Commission v. Microsoft:
    Similar, firstly, because it involved the same company, ie the Redmondbased software giant Microsoft and secondly, because the allegations of
    refusal to supply and tying were discussed, although under different
    308

    See eg Opinion of AG Cosmas in Case C-344/98 Masterfoods [2000] ECR I-11369, at


    para. 101. See also Maurits Dolmans and Thomas Graf, supra note 275, at pp. 235 et seq.
    on the elements of the proportionality test. For the Commissions argumentation in
    Microsoft, see Case COMP/C-3/37.792 Microsoft, supra note 74, at paras 956970.
    309
    See eg Robert H. Bork, supra note 26, at pp. 365381 and Frederic M. Scherer and
    David Ross, Industrial Market Structure and Economic Performance, 3rd edition, Boston,
    MA: Houghton Mifflin, 1990, at pp. 565 et seq. The Chicago School has been especially
    critical of the sanctioning of tying as an antitrust abuse. For a brief overview of the
    Chicagoan arguments in this context and a critique, see Maurits Dolmans and Thomas
    Graf, ibid. at pp. 232 et seq.; Barry Nalebuff, supra note 268, at pp. 18 et seq. See also
    David S. Evans and Atilano Jorge Padilla, supra note 285; Roberto Pardolesi and Andrea
    Renda, ibid.; Christian Ahlborn, Vincenzo Denicol, Damien Geradin and Atilano Jorge
    Padilla, DG Comps Discussion Paper on Article 82: Implications of the Proposed
    Framework and Antitrust Rules for Dynamically Competitive Industries, 31 March 2006,
    available at http://ssrn.com/abstract=894466, at pp. 39 et seq.
    310
    Economic Advisory Group for Competition Policy (EAGCP), An Economic Approach
    to Article 82, EAGCP Report for DG COMP, July 2005, at p. 40. See also European
    Commission, DG Competition Discussion Paper on the Application of Article 82 of the
    Treaty to Exclusionary Abuses, supra note 119, at para. 178.
    311
    For a full account of the efficiency reasons for tying, see Barry Nalebuff, supra note 268,
    at pp. 28 et seq.

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    European Community Communications Law

    circumstances. The US version of the Microsoft case312 in its tying-part


    concerned the bundling of Windows Operating System with the Microsofts
    internet browser (Internet Explorer) and related to what is colloquially
    known as the browser war.313 The District Court of Columbia concluded
    that Microsofts tie amounted to a per se violation of Section 1 of the Sherman
    Act.314 Upon appeal, however, the Appellate Court remanded the case for
    consideration under the rule of reason standard.315 After the remand, the
    US antitrust authorities decided not to pursue further proceedings on the
    tying count of the original complaint [] in an effort to obtain prompt,
    effective and certain relief for consumers,316 so the question was regrettably
    left without an ultimate answer.
    The change of methodology, ie the transition from a per se prohibition
    to a rule of reason approach is of the essence to our discussion here.317 If
    projected to the European Microsoft case and to similar new economy
    cases that might arise in the future, including electronic communications
    ones, it raises the interesting question of whether EC competition law is
    indeed prepared to handle them.
    The analysis of the Commissions decision in Microsoft lends more
    credence to a negative answer to this question. Although the Commission
    acknowledged that the Microsoft case is not a classical tying one,318 it
    312

    US v. Microsoft Corp, 87 F. Supp.2d 30 (D.D.C. 2000). On the US Microsoft case, see


    Abbott B. Lipsky, Jr. and J. Gregory Sidak, supra note 204, at pp. 1223 et seq.; Franklin
    Fisher and Daniel Rubinfeld, US v. Microsoft An Economic Analysis (2001) The Antitrust
    Bulletin, Vol. 46, pp. 169; J. Gregory Sidak, An Antitrust Rule for Software Integration
    (2001) Yale Journal on Regulation, Vol. 18, No 1, pp. 181; Maurits Dolmans and Thomas
    Graf, supra note 275, at pp. 237 et seq. and the collection of essays in David S. Evans
    (ed.), Microsoft, Antitrust and the New Economy, Boston/Dodrecht/London: Kluwer
    Academic Publishers, 2002.
    313
    The browser war concerned the intensive struggle for popularity among users and
    thus for market share in the late 1990s between Internet Explorer and Netscape Navigator,
    which had been the initial de facto standard. Internet Explorer came as the undisputed
    winner of this war. Currently, some see a Second Browser War between the Internet
    Explorer and the open source Mozillas Firefox.
    314
    Section 1 prohibits [e]very contract, combination in the form of trust or otherwise, or
    conspiracy, in restraint of trade or commerce. See Sherman Antitrust Act, 15 USC.,
    1.
    315
    US v. Microsoft Corp, 253 F.3d 34 (D.C. Cir. 2001), at 94.
    316
    US Department of Justice, Justice Department Informs Microsoft of Plans for Further
    Proceedings in the District Court, Press Release, 6 September 2001, at p. 1.
    317
    The change of methodology and the transition to a rule of reason approach was not a
    surprising sudden decision in the case of Microsoft. It is indeed the result of a long debate
    in the US antitrust and in the economic and legal literature. See Roberto Pardolesi and
    Andrea Renda, supra note 285, at pp. 561 et seq.
    318
    Case COMP/C-3/37.792 Microsoft, supra note 74, at para. 841. The Commission clarified
    there that, [w]hile in classical tying cases, the Commission and the Courts considered
    the foreclosure effect for competing vendors to be demonstrated by the bundling of a
    separate product with the dominant product, in the case at issue, users can and do to a
    certain extent obtain third party media players through the internet, sometimes for free.

    179

    EC Electronic Communications and Competition Law

    applied the classical analysis of tying in order to prove that Microsofts


    practice created serious risks of foreclosing competition. We shall not
    go as far as to submit that the Commission did it all wrong, as some
    authors bluntly suggest,319 but nonetheless make a few critical notes.
    First, the Commission found, among other things, that due to the ubiquitous
    position of Microsoft in the market for operating systems and the inherent
    network effects, Microsoft was already tipping the market of media players
    towards a WMP standard, thereby foreclosing competition and stifling
    innovation.320 Although the acknowledgment of network effects and their
    consideration in the analysis of the Commission is highly commendable,
    their interpretation and ramifications are quite misjudged.
    The foreclosure of competition by commingling the code of Windows
    and WMP ascertained by the Commission is indeed hard to see.321
    Furthermore, the tipping of the market seems hardly probable. As we
    discussed in Chapters 1 and 2, some markets could tip because of
    network effects.322 However, this tipping should not be overstated since
    it does not occur always and automatically. Indeed, it occurs only under
    a specific set of factors and requires that consumers and producers of
    complementary products have strong incentives to standardise on one
    technology, or to put it more technically, whenever a particular market
    is characterised by both strong network and learning effects.323 This is
    however not the case with media players.324 Even beyond complex
    econometrics, it seems in reality that the media players market is rather
    diverse. The success of Apples iPod and online music stores (based on
    other than WMP formats) questions the suggested ubiquity of Microsofts
    WMP. In its analysis, it is further noteworthy that the Commission
    ignored downloading of streaming media software as a competitive
    source to the Windows distribution channel,325 as well as other alternative
    319

    Pardolesi and Renda, for instance, conclude at the end of their paper that, [t]he
    European Commissions allegation that Microsoft harmed competition and stifled
    innovation by monopolising the streaming media market through technological tying is
    not supported by sound economic theory. The Commission did not have the chance to
    deal with technological integration in previous cases, and showed all its impasse in dealing
    with the peculiar dynamics of system competition under (indirect) network effects. See
    Roberto Pardolesi and Andrea Renda, supra note 285, at p. 564. See also David S. Evans,
    Atilano Jorge Padilla and Michele Polo, Tying in Platform Software: Reasons for a Ruleof-Reasons Standard in Europe (2002) World Competition, Vol. 25, No 4, pp. 509514.
    320
    Case COMP/C-3/37.792 Microsoft, supra note 74, at paras 835 et seq.
    321
    Roberto Pardolesi and Andrea Renda, supra note 285, at pp. 559 et seq.
    322
    See supra Part 1, Chapter 1, Section 4.1.
    323
    Roberto Pardolesi and Andrea Renda, supra note 285, at p. 528. For an extensive analysis
    of the implications of network effects, see ibid. at pp. 526 et seq. See also Roberto Pardolesi
    and Andrea Renda, How Safe is the Kings Throne? Network Externalities on Trial in
    Antonio Cucinotta, Roberto Pardolesi and Roger Van den Bergh (eds.), Post-Chicago
    Developments in Antitrust Law, Cheltenham, UK: Edward Elgar, 2003, pp. 213250.
    324
    David S. Evans and Atilano Jorge Padilla, supra note 285, at pp. 506 et seq.
    325
    Case COMP/C-3/37.792 Microsoft, supra note 74, at paras 858 et seq.
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    European Community Communications Law

    distributive channels (such as bundling media players with other


    software or internet access services).326
    Secondly, even if we agree that the five-step test (as outlined above) has
    been properly applied by the Commission for the finding of anticompetitive tying, it should be stressed that the nature of technological
    integration is rather different from standard tying.327 Technological
    integration could be found to ultimately enhance consumer welfare by
    creating products that are better, faster or more versatile.328 In that sense,
    such an integration calls for a cautious rule of reason approach in order
    to establish whether the integrated product is more valuable to end users
    than the sum of its parts.329 Otherwise, any integration could simply be
    attacked by competitors of the product or service in question for the
    sake of their own protection instead of the protection of the consumers.330
    Thirdly, as a final argument, even if technological integration equals standard
    tying and [e]ven if the market ends up tipping toward a single de facto
    standard technology, end users will profit from standardisation and from
    intra-system competition, which allegedly will prevent Microsoft from
    charging supracompetitive prices and fall into irreversible x-inefficiency.331
    It is out of the scope of this work (and the expertise of the author) to figure
    out what the possible efficiencies from commingling the Windows Media
    Player with the operating system could be; it is however most noteworthy
    that the Commission did not properly address such issues of potential
    efficiency and did not balance them against the alleged foreclosure effects.
    Although it dwelled (rather briefly) upon some efficiencies,332 the question
    of consumer harm in assessing the competitive impact of Microsoft was
    never directly addressed.333 In this way, the consumer welfare analysis of
    the Commission was left incomplete and the rule of reason approach was
    thus not fully applied in the manner formulated in the US Microsoft case334
    (although the Commission contends the opposite).335
    326

    Ibid. at paras 872 et seq. See also the arguments of Microsoft in Order of the President
    of the Court of First Instance of 22 December 2004 in Case T-201/04 R Microsoft Corporation
    v. Commission of the European Communities, at paras 326 et seq.
    327
    Roberto Pardolesi and Andrea Renda, supra note 285, at p. 561, referring also to David
    S. Evans, Atilano Jorge Padilla and Michele Polo, supra note 319; Maurits Dolmans and
    Thomas Graf, supra note 275; J. Gregory Sidak, supra note 312.
    328
    Roberto Pardolesi and Andrea Renda, ibid.
    329
    Ibid.
    330
    There has been, for instance, a complaint brought before the European Commission
    focusing on the Microsoft bundle of office applications. See Paul Meller, In Europe,
    Microsoft Faces a New Antitrust Complaint, The New York Times, 23 February 2006.
    331
    Roberto Pardolesi and Andrea Renda, supra note 285, at p. 564 (emphasis added).
    332
    Case COMP/C-3/37.792 Microsoft, supra note 74, at paras 956970.
    333
    Roberto Pardolesi and Andrea Renda, supra note 285, at p. 562.
    334
    See US v. Microsoft Corp, supra note 315, in particular at 9597.
    335
    Although Mario Monti stated with that regard: I would like to stress that the
    Commission has not ruled that tying is illegal per se, but rather developed a detailed
    analysis of the actual impact of Microsofts behaviour, and of the efficiencies that Microsoft
    (continued...)
    181

    EC Electronic Communications and Competition Law

    Finally, two comments as to the effects of the Commissions decision


    could be added. In the broader context of competition policy, one can
    contemplate on whether tying provides the adequate framework for
    addressing leveraging of market power in network industries at all.336
    Since, [i]t is apparent from the Commissions theory that tying is not
    the disease since untying is not the cure. The problem in the
    Commissions view is that Microsoft has an advantage in distributing
    its technology that others cannot match. It would not appear that the
    standard remedy for tying solves this alleged problem since virtually
    all computer manufacturers (and consumers) will likely continue to take
    the version of Windows with media player technologies.337 It is indeed
    uncertain whether there will be any benefits from the Microsoft decision,
    especially in the medium to long term.338
    From a comparative legal perspective, it appears that the European
    Microsoft case departs from its US counterpart in terms of methodology
    and rigour of the antitrust intervention. Some authors rather radically
    conclude that if the EC decision were to be upheld, the divergence
    with American antitrust law will be clear and incontrovertible.339 Even
    not necessarily Microsoft-friendly voices, such as Lawrence Lessig,
    viewed the Microsoft decision as imperfect justice and expressed certain
    worries that, if every Microsoft innovation launches an antitrust
    investigation, then innovation will move to companies that dont pay
    such a high price.340

    alleges. In other words we did what the US Court of Appeals suggested be done: we used
    the rule of reason although we dont call it like that in Europe. See Microsoft: Statement
    by EU Commissioner Mario Monti, News Release No 47/04, 24 March 2004.
    336
    For an interesting opinion on the relation between tying and the essential facilities
    doctrine as antitrust tools directed at leveraging of market power, see Thomas A. Piraino,
    Jr., An Antitrust Remedy for Monopoly Leveraging by Electronic Networks (1998)
    Northwestern University Law Review, Vol. 93, No 1, pp. 5063. Piraino argues that antitrust
    litigants and regulators should apply the EFD rather than tying claims to problems of
    monopoly leveraging in network industries. For a critical comment, see James B. Speta,
    Tying, Essential Facilities, and Network Industries (1999) Northwestern University Law
    Review, Vol. 93, No 4, pp. 12771286.
    337
    David S. Evans and Atilano Jorge Padilla, supra note 285, at p. 505. The Commission
    imposed a fine of 497 196 304 and a number of remedies on Microsoft, among others,
    notably, to provide its competitors with interoperability information and to unbundle
    Windows Media Player from Windows operating systems. Microsoft was allowed
    however to offer the version without WMP at a same price as the version with WMP. On
    the imposed remedies and fines, see paras 994 et seq.
    338
    Roberto Pardolesi and Andrea Renda, supra note 285, at pp. 564565.
    339
    Jonathan Zuck and Laurent Ruessmann, The Transatlantic Riff in Antitrust Law,
    International Herald Tribune, 16 August 2004. See also in the same vein, Roberto Pardolesi
    and Andrea Renda, ibid. at pp. 565566.
    340
    Lawrence Lessig, Antitrust Smackdown, Wired Magazine, Issue 12.06, June 2004.

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    To conclude, beyond the scope of the Microsoft (the final outcome of


    which is still unclear341), tying may indeed lead to a decrease of consumer
    welfare and its foreclosure effects could be especially critical in newly
    emerging markets.342 But it could also have positive effects. In dynamic
    environments, such as communications, the courts will have not only to
    apply the established precedents but genuinely assess the efficiencies
    of the tie and weigh the trade-offs through a cost-benefit analysis.343
    Because, although it seems fairly easy to brand tying as an entirely
    negative (and dangerous) phenomenon, its long-term benefits are not
    unequivocal.344 We should bear in mind that Article 82 EC exists for the
    protection of competition and not competitors. The whole discussion of
    how to promote consumer welfare could also be seen within the broader
    framework of the goals of regulation, which is in itself a complex system,
    as we established in Chapter 2.345
    2.4

    Conclusion on EC Competition Rules

    The above Sections provided a brief overview of some of the main


    concepts and principles of the European Community competition law,
    concentrating on Article 82 EC as the prime instrument for control of
    unilateral behaviour of undertakings and thus market power. The result,
    although essentially incomplete, proves the versatility of competition
    rules and the complexity of their application. The outcome confirmed
    our prior findings of Chapter 3, where we analysed competition law
    and sectoral regulation on a more abstract, typological level. In the
    concrete context of EC law, we can now conclude that as one of the two
    regulatory tools applied to electronic communications (and possibly the
    only one in the future), EC competition rules could be described as a
    fine and efficient tool bringing markets into their natural state of
    competition and flexibly approaching diverse circumstances and new
    situations.
    On the other hand, what has also become evident from the above Sections
    is that the line between what is deemed anti-competitive and what
    competition compatible could be a very subtle one. Although the law
    and practice of the EC institutions have been increasingly aligned with
    economic theory, some concepts (such as, essential facilities and tying,
    as elaborated upon) still lack a firm basis and a clear pattern of
    341

    See supra note 74.


    Dennis W. Carlton and Michael Waldman, supra note 269, at p. 2.
    343
    This could be a particularly difficult task in dynamic industries exhibiting network
    effects. For instance, there could be situations where [i]n the presence of network
    externalities, a virtual ties can sometimes be effectively created by setting the price of the
    complementary product good sufficiently low. Dennis W. Carlton and Michael Waldman,
    ibid. at p. 33.
    344
    Dennis W. Carlton and Michael Waldman, ibid. at pp. 34 et seq.
    345
    See supra in particular Part 1, Chapter 2, Section 2.3.
    342

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    interpretation and implementation. Indeed, what one can observe on


    the basis of the two concrete examples that we provided, is an
    inconsistency of the regulatory potential of antitrust to approach
    communications typical situations. Whereas, in the case of the EFD, the
    test of essentiality is set at a level that is almost insurmountable and
    thus allows no access for new market players, in the case of tying,
    applying Article 82 EC may punish behaviour intrinsic to dynamic
    industries without a proper justification.
    Further, we noted that the specificities of the communications
    environment complicate the antitrust application at all levels and
    challenge some conventional patterns of analysis. It could even be
    suggested that the degree of these challenges is so high that
    competition rules cannot cope with them any longer. Such was, in
    fact, the argument made by Microsofts defence in the discussed
    case.346 The software company contended therein that the traditional
    analytical approach to market definition and market power that has
    been used by antitrust authorities is not well suited to the so-called
    new economy industries.347 It stated that, an industry under the sway
    of Moores law cannot be analysed properly by the methods
    conventionally applied to market analysis in competition law
    cases.348
    Indeed, as shown above, there are certain new elements that have to be
    considered expressly. Nonetheless, to use the words of the European
    Commission, responding to Microsofts claim, [t]his [] does not mean
    that no antitrust analysis could be applied to new economy markets.
    In fact, the specific characteristics of the market in question (for example,
    network effects and the applications barrier to entry) would rather
    suggest that there is an increased likelihood of positions of entrenched
    market power, compared to certain traditional industries.349
    The question then is whether competition law can properly tackle such
    positions of entrenched market power. Accounting for the specifics
    of electronic communications markets, it is clear that a mere examination
    of market shares will not suffice. A thorough and overall analysis of the
    346

    Case COMP/C-3/37.792 Microsoft, supra note 74, in particular at paras 465 et seq.
    On the concept of the new economies, see supra Part 1, Chapter 1, Section 4.6.
    348
    Microsofts submission of 17 November 2000, Christian von Weizscker, Comments
    on the Commissions Statement of Objections Filed against Microsoft, at paras 1234, as
    referred to by Case COMP/C-3/37.792 Microsoft, supra note 74, at para. 465
    (footnote omitted). See also Microsoft, ibid. at paras 466 et seq. For an explanation of the
    Moores Law, see supra Part 1, Chapter 1, Section 4.2.
    349
    Case COMP/C-3/37.792 Microsoft, ibid. at para. 470, referring also to Michael Katz and
    Carl Shapiro, Antitrust in Software Markets, paper prepared for the Progress and
    Freedom Foundation conference, Competition, Convergence and the Microsoft Monopoly, 5
    February 1998, available at http://faculty.haas.berkeley.edu/shapiro/software.pdf.
    347

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    economic characteristics of the relevant market would be needed before


    coming to a conclusion as to the existence of dominance. In a broader
    policy context, any decision for antitrust intervention will essentially
    involve a trade-off between short-term and long-term competition, and
    so should be handled very carefully350 and in view of the regulatory
    objectives, as discussed in Chapter 2.
    3.

    European Community Communications Specific Legislation

    Having outlined the first pillar of the communications law of the


    European Community in the face of the all-capturing, ever-applicable
    competition rules, the following Sections focus on the second instrument
    of the communications regulatory toolkit. These are the sectoral rules
    that have been designed specifically for the telecommunications
    environment. As already stressed in the course of the prior chapters,
    the EC regulatory rules for the telecommunications industry have
    undergone multiple modifications in order to transform the sector from
    monopoly to competition. This transformation process, which brings
    us to the current state of the market, was neither easy nor fast. It took
    more than 15 years and required the political will of the Member States
    and the proactive policy of the European Commission.
    Although now we seem to take this development for granted, as Pierre
    Larouche notes, [w]ithout any doubt, the complete liberalization of
    the telecommunications sector on 1 January 1998 will rank as one of the
    main achievements of the European Union in the 1990s.351 Considering
    the significance of the liberalisation process and in order to see the
    differences between the liberalisation regulatory model(s) and the
    current post-liberalisation regime, it is worth taking a brief look back
    and find out how exactly European telecommunications changed.
    3.1

    The Liberalisation of the European Community


    Communications Markets

    The liberalisation of the EC telecommunications sector has been achieved


    through a gradual erosion of the existing special and exclusive rights
    granted to the historic monopolists (i) in relation to the operation of
    infrastructure to allow competition with these and (ii) in relation to the
    services that the alternative and new operators were permitted to provide
    over these networks. This process that has unfolded in the past two
    decades commenced with the adoption of the Green Paper on the
    development of the common market for telecommunications services
    350

    Jonathan Faull and Ali Nikpay, supra note 20, at para. 3.143. The authors made the
    remark in the particular context of the application of Article 82 EC to refusal to supply.
    351
    Pierre Larouche, supra note 8, at p. xxxv.

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    EC Electronic Communications and Competition Law

    and equipment352 in 1987. The latter set out a comprehensive policy


    framework for action in the telecommunications sector. Its wide-ranging
    programme aimed at several strategic targets:
    (i)

    (ii)
    (iii)

    (iv)
    (v)

    progressive opening of the telecommunications terminal


    equipment and telecommunication services markets to
    competition;
    full mutual recognition of type-approval for terminal equipment;
    clear separation of regulatory and operational
    telecommunications activities in the Member States to conform
    to the EC Treaty competition rules;
    establishment of open access conditions to networks and services
    through the Open Network Provision (ONP) programme; and
    establishment of the European Telecommunications Standards
    Institute (ETSI)353 in order to stimulate European standardisation.
    3.1.1. The Liberalisation Package
    a.

    The Telecommunications Terminal Equipment Directive


    and the Telecommunications Services Directive

    Following the strategy of the Green Paper, the first two directives that
    provided the basis of the EC liberalisation programme and the model
    used for the Commissions further liberalisation measures were the
    Telecommunications Terminal Equipment Directive and the
    Telecommunications Services Directive:
    (i)
    Commission Directive 88/301/EEC on competition in the markets
    for telecommunications terminal equipment354 provided for the abolition
    of the monopolies traditionally enjoyed by telecommunications
    administrations in the Member States for the supply, connection and
    maintenance of terminal equipment and for the publishing of the
    technical specifications and details of their type-approval procedures
    352

    European Commission, Green Paper on the development of the common market for
    telecommunications services and equipment: Towards a dynamic European economy,
    COM(1987) 290 final, 30 June 1987. On the Green Paper, see Thomas Kiessling and Yves
    Blondeel, The EU Regulatory Framework in Telecommunications (1998)
    Telecommunications Policy, Vol. 22, No 7, pp. 571592.
    353
    The ETSI was founded in 1988. It brings together not only regulators but also network
    operators, service providers and equipment manufacturers for a total of over 600 members.
    See http://www.etsi.org. See also Andreas Neumann, The European Regulatory
    Framework for Standardisation in the Telecommunications Sector in Christian Koenig,
    Andreas Bartosch and Jens-Daniel Braun (eds.), EC Competition and Telecommunications
    Law, The Hague/London/Boston: Kluwer Law International, 2002, pp. 617690, at pp. 665
    684. On standardisation and for further relevant references, see supra Part 1, Chapter 2,
    Section 2.3.1.
    354
    Directive 88/301/EEC of 16 May 1988 on competition in the markets for
    telecommunications terminal equipment, OJ L 131/73, 27 May 1988.

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    for terminal equipment. It required the separation of regulatory and


    operational functions of the relevant undertakings responsible for the
    drawing up of specifications for terminal equipment, monitoring their
    application and granting type-approval.
    (ii)
    Commission Directive 90/388/EEC on competition in the markets
    for telecommunication services355 had a structure similar to the above
    directive. It provided for the removal of special and exclusive rights granted
    by Member States for the supply of all telecommunication services other
    than voice telephony,356 telex, mobile communications, radio paging and
    satellite services and for objective, non-discriminatory and transparent
    licensing procedures. Member States that maintained monopolies for the
    provision and operation of public telecommunications networks were
    required to open them up to third-party service providers on objective and
    non-discriminatory published terms.
    b.

    The Use of Article 86(3) of the EC Treaty

    Given the political significance of these two Directives as regards their


    substance, but arguably even more as regards the nature of the legal act
    taken, ie through use of Article 86(3) EC, both decisions were challenged
    before the Court of Justice. Article 86(3) EC is, notably, a rule within the
    EC Treaty competition rules structure that confers, atypically, a specific
    legislative competence upon the European Commission and does not
    grant the Member States the possibility to interfere, thus providing a
    direct way for Commissions action. 357 The outcome of the legal
    challenges was therefore vital for the further Commission measures and
    the overall Community telecommunications policy. In its judgment of
    19 March 1991 on the Terminal Equipment Directive358 and the later
    355

    Directive 90/388/EEC of 28 June 1990 on competition in the markets for


    telecommunications services, OJ L 192/10, 24 July 1990.
    356
    It was deemed necessary at that stage that voice telephony would not yet be liberalised
    because of its special social importance and because of the danger of financially disrupting
    the incumbents. However, by defining the term voice telephony narrowly, the Directive
    allowed for the liberalisation of telephony services other than those provided for the
    general public (eg voice services for corporate communications and all data services),
    thus providing a good basis for the operation of independent Internet Service Providers
    and the introduction of the internet in the EC later. In January 1998, the Commission
    confirmed in a Notice (see Status of voice communications on the Internet under
    Community Law, and in particular, pursuant to Directive 90/388/EEC, OJ C 6/4, 10 January
    1998) that under the definition of the Services Directive, voice on the Internet could in
    principle not be considered as voice telephony because it did not match the criteria set
    out in this definition. This ensured a fairly liberal regime for internet related services.
    For extensive comment on the narrow definition of voice telephony and its impact, see
    Pierre Larouche, supra note 8, at pp. 1014.
    357
    See Richard Whish, supra note 16, at pp. 237 et seq.
    358
    Case C202/88 France v. Commission (Terminal Equipment) [1991] ECR 1223, [1992] 5
    CMLR 552. See Pierre Larouche, supra note 8, at pp. 48 et seq. and footnote 43 therein for
    additional references on the Terminal Equipment case.

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    EC Electronic Communications and Competition Law

    judgment of 17 November 1992 on the Services Directive,359 the court


    confirmed the legality of the directives in all essential points.360
    The ruling of the Court in the Terminal Equipment case361 strengthened
    the legal basis of Article 86(3) EC as a specification in general terms of
    obligations arising under the Treaty362 and its link with Article 95 EC
    (ie the normal legal basis for the adoption of internal market
    instruments). From the Commissions point of view, three conclusions
    were drawn from these judgments of significance to the further
    development of EC telecommunications policy. First and in a more
    general context, the court, established that a monopoly could be found
    illegal under Community law363 (in contrast to the previous per se legality
    of monopolies).364 Secondly, the court confirmed the Commissions power
    to adopt directives under Article 86(3) EC in order to clarify obligations
    of the Member States deriving from Article 86(1) EC, stating that this
    power could go as far as requiring a Member State to withdraw special
    and exclusive rights. 365 Thirdly, the court asserted that where the
    withdrawal of special or exclusive rights can be required, the
    Commission could also set out the conditions in order to make the
    abolition of these special and exclusive rights effective.
    It should, however, be noted that the Commissions powers under Article
    86 EC were not found absolute but rather circumscribed. In the
    Telecommunications Services Directive case,366 the court held that, although
    the Commission had power under Article 86 EC to proscribe state
    measures, it was not entitled under that provision to require the removal
    359

    Joined Cases C-271/90, 281/90 and C-289/90 Spain and others v. Commission (Services)
    [1992] ECR 5833, [1993] 4 CMLR 100. On the issue of the proper legal basis, this ruling
    essentially followed the Terminal Equipment judgment.
    360
    Franoise Blum, The Recent Case Law of the European Court of Justice on State
    Monopolies and its Implication for Network Industries (2000) Journal of Network Industries,
    Vol. 1, pp. 5587, at pp. 57 et seq. and 75 et seq.
    361
    The ECJ followed neither the Member States nor the Commissions suggestions as to
    the relationship between Articles 86(3), 95 and 226 EC. First of all, the Court distinguished
    directives under Article 86(3) EC from infringement proceedings under Article 226 EC,
    finding that the former were specification in general terms of obligations arising from
    the Treaty. Secondly, the ECJ refused to draw a line between Articles 86(3) and 95 EC,
    finding that their respective subject matter, even if different, did not preclude overlap
    between them.
    362
    Case C-202/88 France v. Commission (Terminal Equipment), supra note 358, at para. 17.
    363
    Although the Court of Justice did not explain why a monopoly previously conceived
    as legal was regarded as contrary to Articles 86 and 28 EC. See Franoise Blum, supra
    note 360.
    364
    Case 155/73 Sacchi [1974] ECR 409, [1974] 2 CMLR 177.
    365
    Going well beyond the approach in the first Commission Directive based on Article
    86(3) EC Commission Directive 80/723/EEC of 25 June 1980 on the transparency of
    financial relations between Member States and public undertakings, OJ L 195/35, 29 August
    1980.
    366
    See supra note 359.

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    European Community Communications Law

    of obstacles of competition arising from contracts that have been


    concluded by private companies prior national legislation. In addition,
    the court pointed out that the Commission could withdraw special and
    exclusive rights only if it defined specifically the type of rights concerned
    and how they were contrary to the provisions of the Treaty.
    In political terms, the above development made it possible to link the
    liberalisation measures with the general policy measures for the
    telecommunications sector and ensure the creation of a coherent
    framework at Community level. This also allowed the Commission to
    take a highly proactive stance367 with regard to further application of
    Article 86(3) EC instruments for advancing the liberalisation of
    telecommunications markets. The informal agreement reached between
    the Commission and the Member States the so-called Compromise of
    December 1989 368 contributed to the future agreeable political
    atmosphere facilitating the following liberalisation endeavours.
    c.

    Further Liberalisation Measures

    The subsequent regulatory opening up of the telecommunications


    markets was undertaken on a step-by-step basis, following particularly
    the strategy developed in the 1992 Review of the Telecommunications
    Sector. 369 From 1994 onwards, the Satellite, 370 Cable371 and Mobile
    367

    The Commission assumed a role that in the words of Herbert Ungerer was far beyond
    the traditional role played by it under the EU competition rules (Herbert Ungerer, EU
    Competition Law in the Telecommunications, Media and Information Technology Sectors
    in Barry E. Hawk (ed.), The Fordham Corporate Law Institute Annual Proceedings, New
    York: Juris Publishing, 1996, at p. 1). Paul Nihoul and Peter Rodford notice further that,
    [t]he position adopted by the ECJ substantially modified the rapport de forces between
    the Commission and the Member States. The ECJ in fact rules that a legislative power
    was vested in the Commission to apply Treaty provisions to public monopolies (see
    Paul Nihoul and Peter Rodford, supra note 4, at para. 1.107). Indeed, thereupon, the
    Commission used all the measures available according to the EC Treaty to stimulate the
    Member States to adopt timely the liberalisation and harmonisation measures and
    stringently monitored the process.
    368
    See European Council, Press Release 253/89 of 7 December 1989. According to the
    Compromise of December 1989, the Commission agreed to seek the support of the Member
    States for the substance of its Article 86(3) EC Directives before enacting them.
    369
    European Commission, 1992 Review of the situation in the telecommunications sector,
    SEC(1992) 1048, 21 October 1992, COM(1993) 159 final, 28 April 1993. The results of this
    report formed later the core of the Bangemann Report (Europe and the Global Information
    Society: Report of the High Level Group on the Information Society, May 1994, EUR-OP
    1994), which advised the European Council for a break with the past, ending monopolies,
    making rapid progress towards fully liberalised environment and adopting a strategic
    approach towards the Information Society.
    370
    Commission Directive 94/46/EEC amending Directive 90/388 and Directive 88/301 in
    particular with regard to satellite communications, OJ L 268/15, 19 January 1994. The
    directive provided for the withdrawal of all special and exclusive rights granted by the
    Member States on satellite earth station equipment and ensured the possibility of
    connection of satellite earth station equipment to the public telecommunications network
    (continued...)
    189

    EC Electronic Communications and Competition Law

    Directives372 were adopted all of them as amendments to the Services


    Directive, in order to minimise the political and legal risks of destabilising
    the process. These directives can be seen as logical extensions of the
    original Telecommunications Services Directive, which relatively rapidly
    liberalised substantial chunks of the Community telecommunications
    sector.
    The ultimate step of the liberalisation process was undertaken through
    the Full Competition Directive.373 It lifted all remaining exclusive and
    special rights in the sector in particular for public voice telephony and
    public telecommunications networks by 1 January 1998374 and provided
    for the liberalisation, by 1 July 1996, of the use of alternative
    infrastructures (such as networks of railway, power and water
    distribution companies) for the provision of telecommunications services
    other than public voice telephony.375
    3.1.2

    The Open Network Provision Framework

    If liberalisation and competition were, however, introduced in an


    environment of inherited monopoly and weak regulation, competitive
    market forces were most likely to play an extremely modest role.376 To
    where it satisfies the relevant common technical regulations. Member States were required
    to abolish the regulatory prohibitions or restrictions on the offer of space-segment capacity
    to any authorised satellite earth station network operator.
    371
    Commission Directive 95/51/EC amending Directive 90/388/EEC with regard to the
    abolition of the restrictions on the use of cable television networks for the provision of
    already liberalised telecommunications services, OJ L 256/49, 26 October 1995. The
    directive provided for the abolition of restrictions on the use of transmission capacity on
    cable television networks for all telecommunications services, apart from voice telephony,
    from 1 January 1996 and ensured that cable television networks are allowed to interconnect
    with national public telecoms networks and with each other directly.
    372
    Commission Directive 96/2/EC amending Directive 90/388/EEC with regard to mobile
    and personal communications, OJ L 20/59, 26 January 1996. The directive aimed at ensuring
    fair competition as regards both the granting of licences to operators and the management
    of mobile telephony networks. Member States were required to abolish all exclusive rights
    in the field of mobile telecommunications and to put into place, if they have not already
    done so, authorisation procedures for granting licences. It also called on Member States
    to allow new entrants to offer their services via their own infrastructures or via alternative
    infrastructures to prevent high tariffs and excess capacity.
    373
    Commission Directive 96/19/EC amending Directive 90/388/EEC with regard to the
    implementation of full competition in telecommunications markets, OJ L 74/13, 22 March 1996.
    374
    This is notably the same date scheduled for the entry into force of the Fourth Protocol
    to GATS that provided for the liberalisation of basic telecommunications services in the
    realm of the World Trade Organization. See infra Chapter 5, Section 1.2.3.
    375
    The Full Competition Directive envisaged that those Member States with less welldeveloped or small telecommunications networks could request a temporary derogation
    from the liberalisation timetable. Five such derogations were passed for Ireland, Portugal,
    Luxembourg, Spain and Greece. These were subsequently shortened and have all now expired.
    376
    A real life example in that regard, already mentioned in the preceding chapter, is New
    Zealand, where the liberalisation process was initially undertaken through application
    of antitrust rules only. See supra Chapter 3.
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    European Community Communications Law

    rectify the existing imbalance of power between historic monopolists


    and new market players, the above-mentioned liberalisation measures
    were accompanied by harmonisation Directives. They were adopted
    under Article 95 EC (ex Article 100a)377 and created the extensive Open
    Network Provision (ONP) framework for EC telecommunications
    markets.378
    While, the liberalisation directives based on Article 86 EC had provided
    for continuously increasing competition up to the Full Competition
    Directive, the ONP Directives provided accordingly for certain
    restrictions imposed on the conduct of the incumbent
    telecommunications operators in order to preclude ex ante abuse of the
    dominant position, the grant of exclusive or special rights had previously
    conferred upon them. At that time, the situation in the European
    telecommunications markets was such that the simple removal of the
    special and exclusive rights from the incumbent did not of itself mean
    competition and multitude of market players. The market transformation
    from monopoly to competition had to be guided and this guidance was
    377

    Article 95 EC is the provision enabling the introduction of measures for the


    establishment and functioning of the internal market. See supra Chapter 3, Section
    2.2.
    378
    The ONP framework consisted of the following directives:
    Council Directive 90/387/EEC of 28 June 1990 on the establishment of the internal market
    for telecommunications services through the implementation of open network provision,
    OJ L 192/1, 24 July 1990, as amended by Directive 97/51/EC of 6 October 1997 amending
    Council Directives 90/387/EEC and 92/44/EEC for the purpose of adaptation to a
    competitive environment in telecommunications, OJ L 295/23, 29 October 1997. Directive
    97/13/EC of 10 April 1997 on a common framework for authorisations and individual
    licences in the field of telecommunications services, OJ L 117/15, 7 May 1997. Directive
    97/33/EC of 30 June 1997 on interconnection in telecommunications with regard to
    ensuring universal service and interoperability through application of the principles of
    the Open Network Provision (ONP), OJ L 199/32, 26 July 1997. Council Directive 92/44/
    EEC on the application of open network provision to leased lines, OJ L 165/27, 19 June
    1992 as amended by Directive 97/51/EC of 6 October 1997 amending Council Directives
    90/387/EEC and 92/44/EEC for the purpose of adaptation to a competitive environment
    in telecommunications, OJ L 295/23, 29 October 1997. Directive 95/47/EC of 24 October
    1995 on the use of standards for the transmission of television signals, OJ L 281/51, 23
    November 1995. Directive 98/10/EC of 26 February 1998 on the application of Open
    Network Provision (ONP) to voice telephony and on universal service for
    telecommunications in a competitive environment, OJ L 101/24, 1 April 1998. Directive
    97/66/EC of 15 December 1997 concerning the processing of personal data and protection
    of privacy in the telecommunications sector, OJ L 24/1, 30 January 1998. In addition to the
    above, some wireless/mobile instruments were also adopted: Council Directive 87/372/
    EEC of 25 June 1987 on the frequency bands designed for the co-ordinated introduction
    of public pan-European cellular digital land-based mobile communications in the
    European Community, OJ L 196/85, 17 July 1987; Council Directive 90/544/EC of 9 October
    1990 on the frequency bands designed for the co-ordinated introduction of pan-European
    land-based public radio paging in the Community (ERMES), OJ L 310/28, 9 November
    1990; Council Directive 91/287/EC of 3 June 1991 on the frequency band designed for the
    co-ordinated introduction of digital European cordless communication (DECT) into the
    Community, OJ L 144/45, 8 June 1991.

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    EC Electronic Communications and Competition Law

    provided by the sector specific rules of the ONP. They prescribed


    asymmetric rules heavier regulation and special obligations for the
    historic monopolists and, respectively, a lighter regime for the new
    players.
    The ONP model had a three-tier structure. The ultimate addressees of
    the ONP framework and subject to the heaviest regulatory obligations
    were the so-called organisations which have significant market
    power.379 These SMP undertakings were defined through a bright line
    rule, namely a market share of more than 25 per cent of the relevant
    market. The application of the definition was in the hands of the national
    regulatory authorities, which decided which telecommunications
    operators met this rule-of-thumb criterion. They were, however, free to
    stray from the 25 per cent benchmark and make a determination based
    upon the organisations ability to influence the market conditions, its
    turnover relative to the size of the market, its control of the means of
    access to end-users, its access to financial resources and its experience
    in providing products and services in the market.380 The second level
    of addressees, subject to some regulatory constraints, including the need
    to obtain an individual licence, but also benefiting from certain
    privileges, such as the right to interconnection, were providers of public
    telecommunications networks and public/publicly available
    telecommunications services.381 Organisations having significant market
    power were also likely to provide such services and networks and thus
    be subject to this tier of regulation as well. At the bottom of this ONP
    architecture was the general regulatory framework applicable to all
    actors on the market and to the provision of all kinds of services or
    networks. They were on the positive side of the so-created asymmetric
    regulatory structure and enjoyed more rights than obligations allowing
    them to enter and settle on the market.382
    The measures imposed by the ONP Directives covered interconnection,
    licensing, data protection and universal service. They went beyond the
    measures normally imposed under Article 82 EC on dominant
    undertakings, laying down rules on transparency, non-discrimination,
    obligations to supply and pricing.383

    379

    As defined by Council Directive 92/44/EEC of 5 June 1992 on the application of Open


    Network Provision to leased lines, ibid. at Article 2(1).
    380
    Directive 92/44, Article 2(3), as replaced by Directive 97/51, Article 2(3); Directive 97/
    33, Article 4(3); Directive 98/10 Article 2(2)(i), supra note 378.
    381
    For the corresponding definitions and their interpretation, see Pierre Larouche, supra
    note 8, at pp. 27 et seq.
    382
    The above paragraph is based on Pierre Larouche, ibid. at pp. 2930.
    383
    Access Notice, at para. 15.

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    European Community Communications Law

    In the context of the above, to use the words of Edward Pitt, various
    steps have been taken to stimulate competition and assist market entry
    or to recast the rather overused analogy, to make sure that the level
    playing field was not level and that the ex-monopolist [] should be
    playing rugby uphill, into the wind and rain.384
    As a conclusion, it may be noted that the ONP could be seen as
    implementing in the regulatory field the liberalising drive of Article 86
    EC Directives.385 These two facets of the EC telecommunications policy
    and law should not be thus regarded as merely co-existing beside one
    another. 386 They should rather be perceived as overlapping and
    interacting with each other, whereby liberalisation measures taken by
    the Commission gave the impetus and served as a reference for the
    harmonisation measures, enacted later by the Council and the European
    Parliament. 387 The overall success of the EC telecommunications
    liberalisation exercise was precisely due to this mix of deregulation and
    regulation.
    3.1.3 Relationship between EC Competition Law and the Sectoral
    Rules
    During the transition period from monopoly to competition, it is
    important to bear in mind that the liberalisation and harmonisation
    packages did not exhaust the applicable law to European
    telecommunications. As already stressed, the ECJ made it clear from
    the very outset of telecommunications restructuring in the British
    Telecommunications case that the competition rules of the EC Treaty were
    also fully applicable to the sector.388 They represented, in that sense, the
    first pillar of the so-called dual regime of regulation that was applied
    to EC communications markets.389

    384

    Edward Pitt, Competition Law in Telecommunications in Ian Walden and John Angel
    (eds.), Telecommunications Law, London: Blackstone Press, 2001, pp. 249278, at p. 252
    (emphasis added).
    385
    Vassilis Hatzopoulos, LOpen Network Provision (ONP) Moyen de la drgulation
    (1994) Revue Trimestrielle de Droit Europen, Vol. 30, at p. 63, as referred to by Klaus W.
    Grewlich, Cyberspace: Sector-Specific Regulation and Competition Rules in European
    Telecommunications (1999) Common Market Law Review, Vol. 36, pp. 937969, at p. 951.
    386
    A view suggested, eg by Andreas Bartosch, Europisches Telekommunikationsrecht
    im Jahr 1998 (1999) Europische Zeitschrift fr Wirtschaftsrecht, pp. 421428, at p. 421.
    387
    Paul Nihoul defines the relationship between the two sets of rules as one of convergence.
    See Paul Nihoul, Convergence in European Telecommunications A Case Study on the
    Relationship between Regulation and Competition (Law) (1998/99) International Journal
    of Communications Law and Policy, Issue 2, available at http://www.ijclp.org.
    388
    See supra Section 1.2.
    389
    See infra Figure 2.

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    EC Electronic Communications and Competition Law

    The European Commission has clearly stated in that regard that,


    competition rules continue to apply in circumstances where other Treaty
    provisions or secondary legislation are applicable [...]. The internal
    market and competition provisions of Community law are both
    important and mutually reinforcing for the proper functioning of the
    sector.390 The Commission added further in the Access Notice that,
    [g]iven the detailed nature of ONP rules and the fact that they may go
    beyond the requirements of Article 86 [now Article 82 EC], undertakings
    operating in the telecommunications sector should be aware that
    compliance with the Community competition rules does not absolve
    them of their duty to abide by obligations imposed in the ONP context,
    and vice versa.391
    A proof of this vice versa case, ie that compliance with the sectoral rules,
    albeit being more definitive and detailed, does not free undertakings
    from their duty to abide EC competition law, is the Deutsche Telekom
    decision.392 In that case, the Commission found a case of margin squeeze,
    since the difference between the wholesale prices for unbundled access
    to the local loop, which Deutsche Telekom (DT) charged its competitors
    and the prices it charged the end-users for access to its own fixed
    network, was not sufficient to allow the competitors to compete with
    DT in the provision of end-user access over local networks.393 The
    Commission qualified this situation as an abuse of dominance through
    unfair prices in the sense of Article 82(2)(a) EC, most notably despite the
    fact that DTs local access tariffs had been approved by the German
    telecom regulatory authority Regulierungsbehrde fr
    Telekommunikation und Post (RegTP).394 The Commission reaffirmed
    thereby the principle that, competition rules may apply where the
    sector-specific legislation does not preclude the undertakings it governs
    from engaging in autonomous conduct that prevents, restricts or distorts
    competition.395 The co-existence and the simultaneous application of
    390

    Access Notice, at para. 58; Guidelines on the application of EEC competition rules in
    the telecommunications sector, supra note 29, at paras 15 and 16. See also Case IV/M.993
    Bertelsmann/Kirch/Premiere, OJ [1999] L 53/1 and Case IV/M.1027 Telekom/BetaResearch, OJ
    [1999] L 53/31.
    391
    Access Notice, at para. 22.
    392
    Commission Decision 2003/707/EC of 21 May 2003 relating to a proceeding under
    Article 82 of the EC Treaty, Case COMP/C-1/37.451, 35.578, 37.579 Deutsche Telekom AG,
    OJ L 263/9, 14 October 2003.
    393
    Ibid. at para. 57.
    394
    Since 13 July 2005 reformed into Bundesnetzagentur fr Elektrizitt, Gas,
    Telekommunikation, Post und Eisenbahnen (BNetzA) Federal Network Agency for
    Electricity, Gas, Telecommunications, Postal and Railway Markets. See http://
    www.bundesnetzagentur.de.
    395
    Ibid. at para. 54, referring to Joined Cases C-359/95 and C-379/95 P Commission and
    France v. Ladbroke Racing [1997] ECR I-6225, at para. 34; Case T-228/97 Irish Sugar v.
    Commission, supra note 173, at para. 130; Case T-513/93 Consiglio Nazionale degli Spedizionieri
    Doganali v. Commission [2000] II-1807, at paras 5960.

    194

    European Community Communications Law

    communications specific and antitrust rules remains thus an undisputed


    fact in the Community context and something that all parties to the
    regulatory and market processes have to reckon with.396
    The figure below visualises the relevant instruments implemented for
    the achievement of competition in the European telecommunications
    sector.
    Figure 2: EC Regulatory Instruments Applied to Telecommunications
    Liberalisation Directives based on
    Article 86(3) EC issued by the
    Commission

    Green Papers

    Harmonisation Directives based on


    Article 95 EC issued by the
    Council/Parliament

    COMPETITION ON THE MARKETS


    FOR TELECOMMUNICATIONS INFRASTRUCTURE AND SERVICES

    General competition rules

    Source: European Commission397

    3.1.4. Key Regulatory Decisions


    Telecommunications Package

    of

    the

    1998

    EC

    The application of the Article 86 instruments spearheaded 398 the


    liberalisation of the EC telecommunications sector and with this, of a
    core sector of the then still emerging Information Society. At the same
    time, the development demonstrated that, the full effect of the EU
    competition law in this respect could only be achieved by carefully
    correlating the measures with the development of the general regulatory
    framework and the build-up of a national regulatory infrastructure.
    The approach was based on the conviction that the objectives at EC level
    of liberalising sectors must be internalised into Member States political
    and regulatory structures to create the necessary base and the political
    396

    Interestingly, there has been an opposite development in the US In the case of Trinko,
    the US Supreme Court suggested with regard to the interface between competition law
    and sector specific regulation that, where a regulatory structure designed to deter and
    remedy anti-competitive harm [] exists, the additional benefit provided by antitrust
    enforcement will tend to be small, and it will be less plausible that the antitrust laws
    contemplate such additional scrutiny. See Trinko, supra note 206, at p. 12. On the question
    of whether an analogy to EC context is possible and justified, see Damien Geradin, supra
    note 201, at pp. 1546 et seq.
    397
    Available at http://ec.europa.eu/information_society/policy/ecomm/history/
    index_en.htm.
    398
    An expression used by Pierre Larouche (supra note 8, at p. 40).

    195

    EC Electronic Communications and Competition Law

    mass required for major liberalisation exercises.399 As stated by the


    Commission in the Fifth Report on the Implementation of the
    Telecommunications Regulatory Package, the combination of sectorspecific legislation and application of competition rules has worked well.
    Indicators of market activity demonstrate the existence of thriving and
    rapidly evolving telecommunications markets in the Member States.400
    The transformation from monopoly to competition of the EC
    communications sector had indeed been a success.401
    Bearing in mind the foregoing and our task to examine the current EC
    regime for telecommunications, we shall not engage in a full-scale
    analysis of the 1998 framework.402 However, it is of particular significance
    to lay emphasis on a few of its key features, so that we could clearly
    discern the regulatory decisions and the novelty of the 2002 package.
    These salient features could be summarised (in random order) as follows:

    399

    cumulative application of sector specific regulation and


    competition rules;
    special (with more restrictions and obligations) rules for the
    operators with significant market power, which in most of the
    cases happened to be the former Public Telecommunications
    Operators;
    there was an automatic link between the designation of SMP and
    the specific obligations;
    SMP for the purposes of sector specific regulation was not identical
    with the concept within the competition law practice of the
    European Court of Justice and the Court of First Instance, but
    rather based on a simplified bright line rule of 25 per cent market
    share;

    Herbert Ungerer, Use of EC Competition Rules in the Liberalisation of the European


    Unions Telecommunications Sector: Assessment of Past Experience and Conclusions for
    Use in Other Utility Sectors, speech, Brussels, 6 May 2001, at p. 7.
    400
    European Commission, Towards a new framework for electronic communications
    infrastructure and associated services: the 1999 Communications Review, COM(1999)
    539 final, 10 November 1999, at p. 4, summarising the pertinent conclusions of the Fifth
    Report on the implementation of the telecommunications regulatory package, COM(1999)
    537 final, 10 November 1999.
    401
    On the reasons for the success of the liberalisation exercise in EC telecommunications
    and the active role of the Commission, see Herbert Ungerer, Access Issues under EU
    Regulation and Antitrust Law: The Case of Telecommunications and Internet Markets,
    Incidental Paper, Program on Information Resources Policy, Harvard University, July
    2000, available at http://www.pirp.harvard.edu, at pp. 1213. For the factual data proving
    the development of competitive EC communications markets, see European Commission,
    European Electronic Communications Regulation and Markets 2004, supra note 123, Vol. I,
    at pp. 4566 and European Commission, European Electronic Communications Regulation
    and Markets 2006, COM(2007) 155, 29 March 2007.
    402
    For an excellent analysis of the previous EC telecommunications regime and its
    development, see Pierre Larouche, supra note 8, especially at pp. 1 et seq.

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    European Community Communications Law

    markets for the purposes of sector specific regulation were predefined in the Directives. No additional market definition was
    conducted;
    once an operator was designated as one having SMP, the whole
    package of remedies was automatically imposed upon it. The
    national regulatory authorities had no discretion to choose among
    the different remedies available;
    the remedies imposed were normally heavier than those available
    under competition rules.
    3.2

    The 2002 Electronic Communications Framework

    The accomplishment of the liberalisation process was not an end in itself.


    Namely because of its success, the rapid technological advances and
    the ever more pronounced convergence, the new situation of the
    telecommunications sector demanded to be reflected in a new legal
    framework.403 The convergence phenomenon, ie the ability of different
    network platforms to carry essentially similar services and the coming
    together of telecommunications, media and information technologies
    industries, 404 could not be properly dealt with under the existing
    framework, which was based on old technology-based definitions and
    separation of the sectors infrastructures. The need for a fresh regulatory
    approach was further enhanced by some persisting problems within
    the 1998 package, such as, inter alia, disparities in the implementation
    of the ONP rules at national level; comparatively low level of
    harmonisation, in particular of the Community licensing and
    interconnection regimes; enduring dominance of the incumbents in their
    national markets, especially at the level of the local loop.405 There was a
    manifest need for a better co-ordination between general competition
    403

    This was also an obligation for the Commission since all harmonisation Directives
    within the ONP framework included a review clause. See eg Article 23 of Directive 97/
    13/EC on a common framework for authorisations and individual licences in the field of
    telecommunications services, supra note 378.
    404
    On convergence, see Part 1, Chapter 1, Section 4.3.
    405
    Despite the overall success of the liberalisation process, the markets for the so-called
    last mile of the telecommunications networks remained under incumbents control in
    a predominant number of the Member States with unsatisfactory level of competition.
    This, at a later stage, required the adoption of Regulation (Regulation EC/2887/2000 on
    unbundled access to the local loop, OJ L 336/4, 30 December 2000) in order to facilitate
    the solving of the local loop unbundling predicament and stimulate competition in
    these segments of the European telecommunications market. For a complete list of the
    identified problems to be remedied, see Fifth Report on the implementation of the
    telecommunications regulatory package, supra note 400, at pp. 2 et seq. See also Herbert
    Ungerer, supra note 401, at pp. 1617 and Pierre A. Buigues, The Competition Policy
    Approach in Pierre A. Buigues and Patrick Rey (eds.), The Economics of Antitrust and
    Regulation in Telecommunications, Cheltenham, UK: Edward Elgar Publishing, 2004, pp. 9
    26, at pp. 1115.

    197

    EC Electronic Communications and Competition Law

    and sector specific rules406 and enhanced coherence in the overall


    regulatory regime.
    In this context, building upon the Green Paper on convergence407 and
    the extensive follow-up consultations,408 on 10 November 1999, the
    Commission presented the 1999 Communications Review: Towards a
    New Framework for the Electronic Communications Infrastructure and
    Associated Services (the 1999 Communications Review).409
    The latter Communication identified the following trends of significance
    to the devising the future regulatory framework:
    (i)

    convergence of telecommunications, broadcasting and


    information technology sectors;
    (ii)
    globalisation of technologies and markets;
    (iii) mergers and acquisitions changing the nature of the industry and
    relationships between key players;
    (iv) the role of the Internet in overturning traditional market structures
    and blurring the distinction between voice and data transmission;
    (v)
    improvements in processing, access and basic technologies, in
    particular wave division multiplexing on optical fibres and digital
    subscriber loops;
    (vi) the emergence of wireless applications;
    (vii) software reconfigurable technologies designed to meet the specific
    local market requirements; and
    (viii) the development of new technologies within the media sector, in
    particular digital TV.410
    Accounting for all of the above challenges, the European Commission
    reviewed thoroughly the 1998 telecommunications framework and
    considered the need to allow electronic infrastructure and services of
    all kinds to be provided, insofar as possible, under one regulatory
    umbrella. 411 The Commission also took the view that the future
    regulatory obligations should be (i) legally certain; (ii) kept to a
    406

    See eg Paul Nihoul and Peter Rodford, supra note 4, at paras 1.122 et seq.
    Green Paper on the convergence of the telecommunications, media and information
    technology sectors, and the implications for regulation, Towards an Information Society
    approach, COM(1997) 623, 3 December 1997. On this key document, see Wolf Sauter,
    The EC Commission Green Paper on Regulation for Convergence (1998) Utilities Law
    Review, Vol. 9, No 4, pp. 167 et seq.
    408
    See European Commission, Results of the public consultation on the Green Paper
    [COM(1997) 623], COM(1999) 108 final, 10 March 1999.
    409
    European Commission, Towards a new framework for electronic communications
    infrastructure and associated services: the 1999 Communications Review, supra note 400.
    410
    The 1999 Communications Review, at pp. 12.
    411
    The Green Paper stressed upon the possible far-reaching effects of the convergence
    phenomenon. The Paper did not however automatically assume that convergence at one
    (continued...)
    407

    198

    European Community Communications Law

    minimum necessary to meet clearly defined objectives; (iii) be


    technologically neutral and that (iv) enforcement should be as close as
    possible to the activity being regulated.412
    The 1999 Communications Review gave the basis for the new regulatory
    regime and envisaged the lines along which it should be built. It stated that
    the new framework will seek to reinforce competition in all market
    segments, particularly at local level and that it should be designed to cater
    for new, dynamic and largely unpredictable markets with many more
    players than today. In this sense, the Commission declared its willingness
    to give up the crude but potentially effective toolkit413 of the 1998
    communications package. It sought rather a light regulatory approach for
    new services markets, while ensuring that dominant operators do not abuse
    their market power. Regulation implemented as a proxy for competition
    was to be reduced as markets become more competitive and it would thereby
    be limited to areas where policy objectives cannot be achieved by
    competition only. The dual regime, ie application of sector specific regulation
    and competition rules was however not abolished. It was preserved as such
    but the sector specific rules were given a new antitrust design. Furthermore,
    market-by-market sunset clauses were included to trigger the withdrawal
    of the sectoral rules once the defined markets were found to have achieved
    the necessary level of competition.414
    3.2.1 Design of the 2002 Regulatory Framework
    a.

    Hard Law Instruments

    The 2002 EC regulatory regime for electronic communications simplifies


    substantially the previous one the applicable Directives are reduced
    from some twenty-six to six.415 They comprise one Framework Directive
    and four Specific Directives adopted on the basis of Article 95 EC by the
    Council and the European Parliament and one Commission Directive.416
    level inevitably leads to the same degree of convergence at other levels. Equally, it made
    no assumption that convergence in technologies, industries, services and/or markets will
    necessarily imply a need for a uniform regulatory environment. For a critical analysis of
    the Green Paper on convergence, see Mark Naftel and Lawrence J. Spiwak, The Telecoms
    Trade War: The United States, the European Union and the World Trade Organization,
    Oxford/Portland, Oregon: Hart Publishing, 2000, at pp. 345348.
    412
    1999 Communications Review, at pp. 1214.
    413
    Martin Cave, Economic Aspects of the New Regulatory Regime for Electronic
    Communications Service in Pierre A. Buigues and Patrick Rey (eds.), The Economics of
    Antitrust and Regulation in Telecommunications, Cheltenham, UK: Edward Elgar Publishing,
    2004, pp. 2741, at p. 27.
    414
    See infra Section 3.2.4.
    415
    For a visualisation of the design of the 2002 regulatory package as compared to that of
    1998, see infra Figure 3.
    416
    Commission Directive 2002/77/EC of 16 September 2002 on competition in the markets
    for electronic communications networks and services, OJ L 249/21, 17 September 2002.

    ..)
    199

    EC Electronic Communications and Competition Law

    The latter directive prescribes that only those provisions from the
    previous liberalisation instruments that are necessary for maintaining
    liberalisation need to be retained.417 It imposes, in fact, no additional
    obligations on the Member States418 but stresses the abolition of exclusive
    and special rights and clarifies the transition from the old to the new
    regulatory framework, especially in terminological terms.
    The Framework Directive419 is the core document of the 2002 regime. It
    establishes a harmonised framework for the regulation of electronic
    communications services, electronic communications networks and
    associated facilities. It contains the key principles, sets out the structure
    of the regime as a whole and clarifies the status and obligations of the
    National Regulatory Authorities (NRAs). The Specific Directives,
    essentially as being such, build upon the basis given by the Framework
    417

    The Directives repealed by the Commissions instrument are: Commission Directive


    90/388/EEC of 28 June 1990 on competition in the markets for telecommunications services,
    supra note 355; Articles 2 and 3 of Commission Directive 94/46/EEC amending Directive
    90/388 and Directive 88/301 in particular with regard to satellite communications, supra
    note 370; Commission Directive 95/51/EC amending Directive 90/388/EEC with regard
    to the abolition of the restrictions on the use of cable television networks for the provision
    of already liberalised telecommunications services, supra note 371; Commission Directive
    96/2/EC amending Directive 90/388/EEC with regard to mobile and personal
    communications, supra note 372; Commission Directive 96/19/EC amending Directive
    90/388/EEC with regard to the implementation of full competition in telecommunications
    markets, supra note 373; Commission Directive 99/64/EC amending Directive 90/388 in
    order to ensure that telecommunications networks and cable TV networks owned by a
    single operator are separate legal entities, OJ L 175/39, 10 July 1999. Directive 88/301/EEC
    on competition in the markets for telecommunications terminal equipment (OJ L 131/73,
    27 May 1988) is notably not repealed by the Commission Directive. The 2002 regulatory
    regime contains however few rules regarding equipment and aimed ensuring
    interoperability of digital equipment in the face of convergence. See in particular, Article
    24 and Annex VI of the Universal Service Directive and Article 18 of the Framework
    Directive.
    418
    The only additional obligations are those contained in Article 7. It concerns satellites
    and requires Member States to ensure the abolition of regulatory restrictions on the
    offering of space segment capacity to any authorised satellite earth station network
    operator.
    419
    Directive 2002/21/EC of the European Parliament and of the Council of 7 March 2002
    on a common regulatory framework for electronic communications networks and services
    (Framework Directive), OJ L 108/33, 24 April 2002. The Framework Directive effectively
    replaces the ONP Framework Directive (Directive 90/387/EEC on the establishment of
    the internal market for telecommunications services through the implementation of open
    network provision, supra note 378) and repeals Council Decision 91/396/EEC of 29 July
    1991 on the introduction of a single European emergency call number, OJ L 217/31, 6
    August 1991; Council Directive 92/44/EEC of 5 June 1992 on the application of open
    network provision to leased lines, supra note 378; Council Decision 92/264/EEC of 11
    May 1992 on the introduction of a standard international telephone access code in the
    Community, OJ L 137/21, 20 May 1992; the TV Standards Directive 95/47/EC (supra
    note 378); the Licensing Directive 97/13/EC (supra note 378); the Interconnection Directive
    97/33/EC (supra note 378); Directive 98/10/EC on the application of open network
    provision (ONP) to voice telephony and on universal service for telecommunications in
    a competitive environment, supra note 378.

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    European Community Communications Law

    Directive, and regulate different aspects of electronic communications


    networks and services.
    These specific measures are:

    Directive 2002/20/EC of the European Parliament and of the


    Council of 7 March 2002 on the authorisation of electronic
    communications networks and services (the Authorisation
    Directive);420
    Directive 2002/19/EC of the European Parliament and of the
    Council of 7 March 2002 on access to, and interconnection of,
    electronic communications networks and associated facilities (the
    Access Directive);421
    Directive 2002/22/EC of the European Parliament and of the
    Council of 7 March 2002 on universal service and users rights
    relating to electronic communications networks and services (the
    Universal Service Directive);422
    Directive 2002/58/EC of the European Parliament and of the
    Council of 12 July 2002 concerning the processing of personal
    data and the protection of privacy in the electronic
    communications sector (Directive on Privacy and Electronic
    Communications).423

    420

    OJ L 108/21, 24 April 2002. The Authorisation Directive effectively replaces all existing
    licensing and authorisation directives and decisions: the Licensing Directive 97/13/EC
    (supra note 378); the GSM Directive 87/372/EEC (supra note 378); the pan-European
    paging (ERMES) Directive 90/544/EC (supra note 378); Recommendation 86/659/EEC the
    coordinated introduction of the integrated services digital network (ISDN) in the European
    Community, OJ L 382/36, 31 December 1986; Digital European Cordless
    Telecommunications (DECT) Directive 91/287/EEC (supra note 378); the Emergency
    Number Decision 91/396/EEC (supra note 419); the International Access Code Decision
    92/264/EEC (supra note 419); and Decision 128/1999/EC on the co-ordinated introduction
    of a third generation mobile and wireless communications system (UMTS) in the
    Community, OJ L 17/1, 22 January 1999.
    421
    OJ L 108/7, 24 April 2002. The Access Directive effectively replaces the relevant
    provisions of the Interconnection Directive 97/33/EC (supra note 378) and the ONP Leased
    Lines Directive 92/44/EEC (supra note 378) and builds upon the principles of the TV
    Standards Directive 95/47/EC (supra note 378).
    422
    OJ L 108/51, 24 April 2002. The Universal Service Directive effectively replaces the
    relevant provisions of the Interconnection Directive 97/33/EC (supra note 378) and the
    Voice Telephony Directive 98/10/EC (supra note 378).
    423
    OJ L 201/37, 31 July 2002. The directive on privacy and electronic communications
    replaces Directive 97/66/EC concerning the processing of personal data and the protection
    of privacy in the telecommunications sector, supra note 378. The e-privacy directive was
    adopted later than the rest of the package and the date for its transposition was set for 31
    October 2003.

    201

    EC Electronic Communications and Competition Law

    Other measures that need to be equally considered parts of the current


    EC communications regime are the decision on radio spectrum,424 the
    Commission Decision on establishing the European Regulators Group,425
    as well as the list of standards and/or specifications for electronic
    communications networks, services and associated facilities and services
    published in accordance with Article 17 of the Framework Directive.426
    The regulation on unbundled access to the local loop427 that introduced
    the requirement for providing access to the incumbents local
    infrastructure428 in advance of the entry into force of the rest of the
    package429 was carried over into the 2002 framework but subject to
    immediate review in the light of the prevailing market conditions.430
    The current framework has been in force since 24 April 2002. The Member
    States were given a period to adopt and publish the laws, regulations
    and administrative provisions necessary to comply with it until 24 July
    2003.431
    424

    Decision 676/2002/EC of the European Parliament and of the Council of 7 March 2002
    on a regulatory framework for radio spectrum policy in the European Community (Radio
    Spectrum Decision), OJ L 108/1, 24 April 2002.
    425
    Commission Decision of 29 July 2002 on establishing the European Regulators Group
    for electronic communications networks and services, OJ L 200/38, 30 July 2002, as
    amended by Commission Decision of 14 September 2004, OJ L 293/30, 16 September 2004.
    426
    List of standards and/or specifications for electronic communications networks, services
    and associated facilities and services, OJ L 331/32, 31 December 2002.
    427
    Regulation 2887/2000/EC on unbundled access to the local loop, supra note 405.
    428
    The Regulation mandates unbundled access only to the metallic local loops of notified
    operators designated as having SMP. The local loop is defined as the physical twisted
    metallic pair circuit connecting the network termination point at the subscribers premises
    to the main distribution frame or equivalent facility in the fixed public telephone network.
    The 2002 Access Directive contains obligations of access to, and use of, specific network
    facilities (Article 12), including unbundled access to the local loop.
    429
    As of 31 December 2000.
    430
    Access Directive, at Recital 12. The Framework Directive states at Recital 43 in that
    regard that, [t]he Commission should monitor the transition from the existing framework
    to the new framework, and may in particular, at an appropriate time, bring forward a
    proposal to repeal Regulation (EC) No 2887/2000 of the European Parliament and of the
    Council of 18 December 2000 on unbundled access to the local loop. The Regulation is
    to be withdrawn with the 2007 update of the e-communications framework. See
    Commission Staff Working Document annexed to the Commission Communication on
    the review of the EU regulatory framework for electronic communications networks and
    services [COM(2006) 334 final]: Proposed Changes, SEC(2006) 816, 28 June 2006.
    431
    After the given period of time for the transposition of a Directive (which according to
    EC law means adoption of instruments and measures in national law, or respectively,
    changing the existing national law in order to achieve the goals prescribed in the Directive),
    the Commission has the right to invoke infringement procedures before the ECJ (Article
    226 EC) in order to ensure that Member States comply with their obligations. Normally,
    such procedures have considerable political pressure and if the ECJ finds indeed the
    presence of infringement, heavy fees may be set in addition with the requirement to
    comply. On the current state of transposition of the e-communications package, see the
    European Commission, European Electronic Communications Regulation and Markets
    2006, supra note 401.

    202

    European Community Communications Law

    Figure 3: Design of the 2002 Framework


    ARTICLE 95 DIRECTIVES432
    ONP Framework Directive (90/387/EEC amended
    by 97/51/EC)

    Framework Directive

    Licensing Directive (97/13/EC)


    GSM Directive (87/372/EEC)
    ERMES Directive (90/544/EC)

    Authorisation Directive

    DECT Directive (91/287/EC)

    ONP Leased Lines Directive (92/44/EEC


    TV Standards Directive (95/47/EC)
    Access and Interconnection Directive
    Interconnection Directive (97/33/EC)
    Voice Telephony Directive (98/10/EC)

    Telecoms Data Protection Directive (97/66/EC)

    Universal Service Directive

    Telecoms Data Protection Directive

    ARTICLE 86 DIRECTIVES433
    ONP Framework Directive (90/387/EEC amended
    by 97/51/EC)

    Framework Directive

    Licensing Directive (97/13/EC)


    GSM Directive (87/372/EEC)
    ERMES Directive (90/544/EC)

    Authorisation Directive

    DECT Directive (91/287/EC)

    ONP Leased Lines Directive (92/44/EEC


    TV Standards Directive (95/47/EC)
    Access and Interconnection Directive
    Interconnection Directive (97/33/EC)
    Voice Telephony Directive (98/10/EC)

    Telecoms Data Protection Directive (97/66/EC)

    b.

    Universal Service Directive

    Telecoms Data Protection Directive

    Soft Law Instruments

    In the pursuit of legal certainty, the design of the new framework for
    electronic communications includes also certain soft-law instruments
    as complimentary to the regulatory regime that should provide guidance
    and ensure consistency of the approaches. Although they are by their
    432

    For the full names of the Directives and the precise references, see supra note 378.
    For the full names of the Directives and the precise references, see supra Section 3.1.1
    and note 417.

    433

    203

    EC Electronic Communications and Competition Law

    legal nature non-binding,434 these soft-law tools play, as we shall see


    below, a critical role in the functioning of the SMP mechanism. These
    are the Commission SMP Guidelines435 (adopted in accordance with
    Article 15(2) of the Framework Directive); the Relevant Market
    Recommendation436 (adopted by the Commission in accordance with
    Article 15(1) of the Framework Directive) and the more specific
    Recommendation on accounting separation and cost accounting.437 These
    measures are to be regularly updated in order to keep up with the new
    developments in the communications market and flexibly deal with
    emerging problems.
    Besides the soft law measures, the synchronisation between the Member
    State level and the Community one in implementing the current
    regulatory framework is secured through the mechanism contained in
    Article 7 of the Framework Directive. This so-called special regulatory
    procedure438 is indeed the primary tool for coordination between the
    national agencies and the Commission and crucial for the development
    of the internal market for electronic communications networks and
    services through consistent regulation and transparency.439
    434

    Guidelines as a legal instrument fall under the category of notices in the EC law structure.
    In the telecommunications sector, the Commission has already made the experience of using
    such a measure through the 1991 Guidelines and the Access Notice. These have no binding
    force but show the position of the European Commission and often provide a valuable digest
    of the existing case law. They are however without prejudice to the application of Community
    law and to its interpretation by the Court of Justice and the Court of First Instance.
    Recommendations have equally no binding force upon the Member States (Article 249(4)
    EC). However, any recommendation or soft law instrument should be taken into account by
    national authorities and national courts. See Case C-322/88 Grimaldi v. Fonds des maladies
    professionnelles [1989] ECR I-4407, [1991] 2 CMLR 265, at para. 18. The legal force of the Relevant
    Market Recommendation is further reinforced by the Article 7 Framework Directive procedure
    and the Commissions power to veto NRAs measures.
    435
    Guidelines on market analysis and the assessment of significant market power under
    the Community regulatory framework for electronic communications networks and
    services, supra note 13.
    436
    Recommendation on relevant product and service markets within the electronic
    communications sector susceptible to ex ante regulation in accordance with Directive
    2002/21/EC, supra note 91.
    437
    Commission Recommendation of 19 September 2005 on accounting separation and
    cost accounting under the regulatory framework for electronic communications, OJ L
    266/64, 11 October 2005 and accompanying Explanatory Memorandum of 19 September
    2005. For the reviewed version of the Recommendation of 2006, see supra note 99.
    438
    As framed by Paul Nihoul and Peter Rodford, supra note 4, at p. xxxiv. On the Article 7
    mechanism, see Paul Nihoul and Peter Rodford, ibid. at paras 3.110 et seq. See also the
    SMP Guidelines, at paras 146156 and Commission Recommendation of 23 July 2003 on
    notifications, time limits and consultations provided for in Article 7 of Directive 2002/21/
    EC of the European Parliament and of the Council of 7 March 2002 on a common regulatory
    framework for electronic communications networks and services, OJ L 190/13, 30 July
    2003.
    439
    European Commission, Communication on market reviews under the EU regulatory
    framework: Consolidating the internal market for electronic communications, COM(2006)
    28 final, 6 February 2006, at pp. 2 et seq.
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    European Community Communications Law

    Article 7 prescribes a mechanism, whereby whenever the NRA intends


    to take a measure, which regards the critical issues of market definition
    and market analysis440 or imposition, amendment or withdrawal of
    obligations441 and this measure would affect trade between Member
    States, the NRA must make the draft measure accessible to the
    Commission and the other NRAs, giving them the possibility to
    comment. The Commission has one month in which to assess the
    notification of the proposed measures. Upon the experience made in
    the past five years in applying the Article 7 procedure, it seems that the
    largest portion of cases are handled within this one-month period by a
    letter to the NRA concerned, which normally contains the comments of
    the Commission as to improvement of the measures at issue.442
    Further and more importantly, where the intended measure aims at:
    (i) defining a relevant market other than those defined in the Commission
    recommendation or (ii) deciding whether or not to designate an
    undertaking as having significant market power, and would affect trade
    between Member States, the Commission may veto the measure.443 A
    veto is given if, in the view of the Commission, the measure would create
    a barrier to the single market or if it has serious doubts as to its
    compatibility with Community law and in particular the objectives
    referred to in Article 8 of the Framework Directive. In this second stage
    of the Article 7 procedure, the Commission conducts a more detailed
    investigation and, should its concerns be confirmed, requires the national
    agency to withdraw the draft measure (ie exercises its veto power) and
    possibly asks for resubmission of the market analysis at a later stage.444
    Of the 229 cases assessed by the Commission prior to 30 September 2005,
    it adopted veto decisions only in 4 cases.445 These decisions ensured that
    440

    Articles 15 and 16 of the Framework Directive. See infra Sections 3.2.4.b et seq.
    Articles 5 and 8 of the Access Directive and Article 16 of the Universal Service Directive.
    See infra Sections 3.2.4.d et seq.
    442
    European Commission, Communication on market reviews under the EU regulatory
    framework, supra note 439, at p. 3.
    443
    The decision of the Commission must be accompanied by a detailed and objective
    analysis of why the Commission considers that the draft measure should not be adopted
    together with specific proposals for amending the draft measure. The procedure to be
    followed is that of Article 22(2) of the Framework Directive.
    444
    European Commission, Communication on market reviews under the EU regulatory
    framework, supra note 439, at p. 3.
    445
    See Commission Decision of 20 February 2004 pursuant to Article 7(4) of Directive
    2002/21/EC (Withdrawal of a notified draft measure), Case FI/2003/0024 and FI/2003/
    27: Publicly available international telephone services provided at a fixed location for
    residential and non-residential customers, C(2004) 527 final, 20 February 2004;
    Commission Decision of 5 October 2004 pursuant to Article 7(4) of Directive 2002/21/EC
    (Withdrawal of a notified draft measure), Case FI/2004/0082: Access and call origination
    on public mobile telephone networks in Finland, C(2004) 3682 final, 5 October 2004;
    Commission Decision of 20 October 2004 pursuant to Article 7(4) of Directive 2002/21/
    EC (Withdrawal of a notified draft measure), Case AT/2004/0090: Transit services in
    (continued...)
    441

    205

    EC Electronic Communications and Competition Law

    no measures were taken at the Member State level that would be


    incompatible with Community law and guaranteed, in the words of the
    Commission, a coherent application of competition law principles
    across the EU.446
    3.2.2 Scope of the Electronic Communications Regime
    The scope of the present EC regime covers the regulation of electronic
    communications services, electronic communications networks,
    associated facilities and associated services.447 In essence, this means
    that it spreads over all transmission networks and services. The scope
    of the communications framework is thus wider than the one under the
    1998 regulatory regime. By explicitly including all networks,
    broadcasting networks and the internet,448 which were previously not
    part of the telecommunications regulation, now fall under it.
    In contrast to the previous communications regime, the 2002 framework
    pursues further a clear separation between regulation of transmission
    and regulation of content. The 2002 regime focuses exclusively on the
    former, while content, such as broadcasting content, financial services
    and certain information society services,449 remain beyond its scope of
    the fixed public telephone network in Austria, C(2004) 4070 final, 20 October 2004 and
    Commission Decision of 17 May 2005 pursuant to Article 7(4) of Directive 2002/21/EC
    (Withdrawal of notified draft measures), Case DE/2005/0144: Call termination on
    individual public telephone networks provided at a fixed location, C(2005) 1442 final, 17
    May 2005. See also Luca Di Mauro and Andrs G. Inotai, Market Analyses under the
    New Regulatory Framework for Electronic Communications: Context and Principles
    behind the Commissions First Veto Decision, EC Competition Policy Newsletter, No 2,
    Summer 2004, pp. 52 et seq. and European Commission, Communication on market
    reviews under the EU regulatory framework, ibid.
    446
    European Commission, Communication on market reviews under the EU regulatory
    framework, ibid. at p. 6. For the 2007 proposed adjustments of the Article 7 procedure,
    see Commission Staff Working Document annexed to the Commission Communication
    on the review of the EU regulatory framework for electronic communications networks
    and services [COM(2006) 334 final]: Proposed Changes, supra note 430, at pp. 15 et seq.
    447
    For the respective definitions, see Article 2 of the Framework Directive.
    448
    The Consolidated Commission Competition Directive specifies that the new definitions
    [of electronic communications networks and services] are indispensable in order to take
    account of the convergence phenomenon by bringing together under one single definition
    all electronic communications services and/or networks which are concerned with the
    conveyance of signals by wire, radio, optical or other electromagnetic means (ie fixed,
    wireless, cable television, satellite networks). Thus, the transmission and broadcasting of
    radio and television programmes should be recognised as an electronic communication
    service and networks used for such transmission and broadcasting should likewise be
    recognised as electronic communications networks. Furthermore, it should be made clear
    that the new definition of electronic communications networks also covers fibre networks
    which enable third parties, using their own switching or routing equipment, to convey
    signals. See Commission Directive 2002/77/EC on competition in the markets for
    electronic communications networks and services, supra note 416, at Recital 7.
    449
    As defined in Directive 98/34/EC of the European Parliament and of the Council of 22
    June 1998 laying down a procedure for the provision of information in the field of technical
    (continued...)
    206

    European Community Communications Law

    application. It is hence without prejudice to measures taken at


    Community or national level in respect of such services in order to
    promote cultural and linguistic diversity and to ensure the defence of
    media pluralism.450
    Yet, as stated in recital 5 of the Framework Directive, this separation
    does not prejudice the taking into account of the links between them,
    in particular to guarantee media pluralism, cultural diversity and
    consumer protection. Thus, one can observe that the seemingly clear
    separation between content and infrastructure gets somewhat blurry in
    particular when certain public interest goals are touched upon (notably,
    identical with those identified in Chapter 2).451 There is furthermore a
    lack of criteria identifying when exactly the links existing between
    them should be taken into consideration and when they should not.
    The clear separation between content and infrastructure can be in
    practice problematic in its own right since the intensified convergence
    of media, telecommunications and information technologies, renders
    the boundaries between them indiscernible.452 There exist cases, such
    as, for instance, pay-TV, which operate at the interface between
    technology and content.453
    3.2.3 Key Elements of the 2002 Communications Regime
    The underlying principles of the 2002 regulatory framework, as a distinct
    system within the Community legislation, that was designed to meet
    the challenges identified by the 1999 Communications Review454 and
    ensure sustainable competition under the new technological and market
    conditions, can be broadly summarised as follows:
    standards and regulations, OJ L 204/37, 21 July 1998, as amended by Directive 98/48/EC,
    OJ L 217/18, 5 August 1998. Article 1 therein defines information society service as
    any service normally provided for remuneration, at a distance, by electronic means and
    at the individual request of a recipient of services. Annex V of the Directive provides
    further an indicative list of services not covered by this definition.
    450
    The content of television programmes is covered by Council Directive 89/552/EEC of
    3 October 1989 on the coordination of certain provisions laid down by law, regulation or
    administrative action in Member States concerning the pursuit of television broadcasting
    activities, OJ L 298/23, 17 October 1989, as amended by Directive 97/36/EC, OJ L 202/60,
    30 July 1997. For the review of the latter instrument, see Proposal for a Directive of the
    European Parliament and of the Council amending 89/552/EEC on the coordination of
    certain provisions laid down by law, regulation or administrative action in Member States
    concerning the pursuit of television broadcasting activities, COM(2005) 646 final, 13
    December 2005 and the consolidated version of the draft Audiovisual Media Services
    Directive after the EPs first reading, 2005/0260(COD), 19 March 2007.
    451
    See supra Chapter 2, in particular Section 3.4.
    452
    For further discussion, see infra Part 3.
    453
    See Natali Herberger, Controlling Access to Content, The Hague/London/Boston: Kluwer
    Law International, 2005, at p. 3.
    454
    See supra Section 3.2.

    ...)
    207

    EC Electronic Communications and Competition Law

    extension of the framework to cover not only telecommunications


    but also all types of networks and services, qualifying as
    electronic communications;
    separation of content and networks in the regulatory scheme;
    greater reliance on competition law rules as opposed to sector specific
    regulation, including new design of the sector specific regulation;
    market-by-market sunset clauses;
    new institutional balance between the Member States and the
    Community level;
    technological neutrality.

    These key novel regulatory solutions have their repercussions in the


    texture of the whole framework for electronic communications. From a
    different perspective, if we adopt the classification used by Alexandre
    de Streel,455 the new regime could be divided into three layers of
    regulation according to the objectives pursued. The first layer of entry
    regulation deals with entry on the market and the allocation of scarce
    resources like spectrum frequencies and numbering. The second one,
    social regulation, aims to ensure that the needs of the citizens that are
    considered important by the legislature are satisfied. Since, as we
    discussed in Chapter 2, some needs are not necessarily guaranteed by
    the functioning of the market, the social regulation layer provides for
    an enhanced consumer protection and the universality of access to some
    basic services.456 The third layer and the core one within the 2002
    communications regime is that of economic regulation. It aims at
    ensuring the functioning of an effective competitive market, thereby
    maximising economic efficiency. Thus, it pursues the same goals as
    general competition rules, but is employed to regulate market power
    precisely when antitrust law would not be sufficiently effective to do
    so, taking into account the characteristics of the electronic
    communications sector, such as the inherent economies of scale and
    scope, network effects and the presence of historic monopolists.
    Considering the overall purpose of the present work to examine to
    potential of EC competition law as the (hypothetical) sole regulator
    applied to electronic communications, the following paragraphs will
    concentrate on the economic regulation layer of regime, the epitome
    of which is the new significant market power regime (point three of the
    above list).457 The SMP regime has lately been the subject of some
    455

    Alexandre de Streel, The Integration of Competition Law Principles in the New


    European Regulatory Framework for Electronic Communications (2003) World
    Competition, Vol. 26, No 3, pp. 489514.
    456
    See supra Part 1, Chapter 2, Sections 3.2 and 3.3.
    457
    The other key elements of the new European electronic communications framework
    will be brought to the attention of the reader in the current chapter and in Part 3 only as
    far as they fall within the scope of our topic.

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    European Community Communications Law

    excellent studies458 but we need to see its essence in the concrete context
    of the present work: First, because its regime is based on antitrust
    methodology and secondly, because it contains the very mechanisms
    that are to trigger the withdrawal of sector specific regulation and
    ultimately bestow the regulation of the communications sector upon
    EC generic competition rules.
    3.2.4 The New Significant Market Power Regime
    a.

    Introduction to the SMP Regime

    The broad outlines of the SMP regime algorithm could be identified in


    four steps:459
    (i)
    First, the Commission adopts a Recommendation460 that defines,
    in accordance with the principles of competition law, the product and
    service markets within the electronic communications sector, the
    characteristics of which may be such as to justify the imposition of ex
    ante regulatory obligations.
    (ii)
    Taking into account this Recommendation on relevant markets
    and the Commission SMP Guidelines, the NRA then defines markets
    appropriate to the national circumstances, in particular their
    geographical dimension within the Member States territory. The NRA
    may stray from the Commissions selection (step (i)) and define other
    product/services markets, if it finds that appropriate, although this is
    subject to the review of the Commission, as we shall discover below.
    Taken together, steps (i) and (ii) amount to a completed market definition
    process, as discussed in the Section on EC competition rules above.461
    (iii) In a third step, the NRA analyses the so-defined markets to
    determine whether they are, or not, effectively competitive, which is
    equal to determining whether one or more operators enjoy significant
    market power on the market at issue. The notion of SMP is equal to that
    of dominance under generic EC competition law, however, without the
    need of finding an abuse.
    458

    See Jens-Daniel Braun and Ralf Capito, The Framework Directive in Christian Koenig,
    Andreas Bartosch and Jens-Daniel Braun (eds.), EC Competition and Telecommunications
    Law, The Hague/London/Boston: Kluwer Law International, 2002, pp. 309358; Alexandre
    de Streel, supra note 455; Martin Cave, supra note 413; Paul Nihoul and Peter Rodford,
    supra note 4, at paras 3.213 et seq.; Tambiana Madiga, Innovation and Market Definition
    under the EU Regulatory Framework for Electronic Communications (2006) World
    Competition, Vol. 29, No 1, pp. 55-72.
    459
    See infra Figure 4.
    460
    See supra note 91.
    461
    See supra Section 2.2.1.

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    EC Electronic Communications and Competition Law

    (iv) In a fourth step, considering the foregoing, if the market is not


    effectively competitive, the NRA imposes on the SMP operators the
    appropriate specific regulatory obligations chosen from the list of options
    provided in the Access Directive for wholesale markets and in the
    Universal Service Directive for retail markets. Conversely, if the market
    is found to be effectively competitive, the NRA must withdraw any
    obligation that may be in place and shall not impose a new one.
    The above process is to be repeated periodically to ensure that the
    obligations are adapted to the market evolution in the hope that a
    moment will come when the Commission will find no communications
    markets in need of ex ante rules and the NRAs will find accordingly no
    SMP operators on the previously selected markets.
    Even a brief, fleeting overview of this four-step process, such as the
    above, shows radical reforms in the regime if compared to the previous
    one.462 Under the 1998 regulatory package, the market areas to be
    regulated were predefined in the directives on the basis of their technical
    characteristics463 and no additional market definition or market analysis
    were undertaken by the NRAs. Furthermore, the threshold of 25 per
    cent market share in these areas equated automatically to a designation
    of SMP. The NRAs then had to impose on the SMP operators the full set
    of obligations provided in the ONP Directives without being able to
    choose the most appropriate ones. The 2002 regime is based, in contrast,
    on competition law methodology, although with some important
    differences to generic EC competition rules, as we shall see below in the
    course of the detailed examination of the SMP regime.

    462
    463

    See supra Sections 3.1.2 and 3.1.4.


    See Directive 98/10 and Directive 97/33, see supra note 378.

    210

    464

    Article 16 of the Framework


    Directive, Article 8 of the Access
    Directive, Article 7 of the
    Universal Service Directive

    C. CHOICE OF REMEDIES

    Commission Guidelines on market


    analysis and the assessment of SMP

    Articles 14 and 16 of the


    Framework Directive

    B. MARKET ANALYSIS

    Commission Recommendation on
    relevant product and service markets
    susceptible to ex ante regulation

    Article 15 of the
    Framework Directive

    A. MARKET DEFINITION

    By the NRA in a Decision

    Product and/or Geographical


    Market Definition

    In absence of SMP operator(s)


    Removal of any obligations

    In case of SMP operator(s)


    Imposition, maintenance or
    amendment of appropriate
    obligation(s) (at least one)

    By the NRA

    By the NRA

    By the NRA in a Decision


    (subject to Article 7
    Framework Directive
    procedure)

    By the Commission in a
    Recommendation

    Market Selection (additional /


    not mandatory step)

    Market Selection

    Designation of one or more operators


    as having SMP

    Step 3

    Step 2

    Step 1

    European Community Communications Law

    Figure 4: The Algorithm of the SMP Regime

    Source: Alexandre de Streel464

    The next paragraphs will elaborate in turn on the different steps of the
    SMP regime algorithm.

    Based with modifications on Alexandre de Streel, supra note 455, at p. 494.

    211

    EC Electronic Communications and Competition Law

    b.

    Market Definition

    i.

    Market Selection

    Market selection in the sense of the 2002 SMP regime resembles a


    preliminary wholesale market definition. That is to say, that although
    there is a multiplicity of markets in the electronic communications sector
    that could be singled out and defined in antitrust terms, for the purpose
    of the SMP regime, only some of them will be selected en masse and
    thus, subject to further analysis by the NRAs. As made clear by Article
    15(1) of the Framework Directive, which is the legal basis of the
    Commission Recommendation on relevant markets, [t]he
    recommendation shall identify [] those product and service markets
    within the electronic communications sector, the characteristics of which
    may be such as to justify the imposition of regulatory obligations set
    out in the Specific Directives, without prejudice to markets that may be
    defined in specific cases under competition law.465 Recital 27 of the
    same directive states further that this selection should be based on the
    characteristics of the market and more precisely on the relative efficiency
    of sector specific remedies compared to competition law remedies to
    address competition problems.
    In the Relevant Market Recommendation adopted in February 2003,466
    the Commission has interpreted and elaborated upon these provisions
    by referring to three cumulative criteria that should be fulfilled for a
    certain market to be selected. These criteria have been preserved in the
    2007 update of the Recommendation (the 2007 Relevant Market
    Recommendation).467
    (i)
    The first criterion is static and based upon the presence of high
    and non-transitory barriers to entry. The barriers may be of structural,
    legal or regulatory nature. Structural barriers to entry may result from
    original cost or demand conditions that create asymmetric conditions
    between incumbents and new entrants impeding or preventing market
    entry of the latter. Such high structural barriers may be found to exist
    when the market is characterised by substantial economies of scale and/
    or economies of scope and high sunk costs, which may, as we saw in
    Chapter 1, often be the case in communications markets.468 The notorious
    465

    Emphasis added.
    See in particular Recitals 9 to 16 of the Recommendation, as explained by Section 3.2 of
    the Explanatory Memorandum. For the first Relevant Market Recommendation, the
    Commission included all markets listed in the Annex I of the Framework Directive as
    suggested by the Council and the European Parliament. This list corresponds to the
    markets regulated before under the 1998 regulatory framework, albeit defined more
    precisely.
    467
    See supra note 99, in particular at pp. 712.
    468
    See supra Part 1, Chapter 1, Section 4.1.1.
    466

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    European Community Communications Law

    last mile is precisely a situation where such structural barriers are


    found to exist.469 A structural barrier can also exist where the provision
    of service requires a network component that cannot be technically
    duplicated or only duplicated at a cost that makes it uneconomic for
    competitors, which amounts not surprisingly to a situation similar to
    an essential facility.470 An important qualification of the first criterion is
    the non-transitory nature of the high barriers to entry in the context of a
    modified Greenfield approach,471 as stressed by the 2007 Relevant Market
    Recommendation. In this regard, it is not sufficient to examine whether
    the industry has experienced entry and whether this entry has been or
    is likely in the future to be sufficiently immediate and persistent to limit
    market power.472
    The entry barriers may also be legal or regulatory when they are not
    based on economic conditions, but result from legislative, administrative
    or other state measures that have direct effect on the conditions of entry
    or the positioning of operators on the relevant market. Examples are
    legal or regulatory barriers preventing entry into a market where there
    is a limit on the number of undertakings having access to spectrum
    frequencies for the provision of the underlying services, existing price
    controls or other price related measures imposed on undertakings, which
    affect not only the entry but also the positioning of undertakings on the
    market. It should be noted that both types of barriers are non-strategic
    (ie they are not artificially induced by the firms on the markets but rather
    relate to objective characteristics of the markets themselves473) as it was
    considered that strategic barriers like excessive investment or
    reinforcement of network effects would require individual and episodic
    intervention, which would be better done under competition law.474 They
    thus correspond to the Community case law on barriers to entry, which
    we considered above in the Section on antitrust.475
    (ii)
    In view of the dynamic character and functioning of electronic
    communications markets, the possibilities to overcome the existing
    barriers within a relevant time horizon need also be taken into
    consideration when carrying out a prospective analysis to identify the
    relevant markets for possible ex ante regulation. The second criterion
    469

    See supra Part 1, Chapter 2, Section 2.3.3.


    See supra Section 2.3.2.
    471
    ie in the absence of regulation in the particular market under the e-communications
    framework but including regulation from outside the framework.
    472
    2007 Relevant Market Recommendation, at p. 9.
    473
    Martin Cave, An Economic Analysis of Remedies in Network Industries in Damien
    Geradin (ed.), Remedies in Network Industries: EC Competition Law vs. Sector-Specific
    Regulation, Antwerp: Intersentia, 2004, pp. 119, at p. 11.
    474
    Alexandre de Streel, supra note 455, at p. 495.
    475
    See supra Section 2.2.1.c.ii.
    470

    213

    EC Electronic Communications and Competition Law

    for market selection admits therefore only those markets the structure
    of which does not tend towards effective competition within the relevant
    time horizon. The application of this criterion involves examining the
    state of competition beyond the barriers of entry. This is, for instance,
    the case in markets with a limited, but sufficient, number of undertakings
    behind the entry barriers having diverging cost structures and facing
    price-elastic market demand.476 Entry barriers may also become less
    relevant with regard to innovation-driven markets characterised by
    ongoing technological progress. In such situations, competitive
    constraints often come from the threat of innovation by potential
    competitors that are not currently active in the market.477 The simple
    facts however that market shares have begun to decrease in recent years
    or the uncertainty of technological developments will not be in
    themselves sufficient to find that the market tends towards effective
    competition.478
    (iii) The third criterion refers to the relative efficiency and sufficiency
    of competition law remedies in reducing and removing the barriers
    identified according to the two first criteria. The third criterion is thus
    fulfilled when ex ante, ie sector specific regulation would address more
    efficiently the market failure than competition law would. In cases, where
    the compliance requirements of the intervention are extensive (eg
    assessment of costs, detailed accounting), where there is a special need
    for a timely or recurrent intervention, or where legal certainty is of
    paramount concern, antitrust will be clearly less sufficient than sectoral
    rules.
    Finally, special attention is paid to new and emerging markets. In such
    markets, the market leader may de facto possess substantial market
    shares due to the first mover advantage intrinsic to newly formed
    markets. These markets should not however be subject to selection.
    Otherwise, a premature imposition of ex ante regulation may unduly
    influence the competitive conditions taking shape within a new and
    emerging market.479 The Guidelines do nonetheless point out that, [a]t
    the same time, foreclosure of such emerging markets by the leading
    undertaking should be prevented.480
    The outlined criteria are to be applied cumulatively, so that failing any
    one of them, means that the market should not be identified in
    476

    For a definition of price elasticity of demand, see supra note 52.


    On the importance of considering supply-side substitutability and potential competition
    in communications markets, see supra Section 2.2.1.a.ii.
    478
    2007 Relevant Market Recommendation, at p. 11.
    479
    SMP Guidelines, at para. 32.
    480
    Ibid.
    477

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    subsequent recommendations.481 As mentioned above, the selected


    markets are to be regularly reviewed by the Commission and accordingly
    updated to take account of the market developments.
    ii.

    Interim Observations on Market Selection

    In the context of the overall reform of the EC communications regulatory


    regime, the three criteria for market selection are indicative of the new
    approach towards greater reliance on competition law methodology and
    the desire to base decisions on economic rationales. Under the 1998
    framework, the SMP regime was mainly related to markets previously
    under legal monopoly (such as, fixed voice networks and services and
    leased lines). Moreover, they were not markets within the meaning of
    competition law and practice, but rather based on technology-dependent
    definitions. Under the 2002 e-communications package, the SMP rules
    are eventually detached from the historical monopoly criterion and
    linked to more flexible criteria, such as barriers to entry and the
    inefficiency of antitrust to control market power. This change of
    paradigm, however, does not automatically mean deregulation.482 The
    first Recommendation on relevant markets, which identified eighteen
    markets (seven retail and eleven wholesale)483 subject to further analysis,
    481

    A market could also be removed from a recommendation once there is evidence of


    sustainable and effective competition on that market within the Community, provided
    that the removal of existing regulation obligations would not reduce competition on that
    market. See Recital 16 of the Relevant Market Recommendation.
    482
    Deregulation in the sense of the withdrawal of the States legal powers to direct the
    economic conduct of non-governmental bodies. See Rick Geddes, Public Utilities in
    Boudewijn Bouckaert and Gerrit De Geest (eds.), Encyclopaedia of Law and Economics,
    Cheltenham, UK: Edward Elgar Publishing, 2000, pp. 11621205, at p. 1168, referring the
    definitions given by George J. Stigler, Regulation in Theory and Practice: An Overview,
    Comment in Gary Fromm (ed.), Studies in Public Regulation, Cambridge, MA: MIT Press,
    1981, pp. 7377 and Clifford Winston, Economic Deregulation: Days of Reckoning for
    Microeconomists (1993) Journal of Economic Literature, Vol. 31, No 3, pp. 12631289.
    483
    The markets listed in the Annex of 2003 Relevant Marker Recommendation are as
    follows:
    Retail Level:
    1. Access to the public telephone network at a fixed location for residential customers;
    2. Access to the public telephone network at a fixed location for non-residential customers;
    3. Publicly available local and/or national telephone services provided at a fixed location
    for residential customers;
    4. Publicly available international telephone services provided at a fixed location for
    residential customers;
    5. Publicly available local and/or national telephone services provided at a fixed location
    for non-residential customers;
    6. Publicly available international telephone services provided at a fixed location for
    non-residential customers;
    7. The minimum set of leased lines (which comprises the specified types of leased lines
    up to and including 2Mb/sec as referenced in Article 18 and Annex VII of the Universal
    Service Directive);
    Wholesale level:
    8. Call origination on the public telephone network provided at a fixed location;
    (continued...)
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    EC Electronic Communications and Competition Law

    may indeed lead to more, rather than less, regulation. On the other hand,
    it should be noted that the Recommendation of 2003 followed the
    predefined markets included in Annex I of the Framework Directive484
    and did not perform of fully-fledged analysis using the market selection
    criteria.485 Such a genuine analysis based on these criteria was expected
    with the 2007 update of the Commissions Recommendation. The latter,
    in its draft version, proposes indeed a slight reduction of the relevant
    markets susceptible to ex ante regulation (especially for retail markets)
    but does not considerably differ from its 2003 counterpart.486
    9. Call termination on individual public telephone networks provided at a fixed location;
    10. Transit services in the fixed public telephone network;
    11. Wholesale unbundled access (including shared access) to metallic loops and subloops for the purpose of providing broadband and voice services;
    12. Wholesale broadband access;
    13. Wholesale terminating segments of leased lines;
    14. Wholesale trunk segments of leased lines;
    15. Access and call origination on public mobile telephone networks;
    16. Voice call termination on individual mobile networks;
    17. The wholesale national market for international roaming on public mobile networks;
    18. Broadcasting transmission services, to deliver broadcast content to end users.
    In addition to the above defined markets, there are also certain markets specifically
    identified in Article 6 of the Access Directive and Articles 18 and 19 of the Universal
    Service Directive.
    484
    See List of Markets to be included in the initial Commission Recommendation on
    relevant product and service markets referred to In Article 15, Annex I of the Framework
    Directive.
    485
    On the genesis of the list of markets established by the Commission in the
    Recommendation and some policy issues behind it, see Christian Hocepied, The
    Approach to Market Definition in the Commissions Guidelines and Recommendation
    in Pierre A. Buigues and Patrick Rey (eds.), The Economics of Antitrust and Regulation
    in Telecommunications, Cheltenham, UK: Edward Elgar Publishing, 2004, pp. 7187, at
    pp. 7279.
    486
    The markets listed in the draft 2007 Relevant Marker Recommendation are as follows:
    Retail level:
    1. Access to the public telephone network at a fixed location for residential and nonresidential customers;
    Wholesale level
    2. Call termination on individual public telephone networks provided at a fixed location;
    3. Call origination on the public telephone network provided at a fixed location;
    4. Transit services in the fixed public telephone network;
    5. Wholesale unbundled access (including shared access) to metallic loops and sub-loops
    (or equivalent) for the purpose of providing broadband and voice services;
    6. Wholesale broadband access (including bit-stream access);
    7. Wholesale terminating segments of leased lines;
    8. Wholesale trunk segments of leased lines;
    9. Voice call and SMS termination on individual mobile networks;
    10. Access and call origination on public mobile telephone networks;
    11. Wholesale national market for international roaming on public mobile networks;
    12. Broadcasting transmission services, to deliver broadcast content to end users.
    If the Regulation on roaming comes into force, as expected, market 11 will be removed
    from the market selection. See Proposal for a Regulation of the European Parliament and
    of the Council on roaming on public mobile networks within the Community and
    amending Directive 2002/21/EC on a common regulatory framework for electronic
    communications networks and services, COM(2006) 382 final, 12 August 2006.
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    European Community Communications Law

    In the broader frame of this work, it is highly interesting to contemplate


    on the three criteria for market selection, in particular in the context of
    Chapter 1 where the specific characteristics of the electronic
    communications sector were examined.487 In that sense, we can easily
    identify behind the three criteria some of the discussed characteristics.
    Firstly, the structural criterion corresponds to the natural monopoly
    characteristics of the communications sector related to high sunk costs,
    economies of scale and scope and the presence of network effects.
    Minding these features, the barriers to entry criterion may be furthermore
    related to the proneness of communications to bottleneck situations and
    to the possible incapability of competition rules to deal with those
    (through the application of the EFD488). The dynamic criterion reflects
    essentially the intrinsic dynamism of electronic communications. The
    third criterion, ie the efficiency of competition rules to address the arising
    problematic situation is indeed linked to the underlying question of the
    present work, namely: can competition law do it all? In fact, when one
    takes all of these elements together and subsumes them under the above
    question, it seems that the new built-in mechanism of market selection
    may lead to an extension or even perpetuation of sectoral regulation,
    even though the new directives were aimed to be de-regulatory.489
    iii.

    Product and Geographical Market Definition

    Taking utmost account490 of the markets selected in the Commission


    Recommendation and the SMP Guidelines, the NRAs proceed with
    defining the relevant markets appropriate to national circumstances.
    Since the Commission has already identified the relevant markets
    susceptible to ex ante regulation, in practice the task of NRAs is normally
    limited to defining only the geographical scope of the relevant market.
    Nevertheless, when justified by the national specificities, the NRAs may
    deviate from the markets given in the Recommendation and identify
    other relevant markets.491 This deviation, equal to an additional market
    selection, is subject however to the procedures set out in Article 7 of the
    487

    See in particular Part 1, Chapter 1, Sections 4.1.1 et seq.


    As illustrated supra in Section 2.3.2.
    489
    Alexandre de Streel, supra note 455, at p. 496.
    490
    See Recital 28 and Article 14(2) of the Framework Directive and supra note 434.
    491
    There may be a number of ways in which market definition at a national level differs
    from the markets identified in the Recommendation. There might be a narrower market
    definition at a national level of an identified market. According to national circumstances,
    there might be a reason to broaden the market definition, such that two or more markets
    that are identified separately in the Recommendation could be identified as a single
    market. Similarly, there might be a reason to identify a newly developed market segment
    and combine it with a market identified in the Recommendation. According to national
    circumstances, there might also be a reason to identify additional markets to those
    identified by the Commission. See eg Cases UK/2003/0007-0010, UK Fixed Narrowband
    Retail Services Markets, Comments pursuant to Article 7(3) of Directive 2002/21/EC, SG
    (2003) D/2311951, 24 September 2003.
    488

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    EC Electronic Communications and Competition Law

    Framework Directive, which could ultimately amount to a Commissions


    veto.492 So far, the NRAs have defined the majority of markets in line
    with the Relevant Market Recommendation, albeit with very few
    exceptions both in the sense of more narrowly and more broadly
    defined markets. 493 Although it could be argued that a narrower
    definition of the market facilitates the finding of market power in it, in
    the Commissions experience to date, such refinement has actually helped
    to deregulate the sector, as it has allowed regulation to be rolled back in
    those markets where sustainable competition has developed.494 Other
    or narrower market definitions have however also been the result of not
    so accurate initial market selection by the Commission. Such is the case
    with the wholesale market for broadcasting transmission services, where
    most NRAs deviated from the Relevant Market Recommendation and
    subdivided the market by the platforms used (eg cable, satellite or
    terrestrial), the transmission mode (analogue or digital) and/or the signal
    transmitted (radio or television),495 since no interchangeability between
    these was found yet.
    As far as transnational markets susceptible to ex ante regulation are
    concerned, they are, where appropriate, to be identified by the
    Commission in a decision pursuant to Article 15(4) of the Framework
    Directive.
    Following the overall antitrust spirit of the 2002 regulatory framework,
    markets are defined and analysed using the same methodologies as
    under competition law. Therefore, the definition of the geographic scope
    of markets identified in the Recommendation, the definition where
    necessary of relevant product/services markets outside the
    Recommendation, and the assessment of effective competition by NRAs
    should be consistent with EC competition law and practice. That is to
    say, that all the relevant competition rules elaborated upon in Section 2
    of this chapter and generally all the case law of the Court of First Instance
    492

    See supra Section 3.2.1.b.


    European Commission, Communication on market reviews under the EU regulatory
    framework, supra note 439, at p. 5. See also European Commission, Annexes
    accompanying the Communication on market reviews under the EU regulatory
    framework: Consolidating the internal market for electronic communications [COM(2006)
    28 final], SEC(2006) 86, 6 February 2006, at Annex II.
    494
    European Commission, Communication on market reviews under the EU regulatory
    framework, ibid. at p. 5. The Commission points to the example of the delineation of
    wholesale leased lines by bandwidth, which has allowed existing regulation in respect of
    very high bandwidth to be withdrawn in the United Kingdom.
    495
    European Commission, Communication on market reviews under the EU regulatory
    framework, ibid. at p. 9. European Commission, Annexes accompanying the
    Communication on market reviews under the EU regulatory framework: Consolidating
    the internal market for electronic communications [COM(2006) 28 final], supra note 493,
    at Annex II, para. 1.13.
    493

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    European Community Communications Law

    and the European Court of Justice concerning market definition and the
    notion of dominant position within the meaning of Article 82 EC, the
    Guidelines on the application of EEC competition rules in the
    telecommunications sector,496 the Commission Notice on the definition
    of relevant markets for the purposes of Community competition law497
    and the Notice on the application of competition rules to access
    agreements in the telecommunications sector498 are fully applicable and
    to be taken into utmost consideration by the NRAs.
    In view of the above, the NRAs define the geographic markets within
    their national territories (and other relevant markets, if adequate)
    depending on the existence of competitive constraints on the price-setting
    behaviour of the producer(s) or service provider(s) concerned. As
    discussed in the Sections on Article 82 EC, these are: (i) demand-side
    substitution; (ii) supply-side substitution and (iii) potential competition.
    In assessing those, NRAs apply the hypothetical monopolist test
    whereby the question asked is what happens if there were a small but
    significant non-transitory increase in the price (SSNIP) of a given product
    or service, assuming that the prices of all other products or services
    remain constant. The application of the SSNIP test as a method of
    identifying the boundaries of relevant electronic communications
    markets (both product/service and geographical dimensions) is identical
    with the one used under general competition law and analysed above.499
    The use of the same methodologies ensures that the relevant market
    defined for the purposes of sector specific regulation will in most cases
    correspond to the market definitions that would apply under competition
    law.500 This does not however mean that market definitions will coincide
    in all cases. As discussed above, market definition is not a mechanical
    or abstract process but requires an analysis of the available evidence of
    past market behaviour and moreover, an overall understanding of the
    mechanics of the sector in issue. In a sector as unique as electronic
    communications, the process of market definition is modified by the
    very specifics of the communications networks and services. Some vivid
    examples of divergence possibilities were already provided in the context
    of market definition under Article 82 EC.501 Besides these opportunities
    for discrepancy due to the specific environment to which antitrust
    methodology is applied (most notably, dynamism, convergence, multiple
    technological offerings and diverse consumer needs), there are certain
    496

    See supra note 29.


    See supra note 40.
    498
    See supra note 61.
    499
    See supra Section 2.2.1.a.
    500
    SMP Guidelines, at para. 25 (emphasis added).
    501
    See supra Section 2.2.1.b.
    497

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    EC Electronic Communications and Competition Law

    slight but significant differences in the methodology itself, when


    compared with the one used under generic competition law.
    A first cause for divergence in that respect is the price used for the
    hypothetical monopolist test. Within the context of market definition
    under Article 82 EC, a competition authority or a court would estimate
    the starting price for applying the SSNIP test on the basis of the price
    charged by the alleged monopolist. Likewise, under the prospective
    assessment of the effects, which a merger may have on competition, the
    starting price would be based on the prevailing prices of the merging
    parties. However, where an NRA carries out a market analysis, the
    service or product in question may be offered by several firms. In such
    a case, the starting price should be the industry average price.502
    Far more important difference in comparison to standard competition law
    than the above is the perspective of assessment of the NRAs. Markets defined
    under Articles 81 and 82 EC are generally defined on an ex post basis. Thus,
    in these cases, the analysis will consider events that have already taken
    place in the market and will not be influenced by possible future
    developments. Conversely, although NRAs should not ignore, where
    relevant, past evidence, they will assess the relevant markets for the purposes
    of sector specific regulation always on a forward-looking basis, including
    in the assessment an appreciation of the future development of the market.
    The starting point for carrying out an analysis for the purpose of Article 15
    of the Framework Directive (ie market definition) is not the existence of an
    agreement or concerted practice within the scope of Article 81 EC, nor a
    concentration within the scope of the Merger Regulation, nor an alleged
    abuse of dominance within the scope of Article 82 EC. It is rather based on
    an overall forward-looking assessment of the structure and the functioning
    of the market under examination.503 Although NRAs and competition
    authorities, when examining the same issues in the same circumstances
    and with the same objectives, should in principle reach the same conclusions,
    it cannot be excluded that, given the differences outlined above, and in
    particular the broader focus of the NRAs assessment, markets defined for
    the purposes of competition law and markets defined for the purpose of
    sector specific regulation may not always be identical.504
    The ex ante perspective and the assessment of the ever-evolving
    communications markets make the difference.505 The Commission has
    pointed out in that regard that [w]hilst prospective analysis of market
    502

    SMP Guidelines, at footnote 29.


    SMP Guidelines, at para. 27 (emphasis added).
    504
    Ibid.
    505
    Although merger analysis is also applied ex ante, it is not carried out periodically as is
    the case with the analysis of the NRAs under the e-communications framework. A
    (continued...)
    503

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    European Community Communications Law

    conditions may in some cases lead to a market definition different from


    that resulting from a market analysis based on past behaviour, NRAs
    should nonetheless seek to preserve, where possible, consistency in the
    methodology adopted between, on the one hand, market definitions
    developed for the purposes of ex ante regulation, and on the other hand,
    market definitions developed for the purposes of the application of
    competition rules. Nonetheless, as stated in Article 15(1) of the
    Framework Directive and Section 1 of the Guidelines, markets defined
    under sector-specific regulation are defined without prejudice to markets
    that may be defined in specific cases under competition law.506
    iv.

    Interim Conclusion on Market Definition

    Market definition under the current EC regulatory framework for


    electronic communications is much more complex and refined an
    exercise in comparison to the previous regime. In fact, under the 1998
    regulatory framework, market definition was based merely on certain
    specific aspects of end-to-end communications rather than on demand
    and supply substitutability criteria and hence the relevant markets
    defined were not markets in competition law sense. Moreover, the role
    of the NRAs with regard to the market definition process was virtually
    non-existent and all markets were predefined in the ONP Directives.
    Presently, market definition is not any more an engineering exercise
    that is based on technological differences, but it is an economist task
    based on relative substitutions.507 The use of antitrust principles has
    certainly made the definition of the relevant product and services
    markets far more flexible and thus capable of reflecting the rapid changes
    in communications markets. However, this new flexibility bestows a
    heavy burden upon the regulatory agencies who will have to conduct a
    fairly complex forward-looking analysis of the national markets and at
    the same time pursue consistency of approaches and definitions
    throughout the Community. The specific nature of electronic
    communication as a sector and its incredible dynamism present a major
    challenge in this respect.508

    .)

    competition authority does not, in principle, have the opportunity to conduct a periodic
    review of its decision in the light of market developments, whereas NRAs are bound to
    review their decisions periodically under Article 16(1) of the Framework Directive. This
    factor can influence the scope and breadth of the market analysis and the competitive
    assessment carried out by NRAs, and for this reason, market definitions under the ecommunications regulatory framework, even in similar areas, may be different from the
    markets defined by competition authorities.
    506
    SMP Guidelines, at para. 37 (footnote omitted; emphasis added). For further comparison
    between sector specific regulation and competition rules, see infra Section 3.2.4.e.
    507
    Alexandre de Streel, supra note 455, at p. 501.
    508
    The Commission has stated explicitly in the SMP Guidelines that, in a sector
    characterised by constant innovation and rapid technological convergence, it is clear that
    (continued...)
    221

    EC Electronic Communications and Competition Law

    c.

    Market Analysis

    Following the definition of the relevant markets (both in the sense of


    product or service dimension and geographic scope), the NRAs must
    analyse them to find out whether they are effectively competitive. The
    2007 Relevant Market Recommendation suggests that the market to be
    analysed first is the market, which is most upstream in the vertical supply
    chain, and the NRAs should work their way further down the chain
    until the stage of retail market(s) is reached, thus allowing for a
    consideration of the ex ante regulation imposed on the upstream
    market(s).509
    Effective competition510 is the basic trigger for NRAs action (or nonaction) and amounts to a finding that no operator (or operators) enjoys
    a dominant position or is able to leverage dominance. Conversely, if
    there is one or more undertakings with significant market power on the
    market under scrutiny, the market is deemed not to be effectively
    competitive.511
    i.

    Standard Antitrust Analysis

    Pursuant to Article 14 of the Framework Directive 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. By subscribing to this definition, which the settled case law
    ascribes to the concept of dominant position under Article 82 EC,512 the
    SMP regime has in effect been aligned with generic EC competition law.
    The previously existing 25 per cent market share threshold for assigning
    significant market power as a shortcut to sector specific obligations is
    rendered obsolete.513 Consequently, in applying the new definition of SMP,
    any current market definition runs the risk of becoming inaccurate or irrelevant in the
    near future. See Guidelines on market analysis. at para. 63, referring to Joined Cases T125/97 and T-127/97 The Coca-Cola Company and Others v. Commission [2000] ECR II-1733,
    [2000] 5 CMLR 467, at paras 81 and 82.
    509
    2007 Relevant Market Recommendation, at p. 13.
    510
    On effective competition, see Jens-Daniel Braun and Ralf Capito, supra note 458, at
    pp. 319331. See also Richard Whish, supra note 16, at pp. 1516.
    511
    It is essential that ex ante regulatory obligations should only be imposed where there
    is not effective competition, ie in markets where there are one or more undertakings with
    significant market power, and where national and Community competition law are not
    sufficient to address the problem. See Framework Directive, at Recital 27.
    512
    Case 27/76 United Brands v. Commission, supra note 35.
    513
    As stated in the Framework Directive at Recital 25, [t]he definition of significant market
    power in the Directive 97/33/EC of the European Parliament and of the Council of 30
    June on interconnection in telecommunications with regard to ensuring universal service
    and interoperability through application of the principle of open network provision (ONP)
    (continued...)
    222

    ..)

    European Community Communications Law

    NRAs will have to ensure that their decisions are in accordance with the
    Commissions practice and the relevant jurisprudence of the Court of Justice
    and the Court of First Instance on dominance. The concepts of single and
    collective dominance,514 leverage of market power and the essential facilities
    doctrine become fully applicable under the new design of electronic
    communications sector specific regulation.515 Notably, again, as within the
    context of market definition with some important differences: As formulated
    by the Commission, [t]he application of the new definition of SMP, ex
    ante, calls for certain methodological adjustments to be made regarding
    the way market power is assessed.516
    ii.

    Idiosyncrasies of the Communications Specific


    Market Analysis

    First, and most importantly, the perspective of the NRAs analysis is


    quite different from the one under Article 82 EC. In carrying out the
    market analysis, NRAs have to conduct a forward-looking, structural
    evaluation of the relevant market, based on existing market conditions.517
    In that sense, the regulatory agencies must determine whether the market
    is prospectively competitive and thus, whether any lack of effective
    competition is durable,518 by taking into account expected or foreseeable
    market developments over the course of a reasonable period. The actual
    period used has to reflect the specific characteristics of the market and
    the expected timing for the next review of the relevant market by the
    NRA.
    Hence, when assessing ex ante whether one or more undertakings are
    in a dominant position, NRAs will, in principle, be relying on different
    sets of assumptions and expectations than those relied upon by
    has proved effective in the initial stages of market opening as the threshold for ex ante
    obligations, but now needs to be adapted to suit more complex and dynamic markets.
    For this reason, the definition used in this Directive is equivalent to the concept of
    dominance as defined in the case law of the Court of Justice and the Court of First Instance
    of the European Communities (footnote omitted).
    514
    There is extensive guidance on the application of the concept of collective
    dominance. Annex II of the Framework Directive contains a list of criteria (nonexhaustive and non-cumulative) to be used by the NRAs in making an assessment of
    joint dominance. See also the SMP Guidelines, at paras 86106. For a critique of the
    inclusion of complex dominance concepts in the communications regime, see Antonio
    Bavasso, Communications in EU Antitrust Law, The Hague/London/Boston: Kluwer Law
    International, 2003, at pp. 6266. Generally on collective dominance, see Giorgio
    Monti, The Scope of Collective Dominance under Article 82 EC (2001) Common
    Market Law Review, Vol. 38, pp. 131157.
    515
    For analysis of some of these competition law notions, see supra Sections 2.3 et seq.
    For a comprehensive analysis of all, see eg Jonathan Faull and Ali Nikpay, supra note 20
    and Richard Whish, supra note 16.
    516
    SMP Guidelines, at para. 70.
    517
    SMP Guidelines, at para. 75.
    518
    Recital 27 of the Framework Directive.

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    EC Electronic Communications and Competition Law

    competition authorities applying ex post Article 82 EC within the context


    of an alleged committed abuse. In an ex post analysis, a competition
    authority may be faced with a number of different examples indicative
    of market power within the meaning of Article 82 EC. In an ex ante
    environment, however, market power will essentially be measured by
    reference of the power of the undertaking to raise prices by restricting
    output without significant loss of sales or revenues.519 Often, the lack of
    evidence or records of past behaviour will mean that the market analysis
    will have to be based mainly on a prospective assessment. The accuracy
    of the market analysis carried out by the NRAs will thus often be
    conditioned by the information and data existing at the time of the
    adoption of the relevant decision.
    The fact that NRAs initial market predictions do not ultimately
    materialise in a given case does not necessarily mean that its decision at
    the time of its adoption was inconsistent with the Framework Directive.
    In applying ex ante the concept of dominance, NRAs are indeed accorded
    some discretionary powers correlative to the complex character of the
    economic, factual and legal situations that would need to be assessed.
    In accordance with the Framework Directive, market assessments by
    NRAs have to be undertaken on a regular basis. The recurrence of the
    NRAs analysis allows the agencies to react at regular intervals to any
    market developments and to take any measure deemed necessary (thus
    possibly correcting prior mistakes).520
    In the process of prospective market analysis, the NRAs should notably
    also consider the potential competition, ie the likelihood that
    undertakings not currently active on the relevant product market may
    in the medium term decide to enter the market following a small but
    significant non-transitory price increase. Undertakings which, in case
    of such a price increase, are in a position to switch or extend their line of
    production/services and enter the market should be treated by the NRAs
    as potential market participants even if they do not currently produce
    the relevant product or offer the relevant service.
    As far as emerging markets are concerned, Recital 27 of the Framework
    Directive notes that emerging markets, where de facto the market leader
    is likely to have a substantial market share, should not be subject to
    inappropriate ex ante regulation. Premature imposition of ex ante
    regulation may unduly influence the competitive conditions taking
    shape within new and emerging markets.

    519
    520

    SMP Guidelines, at para. 73.


    SMP Guidelines, at para. 71.

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    European Community Communications Law

    Finally, with regard to the designation of an undertaking as having SMP,


    it is important to emphasise that the SMP designation has no bearing on
    whether that undertaking has committed abuse of dominant position in
    the meaning of Article 82 EC. It merely implies that, from a structural
    perspective, and in the short to medium term, the operator has and will
    have, on the identified relevant market, sufficient market power to
    behave to an appreciable extent independently of competitors,
    customers, and ultimately consumers for the purpose of the
    communications specific rules.521
    iii.

    Interim Conclusion on Market Analysis

    Market analysis is a complex process with many variables based on


    factual, economic and legal data. NRAs undoubtedly profit from the
    practice and the experience gathered by the European Commission and
    the Community courts when applying the competition law concepts of
    single and joint dominance, leverage of power and essential facilities.
    Nevertheless, it should be noted that the application of these competition
    law notions, which are fairly intricate in themselves,522 has to be done
    from an ex ante forward-looking perspective, probably often based on
    limited information. The regulatory burden on the NRAs in that sense
    is enormous since they will sometimes have to see into the future and
    sanction the present when deciding whether there is effective
    competition on the relevant market at issue. The repercussions of this
    exercise could indeed be grave.
    d.

    Remedies

    The third step within the SMP algorithm and a crucial one for the proper
    functioning of the electronic communications markets is the imposition,
    maintenance, amendment or withdrawal, as appropriate, of specific
    regulatory obligations on undertakings designated as having SMP.
    As already explained in the previous Section on market analysis, effective
    competition is the litmus test of the regulatory regime. It is a notion,
    which means that there is no undertaking with significant market power
    on the relevant market. Under Article 16 of the Framework directive if
    an NRA finds that a relevant market is subject to effective competition,
    it is not allowed to impose obligations on any operator in that relevant
    market. If the NRA has previously imposed regulatory obligations on
    undertaking(s) in that market, it must withdraw them.523
    521

    SMP Guidelines, at para. 30.


    As exemplified by the analyses of the abusive practices of refusal to supply and tying.
    See supra Sections 2.3.1 and 2.3.3.
    523
    After giving the affected parties a reasonable period of notice. With regard to removal
    of obligations in markets for conditional access and other facilities, there are additional
    (continued...)
    522

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    EC Electronic Communications and Competition Law

    Accordingly, if an NRA finds that competition in the relevant market is


    not effective because of the existence of an undertaking or undertakings
    in dominant position, it must designate in accordance with Article 16(4)
    of the Framework Directive the undertaking (or undertakings) concerned
    as having SMP and impose appropriate regulatory obligations on these
    undertaking(s). However, merely designating an undertaking as having
    SMP on a given market, without imposing any appropriate regulatory
    obligations, will be inconsistent with the provisions of the ecommunications framework.524 Thus, there is a direct connection between
    the SMP designation and the imposition of remedies and the NRA must
    impose at least one regulatory obligation on the undertaking designated
    as having SMP. Where an NRA determines the existence of more than
    one undertaking with dominance, ie that a joint dominant position exists,
    it should determine the most appropriate regulatory obligations to be
    imposed, based on the principle of proportionality.
    If an undertaking was previously subject to obligations under the 1998
    regulatory framework, the NRA must consider whether similar
    obligations continue to be appropriate under the new framework, based
    on the new market analysis. If the undertaking is found to have SMP in
    a relevant market under the new framework, regulatory obligations
    similar to those imposed under the 1998 regulatory framework may
    therefore be maintained. Alternatively, such obligations could be
    amended or new obligations imposed according to the particular case
    at issue and the assessment of the NRA.
    NRAs can choose amongst a range of regulatory obligations set out in
    the Specific Directives in order to remedy a particular problem in a
    market found not to be effectively competitive. This freedom is limited
    only by the international commitments of the European Community, ie
    notably its obligations in the WTO relating to major suppliers of basic
    telecommunications services525 and when the Directives prescribe
    conditions besides the presence of effective competition on these markets. Pursuant to
    Article 6(3), subparagraph 2 of the Access Directive, NRAs may amend or withdraw
    obligations, only to the extent that: (a) accessibility for end-users to radio and television
    broadcasts and broadcasting channels and services would not be adversely affected by
    such amendment or withdrawal and (b) the prospects for effective competition in the
    markets for: (i) retail digital television and radio broadcasting services and (ii) conditional
    access systems and other associated facilities, would not be adversely affected by such
    amendment or withdrawal.
    524
    Article 16(4) of the Framework Directive.
    525
    See Council Decision 94/800/EC of 22 December 1994, concerning the conclusion on
    behalf of the European Community, as regards matters within its competence, of the
    agreements reached in the Uruguay Round multilateral negotiations (19861994), OJ L
    336/191, 23 December 1994, especially the General Agreement on Trade in Services and
    the Annex on Telecommunications and also Council Decision 97/838/EC concerning the
    conclusion on behalf of the European Community, as regards matters within its
    competence, of the results of the WTO negotiations on basic telecommunications services,
    (continued...)
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    European Community Communications Law

    explicitly particular remedies, such as under Article 18 and 19 of the


    Universal Service Directive.526
    The specific regulatory obligations, which may be imposed on SMP
    undertakings, can apply both to wholesale and retail markets. In
    principle, the obligations related to wholesale markets are contained in
    Articles 9 to 13 of the Access Directive and encompass: (i) transparency
    (Article 9); (ii) non-discrimination (Article 10); (iii) accounting separation
    (Article 11); (iv) obligations for access to and use of specific network
    facilities (Article 12); and (v) price control and cost accounting
    obligations (Article 13).
    The obligations designed for retail markets are set out in Articles 17 to
    19 of the Universal Service Directive. These are: (i) regulatory controls
    on retail services (Article 17); (ii) availability of the minimum set of leased
    lines (Article 18 and Annex VII); and (iii) carrier selection and preselection (Article 19).
    The following paragraphs will shed some light upon each of these
    remedies.527
    i.

    Obligations Regarding Wholesale Markets

    Wholesale markets signify the relationship between the providers of


    electronic communications networks and services and relate to the main
    issues of infrastructure and access to infrastructure. The menu of sector
    specific obligations available to the NRAs to remedy the lack of effective
    competition in such markets is the following.
    (i)
    Firstly, under Article 9 of the Access Directive, NRAs may impose
    an obligation of transparency in relation to interconnection and/or access,
    requiring the operators to make public specified information, such as
    accounting information, technical specifications, network characteristics,
    terms and conditions for supply, use and prices. In particular, where an
    operator has obligations of non-discrimination, the authority may require
    the publication of a reference offer, 528 which shall be sufficiently

    ..)

    OJ L 347/45, 18 December 1997. For more on the WTO regime for telecommunications,
    see infra Chapter 5.
    526
    See supra Chapter 2, Sections 3.2.2 et seq.
    527
    See extensively on the different remedies and their appropriateness, European
    Regulators Group of National Regulatory Authorities (ERG), Common Position on the
    Approach to Appropriate Remedies in the New Regulatory Framework, ERG (03) 30rev1,
    1 April 2004.
    528
    According to Article 9(4) of the Access Directive, when an operator should give access
    to the twisted metallic pair local loop, the NRA should ensure the publication of a reference
    offer containing at least the elements set out in Annex II of the Access Directive, including,
    inter alia, information on the conditions for unbundled access to the local loop, co-location
    (continued...)
    227

    EC Electronic Communications and Competition Law

    unbundled529 to ensure that undertakings are not required to pay for


    facilities, which are unnecessary for the requested service. NRAs may
    specify the precise information to be made available, the level of detail
    required and the manner of publication.
    (ii)
    Secondly, NRAs may impose an obligation of non-discrimination
    pursuant to Article 10 of the Access Directive. The latter obligation
    ensures that the operator applies equivalent conditions in equivalent
    circumstances to other undertakings providing equivalent services.
    Vertically integrated firms should provide services and information to
    others under the same conditions and quality as it provides for its own
    services, or for those of its own subsidiaries or partners.
    (iii) Thirdly, under Article 11 of the Access Directive, NRAs may
    impose an obligation of accounting separation. 530 This relates in
    particular to vertically integrated companies and requires them to make
    transparent their wholesale and internal transfer prices in order to ensure
    compliance, where there is a requirement for non-discrimination under
    Article 10 or, where necessary, to prevent cross-subsidisation. In that
    context, the national agencies have the power to require that accounting
    records, including data on revenues received from third parties, are
    provided on request. NRAs may even publish such information, as this
    would contribute to an open and competitive market, while necessarily
    respecting national and Community rules on commercial confidentiality.
    (iv) The fourth instrument available to NRAs is the obligation of access
    to, and use of, specific network facilities pursuant to Article 12 of the
    Access Directive. In the words of the latter provision, a NRA may
    impose obligations on operators to meet reasonable requests for access
    to, and use of, specific network elements and associated facilities, inter
    alia in situations where the national regulatory authority considers that
    denial of access or unreasonable terms and conditions having a similar
    effect would hinder the emergence of a sustainable competitive market
    at the retail level, or would not be in the end-users interest.531 The
    specific obligations may be, among others, giving third parties access,
    including access to the local loop; negotiating in good faith with
    services, information systems and the supply conditions. The NRAs can impose further
    changes to the reference offers to give effect to obligations imposed under the Access
    Directive.
    529
    Sufficiently unbundled offer, if translated from the telecommunications jargon, means
    that the offer is sufficiently broken down to its constituent elements and detailed. The
    same term is used under the WTO Reference Paper. See infra Chapter 5, Section 2.3.3.
    530
    See also European Commission, Recommendation of 19 September 2005 on accounting
    separation and cost accounting under the regulatory framework for electronic
    communications, supra note 437.
    531
    Article 12(1) of the Access Directive.

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    European Community Communications Law

    undertakings requesting access; not withdrawing access from already


    granted facilities; providing specified services on a wholesale basis for
    resale by third parties; granting open access to technical interfaces,
    protocols or other key technologies that are indispensable for the
    interoperability of services or virtual network services; providing colocation or other forms of facility sharing; providing specified services
    needed to ensure interoperability of end-to-end services to users;
    providing access to operational support systems or similar software
    systems necessary to ensure fair competition in the provision of services;
    interconnecting networks or network facilities.
    In addition to the above requirements, NRAs may attach conditions
    covering fairness, reasonableness and timeliness.
    (v)
    The last remedy in the menu of the Access Directive is the
    possibility to impose price control and cost accounting obligations.532
    These may include obligations for cost-orientation of prices and
    obligations concerning cost accounting systems for the provision of
    specific types of interconnection and/or access in situations, where a
    market analysis indicates that a lack of effective competition means that
    the operator concerned might sustain prices at an excessively high level533
    or apply a price squeeze534 to the detriment of end-users.535 Thus, NRAs
    may exercise negative price control preventing excessive and predatory
    pricing, or price squeezes. In addition, they may also impose positive
    price control provided it promotes efficiency and allows the operator a
    reasonable rate of return on adequate capital employed, taking into
    account the risks involved.536
    532

    Article 13 of the Access Directive.


    On excessive pricing and predatory pricing, see Access Notice, at paras 105109 and
    110116 respectively.
    534
    On price squeeze, see Access Notice, at paras 117119.
    535
    Recital 20 of the Access Directive states with regard to price control that, [p]rice control
    may be necessary when market analysis in a particular market reveals inefficient
    competition. The regulatory intervention may be relatively light, such as an obligation
    that prices for carrier selection are reasonable as laid down in Directive 97/33/EC, or
    much heavier such as an obligation that prices are cost oriented to provide full justification
    for those prices where competition is not sufficiently strong to prevent excessive pricing.
    In particular, operators with significant market power should avoid a price squeeze
    whereby the difference between their retail prices and the interconnection prices charged
    to competitors who provide similar retail services is not adequate to ensure sustainable
    competition. When a national regulatory authority calculates costs incurred in establishing
    a service mandated under this Directive, it is appropriate to allow a reasonable return on
    the capital employed including appropriate labour and building costs, with the value of
    capital adjusted where necessary to reflect the current valuation of assets and efficiency
    of operations. The method of cost recovery should be appropriate to the circumstances
    taking account of the need to promote efficiency and sustainable competition and
    maximise consumer benefits.
    536
    On the different methods of price control, see Alexandre de Streel, supra note 455, at
    pp. 506507.
    533

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    EC Electronic Communications and Competition Law

    ii.

    Choice of Remedies

    NRAs can apply one (at least), several of or the entire package of sector
    specific obligations. The precise remedy prescribed depends on the
    concrete situation and the NRAs assessment of this situation. In any
    case, the choice of measure(s) to be imposed on the SMP operator(s)
    must be justified in relation to the objectives set out in Article 8 of the
    Framework Directive (ie promotion of competition, the internal market
    and the interests of the citizens of the European Union) and must be
    proportionate to the achievement of these objectives.
    This pursuit of proportionality is one of the fundamental features of the
    e-communications framework and brings in a new level of flexibility in
    comparison to the previously existing system, where the NRAs had to
    apply upon SMP designation automatically the whole set of remedies.
    In essence, the principle of proportionality requires that the means used
    to attain a given end should be no more than what is appropriate and
    necessary to attain that end. In order to establish that a proposed measure
    is compatible with the principle of proportionality, the action taken must
    pursue a legitimate aim and the means employed to achieve the aim
    must be both necessary and the least burdensome for the achievement
    of the goal.537
    An essentially new principle that the NRAs will have to observe while
    fulfilling their tasks is that of technological neutrality. It was
    acknowledged during the consultations of the 2002 framework that it is
    of primary importance for any regulatory measure taken with regard to
    electronic communications markets to be neutral as to the technology
    used.538 In a sector as dynamic and technologically driven as electronic
    communications, a technologically biased measure might steer the
    process in a wrong direction and seriously harm innovation and
    competition in the markets and for the markets. The presence of networks
    effects additionally aggravates the situation since, as we discussed in
    Chapters 1 and 2, the market might settle at an inferior standard due to
    a decision partial to a certain technology or technological solution.539 In
    that context acknowledging the gravity of neutrality, the Framework
    Directive defines as an obligation for the Member States to ensure that
    537

    See Article 5(3) of the EC Treaty and the Protocol on the application of the principles of
    subsidiarity and proportionality attached to the Treaty of Amsterdam Amending the
    Treaty on European Union, the Treaties Establishing the European Communities and
    Related Acts, OJ C 340/1, 10 November 1997. See generally Nicholas Emiliou, The Principle
    of Proportionality: A Comparative Study, The Hague/London/Boston: Kluwer Law
    International, 1996, at Chapter 4.
    538
    See eg Principles for Regulatory Action in the 1999 Communications Review, at p. v.
    539
    On network effects and their ramifications, see supra Part 1, Chapter 1, Section 4.1.2
    and Chapter 2, Section 2.3.

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    European Community Communications Law

    in carrying out the regulatory tasks in this Directive and the Specific
    Directives, in particular those to ensure effective competition, national
    regulatory authorities take the utmost account of the desirability of
    making regulations technologically neutral.540
    This principle should be fully considered but not exaggerated.
    Essentially, almost every choice made or decision taken by the regulatory
    agencies in communications markets will have some technological
    repercussions. Avoiding these completely would amount to not taking
    any decisions at all. That is why, recital 18 of the Framework Directive
    clarifies that the requirement of technological neutrality does not
    preclude the taking of proportionate steps to promote certain specific
    services where this is justified, for example digital television as a means
    for increasing spectrum efficiency.541 Nihoul and Rodford remark in
    the context of technological neutrality that the latter principle must be
    understood as a prohibition on adopting stances which, as their main
    object, imply that a given technology is favoured. A reasonable
    interpretation is that other choices, with ancillary consequences on
    technology, could be accepted.542
    iii.

    Interim Observations on Wholesale Markets


    Remedies

    The remedies listed in the Access Directive provide NRAs with a potent
    toolkit to confront undertakings having SMP and thus could serve to
    promote effective competition on the wholesale market in question.
    Ranging from the obligation of transparency to price control, they allow
    the regulatory authorities to be both flexible in designing a specific
    remedy package for specific problems and fairly intrusive if a radical
    intervention is needed.543
    The obligation of access to, and use of, specific network facilities544
    gives NRAs the opportunity to intervene in situations where access is
    denied or withdrawn when this would hinder the emergence of a
    sustainable competitive market at the retail level, or would not be in the
    end-users interest.545 In that sense, the test for imposing third-party
    540

    Article 8(1) of the Framework Directive. See also Paul Nihoul and Peter Rodford, supra
    note 4, at paras 7.1287.129.
    541
    On digital television interoperability, see eg Recitals 30, 31 and Article 18 of the
    Framework Directive.
    542
    Paul Nihoul and Peter Rodford, supra note 4, at para. 7.129.
    543
    For an economic evaluation of the remedies and their costs and benefits, see Martin
    Cave and Pierre Larouche (Rapporteurs), European Communications at the Crossroads,
    Report of the CEPS (Centre for European Policy Studies) Working Party on Electronic
    Communications, Brussels: Centre for European Policy Studies, October 2001, at p. 14.
    544
    Article 12 of the Access Directive.
    545
    Article 12(1) of the Access Directive.

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    EC Electronic Communications and Competition Law

    access under the sector specific regulation appears to be broader and


    more loosely defined546 and thus more easily met than under competition
    law. Indeed, under the essential facility doctrine, access may only be
    granted when the facility is essential, which according to the standing
    case law of the EC Courts, as we ascertained above, is a rather rigid
    test.547 Against the background of the entire infrastructure-based or
    service-based competition discussion 548 and accounting for the
    importance of access, NRAs will have to be extremely conscious when
    applying the tool of mandatory access. They should at all times safeguard
    competition in the long run, taking into due account the investments
    and risks taken by the facility owner.
    Price control in the form of cost-orientation, as enshrined in Article 13
    of the Access Directive, is another instrument that can be quite intrusive
    and possibly curb rather than stimulate competition, if unduly applied.549
    It should thus only be used with extreme prudence and be confined to
    cases close to existence of an essential facility (as the case of the local
    loop).550 Where there is network duplication as in the mobile industry,
    non-discrimination or other forms of price control may be preferable.
    On the whole, it appears that the further one goes on the ascending scale of
    remedies from Article 9 to 13 of the Access Directive, the more one needs to
    prove that the SMP is strong and persistent,551 since the remedy becomes
    harder. The intrusiveness of these sector specific obligations should be,
    nonetheless, not overstated. Any intervention under sectoral regulation is
    in fact limited to the markets selected by the Commission as markets
    susceptible to ex ante regulation.552 In addition to the market selection
    test, all measures regarding market definition and market analysis, taken
    by the NRAs, are subject to the special regulatory procedure of Article 7 of
    the Framework Directive.553 It should, however, be borne in mind that, with
    specific regard to remedies, the Commission can comment on their
    appropriateness,554 but has no power to veto them.
    546

    Martin Cave, supra note 473, at p. 14.


    See supra Section 2.3.2, in particular the analysis of the seminal Case C-7/97 Oscar
    Bronner, supra note 205.
    548
    See supra Chapter 2, Section 2.3.3.
    549
    Martin Cave, supra note 473, at pp. 1516.
    550
    Martin Cave, supra note 413, at p. 37.
    551
    See supra the elaborations in the context of abuse of dominant position under Article
    82 EC (Section 2.3), which tend to suggest that a firm in a dominant position has a
    special responsibility not to allow its conduct to impair undistorted competition on the
    common market (Case 322/81 Michelin v. Commission, supra note 44, at para. 57).
    552
    See supra Section 3.2.4.b.
    553
    See supra Section 3.2.1.b.
    554
    The Commission has commented for instance on remedies that solved the problem at
    issue only partly, appeared to be inadequate or might have produced effective result too
    late. See European Commission, Communication on market reviews under the EU
    regulatory framework, supra note 439, at pp. 56.
    547

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    European Community Communications Law

    iv.

    Obligations Imposed on Retail Markets

    Retail markets signify the relationship between the providers of


    electronic communications networks and services and the end-users (be
    it business or residential customers). Although the process of market
    analysis is identical to the one regarding wholesale markets, two
    conditions must be fulfilled for the imposition of obligations on a retail
    market. The first one is the same as for wholesale markets, namely that
    one or more operators are found to enjoy an SMP position. The second,
    additional one is that the obligations that may be imposed on wholesale
    markets under the Access Directive (as outlined above) or Article 19 of
    the Universal Service Directive (ie carrier selection and pre-selection)
    would not result in the achievement of the Article 8 Framework Directive
    objectives.555 This means that obligations on retail markets should only
    be imposed when the remedies on the wholesale markets will not be
    effective. The rationale behind this rule is that as most of the retail anticompetitive behaviour stems from the exercise of market power on the
    wholesale market, it is more appropriate to regulate it as a source of the
    problem, rather than the retail market where the problem might manifest
    itself.556 Retail regulation would thus only be justified when wholesale
    regulation would be too late or is too complex or insufficient. Therewith,
    the e-communications framework envisaged a reduction of retail
    regulation. One should, however, remember that competition rules
    continue to apply fully and constantly to all markets.
    When the above negative conditions are fulfilled and retail market
    regulation is still found to be necessary, the NRA may impose one or
    more obligations choosing from the non-exhaustive list provided in
    Article 17 of the Universal Service Directive. The obligations imposed
    must satisfy the same conditions as those for the wholesale markets, ie
    be based on the nature on the problem identified, while being also
    proportionate and justified in the light of the Article 8 objectives. The
    obligations may include requirements that the identified undertakings
    do not charge excessive prices, inhibit market entry or restrict
    competition by setting predatory prices, show undue preference to
    specific end-users or unreasonably bundle services. In addition, NRAs
    may apply to such undertakings the same type of price control measures
    as to wholesale markets, ie appropriate price cap measures, measures
    to control individual tariffs, or measures to orient tariffs towards costs
    or prices on comparable markets.557
    555

    Article 17 of the Universal Service Directive.


    The Commission has made this approach clear in the updated 2007 Relevant Market
    Recommendation, where of all the markets selected as susceptible to ex ante regulation
    only one is retail. See supra note 486.
    557
    In addition to the above, under Article 18 of the Universal Directive, the NRAs can
    impose price controls on the minimum set of leased lines if they find that the market for
    (continued...)
    556

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    EC Electronic Communications and Competition Law

    v.

    Exceptions

    All of the preceding parts of this Section set out the procedures whereby
    certain specific obligations may be imposed on undertakings enjoying
    SMP. Exceptionally, similar obligations could be imposed on operators
    other than those designated as having SMP. These exceptions are
    contained in Article 8(3) of the Access Directive and the obligations to
    be imposed are of rather diverse nature. What is common to all of them
    is that they are all justified by the specific characteristics of electronic
    communications and the need for safeguarding competition and the
    public interest. Thus, Article 8(3) of the Access Directive allows, among
    others, the imposition of obligations covering access to conditional access
    systems, obligations to interconnect to ensure end-to-end interoperability
    and access to application programme interfaces and electronic
    programme guides to ensure accessibility to specified digital TV and
    radio broadcasting services.558 Since the imposition of these obligations
    upon firms that do not in fact have dominance constitutes a major
    intervention into the operation of the market, NRAs are to use these
    exceptions with great care.559
    An important exception is the one related to obligations imposed on nonSMP operators in order to comply with the Communitys international
    the provision of part or all of it, as identified in the list of standards, is not effectively
    competitive. See List of standards and/or specifications for electronic communications
    networks, services and associated facilities and services, supra note 426.
    558
    The full list of obligations covered by Article 8(3) of the Access Directive is as follows:
    (i) obligations covering access to conditional access systems, obligations to interconnect
    to ensure end-to-end interoperability, and access to application program interfaces and
    electronic programme guides to ensure accessibility to specified digital TV and radio
    broadcasting services (Article 5(1), 5(2) and 6 of the Access Directive); (ii) obligations for
    co-location where rules relating to environmental protection, health, security or town
    and country planning deprive other undertakings of viable alternatives to co-location
    (Article 12 of the Framework Directive); (iii) obligations for accounting separation on
    undertakings providing electronic communications services who enjoy special or exclusive
    rights in other sectors (Article 13 of the Framework Directive); (iv) obligations relating to
    commitments made by an undertaking in the course of a competitive or comparative
    selection procedure for a right of use of radio frequency (Condition B7 of the Annex to
    the Authorisation Directive, applied via Article 6(1) of that Directive); (v) obligations to
    handle calls to subscribers using specific numbering resources and obligations necessary
    for the implementation of number portability (Articles 27, 28 and 30 of the Universal
    Service Directive); (vi) obligations based on the relevant provisions of the Data Protection
    Directive; and (vii) obligations to be imposed on non-SMP operators in order to comply
    with the Communitys international commitments.
    559
    The Commission has expressed its concerns in the Tenth Communications Report,
    where it stated that, [i]t needs to be highlighted that the power to impose access and
    interconnection related obligations on non-SMP operators has to be used with great care,
    as there is always a risk that excessive or unjustified use of the powers under Article 5
    could undermine a key principle of the new framework that competition related
    remedies should be based on the findings of a market analysis. See European
    Commission, European Electronic Communications Regulation and Markets 2004, supra
    note 123, Vol. I, at p. 24.
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    European Community Communications Law

    commitments.560 As we shall see in Chapter 5, the European Communities


    and their Member States are signatories to the agreements adopted in the
    realm of the WTO and as such carry the responsibility of having certain
    appropriate measures applied to undertakings qualifying as major
    suppliers, which may or may not be identical with the ones identified as
    having significant market power.561
    In a different vein of exceptions, the national regulators may impose other
    obligations for access and interconnection than those listed in the Access
    Directive. In order to do so, the NRA must submit a request to that effect to
    the Commission, which takes a decision authorising or preventing the
    measure.562 There are no limitations given to the character and the scope of
    these other measures. Although all prescribed measures in the Access
    Directive are behavioural, a structural solution (including divesture) could
    also be, at least in theory, adopted if the Commission would be convinced
    that the proposed structural remedy is indeed the only adequate solution
    and all other available remedies would be inefficient.
    e.

    A Brief Comparison of the 2002 Sector Specific Regulation


    and Generic Competition Rules

    Before concluding on the EC regime for electronic communications


    networks and services in the general context of this chapter on regulation,
    it will be interesting to make a brief comparison of the new sector
    specific regulation (as opposed to the old ONP rules563) and generic
    EC competition rules. The gist of the 2002 regulatory framework is that
    specific economic regulation applies when and until it can control market
    power more efficiently than antitrust. Although the sector specific rules
    are now aligned with competition law methodologies, as evident from
    the above Sections, one cannot submit that they coincide. Such a
    submission will indeed be flawed. In reality, the two sets of public
    intervention (competition law and sector specific regulation) continue
    to exist as separate systems. They should, however, be seen as
    complimentary, rather than as substitutes.564
    560

    Article 8(3)(vii) of the Access Directive.


    See infra Chapter 5, in particular Sections 2.3.1 et seq. on the Reference Paper and
    Section 3.3 on the relationship between the EC commitments and the WTO rules for
    telecommunications services.
    562
    Article 8(3) of the Access Directive. The Commission must seek the advice of the
    Communications Committee before taking its decision.
    563
    The comparison between the old and the new sectoral regulation was done in the
    course of examining market definition, market analysis and imposition of remedies, albeit
    not exhaustively. For a comprehensive analysis, see Paul Nihoul and Peter Rodford, supra
    note 4, at paras 2.97 et seq. and 3.273 et seq.
    564
    See Guidelines on application of EEC competition rules in the telecommunications
    sector, supra note 29, at para. 17; Access Notice, at para. 58. See also supra Section 3.1.3
    and Paul Nihoul, supra note 387.
    561

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    EC Electronic Communications and Competition Law

    As noted in the Commission SMP Guidelines, in practice, it cannot be


    excluded that parallel procedures under ex ante regulation and
    competition law may arise with respect to different kinds of problems
    in relevant markets. Competition authorities may therefore carry out
    their own market analyses and impose appropriate competition law
    remedies alongside any sector specific measures applied by NRAs.
    However, it must be noted that such simultaneous application of
    remedies by different regulators would address different problems in
    such markets. Ex ante obligations aim to fulfil the specific objectives set
    out in the relevant directives, whereas competition law remedies aim to
    sanction agreements or abusive behaviour, which prevent, restrict or
    distort competition in the relevant e-communications market.565
    Despite certain convergence of the goals pursued by the current
    communications specific regulation and EC competition rules (most
    notably, their focus on economic efficiency), 566 the conditions of
    intervention vary substantially according to the instruments applied.
    The SMP regime is limited to market structures fulfilling certain criteria
    that amount to a certain number of markets in competition law sense,
    as selected by the Commission. The SMP regime applies then generally
    each time when there are one or more dominant undertakings in such a
    market. Abuse or other particular behaviour by the undertaking(s) in
    question is not a necessary element.
    In contrast, competition law is triggered only by a specific behaviour of
    the firms (be it agreement or concerted practice, concentration or abusive
    behaviour) that must be proven to be exploitative or anti-competitive.567
    In the light of the above, it seems that within the present SMP regime
    the burden of proof is fairly high when selecting a market, but becomes
    quite low to justify an intervention. This solution is in fact
    understandable and appropriate. It is the very purpose of sectoral
    regulation to apply to markets where ongoing interventions are needed
    and moreover, to apply ex ante in order to prevent anti-competitive
    behaviour (rather than to punish it ex post as under general competition
    law).
    The assessment of the intervention conditions (through market
    definition, market analysis and assessment of market power) may also
    differ under antitrust and communications specific regulation, as shown
    565

    SMP Guidelines, at para. 31.


    See Alexandre de Streel, supra note 455, at p. 510 and Alexandre de Streel, Remedies
    in the European Electronic Communications Sector in Damien Geradin (ed.), Remedies
    in Network Industries: EC Competition Law vs. Sector-Specific Regulation, Antwerp:
    Intersentia, 2004, pp. 67124, at pp. 117 et seq. See also Paul Nihoul and Peter Rodford,
    supra note 4, at para. 4.374.
    567
    As discussed in supra Section 2.3.
    566

    236

    European Community Communications Law

    above. The use of the same methodologies does not necessarily secure
    exactly the same outcome and it may be different in different contexts.568
    Indeed, the market under sector specific rules will be normally defined
    more broadly than under competition rules.
    Firstly, because the starting point for the analysis is different: the market
    selection is conducted according to broader criteria. High barriers to entry,
    state of competition and dynamism behind the barriers, and relative
    efficiency of sectoral remedies are much wider when compared with the
    standard antitrust criterion of demand substitutability. Secondly, the market
    analysis that follows under the SMP regime is, notably, a forward-looking
    one. As explained by the Commissions Notice on market definition, the
    concept of the relevant market is closely linked to the objectives pursued
    under Community policies. That is why the markets under Articles 81 and
    82 EC are generally defined on an ex post basis and the analysis considers
    specific events that have already taken place in the market and is not
    influenced by possible future developments. Even in an analysis undertaken
    under the Merger Control Regulation,569 which is as a rule conducted ex
    ante, the focus is quite different. Merger analyses are not carried out
    periodically as is the case and the very essence of the analyses of the NRAs
    under the e-communications framework. Competition authorities do not,
    in principle, have the opportunity to conduct a periodic review of its
    decisions in the light of market developments, whereas NRAs are bound to
    do so under Article 16(1) of the Framework Directive. This factor can
    influence the scope and breadth of the market analysis and the competitive
    assessment carried out by NRAs. For this reason, market definitions under
    the 2002 regime, even in similar areas, may be different from those markets
    defined by antitrust authorities.
    Given the above differences, as underscored by the SMP Guidelines,
    the designation of an undertaking as having SMP in a market identified
    for the purpose of ex ante regulation does not automatically imply that
    this undertaking is also dominant for the purpose of Article 82 EC or
    similar national provisions. To reiterate in the words of the Commission,
    the SMP designation has no bearing on whether that undertaking
    has committed an abuse of a dominant position within the meaning of
    Article 82 EC or national competition laws. It merely implies that, from
    a structural perspective, and in the short to medium term, the operator
    has and will have, on the relevant market identified, sufficient market
    power to behave to an appreciable extent independently of competitors,
    customers, and ultimately consumers, and this, solely for purposes of
    Article 14 of the Framework Directive.570
    568

    SMP Guidelines, at paras 2432.


    Council Regulation (EC) 139/2004 on the control of concentrations between
    undertakings, supra note 22.
    570
    SMP Guidelines, at para. 30.
    569

    237

    EC Electronic Communications and Competition Law

    Finally, as discussed in detail above, the remedies that may be imposed


    differ. Although, in principle, both behavioural and structural
    instruments may be used under competition571 and sectoral law, some
    sectoral remedies may go further than antitrust ones.
    The table below summarises the afore-drawn conclusions in the context
    of comparing the new SMP regime and generic competition law rules.
    Figure 5: Differences between the SMP Regime and Competition Law
    FEATURE

    SMP REGIME

    COMPETITION LAW

    POLICY FOCUS

    Three policy objectives (Article 8


    Framework Directive): effective
    competition, internal market,
    interests of the citizens
    To promote competition

    Prohibits abuses of dominant


    position, agreements between
    undertakings and concentrations that
    restrict or distort competition
    To protect competition

    SCOPE

    CONDITIONS
    Intervention /
    process

    REMEDIES

    Industry specific (exclusive for


    electronic communications)
    Selected market structures where
    competition law intervention
    would be inefficient
    Low burden of proof to intervene
    on selected markets
    Prospective always
    Decision of general application and
    specific issue proceedings
    Mix of formal and less formal
    procedures with public
    consultation
    Broad scope for public
    intervention:
    used to prescribe
    Strong emphasis on behavioural
    remedies
    Ongoing monitoring
    Remedies may be far-reaching and
    heavier than antitrust

    Economy wide, multiple industries


    All market structures
    High burden of proof to intervene,
    particularly for ex post control
    Retrospective under Article 82 EC or
    prospective under Merger control
    Complaint or investigation driven
    (adjudicative process)
    Formal investigation procedures
    Narrow scope for public
    intervention:
    used to proscribe
    Emphasis on behavioural remedies
    for ex post control or structural
    remedies for ex ante control
    Idiosyncratic, one-off interventions

    Source: Alexandre de Streel572

    3.2.5 Conclusion on the SMP Regime


    The 2002 regime for market analysis and assessment of significant market
    power is the core of the reform undertaken in European Community
    571

    Regulation 17/62 (Council Regulation 17 of 6 February 1962, First Regulation


    implementing Articles 85 and 86 of the Treaty, OJ 13/204, 21 February 1962) did not
    specifically provide for structural remedies. Now, under the modernisation Regulation
    (supra note 16), this is made possible. Article 7(1) therein states however that structural
    remedies can be imposed only where there is no equally effective behavioural remedy
    or where any equally effective behavioural remedy would be more burdensome for the
    undertaking concerned than the structural remedy.
    572
    Based with modifications on Alexandre de Streel, supra note 455, at p. 513.
    238

    European Community Communications Law

    communications regulation. The newly formulated SMP rules are based


    on imported competition law concepts and methodology and as a
    mechanism are meant to ensure the transition from sector specific regulation
    to application of competition law rules only, as competition takes hold on
    the relevant communications markets. As visible from the Sections above,
    the regime is undoubtedly more flexible and refined than the previously
    existing rather rigid sectoral regulation, in particular with regard to market
    definition, finding of dominance and imposition of obligations and thus
    allows for swift adjustments to the developments of electronic
    communications. It profits also from the legal practice and case law of the
    Community institutions in the field of antitrust and increasingly rests on
    economic principles that create a sound and reliable regulatory system.
    These features of the SMP framework can be truly categorised as advantages
    for the further development of the e-communications sector but carry
    simultaneously certain risks.
    The risks are above all related to the application of the SMP regime.573 The
    national regulatory authorities must meet the challenges of implementing
    a far more complex system of rules and show sensitivity towards the
    communications market developments. The assessment of significant
    market power, including application of the sometimes hard-to-define
    complex dominance concepts like collective dominance or leverage of
    market power, will not be an easy task and at the same time of crucial
    importance. The same is equally true for the choice of the specific obligations
    that the NRAs will impose on the designated SMP undertaking(s), where
    the particular design of the remedies (that could also be rather intrusive)
    will have to match the identified market problem and provide an efficient
    solution. Furthermore, the NRAs need to take into consideration the
    development of emerging markets and ensure that all actions and measures
    taken are technologically neutral. All this will notably have to be done in
    the pursuit of effective competition, development of the internal market
    and promoting the interests of the citizens,574 and in a manner ensuring
    consistency of the approaches and the practice throughout the EC. Thus, in
    broader terms, one can conclude that the NRAs are entrusted with the task
    of micro-managing575 the electronic communications sector from the
    current state to effective competition, a task that is indeed onerous.576
    573

    A statement confirmed by the Commissions conclusions in its 2007 e-communications


    markets review. See European Commission, European Electronic Communications
    Regulation and Markets 2006, supra note 401.
    574
    As prescribed by Article 8 of the Framework Directive.
    575
    A term used by Alison Oldale and Atilano Jorge Padilla, From State Monopoly to the
    Investment Ladder: Competition Policy and the NRF in Mats A. Bergman and Arvid
    Nilsson (eds.), The Pros and Cons of Antitrust in Deregulated Markets, Stockholm: Swedish
    Competition Authority, 2004, at pp. 5177.
    576
    For a sceptical view that the NRAs could carry this burden properly, see Alison Oldale
    and Atilano Jorge Padilla, ibid. at pp. 70 et seq. See also the conclusions of the European
    (continued...)
    239

    EC Electronic Communications and Competition Law

    To put it bluntly in the words of Alexandre de Streel, [i]f the NRAs do


    not do their job properly and/or if the courts do not show any deference
    to these authorities, their decisions will be constantly challenged by the
    regulated operators and the new framework could end up being like
    Communist thinking: interesting in theory but a failure in practice.577
    Yet, to conclude in a more optimistic air, the design of the SMP regime is
    undoubtedly a step in the right direction for the Community ecommunications regulation. 578 The previously existing regulatory
    asymmetry has been overcome and the given flexibility matches more
    adequately the dynamic nature of the sector. The emerged new hybrid
    type of sectoral communications regulation follows the well-established
    lines of antitrust analyses, while allowing for tailoring the regulatory
    intervention along the specific characteristics of electronic
    communications, addressing both dominance-related issues (such as
    access) and other issues (such as end-to-end interoperability).
    The experience gathered during the past five years of applying the SMP
    regime shows that the system functions properly and could provide for
    sustainable development of the European communications markets.579
    However, one should note that if deregulation was the goal pursued by the
    2002 package, it was most certainly not achieved. Withdrawal of regulation
    is a fact but it is not as sweeping as one might have expected. In the words
    of the Commission, [w]hereas certain markets have exhibited the
    characteristics of enduring bottlenecks, a number of markets have already
    become effectively competitive in several Member States, allowing existing
    regulation to be rolled back.580 The truth behind this diplomatic statement
    is that of all 152 analysed markets until September 2005 (out of 450), 123
    were found not competitive, only 19 fully competitive and 10 partially
    competitive.581 The draft 2007 Relevant Market Recommendation reveals
    Commission by the latest review of the e-communications markets and regulation,
    European Commission, European Electronic Communications Regulation and Markets
    2006, supra note 401.
    577
    Alexandre de Streel, supra note 455, at pp. 512513.
    578
    Mark Naftel and Lawrence Spiwak conclude in that sense their chapter on the EU 1999
    Telecommunications Review. Therein, they state that, [i]n conclusion, the approach of
    the 1999 Review should be considered as a step in the right direction. A test of its
    effectiveness may be how fast, if ever, it puts regulators out of business. See Mark Naftel
    and Lawrence J. Spiwak, supra note 411, at p. 360.
    579
    See European Commission, On the review of the EU regulatory framework for electronic
    communications networks and services, COM(2006) 334 final, 29 June 2006 and
    Commission Staff Working Document annexed to the Commission Communication on
    the review of the EU regulatory framework for electronic communications networks and
    services [COM(2006) 334 final]: Proposed Changes, supra note 430.
    580
    European Commission, Communication on market reviews under the EU regulatory
    framework, supra note 439, at p. 10 (emphasis in the original).
    581
    European Commission, Telecom Liberalisation: EU Rules Help to Free Up Markets
    But Much Remains to Be Done, IP/06/125, Brussels, 7 February 2006. See also European
    (continued...)
    240

    ..)

    European Community Communications Law

    also little deregulation and the number of identified wholesale markets


    susceptible to ex ante rules, is practically unchanged.582
    Upon these data, one could venture a conclusion that communications
    markets exhibit characteristics that do not lead to the withdrawal of
    sectoral rules, despite the fact that the necessary mechanisms are put in
    place. Since some of the communications specificities are lasting, a
    continuation of regulation is highly plausible.
    4.

    Chapter 4: Conclusion

    It is difficult to provide a straightforward conclusion to the above quite


    extensive and heterogeneous chapter on communications regulation. It
    was in any case not the purpose of the chapter to end unequivocally. Its
    purpose was rather, in the context of the overall frame of this work, to
    examine the regulatory instruments available and applied to European
    Community communications markets, and to provide therewith a
    foundation for further reflection.
    As we have seen, these tools form a complex system with intricate
    relationships between the individual bodies of law, which are in
    themselves rather elaborate systems of regulation. The EC competition
    rules and the communications specific regime have essentially different
    origins and inspirations as regulatory systems and have been created to
    achieve different ends using different means. Because of these
    dissimilarities, their regulatory potential is not the same.
    Building upon the typological investigation in Chapter 3, in the
    preceding chapter, we discovered further that the tools applicable to
    communications have not always been in their present shape and form.
    The EC communications law has indeed evolved immensely in the last
    couple of decades: from a simple set of sectoral rules regulating the
    national monopolists within the individual Member States without
    competition law supervision to a comprehensive dual system of antitrust
    and sector specific instruments. The application of the liberalisation and
    harmonisation measures has accordingly transformed the
    telecommunications sector from monopoly to a state of competition. A
    multiplicity of players is presently active in the diverse electronic
    communications markets, the economic parameters show above average
    growth and the role of the sector as the basis for the Information Society
    and various other policy endeavours is vital.583
    Commission, Annexes accompanying the Communication on market reviews under the
    EU regulatory framework: Consolidating the internal market for electronic
    communications [COM(2006) 28 final], supra note 493, at Annexes I and III.
    582
    2007 Relevant Market Recommendation, supra note 486.
    583
    As discussed supra in Part 1, Chapter 1, Section 4.5 and Chapter 2, Section 3.5.

    241

    EC Electronic Communications and Competition Law

    The 2002 framework for electronic communications, which was central


    to our analysis above, has been designed to respond to this newly
    attained level of competition. It pursues to regulate the sector in the
    face of convergence and rapid technological and market developments,
    and to continue to do so for the foreseeable future without major
    revision.584 The latter task is admittedly not an easy one considering
    the fact that communications is unlike any other sector of the economy
    and is in itself a complex system with multiple factors and forces
    simultaneously at work.585
    The 2002 package has attempted to meet these challenges by
    implementing a few novel regulatory solutions and a finer, more flexible
    structure. Most crucially, it includes a new design of the communications
    specific regulation. The latter has been aligned with antitrust
    methodology and is currently based on standard competition law
    concepts and analyses (although, as seen above, with some perceptible
    differences). The e-communications regime overcomes regulatory
    asymmetry and seeks a middle way between classical specific rules and
    competition law in that it provides for an in-depth antitrust analysis of
    the sector but on an ongoing, forward-looking basis with the possibility
    of ex ante regulatory intervention. The subscription of sector specific
    regulation to antitrust methodology does not, however, change its
    regulatory nature. Neither does the existing mechanism of withdrawing
    sectoral rules mean an overnight abolition of the dual regime. first,
    because of the observable deficiency of EC competition rules, in
    particular Article 82 EC, to deal with situations of market power in the
    communications markets and, secondly, because the failures manifest
    in the communications ecosystem are not necessarily resulting from
    dominance but also from other phenomena, stemming from the very
    specificities of electronic communications (as illustrated in Chapter 1).
    Against the backdrop of our examination of EC communications tools
    and their evolvement over time, one could however make an interesting
    observation, namely that regulators have learned to approach
    communications situations more flexibly. They do observe the market
    developments and, on the basis of these observations, adapt the
    584

    Paul Nihoul and Peter Rodford, supra note 4, at p. vii.


    P.H. Longstaff cites Dietrich Dorner to provide a visualisation of complex systems and
    prove the difficulty of regulating them, We could liken a decision maker in a complex
    situation to a chess player whose set has many more than the normal number of pieces,
    several dozen, say. Furthermore, these chessmen are all linked to each other by rubber
    bands, so that the player cannot move just one figure alone. Also, his men and his
    opponents men can move on their own and in accordance with rules the player does not
    fully understand or about which he has mistaken assumptions. And, to top things off,
    some of his and his opponents men are surrounded by a fog that obscures their identity.
    See P.H. Longstaff, The Communications Toolkit, Cambridge, MA: MIT Press, 2003, p. 16.

    585

    242

    European Community Communications Law

    applicable rules. A recent example of this learning adaptation process is


    the change of the Swiss telecommunications law providing for
    compulsory unbundling of the local loop, which was adopted notably
    not as a definitive measure but scheduled for a period of four years,
    upon the expiry of which the situation of the communications markets
    would be assessed anew. 586 The 2007 review of the EC electronic
    communications framework and the initiative to adopt a Regulation on
    International Mobile Roaming,587 ie a new communications specific
    binding instrument, are further proofs of this hypothesis.

    586

    See Fernmeldegesetz (RS 784.10), nderung vom 24. Mrz 2006, (BBl 2006 3565). See
    also Etwas Schub auf der letzten Meile, Neue Zrcher Zeitung, 25 March 2006.
    587
    See Proposal for a Regulation of the European Parliament and of the Council on roaming
    on public mobile networks within the Community and amending Directive 2002/21/EC
    on a common regulatory framework for electronic communications networks and services,
    supra note 486. See also European Commission, The EU Regulation to Reduce Mobile
    Roaming Charges before the Final Agreement: Frequently Asked Questions, MEMO/07/
    101, Brussels, 14 March 2007.
    243

    CHAPTER 5
    THE WTO REGIME FOR TELECOMMUNICATIONS SERVICES
    1.

    Introduction

    Telecommunications are in essence a transnational technology and with


    the current processes of digitisation and globalisation, increasingly more
    so.1 As such, the development of the communications industries has
    always required, and still does, a substantial degree of cooperation
    between countries. Clear proof of the need for cooperation is the fact
    that the very first intergovernmental organisation, the International
    Telegraph Union, was founded in 1865 specifically to address it.
    Subsequently, numerous telecommunications-relevant treaties and
    conventions under public international law and less formal agreements
    have come into being, dealing with the treatment and use of common
    natural resources, standardisation and development.2
    The changes that transformed the communications industry in the last
    three decades at the national level and most notably its technological
    evolution and market liberalisation have triggered changes within the
    global regulatory environment as well. As elements of these
    repercussions, the negotiating and standard-making processes and
    ultimately, the classical sources of international telecommunications law
    have been reshaped.
    Two important changes have occurred in this context. First, a new cluster
    of stakeholders corresponding to the shift in market structures emerged,
    thereby increasing the significance of market players in the decisionmaking processes (as opposed to nation states as decision-makers).3
    Secondly and perhaps more importantly, there was a shift in the
    regulatory mandate for telecommunications. Because of their increased
    significance in a globalised networked environment, they needed to be
    1

    See eg European Commission, The globalisation of the Information Society: The need
    for strengthened international coordination, COM(98) 50 final, 4 February 1998.
    2
    Ian Walden, The International Regulatory Regime in Ian Walden and John Angel
    (eds.), Telecommunications Law, London: Blackstone Press, 2001, pp. 346381, at p. 346.
    3
    An example in point is the formation of a number of new standard-setting organisations.
    See in this regard, Alan Cunningham, Telecommunications, Intellectual Property, and
    Standards in Ian Walden and John Angel (eds.), Telecommunications Law and Regulation,
    2nd edition, Oxford: Oxford University Press, 2005, pp. 341375, at pp. 370 et seq. See also
    Wybo P. Heere (ed.), From Government to Governance: The Growing Impact of Non-State Actors
    on the International and European Legal System, Cambridge: Cambridge University Press,
    2004.

    245

    EC Electronic Communications and Competition Law

    properly addressed as a distinct economic activity, a tradable service,


    rather than simply as a medium or a conduit for conducting trade.4
    The issue of market access as the emerging primary concern in
    international communications law could not be tackled appropriately
    in the realm of the ITU.5 The World Trade Organization (WTO), in
    contrast, provided an apposite negotiations and regulatory forum6 and,
    as we shall see below, comprehensively addressed different issues of
    communications markets regulation, while also affirming the
    liberalisation trend as a sound approach to telecommunications policy.
    It is beyond the scope of the present work to analyse the multitude of
    bodies regulating in the field of communications on regional and global
    level, or to discuss their documents and intricate relationships.7 The
    following paragraphs will concentrate on the WTO as the emerging most
    significant international forum and its law as far as telecommunications
    are concerned. This will essentially complete the examination of the
    regulatory tools applied to EC communications, since the WTO law is
    binding8 upon the European Communities and their Member States as
    signatories to the agreements.9
    4

    Ian Walden, supra note 2, at p. 347.


    The International Telecommunication Union was founded in 1932 building upon the
    International Telegraph Union established in 1865. In 1947, it became a specialised agency
    of the United Nations and almost all sovereign countries are members (currently 189
    members). On the role of ITY see Ian Walden, supra note 2, at pp. 346369; Christian
    Koenig and Jens-Daniel Braun, The International Regulatory Framework of EC
    Telecommunications Law: The Law of the WTO and the ITU as a Yardstick for EC Law
    in Christian Koenig, Andreas Bartosch and Jens-Daniel Braun (eds.), EC Competition and
    Telecommunications Law, The Hague/London/Boston: Kluwer Law International, 2002,
    pp. 149, at pp. 1949; Bobjoseph Mathew, The WTO Agreements on Telecommunications,
    Berne/Frankfurt/Brussels: Peter Lang, 2003, at pp. 2940.
    6
    On the reasons for the choice of the WTO as a more suitable forum for
    telecommunications negotiations, see Marco C.E.J. Bronckers and Pierre Larouche,
    Telecommunications Services and the World Trade Organization (1997) Journal of World
    Trade, Vol. 31, No 5, pp. 545, at pp. 67; Christoph Beat Graber, Handel und Kultur im
    Audiovisionsrecht der WTO. Vlkerrechtliche, konomische und kulturpolitische Grundlagen einer
    globalen Medienordnung, Berne: Staempfli Publishers, 2003, at pp. 198199.
    7
    For overview of the international regulatory authorities in the field of
    telecommunications, see David Gillies and Roger Marshall, Telecommunications Law, Vol. 1,
    2nd edition, London: Butterworths LexisNexis, 2003, at pp. 147153. See also Charles H.
    Kennedy and M. Veronica Pastor, An Introduction to International Telecommunications Law,
    Boston/London: Artech House, 1996; Denis Campbell, International Telecommunications
    Law, London: BNA International, 1999; Colin D. Long (general ed.), Global
    Telecommunications Law and Practice, London: Sweet and Maxwell, 20012004.
    8
    On the legal effect of WTO law upon the EC legal order, see infra Section 3.1.
    9
    See Council Decision 94/800/EC of 22 December 1994, concerning the conclusion on
    behalf of the European Community, as regards matters within its competence, of the
    agreements reached in the Uruguay Round multilateral negotiations (19861994), OJ L
    336/191, 23 December 1994 and Council Decision 97/838/EC concerning the conclusion
    on behalf of the European Community, as regards matters within its competence, of the
    results of the WTO negotiations on basic telecommunications services, OJ L 347/45, 18
    December 1997.
    5

    246

    The WTO Regime for Telecommunications Services

    2.

    The World Trade Organization

    The WTO was established in April 1994 as part of the final act embodying
    the results of the Uruguay Round of multilateral trade negotiations10
    and building upon the General Agreement on Tariffs and Trade (GATT)
    1947.11 It became operational on 1 January 1995 and over the past ten
    years has grown to be the most influential organisation on a global level,
    regulating not only trade in goods, services and trade-related aspects of
    intellectual property rights but also broader issues.12 As stated in Article
    III of the founding Marrakesh Agreement, the functions of the WTO
    are, inter alia: (i) to facilitate the implementation, administration and
    operation of the adopted multilateral trade agreements;13 (ii) to provide
    forum for negotiations among its Members and a framework for the
    implementation of the results of such negotiations; 14 and (iii) to
    administer the Understanding on Rules and Procedures Governing the
    Settlement of Disputes (DSU).15 This dispute settlement mechanism, with
    the authority to enforce the obligations accepted by the Member States
    under the covered agreements, is a unique feature of the WTO and one
    that has contributed substantially to its positioning at the forefront of
    inter-governmental organisations.16

    10

    Agreement Establishing the World Trade Organization with Understanding on the Rules
    and Procedures Governing the Settlement of Disputes and Trade Policy Review
    Mechanism, Marrakesh, 15 April 1994, TS 57(1996) Cm 3277; (1994) 33 ILM 15, entered
    into force 1 January 1995 (hereinafter the WTO Agreement). For all relevant WTO
    documents, see http://www.wto.org.
    11
    General Agreement on Tariffs and Trade of 30 October 1947, annexed to the Final Act of
    the United Nations Conference on Trade and Employment, Havana 1947 (entered into
    force 1 January 1948; subsequently rectified, amended, or modified by the terms of legal
    instruments, which have entered into force before the date of entry into force of the WTO
    Agreement).
    12
    For an introduction to the law of the WTO and its most important tenets, see eg John H.
    Jackson, The World Trading System: Law and Policy of International Economic Relations, 2nd
    edition, Cambridge: MIT Press, 1999; Thomas Cottier and Matthias Oesch, International
    Trade Regulation, Berne: Staempfli Publishers/London: Cameron May, 2004; Peter van den
    Bossche, The Law and Policy of the World Trade Organization, Cambridge: Cambridge
    University Press, 2005.
    13
    Article III:1 of the WTO Agreement.
    14
    Article III:2 of the WTO Agreement.
    15
    Article III:2 of the WTO Agreement. See also Annex 2 of the WTO Agreement,
    Understanding on Rules and Procedures Governing the Settlement of Disputes.
    16
    See Ernst-Ulrich Petersmann (ed.), The GATT/WTO Dispute Settlement System
    International Law, International Organizations and Dispute Settlement, The Hague/London/
    Boston: Kluwer Law International, 1997; James Cameron and Karen Campbell (eds.),
    Dispute Resolution in the World Trade Organization, London: Cameron May, 1998; Thomas
    Cottier, Dispute Settlement in the World Trade Organization: Characteristics and
    Structural Implications for the European Union (1998) Common Market Law Review, Vol. 35,
    pp. 325378.

    247

    EC Electronic Communications and Competition Law

    The law of the WTO is contained in multiple agreements (attached as


    annexes to the WTO Agreement)17 that can be structured into three main
    pillars, namely: the GATT, the General Agreement on Trade in Services
    (GATS) and the Agreement on Trade-Related Aspects of Intellectual
    Property Rights (TRIPs). 18 While the GATT applies to
    telecommunications equipment and the TRIPs Agreement to certain
    aspects of communications activities related to intellectual property, the
    WTO instrument most immediately relevant to communications is the
    GATS.19
    2.1

    General Agreement on Trade in Services

    The GATS, similarly to the GATT,20 is aimed at protecting equality of


    competitive opportunities for companies in domestic markets, regardless
    of their origin and the origin of their services, and at facilitating the
    progressive liberalisation of these markets. The approach and structure
    of the GATS, however, differ from those of the GATT, since the object of
    regulation, ie services, is essentially different from goods.
    Part II of the GATS comprises a number of fundamental General
    Obligations and Disciplines,21 which apply to all measures by Members
    17

    Article II:2 of the WTO Agreement explicitly states that, [t]he agreement and associated
    legal instruments included in Annexes 1, 2, and 3 (hereinafter referred to as Multilateral
    Trade Agreements) are integral parts of this Agreement, binding on all Members.
    18
    These instruments on trade liberalisation are contained in Annex 1 of the Agreement
    establishing the World Trade Organization. Other Annexes organise additional aspects
    of liberalisation such as the dispute settlement procedure (Annex 2), trade policy review
    mechanism (Annex 3) and certain plurilateral agreements (Annex 4).
    19
    One should however note that the delineation between services and goods is not always
    as clear. As the European Court of Justice stated, [i]n the field of telecommunications,
    [] it is difficult to determine generally whether it is free movement of goods or freedom
    to provide services which would take priorityand suggested that such questions should
    be examined simultaneously in the light of both Articles 30 and 59 EC. See Case C-390/99
    Canal Satlite Digital SL v. Administracin General del Estado, and Distribuidora de Televisin
    Digital SA (DTS) [2002] ECR I-607, at paras 32 and 33. On the debate concerning the
    application of GATT or GATS, see eg David Luff, Telecommunications and Audio-Visual
    Services: Considerations for a Convergence Policy at the World Trade Organization Level
    (2004) Journal of World Trade, Vol. 38, No 6, pp. 10591086, at pp. 1073 et seq.
    20
    In contrast to the GATT, which builds upon the GATT 1947, the GATS is a completely
    new Agreement for the field of services negotiated during the Uruguay Round (1986
    1994).
    21
    It is out of the scope of the present work to discuss in detail all GATS provisions that have
    certain influence on telecommunications services, such as the provisions on domestic
    regulation, government procurement, public monopolies, etc. For excellent overviews, see
    Marco C.E.J. Bronckers and Pierre Larouche, supra note 6, at pp. 3341; Michael H. Ryan,
    Trade in Telecommunications Services: A Guide to the GATS (1997) Computer and
    Telecommunications Law Review, Vol. 3, pp. 95104; Mark Clough, Trade and Telecommunications,
    London: Cameron May, 2002, at pp. 31 et seq.; David Luff, Current International Trade Rules
    Relevant to Telecommunications Services in Damien Geradin and David Luff (eds.), The
    WTO and Global Convergence in Telecommunications and Audio-Visual Services, Cambridge:
    (continued...)
    248

    ..)

    The WTO Regime for Telecommunications Services

    which affect trade in services,22 with the notable exception of those


    supplied in the exercise of governmental authority.23 The core of these
    general obligations is the Most-Favoured-Nation obligation (MFN),
    formulated in Article II:1 GATS. Pursuant to the latter, each Member is
    obliged to accord immediately and unconditionally to services and
    service suppliers of any other Member treatment no less favourable than
    that it accords to like service and service suppliers of any other country.
    As established through the case law, the MFN treatment implies a
    prohibition of de facto, as well as de jure discrimination between like
    foreign services and service suppliers.24
    In contrast to the GATT,25 however, where the MFN principle bears no
    individual exemptions, the GATS has a more flexible approach. 26
    Thereby, each Member may specify that the MFN would not be
    applicable to certain measures, provided that those are listed in and
    meet the conditions of the Annex on Article II Exemptions (the so-called
    opt-out approach).27 The application of this opting-out was nonetheless
    limited and exemptions were allowed only until the date of entry into
    force of the WTO Agreement, ie 1 January 1995.28 They were further
    Cambridge University Press, 2004, pp. 3450, at pp. 3442; Marco C.E.J. Bronckers and Pierre
    Larouche, The WTO Regime for Telecommunications Services in Marco C.E.J. Bronckers
    and Gary N. Horlick (eds.), WTO Jurisprudence and Policy: Practitioners Perspectives, London:
    Cameron May, 2004, pp. 519590, at pp. 553 et seq.
    22
    See Article I:1. See also I:2 and I:3 GATS. On the interpretation of these, see eg Appellate
    Body Report, European Communities Regime for the Importations, Sale and Distribution of Bananas,
    WT/DS27/AB/R, 9 September 1997 and Appellate Body Report, Canada Certain Measures
    Affecting the Automotive Industry, WT/DS/139/AB/R, WT/DS142/AB/R, 31 May 2000.
    23
    See Article I:3(b) GATS. The following paragraph (c) clarifies that, a service supplied
    in the exercise of governmental authority means any service which is supplied neither
    on a commercial basis, nor in competition with one or more service suppliers. For an
    interpretation, see Markus Krajewski, Public Services and Trade Liberalization: Mapping
    the Legal Framework (2003) Journal of International Economic Law, Vol. 6, No 2, pp. 341
    367, at pp. 347 et seq.; Eric H. Leroux, What is a Service Supplied in the Exercise of
    Governmental Authority Under Article I:3(b) and (c) of the General Agreement on Trade
    in Services (2006) Journal of World Trade, Vol. 40, No 3, pp. 345385.
    24
    See Appellate Body Report, European Communities Regime for the Importation, Sale and Distribution
    of Bananas, supra note 22, at para. 234. For further analysis, see Thomas Cottier and Matthias Oesch,
    International Trade Regulation, supra note 12, pp. 355 et seq. and 829 et seq.
    25
    Thomas Cottier and Matthias Oesch, ibid. at pp. 346 et seq.
    26
    Christoph Beat Graber, Audio-Visual Policy: The Stumbling Block of Trade
    Liberalisation in Damien Geradin and David Luff (eds.), The WTO and Global Convergence
    in Telecommunications and Audio-Visual Services, Cambridge: Cambridge University Press,
    2004, pp. 165214, at pp. 200 et seq.
    27
    See Article II:2 GATS. Exemptions concerning telecommunications services (mostly on
    accounting rates) have been made, inter alia, by Argentina (Doc. GATS EL/4); Bangladesh
    (Doc. GATS EL/8); Brazil (Doc. GATS EL/13/Suppl. 1); India (Doc. GATS EL/42/Suppl. 1);
    Pakistan (Doc. GATS EL/67/Suppl. 1); Turkey (Doc. GATS EL/79) and the United States
    (Doc. GATS EL/90/Suppl. 2). The EC has listed none.
    28
    Members can now only exempt a measure from the application of the MFN treatment
    under Article II:1 GATS by obtaining a waiver from the MFN obligation pursuant to
    Article IX:3 of the WTO Agreement. See Annex on Article Exemptions, at para. 2.
    249

    EC Electronic Communications and Competition Law

    subject to review after a five-year period29 and in principle, should not


    have exceeded a total duration of ten years.30 In the specific context of
    telecommunications services, the GATS Annex on Negotiations on Basic
    Telecommunications provided that the MFN obligation would only enter
    into force for basic telecommunications 31 after the market access
    negotiations were completed or appeared to remain unsuccessful.32
    The general GATS obligations, as formulated in Part II, are supplemented
    by specific commitments accepted by individual Members in the socalled Schedules of Specific Commitments appended to the GATS.
    The schedules show the positive commitments (opting-in) of a Member
    with regard to national treatment and market access according to the
    modes of supply identified in Article I GATS,33 and the conditions, terms
    and limitations of these commitments.34
    The national treatment obligation, enshrined in Article XVII GATS, states
    that, each Member shall accord to services and service suppliers of
    any other Member, in respect of all measures affecting the supply of
    service, treatment no less favourable than that it accords to its own like
    services and service suppliers. In contrast to the GATT,35 however,
    pursuant to GATS, the principle of national treatment constitutes only a
    specific commitment and becomes operational only if inscribed in the
    respective Members Schedules to the GATS.36
    29

    Annex on Article II Exemptions, at paras 34.


    Annex on Article II Exemptions, at para. 6. In principle, all exemptions granted should
    have come to an end in January 2005. This did not however happen. In fact, many Members
    have explicitly stated in their exemption lists that particular exemptions would last more
    than ten years.
    31
    For the distinction between basic and value-added telecommunications services, see
    infra at the end of the current Section.
    32
    Annex on Negotiations on Basic Telecommunications, at para. 1. The market access
    negotiations were in fact completed with the adoption of the Fourth Protocol, as will be
    elaborated below (see infra Section 2.3).
    33
    The modes of supply of a service are: (a) from a territory of one Member into the territory
    of any other Member (cross-border mode); (b) in the territory of one Member to the service
    consumer of any other Member (consumption abroad mode); (c) by a service supplier of
    one Member through commercial presence in the territory of any other Member
    (commercial presence mode); and (d) by a service supplier in one Member, through
    presence of natural persons of a Member in the territory of any other Member (presence
    of natural persons mode).
    34
    Pursuant to Article XX GATS, each schedule specifies: (i) terms, limitations and
    conditions of market access; (ii) conditions and qualifications on national treatment;
    (iii) undertakings relating to additional commitments; (iv) where appropriate, the timeframe
    for implementation of such commitments; and (v) the date of entry into force of such
    commitments.
    35
    See Article III GATT 1947.
    36
    Although the meaning of national treatment remains the same as under GATS. See
    Appellate Body Report, European Communities Regime for the Importation, Sale and
    Distribution of Bananas, supra note 22, at para. 241.
    30

    250

    The WTO Regime for Telecommunications Services

    The other key specific commitment under GATS concerns market access
    and is in essence similar to a national treatment obligation,37 leading to
    gradual opening of the markets to like foreign services and service
    providers. It is articulated in Article XVI GATS and pursuant to it, the
    commitments for access made by a Member are to be applied on an
    MFN basis subject to the terms, limitations and conditions specified in
    its Schedule. In sectors, where a Member has committed itself, it must
    refrain from adopting or maintaining (unless otherwise specified in the
    Schedule) six particular types of measures. The latter are defined in litera
    (a) through (f) of Article XVI:2 and encompass: (a) limitations on the
    number of service suppliers; (b) limitations on the total value of service
    transactions or assets; (c) limitations on the total number of service
    operations or on the total quantity of service output; (d) limitations on
    the total number of natural persons that may be employed; (e) measures
    which restrict or require specific types of legal entity or joint venture;
    and (f) limitations on foreign capital participation. As established by
    the panel in US Gambling, the list of these limitations is exhaustive.38
    In practice, the schedules of specific commitments represent a
    codification of the conditions in a specific national market upon which
    a foreign service provider can rely in addition to the general obligations.
    They also constitute the basis for further negotiations for liberalisation
    of the sector in issue with the purpose of advancing through bilateral,
    plurilateral or multilateral negotiations directed towards increasing the
    general level of specific commitments undertaken by Members.39 A
    Member can modify or withdraw a commitment only after a three-year
    period from the date it entered into force and as a modifying Member
    has to bear the consequences of the undertaken modification.40
    Members may further negotiate additional commitments (as noted under
    (iii) above) with respect to measures affecting trade in services not subject
    to scheduling under Article XVI GATS (market access) or Article XVII
    GATS (national treatment), regarding, for instance, qualifications,
    standards or licensing matters.41 Such additional commitments are
    notably the ones made under the Reference Paper on basic
    telecommunications services that is examined below.42
    37

    Thomas Cottier and Matthias Oesch, International Trade Regulation, supra note 12, at p. 380.
    WTO Panel Report, United States Measures Affecting the Cross-Border Supply of Gambling
    and Betting Services, WT/S285/R, 10 November 2004, at para. 6.318, confirmed indirectly
    by the Appellate Body Report, United States Measures Affecting the Cross-Border Supply of
    Gambling and Betting Services, WT/DS285/AB/R, 7 April 2005, at para. 215. See also Markus
    Krajewski, Playing by the Rules of the Game? Specific Commitments after US Gambling
    and Betting and the Current GATS Negotiations (2005) Legal Issues of Economic Integration,
    Vol. 32, No 4, pp. 417447, at pp. 431 et seq.
    39
    Article XIX:4 GATS.
    40
    Article XXI GATS.
    41
    Article XVIII GATS.
    42
    See infra Section 2.3.1.
    38

    251

    EC Electronic Communications and Competition Law

    Characteristic of all of the provisions outlined above is that they apply


    across the board to all service sectors43 and are by their nature not
    specifically targeted at telecommunications (although the commitments
    made by a Member are essentially sector-based). Within the law of the
    WTO, there are, however, also some specific instruments on
    telecommunications that, building upon the principles of GATS, create
    a fairly comprehensive system of international communications rules.
    They allowed for more far-reaching and finely tuned commitments,
    which on the one hand, proves the importance of telecommunications
    markets and on the other hand, supports our initial thesis of the need
    for enhanced cooperation in telecommunications.
    Before examining the telecommunications specific WTO agreements, a
    brief note of clarification is needed. This clarification concerns the
    categorisation of telecommunications services into basic and valueadded, which runs through all communications related provisions of
    the WTO and defined (and still does) the process of negotiation and
    committing in the field of telecommunications services.
    The distinction between basic and value-added telecommunications
    services does not originate from the WTO negotiations themselves but
    rather from the US telecommunications law. It can be traced back to the
    so-called Computer Inquiries44 in the mid 1980s, when the division was
    made instrumental in delineating the jurisdiction of the Federal
    Communications Commission (FCC).45 Therein, basic services were
    defined as the offering of transmission capacity for the movement of
    information, while enhanced (or value-added) services were identified
    as any offering over the telecommunications network which is more
    than a basic transmission service.46
    The Draft Model Schedule47 used for negotiating in telecommunications
    built upon the W/120 services sectoral classification model,48 which was
    43

    See supra the beginning of this section. See also Thomas Cottier/Matthias Oesch, supra
    note 12, p. 821.
    44
    Second Computer Inquiry, Docket 20828, Final Decision, FCC 80189, 77 FCC 2.d 384,
    7 April 1980; Third Computer Inquiry, CC Docket 85229, Report and Order, FCC 86252,
    104 FCC 2.d 958, 15 May 1986.
    45
    See Marco C.E.J. Bronckers and Pierre Larouche, supra note 6, at pp. 1618.
    46
    The above definitions could be found respectively at paras 93 and 97 of the Second
    Computer Inquiry (supra note 44, emphases added), as referred to by Marco C.E.J. Bronckers
    and Pierre Larouche, ibid. at p. 17.
    47
    Formulated by negotiators during 1993, prior to the conclusion of the Uruguay Round,
    the Draft Model Schedule was included in a formal document as an attachment to
    Negotiations on Basic Telecommunications, Note by the Secretariat, TS/NGBT/W/1, 2 May
    1994. It was later slightly revised and reissued as Draft Model Schedule of Commitments on
    Basic Telecommunications, Informal Note by the Secretariat, Job. No 1311, 12 April 1995. Of
    significance to the further negotiations on basic telecommunications were also two Notes by
    (continued...)
    252

    ..)

    The WTO Regime for Telecommunications Services

    the basis for the GATS negotiations and derived from the United Nations
    Central Product Classification (CPC).49 Without providing explicit
    corresponding definitions, the Draft Model Schedule simply imported
    by reference the CPC classification and following the US distinction
    mechanism, listed as basic telecommunications services: voice telephone;
    packet-switched data transmission; circuit-switched data transmission;
    telex; telegraph; facsimile and private leased circuit services and other
    (litera (a) to (g) and (o) of the W/120). 50 The remaining
    telecommunications services of the W/120 sectoral classification list were
    framed as value-added services and encompass electronic mail; voice
    mail; on-line information and data base retrieval; electronic data
    interchange (EDI); enhanced/value-added facsimile services (including
    store and forward, store and retrieve); code and protocol conversion;
    online information and/or data processing (including transaction
    processing) (litera (h) to (n)).51
    The table below provides a visualisation of the dichotomy between basic
    and value-added telecommunications services.

    the Chairman of the Group on Basic Telecommunications: Notes for Scheduling Basic Telecom
    Services Commitments (S/GBT/W/2/Rev.1, 16 January 1997) and Market Access Limitations
    on Spectrum Availability (S/GBT/W/3, 3 February 1997), both attached to the final Report of
    the Group on Basic Telecommunications (S/GBT/4, 15 February 1997).
    48
    See WTO, Services Sectoral Classification List, WTO Doc.MTN.GNS/W/120, 10 July
    1991 (hereinafter the W/120).
    49
    UN Provisional Central Product Classification (CPC), UN Statistical Papers, Series M,
    No 77, Ver.1.1, E.91.XVII.7, 1991.
    50
    See WTO Panel Report, Mexico Measures Affecting Telecommunications Services, WT/
    DS204/R, 2 April 2004, at paras 7.59 et seq.
    51
    On the definitions, see extensively Paul L.G. Nihoul, Audio-Visual and
    Telecommunications Services: A Review of Definitions under WTO Law in Damien
    Geradin and David Luff (eds.), The WTO and Global Convergence in Telecommunications and
    Audio-Visual Services, Cambridge: Cambridge University Press, 2004, pp. 357389, at
    pp. 360370. See also infra Section 3.3.2 for a critique of the breakdown into value-based
    and basic telecommunications services.

    253

    EC Electronic Communications and Competition Law

    Figure 6: Basic and Value-Added Telecommunication Services


    TELECOMMUNICATION SERVICES
    Basic

    a.
    b.
    c.
    d.
    e.
    f.
    g.

    Voice telephone services


    Packet-switched data transmission services
    Circuit-switched data transmission services
    Telex services
    Telegraph services
    Facsimile services
    Private leased circuit services

    Value-Added

    h. Electronic mail
    i. Voice mail
    j. On-line information and data base retrieval
    k. electronic data interchange (EDI)
    l. enhanced/value-added facsimile services, incl. store and
    forward, store and retrieve
    m. code and protocol conversion
    n. on-line information and/or data processing (incl. transaction
    processing)

    Other

    o. other (analog/digital cellular/mobile telephone services; mobile


    data services; paging; personal communications services; satellitebased mobile services (incl. e.g. telephony, data, paging and/or
    PCS); fixed satellite services; VSAT services; gateway earthstation
    services; teleconferencing; video transport; trunked radio system
    52
    services

    Source: WTO, Services Sectoral Classification List, MTN.GNS/W/120, 10 July


    199153

    Having clarified this basic WTO terminology, we can now turn to the
    first telecommunications specific WTO document, which was initially
    intended to regulate only value-added telecommunications services. This
    instrument is the Annex on Telecommunications, adopted during the
    Uruguay Round and attached as an integral part of GATS 1994.
    2.2

    The Annex on Telecommunications

    2.2.1 Scope of the Annex on Telecommunications


    Recognizing the specificities of the telecommunications services sector
    and, in particular, its dual role as a distinct sector of economic activity
    52
    The enumerated examples under the category other are given by the WTO online
    guidance on telecommunications services. See http://www.wto.org/english/tratop_e/
    serv_e/telecom_e/telecom_ coverage_e.htm. Pursuant to the Draft Model Schedule (supra
    note 47), they were categorised as basic telecommunications services.
    53
    The breakdown into basic and value-added telecommunications of the W/120
    classification for Telecommunication Services does not in fact appear in the official
    list. It is added pursuant to the Draft Model Schedule, as discussed above.

    254

    The WTO Regime for Telecommunications Services

    and as the underlying transport means for other economic activities,54


    the Annex on Telecommunications defines as its objective to elaborate
    upon the provisions of the Agreement [GATS] with respect to measures
    affecting access to and use of public telecommunications transport
    networks and services.55
    Telecommunications are defined in Section 3(a) of the Annex as the
    transmission and reception of signals by any electromagnetic means.
    Public telecommunications transport service is further identified as any
    telecommunications transport service required, explicitly or in effect,
    by a Member to be offered to the public generally [] [including] inter
    alia telegraph, telephone, telex, and data transmission typically involving
    the real-time transmission of customer-supplied information between
    two or more points without any end-to-end change in the form or content
    of the customers information.56 Public telecommunications transport
    network is to be understood as the public telecommunications
    infrastructure which permits telecommunications between and among
    defined network termination points.57
    The Annex applies thus to all measures that affect access to and use of
    public telecommunications transport networks and services in the above
    sense, while excluding explicitly measures affecting the cable or
    broadcast distribution of radio or television programming.58
    It is important to stress that the Annex on Telecommunications does not
    in itself contain or lead to any market access or national treatment
    obligations for telecommunications services beyond the commitments,
    which the Members had already made in their respective schedules. It
    comes into effect only once a Member had offered a specific commitment
    in a given service sector. As made clear by Section 2(c)(i), [n]othing in
    this Annex shall be construed to require a Member to establish, construct,
    acquire, lease, operate, or supply telecommunications transport
    networks or services, other than as provided for in its Schedule.59 Thus,
    as Bronckers and Larouche point out, the Annex on Telecommunications
    is in a sense comparable to the general GATS obligations which apply
    in addition to the specific commitments made in schedules60 and serves
    as a bonus to the specific commitment in a given sector.61
    54

    GATS, Annex on Telecommunications, at Section 1.


    Annex on Telecommunications, ibid. (emphasis added). See also Section 2(a) of the
    Annex.
    56
    Section 3(b) of the Annex on Telecommunications.
    57
    Section 3(c) of the Annex on Telecommunications.
    58
    Section 2(b) of the Annex on Telecommunications.
    59
    Emphasis added.
    60
    Marco C.E.J. Bronckers and Pierre Larouche, supra note 21, at p. 527.
    61
    Ibid. at p. 528.
    55

    255

    EC Electronic Communications and Competition Law

    With the benefit of hindsight, one could say that in practice the Annex,
    despite being an act on telecommunications, concerned mostly
    liberalised non-telecommunications services (such as banking, insurance
    or other financial services), which, to perform effectively, required access
    to and the use of communications networks and services. It also was
    applied to value-added telecommunications services, since it was for
    these that Members had committed at the time of the adoption of the
    Annex in 1994.
    Nonetheless, one should not simply conclude upon this basis that the
    scope of application of the Annex is solely directed at value-based
    telecommunications services, as defined in the preceding Section. Indeed,
    as clarified by the panel in Mexico Measures Affecting Telecommunications
    Services,62 the scope of the Annex does include basic telecommunications
    services as well,63 when commitments for these had been made. The
    panel stated in this regard that, [i]t would [] be unreasonable to
    suppose that the access and use of public telecommunications transport
    networks and services that is essential to the international supply of
    basic telecommunications services was not intended to be covered by
    the Annex. We find therefore that the Annex applies to measures of a
    Member that affect access to and use of public telecommunications
    transport networks and services by basic telecommunications suppliers
    of any other Member.64
    2.2.2 Contents of the Annex on Telecommunications
    The core provision of the Annex on Telecommunications is contained in
    its section 5. It ensures that foreign suppliers of services are accorded
    access to and use of public telecommunications transport networks and
    services on reasonable 65 and non-discriminatory66 terms and conditions.
    62

    WTO Panel Report, Mexico Measures Affecting Telecommunications Services, supra note 50.
    On the scope of application of the Annex on Telecommunications, see ibid. in particular
    at paras 7.2737.288.
    64
    Ibid. at para. 7.288 (emphasis added).
    65
    Annex on Telecommunications, at Section 5(a). The Annex on Negotiations on Basic
    Telecommunications clarifies that, [t]he term non-discriminatory is understood to refer
    to most-favoured-nation and national treatment as defined in the Agreement, as well as
    to reflect sector-specific usage of the term to mean terms and conditions no less favourable
    than those accorded to any other user of like public telecommunications transport
    networks or services under like circumstances. See also WTO Panel Report, Mexico
    Measures Affecting Telecommunications Services, supra note 50, at paras 7.329 et seq.
    66
    With regard to reasonable terms and conditions, the Panel found in the Telmex Report
    that, rates which exceed cost-based rates to this extent, and whose uniform nature
    excludes price competition in the relevant market of the telecommunications services
    bound under Mexicos Schedule, do not provide access to and use of public
    telecommunications transport networks and services in Mexico on reasonable terms.
    The Panel found consequently that Mexico had failed to meet its obligations under Section
    (continued...)
    63

    256

    The WTO Regime for Telecommunications Services

    In addition to this general rule, section 5(b) provides for a more specific
    obligation to ensure access to and use of public telecommunications
    transport networks and services by allowing foreign suppliers:
    (i)

    to purchase or lease and attach terminal or other equipment, which


    interfaces with the network and which is necessary to supply a
    suppliers services;

    (ii)

    to interconnect private leased or owned circuits with public


    telecommunications transport networks and services or with
    circuits leased or owned by another service supplier; and

    (iii)

    to use operating protocols of the service suppliers choice in the


    supply of any service, other than as necessary to ensure the
    availability of telecommunications transport networks and
    services to the public generally.

    In simple words, this means that a foreign firm providing services


    (including basic telecommunications ones) will be able to make use of
    the domestic public telecommunications networks and services in order
    to fully provide its own services. This right to access, as clarified by the
    panel in Mexico Telecommunications Services, applies also to foreign
    providers of scheduled telecommunications services, which use the
    incumbents facilities to compete with it.67
    In terms of restrictions to the above obligations, Members may only
    impose such conditions that are necessary: (i) to safeguard the public
    service responsibilities of suppliers of public telecommunications
    transport networks and services, in particular their ability to make their
    networks or services available to the public generally; (ii) to protect the
    technical integrity of the pubic networks; or (iii) to ensure that service
    suppliers of any other Member do not supply services unless permitted
    by the commitments in the Members Schedule.68 The conditions may
    specifically include: (i) restrictions on resale or shared use; (ii)
    requirements to use specified technical interfaces, including interface
    protocols, for interconnection with such networks and services;
    (iii) requirements, where necessary, for the interoperability of such
    5(a) of the GATS Annex on Telecommunications by failing to ensure that US service
    suppliers were accorded access to and use of public telecommunications transport
    networks and services in Mexico on reasonable terms. See WTO Panel Report, Mexico
    Measures Affecting Telecommunications Services, ibid. at para. 7.334.
    67
    See WTO Panel Report, Mexico Measures Affecting Telecommunications Services, ibid. at
    paras 7.374 et seq. See also Bjrn Wellenius, Galarza Tohen, Juan Manuel and Boutheina
    Guermaz, Telecommunications and the WTO: The Case of Mexico (2005) World Bank
    Policy Research Working Paper No 3759, at p. 13.
    68
    Annex on Telecommunications, at Section 5(e).

    ..)
    257

    EC Electronic Communications and Competition Law

    services; (iv) type approval of terminal or other equipment;


    (v) restrictions on interconnection of private leased or owned circuits;
    or (vi) notification, registration and licensing.69
    These conditions are to be read together with sections 5(a) and (b) of the
    Annex on Telecommunications. 70 As clarified by the Mexico
    Telecommunications Services Report, the obligations in paragraph (b) are
    subordinated to, and are, therefore, qualified by, paragraphs (e) and
    (f).71 [A]n obligation arises for a Member under paragraph 5(b)
    subject to any term or condition that a Member may impose in a manner
    consistent with the provisions of paragraphs (a) and (e).72
    2.2.3 Interim Observations on the Annex on Telecommunications
    Based on the foregoing, it has become clear that the Annex on
    Telecommunications does not of itself create a right to supply a service
    where no commitments exist.73 It is rather meant to facilitate market
    access for service sectors where commitments have already been made
    and thereby ensures a level playing field for services suppliers who
    depend on the access to telecommunications, which could otherwise
    turn into a non-tariff barrier to trade.74
    The level of commitments embodied in the Annex is understandable if
    seen in the context of the period of its adoption. At the time of the
    Uruguay talks, only value-added telecommunications services were
    provided by private undertakings operating in a competitive
    environment (at least in developed countries) and basic
    telecommunications were still public monopolies in almost all
    Members. A full liberalisation of those was quite unimaginable.75 Against
    this background, the Annex was an appropriate tool, which struck a
    fragile balance between the needs of users for fair terms of access and
    the needs of the regulators and public telecommunications operators to
    maintain a system that works and that meets public service objectives.76
    69

    Ibid. at Section 5(f). Pursuant to paragraph (g) of Section 5, a developing country may
    impose other conditions necessary to strengthen its domestic telecommunications
    infrastructure and service capacity and to increase its participation in international trade
    in telecommunications services. See also WTO Panel Report, Mexico Measures Affecting
    Telecommunications Services, supra note 50, at para. 7.388.
    70
    Ibid. at paras 7.3067.309.
    71
    Ibid. at para. 7.308 (emphases in the original).
    72
    Ibid. at para. 7.309.
    73
    Ibid. at paras 7.2907.294.
    74
    Bobjoseph Mathew, supra note 5, at p. 77.
    75
    See Kelly Cameron, Telecommunications and Audio-Visual Services in the Context of
    the WTO: Today and Tomorrow in Damien Geradin and David Luff (eds), The WTO and
    Global Convergence in Telecommunications and Audio-Visual Services, Cambridge: Cambridge
    University Press, 2004, pp. 2133, at pp. 22 et seq.
    76
    WTO, Explanation of the Annex on Telecommunications. See http://www.wto.org/
    english/tratop_e/ serv_e/telecom_e/telecom_annex_expl_e.htm.
    258

    The WTO Regime for Telecommunications Services

    Now that a significant number of Members have also included basic


    telecommunications in their schedules of commitments and after the
    broad interpretation of the section 5 obligations by the Telmex panel
    report, the role of the Annex of Telecommunications may be enhanced
    rather than diminished.77 Even after the further-reaching commitments
    made under the Fourth Protocol and the Reference Paper (discussed in
    the following Section), the Annex on Telecommunications remains
    relevant where: (i) a WTO Member has made no commitments under
    the Fourth Protocol; (ii) a Member has made commitments under the
    Fourth Protocol but has not committed to the principles of the Reference
    Paper; (iii) for issues falling outside of the scope of the Reference Paper;
    (iv) when a Member has committed in a service sector other than
    telecommunications, for foreign service suppliers in that sector when
    dealing with the incumbent telecommunications operator; and finally,
    as originally designed, (v) for value-added telecommunications services.
    Since the Annex on Telecommunications is applicable to all Members
    (in contrast to the Fourth Protocol and the Reference Paper), it remains
    indeed a useful instrument for guaranteeing access to foreign markets.78
    2.3

    The Fourth Protocol

    The Annex on Telecommunications was not the end of the negotiations


    in the field but rather an interim solution79 until the core issues of basic
    telecommunications could be adequately addressed. At the conclusion
    of the Uruguay Round, the Members adopted a decision to enter into
    voluntary negotiations on the liberalisation of trade for the provision of
    basic telecommunications services.80 As mentioned above, pending the
    conclusion of these negotiations, Members were granted an MFN
    77

    Thomas Cottier and Matthias Oesch, International Trade Regulation, supra note 12, at
    p. 880.
    78
    Confirming the above, the Panel noted in Mexico Telecommunications Services that,
    although the obligations in the Annex and the Reference Paper may overlap in certain
    respects, there are clear differences between the two instruments. First, the Annex sets
    out general obligations for access to and use of public telecommunications transport
    networks and services, applicable to all Members and all sectors in which specific
    commitments have been undertaken. Reference Paper obligations, as additional
    commitments, are applicable only by Members that have included them in their schedules,
    and they apply only to basic telecommunications. Second, while the Annex applies to all
    operators of public telecommunications transport networks and services within a Member,
    regardless of their competitive situation, the Reference Paper obligations on
    interconnection apply only with respect to major suppliers. Third, the Annex broadly
    deals with access to and use of public telecommunications transport networks and
    services, while the Reference Paper focuses on specific competitive safeguards and on
    interconnection. See WTO Panel Report, Mexico Measures Affecting Telecommunications
    Services, supra note 50, at para. 7.331 (emphases in the original).
    79
    Kelly Cameron defines it as a status quo agreement. See Kelly Cameron, supra note 75,
    at p. 21.
    80
    Ministerial Decision on Negotiations on Basic Telecommunications (1994) 33 ILM 144.

    259

    EC Electronic Communications and Competition Law

    exemption for measures affecting the provision of such basic


    telecommunications services.81
    The negotiations took place under the auspices of the Negotiating Group
    on Basic Telecommunications (NGBT) and were scheduled to conclude
    no later than 30 April 1996. By then, however, the talks had resulted in
    offers from only 48 governments and some Members (in particular the
    US82) saw the packages as not yet sufficient for a successful completion
    of the talks. At the meeting in April 1996, the then WTO Director-General
    Renato Ruggiero, despite the lack of finalisation of the negotiations,
    insisted on preserving the achieved so far. Consequently, the results of
    the talks were attached to a Protocol (Fourth Protocol to the General
    Agreement on Trade in Services83) and a one-month period was granted
    (15 January to 15 February 1997) during which Members could reexamine their positions on market access and national treatment, and
    modify their attachments to the protocol.84 A new body the Group on
    Basic Telecommunications (GBT) was formed for implementing the
    further extension of the negotiations.85 The bargaining continued86 and
    the talks were eventually finalised on 15 February 1997.
    The agreement reached thereby is generally known as the Agreement
    on Basic Telecommunications. It consists mostly of a series of schedules
    of specific commitments concerning basic telecommunications. Such
    commitments were submitted at the time by 69 Members, the 15 EC
    Member States submitting one schedule. 87 The commitments
    81

    See GATS, Annex on Negotiations on Basic Telecommunications.


    The main opposition came understandably from the US that was already substantially
    ahead in the process of liberalising its telecommunications markets and insisting that the
    other WTO Members commit to opening their markets. The US explained its refusal to
    conclude an agreement with the claim that a critical mass of market access commitments
    had not been reached, in particular from developing countries. See Marco C.E.J. Bronckers
    and Pierre Larouche, supra note 21, at p. 523.
    83
    WTO, Fourth Protocol to the General Agreement on Trade in Services, S/L/20, 30 April
    1996. A First Protocol to the GATS never actually materialised. The Second Protocol is
    on Financial Services, the Third Protocol concerns the Movement of Natural Persons.
    84
    See Decision on Commitments in Basic Telecommunications, S/L/19, 30 April 1996.
    85
    The European Commission authorised by the Council submitted to the WTO the final
    schedule of commitments on behalf of the European Community and its Member States
    on 14 February 1997.
    86
    The newly formed Group on Basic Telecommunications agreed to modify the rules on
    participation in meetings (in comparison to the rules of NGBT), so that all WTO Members
    had a full voice in its activities (governments under accession participated upon request as
    observers). The negotiations received also important political support at the WTO Ministerial
    Meeting in Singapore, December 1996. See WTO Ministerial Declaration, Singapore 1996,
    WT/MIN(96)/DEC. At the end, 32 of the 34 offers tabled in April 1996 were revised, and 21
    new offers were submitted. For an overview of the schedules of specific commitments attached
    to the Fourth Protocol, see Marco C.E.J. Bronckers and Pierre Larouche, supra note 6, at pp. 2122.
    87
    See Council Decision 97/838/EC concerning the conclusion on behalf of the European
    Community of the results of the WTO negotiations on basic telecommunications services,
    (continued...)
    82

    260

    The WTO Regime for Telecommunications Services

    supplemented or modified the existing Members submissions and were


    annexed to the existing schedules through the above-mentioned Fourth
    Protocol, which forms an integral part of GATS.88 The Fourth Protocol
    entered into force on 5 February 1998,89 although in fact its initially
    planned entry was on 1 January 1998 not surprisingly the same date
    as the entry into force of the EC Full Competition Directive.90
    Supplementary to the Schedules, the chairman of the Group on Basic
    Telecommunications issued two explanatory notes clarifying certain
    issues applicable to the scheduling of commitments.91 First, a clarification
    for basic telecom service was provided in the sense that: (i) it
    encompasses local, long-distance and international services for public
    and non-public use; (ii) it may be provided on a facilities basis or by resale; and that (iii) it may be provided through any means of technology
    (eg cable, wireless, satellites). The second note concerned market access
    limitations on spectrum availability and made clear that any
    qualifications undertaken by Members that limited market access due
    to the scarcity of spectrum/frequency were compatible with the GATS
    and need not be specifically noted in the schedules of commitments.92
    2.3.1 The Reference Paper
    A major breakthrough of the Fourth Protocol was the adoption of the
    already mentioned and now almost legendary Reference Paper93 as
    an additional commitment incorporated into the Members schedules.94

    .)

    supra note 9. Since the conclusion of the Fourth Protocol, five of the initial signatories
    improved their commitments (Guatemala, Morocco, Pakistan, Switzerland and
    Venezuela). Fifteen new WTO Members (Albania, Armenia, China, Croatia, Estonia,
    Georgia, Jordan, the Kyrgyz Republic, Latvia, Lithuania, Macedonia, Moldova, Nepal,
    Oman and Taiwan) made commitments on basic communications in the course of their
    initial schedules of specific commitments. All telecommunications commitments are
    available at http://www.wto.org/english/tratop_e/serv_e/telecom_e/telecom_
    commit_exempt_list_e.htm. For a qualitative analysis, see Marco C.E.J. Bronckers and
    Pierre Larouche, supra note 21, at pp. 530 et seq.
    88
    Article XX:3 GATS.
    89
    In a number of schedules, the Members commitments for particular services are to be
    phased in. For these, while the schedules entered formally into force on the date of the
    Fourth Protocol as a whole, the actual implementation date for such commitments was
    on the date specified in the schedule.
    90
    Commission Directive 96/19/EC amending Directive 90/388/EEC with regard to the
    implementation of full competition in telecommunications markets, OJ L 74/13, 22 March
    1996 and supra Chapter 4, Section 3.1.
    91
    Note by the Chairman of the GBT, Notes for Scheduling Basic Telecom Services
    Commitments, supra note 47. See also WTO Panel Report, Mexico Measures Affecting
    Telecommunications Services, supra note 50, at paras 7.64 et seq.
    92
    Note by the Chairman of the GBT, Market Access Limitations on Spectrum Availability,
    supra note 47.
    93
    The Reference Paper is named so, because its rules are integrated into the GATS by
    reference made to it in the schedules of commitments of the parties to the Fourth
    (continued...)
    261

    EC Electronic Communications and Competition Law

    It is indeed, as we shall see below, a special instrument within the WTO


    legal structure and of particular importance to the global
    telecommunications regime.
    2.3.2 Scope of the Reference Paper
    The scope of the Reference Paper is explicitly limited to basic
    telecommunications services, as provided in the Paper itself.95 This is a
    limitation that has been confirmed by the Mexico Telecommunications
    Services panel Report,96 although the rationale for this is somewhat
    unclear and not necessarily logical, since value-added
    telecommunications have already been liberalised at the time of the
    adoption of the Reference Paper.
    Before beginning our analysis of the Reference Paper and in the context
    of defining its scope, it is important to recall a point made above, namely
    that the paper falls under the category of additional commitments,
    which Members can make pursuant to Article XVIII GATS. As such,
    first, one should bear in mind that the Reference Paper of each Member
    attached to its Schedule of Commitments, although generally alike, may
    Protocol. For analysis of the Reference Paper, see Peter Holmes, Jeremy Kempton
    and Francis McGowan, International Competition Policy and Telecommunications
    Lessons from the EU and Prospects for the WTO (1996) Telecommunications Policy,
    Vol. 20, No 10, pp. 755767; Marco C.E.J. Bronckers and Pierre Larouche, supra note 6;
    Markus-Krein and Andreas Freytag, Telecommunications and WTO Discipline An
    Assessment of the WTO Agreement on Telecommunications Services (1997)
    Telecommunications Policy, Vol. 21, No 6, pp. 477491; William J. Drake and Eli M.
    Noam, The WTO Deal on Basic Telecommunications Big Bang or Little Whimper?
    (1997) Telecommunications Policy, Vol. 21, No 9/10, pp. 799818; Pekka Terjanne,
    Preparing for the Next Revolution in Telecommunications: Implementing the WTO
    Agreement (1999) Telecommunications Policy, Vol. 23, pp. 5163; Markus FredebeulKrein and Andreas Freytag, The Case for a More Binding WTO Agreement on
    Regulatory Principles in Telecommunications Markets (1999) Telecommunications
    Policy, Vol. 23, pp. 625644; Chantal Blouin, The WTO Agreement on Basic
    Telecommunications: a Reevaluation (2000) Telecommunications Policy, Vol. 24,
    pp. 135142; Bobjoseph Mathew, supra note 5, at pp. 124199; Christoph Beat Graber,
    supra note 6, at pp. 204 et seq.; Philip Marsden, A Competition Policy for the WTO,
    London: Cameron May, 2003, at pp. 228 et seq.; Damien Geradin and Michel Kerf,
    Levelling the Playing Field: Is the WTO Adequately Equipped to Prevent AntiCompetitive Practices in Telecommunications? in Damien Geradin and David Luff
    (eds.), The WTO and Global Convergence in Telecommunications and Audio-Visual Services,
    Cambridge: Cambridge University Press, 2004, pp. 130162, at pp. 144157; Marco
    C.E.J. Bronckers and Pierre Larouche, supra note 21, at pp. 532552.
    94
    Of the parties to the Fourth Protocol only Ecuador and Tunisia entered no additional
    commitments under the Reference Paper. Bolivia, India, Malaysia, Morocco, Pakistan,
    the Philippines, Turkey and Venezuela adopted only parts of it. Bangladesh, Brazil,
    Mauritius and Thailand have agreed to follow the Reference Paper at a later point of
    time. See supra note 87.
    95
    See Reference Paper, at Scope.
    96
    See WTO Panel Report, Mexico Measures Affecting Telecommunications Services, supra
    note 50, at para. 7.331.

    262

    The WTO Regime for Telecommunications Services

    in fact differ from country to country and should therefore be considered


    individually. 97 Secondly, and more importantly, as an additional
    commitment, the Reference Paper could neither lessen nor derogate the
    general GATS principles. Neither could any possible interpretation
    violate them.98
    2.3.3 Contents of the Reference Paper
    The contents of the Reference Paper are best described as a mixture of
    competition law and sector specific rules. In terms of competition rules,
    the Reference Paper defines two key notions, namely that of major
    supplier and of essential facilities and prescribes certain competitive
    safeguards as formulated in section 1. In terms of sectoral regulation,
    its most significant provision is that regarding interconnection in section
    2 of the paper. We briefly consider the nature and impact of these
    concepts and the rest of the rules of the Reference Paper in the following
    Sections.
    a.

    Definitions

    Pursuant to the Reference Paper, a major supplier is defined as a


    supplier which has the ability to materially affect the terms of
    participation (having regard to price and supply) in the relevant market
    for basic telecommunications services as a result of:
    (a) control over essential facilities; or
    (b) use of its position in the market.99
    Essential facilities are then defined as facilities of a public
    telecommunications transport network or service that:
    (a) are exclusively or predominantly provided by a single or a limited
    number of suppliers; and
    (b) cannot feasibly be economically or technically substituted in order
    to provide a service.100
    The panel Report Mexico Measures Affecting Telecommunications Services
    provided significant (albeit equivocal) guidance on the concept of major
    97

    The Panel Report Mexico Telecommunications Services (ibid.) exemplified this approach.
    What will be explored in the following Sections is essentially the basic text of the Reference
    Paper and not an individual Members schedule.
    98
    Mark Clough, supra note 21, at p. 83.
    99
    Reference Paper, at Definitions, para. 3. For some interesting details of the negotiating
    history of the major supplier definition, see Philip Marsden, supra note 93, at pp. 229
    230.
    100
    Reference Paper, at Definitions, para. 2.

    263

    EC Electronic Communications and Competition Law

    supplier.101 In its considerations as to whether the Mexican incumbent


    Telfonos de Mexico DA de CV (Telmex) constitutes a major supplier, the
    panel applied a three-step test and examined: (i) the relevant market;
    (ii) whether Telmex had the ability to materially affect the terms of
    participation102 in that market and finally, (iii) whether this ability
    resulted from control over essential facilities or use of its position in
    the market.103 As a first step, the panel identified the relevant market
    for basic telecommunications services on the basis of the demand
    substitution criterion and found (without much ado) that the relevant
    market for telecommunications services for the services at issue voice,
    switched data and fax is the termination of these services in Mexico.104
    As to the second point, the panel considered the arguments of the US
    that the notion of can materially affect the terms of participation (having
    regard to price and supply) corresponds to the concept of market
    power , as used by US competition authorities and its Mexican
    equivalent of substantial power. The US further submitted that in
    determining whether a firm has market power, the US antitrust
    authorities normally examined factors such as market share, barriers to
    entry, capacities of firms in the market, availability of substitutes and
    opportunities for coordinated behaviour among firms.105 The panel did
    not however follow any of these lines of analysis and based its conclusion
    simply upon the text of Mexicos International Long Distance (ILD) Rules
    granting Telmex in effect the sole right to negotiate settlement rates.
    The panel found that, since Telmex is legally required to negotiate
    settlement rates for the entire market for termination of the services at
    issue from the United States, [] it has patently met the definitional
    requirement in Mexicos Reference Paper that it have the ability to
    materially affect the terms of participation, particularly having regard
    to price.106
    Having established this, the panel was also able to reach a conclusion
    on the third element of the major supplier test (point (iii) above), since
    Telmexs ability to impose uniform settlement rates on competitors was
    the very use of its special position in the market, granted to it under
    the ILD Rules.107 Consequently, the panel found that Telmex was a major
    101

    WTO Panel Report, Mexico Measures Affecting Telecommunications Services,


    supra note 50, in particular at paras 7.1457.159 and paras 7.2267.228.
    102
    As defined by the Reference Paper, supra note 99.
    103
    WTO Panel Report, Mexico Measures Affecting Telecommunications Services,
    supra note 50, at para. 4.178.
    104
    Ibid. at para. 7.152.
    105
    Ibid. at para. 7.153, referring to the first written submission of the United States, at
    paras 7981.
    106
    Ibid. at para. 7.155 (emphasis in the original).
    107
    Ibid. at para. 7.158.

    264

    The WTO Regime for Telecommunications Services

    supplier with respect to termination of the services at issue, in that it


    has the ability to materially affect the price of termination of calls from
    the United States into Mexico, as a result of its special position in the
    market, which allows it to set a uniform price applying to all its
    competitors on terminating calls from the United States.108
    Interestingly, in its further analysis under Section 1 of the Reference
    Paper, the panel, without much deliberations, stated that, [t]he practices
    at issue involve not only Telmex, but all the other Mexican suppliers
    who are gateway operators. Since we have already found that Telmex
    alone is a major supplier within the meaning of Section 1, and that the
    practices at issue involve acts of all the Mexican suppliers who are
    gateway operators, we can conclude also that Telmex and all the other
    Mexican gateway operators are together a major supplier.109 Hence,
    the panel found the existence of a cartel and considered it banned under
    the Reference Paper.
    The panel had unfortunately no occasion for elaborating upon the second
    test for finding a major supplier, where the ability to materially affect
    the terms of participation in the relevant market stems from control over
    essential facilities. In the context of examining the Reference Paper, it is
    however noteworthy that the Paper sees the control over facilities as a
    problem analytically separate from that of large market positions.110 It
    is further interesting to acknowledge that the two-tier test suggested by
    the Reference Paper111 does not completely match the rather stringent
    essentiality test, as formulated by the case law of the European Courts
    and discussed in Chapter 4. 112 A facility that cannot feasibly be
    economically or technically substituted113 implies indeed a lower
    threshold.114
    b.

    Section 1

    The concept of major supplier, as identified above, is a key trigger for


    the obligations enshrined in the Reference Paper. Pursuant to Section 1
    thereof, such a supplier must bear certain appropriate measures for
    the purpose of preventing anti-competitive practices, whether current
    or future. Such anti-competitive practices include in particular (i) crosssubsidisation; (ii) use of information obtained from competitors with
    anti-competitive results and (iii) not making available to other service
    108

    Ibid. at para. 7.159.


    Ibid. at para. 7.227 (emphasis in the original).
    110
    Marco C.E.J. Bronckers and Pierre Larouche, supra note 21, at p. 536.
    111
    See supra the beginning of this Section.
    112
    See supra Chapter 4, Section 2.3.2.
    113
    Reference Paper, at Definitions, para. 2.
    114
    Marco C.E.J. Bronckers and Pierre Larouche, supra note 21, at p. 536.
    109

    265

    EC Electronic Communications and Competition Law

    suppliers on a timely basis technical information about essential facilities


    and commercially relevant information which are necessary for them to
    provide services.115
    The Telmex panel pointed out that this list is by no means exhaustive
    and the examples given do not represent all anti-competitive practices
    within the scope of the provision. Turning to The Shorter Oxford English
    Dictionary and Merriam Webster Dictionary for guidance, the panel
    concluded that, the term anti-competitive practices is broad in scope,
    suggesting actions that lessen rivalry or competition in the market.116
    The panel went on to state that the given examples do however illustrate
    certain practices that were considered to be particularly relevant in the
    telecommunications sector. The first example on cross-subsidization
    indicates that anti-competitive practices may also include pricing
    actions by a major supplier. All three examples show that anticompetitive practices may also include action by a major supplier
    without collusion or agreement with other suppliers. Crosssubsidization, misuse of competitor information, and withholding of
    relevant technical and commercial information are all practices which a
    major supplier can, and might normally, undertake on its own.117 It
    was further established that the concept of anti-competitive practices
    also encompasses horizontal coordination, as examined in the light of
    the definition of major supplier and section 1.1 of the Reference
    Paper.118 Practices required under a Members law could equally qualify
    as anti-competitive practices.119
    115

    Reference Paper, at Section 1. On the interpretation of the concept of anti-competitive


    practices, see WTO Panel Report, Mexico Measures Affecting Telecommunications Services,
    ibid. at paras 7.2297.245.
    116
    Ibid. at para. 7.230.
    117
    Ibid. at para. 7.232 (emphasis in the original).
    118
    The Panel based its wider interpretation on the Members own competition legislation,
    on some international instruments addressing competition policy, such as Article 46 of
    the 1948 Havana Charter for an International Trade Organization and the OECD Council
    Recommendation Concerning Effective Action Against Hardcore Cartels (C/M[98]7/
    PROV). It also made reference to the work of the WTO Working Group on the Interaction
    between Trade and Competition Policy (see Report [2002] of the Working Group on the
    Interaction between Trade and Competition Policy to the General Council [WT/WGTCP/
    6] and Report [2003], [WT/WGTCP/7]). See WTO Panel Report, Mexico Measures Affecting
    Telecommunications Services, supra note 50, at paras 7.2347.238. It is however important
    to point out that the afore-mentioned Havana Charter never in fact came into effect. The
    elaborations of the Panel could be put under serious criticism since the antitrust concepts
    used have no real legal basis in the WTO law.
    119
    WTO Panel Report, Mexico Measures Affecting Telecommunications Services, ibid. at
    paras 7.2397.245. In their submissions as a third party to the latter case, the European
    Communities expressed however a different position. They pointed out that the fixing of
    a uniform price cannot be an anti-competitive practice since uniform prices were required
    by law and that if Mexico chose not to allow competition between telecommunications
    on a certain matter, there was no scope for anti-competitive practices relating to that
    matter, since it is not possible to restrict competition where competition is not allowed.
    See European Communities third party submission, in particular at paras 49 and 53.
    266

    The WTO Regime for Telecommunications Services

    The concept of appropriate measures, which the major supplier(s)


    should bear are not elaborated upon in the Reference Paper. It provides
    no guidance either as to exactly what these type of measures could be,
    or as to their appropriateness. In the Telmex report,120 the panel had
    limited opportunity to deliberate upon this term and its contents, since
    Mexicos measure was found in itself to legally require the anticompetitive conduct.121 The panel did nonetheless state that the word
    appropriate in its general dictionary sense, should be understood as
    specially suitable, proper 122 and in that sense, pointed that
    appropriate measures are those that are suitable for achieving their
    purpose in this case that of preventing a major supplier from engaging
    in or continuing anti-competitive practices.123 Section 1 allows thus
    for a degree of flexibility as to the precise content of the appropriate
    measures124 and this may be rules of antitrust, as well as of a sector
    specific nature.
    C.

    Section 2

    Section 2 of the Reference Paper imposes an important obligation on


    major suppliers of public telecommunications transport networks and
    services to enable interconnection with their networks and services at
    any technically feasible point in the network. Such interconnection
    should be provided:
    (i)

    (ii)

    (iii)

    under non-discriminatory terms, conditions and rates and of a


    quality no less favourable than that provided for its own like
    services or for like services of non-affiliated service suppliers or
    for its subsidiaries or other affiliates;
    in a timely fashion, on terms, conditions and cost-oriented rates
    that are transparent, reasonable, having regard to economic
    feasibility, and sufficiently unbundled; and
    upon request, at point in addition to the network termination
    points offered to the majority of users, subject to charges that
    reflect the cost of construction of necessary additional facilities.

    The panel had the opportunity to examine in detail the terms costoriented, reasonable and having regard to economic feasibility,
    which were contentious in the Telmex dispute.125 It found notably that,
    120

    WTO Panel Report, Mexico Measures Affecting Telecommunications Services, ibid. at


    paras 7.2657.269.
    121
    Ibid. at para. 7.266.
    122
    Ibid. at para. 7.265, referring to The Shorter Oxford English Dictionary, 3rd edition, London:
    Clarendon Press, 1990, at p. 94.
    123
    Ibid.
    124
    Ibid. at para. 7.267.
    125
    See WTO Panel Report, Mexico Measures Affecting Telecommunications Services, ibid. in
    particular at paras 7.160 et seq.
    267

    EC Electronic Communications and Competition Law

    the increasing and wide-spread usage of incremental cost


    methodologies among WTO Members supports the interpretation of the
    term cost-oriented as meaning the costs incurred in supplying the
    service, and that the use of long term incremental cost methodologies,
    such as those required in Mexican law, is consistent with this meaning.126
    It further clarified that, the qualification of cost-oriented rates by the
    word reasonable would not [] permit costs to be included in the rate
    that were not incurred in the supply of the interconnection service. Thus,
    contrary to Mexicos position, the general state of the telecommunications
    industry, the coverage and quality of the network, and whether rates
    are established under an accounting rate regime, are not relevant to
    determining a proper cost-oriented rate.127 Ultimately, having regard
    to economic feasibility was interpreted in the sense that, the major
    supplier is entitled to rates that allow it to undertake interconnection
    on an economic basis, that is, to make a reasonable rate of return.128
    Finally with regard to interconnection, but in terms of more general
    policy prescriptions, the Reference Paper obliges the committed
    Members to make the interconnection procedures publicly available and
    the interconnection agreements subject to transparency requirements,
    so that the major supplier will make available either its interconnection
    agreements or a reference interconnection offer.129 Service providers
    must also have (at any time or after a reasonable period of time which
    has been made publicly known) recourse to an independent domestic
    body to resolve any disputes that may arise in respect to
    interconnection.130
    d.

    Other Provisions

    The other four provisions (sections 3 to 6) of the Reference Paper address


    universal service, licensing, regulators independence and scarce
    resources. They apply not only to undertakings falling under the
    category of major supplier and enshrine some basic regulatory
    principles for telecommunications applicable to all. With respect to
    126

    Ibid. at para. 7.177.


    Ibid. at para. 7.183.
    128
    Ibid. at para. 7.184. This explanation was also supported by the negotiating history of
    the provision, which adapted the language of the EC Interconnection Directive. See
    Directive 97/33/EC of 30 June 1997 on interconnection in telecommunications with regard
    to ensuring universal service and interoperability through application of the principles
    of Open Network Provision (ONP), OJ L 199/32, 26 July 1997. Article 7(2) therein provides
    that, [c]harges for interconnection shall follow the principles of transparency and cost
    orientation. The burden of proof that charges are derived from actual costs including a
    reasonable rate of return on investment shall lie with the organisation providing
    interconnection to its facilities.
    129
    Reference Paper, at section 2.4.
    130
    Reference Paper, at section 2.5.
    127

    268

    The WTO Regime for Telecommunications Services

    universal service, the Paper allows the Members to define the type of
    universal service obligation they wish to maintain and states that such
    obligations will not be regarded as anti-competitive per se, provided
    that they are administered in a transparent, non-discriminatory and
    competitively neutral manner and are not more burdensome than
    necessary.131 In respect to licensing, where a licence is required, all
    licensing criteria and the terms and conditions of individual licences
    must be made publicly available, as well as the reasons for any licence
    denial.132 Further, although the need for, or the form of, a regulatory
    body in the field of telecommunications is not discussed, the Reference
    Paper imposes an obligation upon Members to ensure that such
    regulators are separate from, and not accountable to, any supplier of
    basic telecommunications services.133 Finally, with regard to allocation
    and use of scarce resources (including frequencies, numbers and rights
    of way), any procedure relating to these is to be carried out in an
    objective, timely, transparent and non-discriminatory manner.134
    2.3.4 Interim Observations on the Reference Paper
    The above discussion suggests that the Reference Paper is a unique legal
    document. In terms of content, although it is only six Sections long, it
    represents (together with the Fourth Protocol and the attached schedules
    of commitments) an immense step forward in the opening of the
    telecommunications markets135 and has rendered telecommunications
    one of the best-covered service sectors of the GATS.136 Furthermore, it
    ensured that the advantages of the former monopoly operators were
    not used to the detriment of new entrants during the precarious process
    of liberalising telecommunications.137
    In terms of design, [i]t is the first to spell out what regulatory measures
    are considered appropriate138 for telecommunications at a global level.
    131

    Reference Paper, at section 3.


    Reference Paper, at section 4.
    133
    Reference Paper, at section 5.
    134
    Reference Paper, at section 6.
    135
    According to the US Trade Representative, the 56 countries that committed to the Fourth
    Protocol and the Reference Paper and permitted foreign ownership or control of all
    telecommunications services and facilities, account for 97 per cent of the total basic
    telecommunications services revenue of WTO Members. See Annex to the Statement of
    Ambassador Charlene Barshefsky on Basic Telecom Negotiations, USTR, 15 February 1997, as
    referred to by Marco C.E.J. Bronckers and Pierre Larouche, supra note 6, at p. 22.
    136
    William J. Drake and Eli M. Noam, supra note 93, at p. 806.
    137
    Marco C.E.J. Bronckers and Pierre Larouche, supra note 6, at p. 23. In that sense, the
    role of the Reference Paper can be compared to that of the Open Network Provision
    (ONP) framework during the liberalisation of EC telecommunications markets, albeit at
    international level (see supra Chapter 4, Section 3.1.2).
    138
    Paul Nihoul and Peter Rodford, EU Electronic Communications Law, Oxford: Oxford
    University Press, 2004, at para. 1.176.
    132

    269

    EC Electronic Communications and Competition Law

    Defining ends rather than means, the legal principles of the Reference
    Paper could thus be used by the Members as a basic model for further
    shaping of their respective national regulatory environments.
    Another particular feature of the Reference Paper is the inclusion of
    competition law-like provisions in it, as discussed above. Although one
    could argue that there are other provisions in the WTO framework that
    touch upon antitrust issues,139 the Reference Paper contains the most
    elaborate rules in this context so far,140 including core concepts of
    competition law related to dominance and abuse of market power.
    Despite the presence of these antitrust notions, it would be an
    exaggeration to state that the Reference Paper provides a comprehensive
    competition law framework for telecommunications networks and
    services. First, as mentioned above, it is not a purely antitrust law act,
    but rather a mixture of competition provisions and sector specific rules,
    with a prevalence of the latter.141 Secondly, the concepts of major
    supplier and essential facilities correspond to a standard of market
    power somewhat lower than the one under EC or US antitrust.142 They
    correspond rather to the previous EC mechanism of finding significant
    market power, where the latter was equated to a market share of 25 per
    cent143 and was used as a trigger for asymmetric regulation.144 Thirdly,
    from a competition law perspective, the Reference Paper is incomplete
    and often vague, since certain aspects of antitrust such as excessive
    pricing or collusive behaviour are not dealt with.145
    139

    See, eg, Articles 8 and 31(c) and (k) of the TRIPs and Article 9 of TRIMs. See also
    Roland Weinrauch, Competition Law in the WTO, Vienna/Graz: Neuer wissenschaftlicher
    Verlag, 2004, at pp. 131150 and Background Note by the Secretariat, The Fundamental
    WTO Principles of National Treatment, Most-Favoured-Nation and Transparency, WT/
    WGTCP/W/114, 14 April 1999.
    140
    Marco C.E.J. Bronckers and Pierre Larouche, supra note 6, at p. 43 and Peter Holmes,
    Jeremy Kempton and Francis McGowan, supra note 93, at p. 765.
    141
    Pierre Larouche defines it as a regulatory framework for telecommunications (sector
    specific regulation and competition law) seen through a trade law filter. See Pierre
    Larouche, Competition Law and Regulation in European Telecommunications, Oxford/Portland,
    Oregon: Hart Publishing, 2000, at p. 342.
    142
    Philip Marsden, supra note 93, at p. 231. For a comparison with the stringent EC
    standards of finding dominance and the application of the essential facilities doctrine,
    see supra Chapter 4, Sections 2.2.1 and 2.3.2, respectively.
    143
    See supra Chapter 4, Section 3.1.2. See also in detail, Pierre Larouche, supra note 141,
    at pp. 2532.
    144
    Mark Clough, supra note 21, at p. 67.
    145
    For a critique of the Reference Paper, see William J. Drake and Eli M. Noam, supra
    note 93, at pp. 817818; Marco C.E.J. Bronckers and Pierre Larouche, supra note 6, at
    pp. 23 et seq.; Markus Fredebeul-Krein and Andreas Freytag, supra note 93, at pp. 628 et
    seq.; Chantal Blouin, supra note 93, at pp. 140 et seq.; Pierre Larouche, supra note 141, at
    pp. 342343; David Luff, supra note 19, at pp. 1067 et seq.; Philip Marsden, supra note 93,
    at pp. 228 et seq.; Damien Geradin and Michel Kerf, supra note 93, at pp. 146 et seq. The
    latter authors also suggest a model for improvement of the Reference Paper in the direction
    of more precision, simplicity and flexibility.
    270

    The WTO Regime for Telecommunications Services

    These shortcomings of the Reference Paper could again (as with the scope
    of commitments under the Annex on Telecommunications and
    essentially with every agreement based on negotiations) be understood
    if seen through the prism of the moment of its adoption. This period, in
    early 1997, was one of transition of both the telecommunications industry
    and the markets. Few countries had as yet liberalised their domestic
    telecommunications markets and the historical national monopolists
    were still dominant if not de jure, at least de facto.146 The vagueness and
    the flexibility of the Reference Paper allowed for accommodation of the
    different regulatory philosophies of the countries involved147 and for an
    actual agreement on basic telecommunications to be reached. Despite
    its shortcomings, the Reference Paper could be seen as a step in the right
    direction for the development of telecommunications. Firstly, because it
    provides a proper basis and a flexible mode for further commitments in
    the field of telecommunications. Secondly, and perhaps more
    importantly, because its principles are binding under GATS, they could
    be tested through the WTO dispute settlement system.
    Proof of this is the already mentioned, and so far the only, panel decision
    in the field of telecommunications services Mexico Measures Affecting
    Telecommunications Services.148 Therein, the provisions of Reference Paper
    were widely interpreted and concepts, such as major supplier and
    anti-competitive practices were given a more specific definition and
    a clear antitrust connotation.149

    146

    Even in the European Community, which was well ahead in the deregulation of the
    telecommunications sector, public voice telephony was still not liberalised at the time
    and the date for the full liberalisation was set at 1 January 1998. See supra Chapter 4,
    Section 3.1.
    147
    See Laura B. Sherman, Wildly Enthusiastic about the First Multilateral Agreement on
    Trade in Telecommunications Services (1999) Federal Communications Law Journal, Vol. 51,
    pp. 61 et seq., at p. 73.
    148
    See supra note 50. The case is also the first one dealing solely with GATS issues. For a
    commentary, see Rachel Rosenthal, United States v. Mexico: The First
    Telecommunications Challenge Confronting the World Trade Organization (2002)
    CommLaw Conspectus, Vol. 10, pp. 315335 (background and pre-history to the decision);
    Marco C.E.J. Bronckers and Pierre Larouche, supra note 21, at pp. 533 et seq.; Antonio
    Ortiz Mena and Ricardo Rodriguez, Mexicos International Telecommunications Policy:
    Origins, the WTO Dispute, and Future Challenges (2005) Telecommunications Policy,
    Vol. 29, pp. 429448. For a critique, see J. Gregory Sidak and Hal J. Singer, berregulation
    without Economics: The World Trade Organizations Decision in the US-Mexico
    Arbitration on Telecommunications Services (2004) Federal Communications Law Journal,
    Vol. 57, No 1, pp. 148; Philip Marsden, WTO Decides First Competition Case With
    Disappointing Results (2004) Competition Law Insight, pp. 39.
    149
    See supra Section 2.3.2 and Marco C.E.J. Bronckers and Pierre Larouche, supra note 21,
    at pp. 540 et seq.

    271

    EC Electronic Communications and Competition Law

    It might seem to some observers that the Reference Paper could indeed
    be used as the basis for solving competition law disputes in
    telecommunications. Perhaps even in the absence of general competition
    rules within the WTO framework,150 the paper might provide for a
    sufficient (if not fully comprehensive) telecommunications regulation,
    if there were enough panel and/or Appellate Body decisions to cover
    and elaborate upon all significant aspects of competition in
    telecommunications markets.
    However, it is important to ask whether such a development would be
    positive. The above broad interpretation of the text of the Reference Paper
    could be construed as a violation of Article 3.2 of the Understanding on
    Dispute Settlement (DSU), which states that, [r]ecommendations and
    rulings of the DSB [Dispute Settlement Body] cannot add to or diminish
    the rights and obligations provided in the covered agreements.151
    Indeed, the vagueness of the Reference Paper entails a risk of
    suboptimal interpretation152 and may endanger legal certainty and
    legitimate expectations.153 The panel Report Mexico Telecommunications
    Services is a confirmation of this angst. The approach and the analyses
    of the panel were at times rather simplistic and showed a lack of ability
    to deal with complex competition law issues.154 A reference to dictionaries
    for interpreting antitrust concepts, such as anti-competitive
    practices,155 is arguably not the appropriate methodology.156 Although
    the Vienna Convention on the Law of Treaties does prescribe a search of
    the ordinary meaning of the terms, it is to be done in their context
    and in the light of the object and purpose of the treaty at issue.157
    Furthermore, the panels interpretation lacked coherence, ranging from
    a simple verbatim interpretation of the text to a rather broad teleological
    one (such as the finding of a cartel).
    Moreover, as we saw in the previous chapter, the application of
    competition law in the telecommunications sector is a fairly complex
    exercise that requires not only an interpretation of the terms used, but
    150

    On the need of general competition rules applying along the Reference Paper, see
    Damien Geradin and Michel Kerf, supra note 93, at pp. 157162.
    151
    See also Article 19.2 DSU and Peter van den Bossche, supra note 12, at pp. 220 et seq.
    152
    Arlan Gates, Convergence and Competition: Technological Change, Industry
    Concentration and Competition Policy in the Telecommunications Sector (2000)
    University of Toronto Faculty of Law Review, Vol. 58, Issue 2, pp. 83120, footnote 82 at p. 99.
    153
    Marco C.E.J. Bronckers and Pierre Larouche, supra note 21, at p. 552.
    154
    Philip Marsden, supra note 148, at pp. 4 et seq.
    155
    WTO Panel Report, Mexico Measures Affecting Telecommunications Services,
    supra note 50, in particular at paras 7.229 et seq.
    156
    Philip Marsden, supra note 148, at p. 5.
    157
    Article 31(1) of the Vienna Convention on the Law of the Treaties (8 ILM 679, 1969, entered
    into force 27 January 1980) states that, [a] treaty shall be interpreted in good faith in accordance
    with the ordinary meaning to be given to the terms of the treaty in their context and in the
    light of its object and purpose. See Philip Marsden, ibid. at pp. 78.
    272

    The WTO Regime for Telecommunications Services

    also a thorough economic analysis. In that sense, although there is room


    for interpreting and consolidating the Reference Paper, the question is
    where the limits of this interpretation lie: for instance, can the Reference
    Paper as a mixed set of rules, be over-stretched to cover situations that
    are not contained in it, such as notably a cartel ban? The opinions on
    this differ. Some consider that if the drafters of the Reference Paper had
    meant to ban cartels, they would certainly have mentioned it,158 whereas
    others submit that the panel correctly found price-fixing and marketsharing arrangements to be hard-core violations of competition law
    within the scope of the paper.159
    It is, in any case, questionable whether the panel or the Appellate Body
    (or any court) 160 are the proper fora for resolving intricate
    telecommunications-specific or antitrust issues. We should bear in mind
    that, [t]he primary responsibility to clarify and improve the Reference
    Paper rests with the WTO membership, at the negotiating table. The
    same is true for the elaboration of competition law principles. If the
    WTO membership fails to assume this responsibility, dispute settlement
    on the basis of the Reference Paper remains a second-best solution to
    make the necessary progress.161
    3.

    The WTO Law on Telecommunications and the EC


    Telecommunications Law

    As mentioned at the beginning of this chapter, the European


    Communities162 and their Member States are members of the WTO and
    signatories to the agreements adopted within its framework.163 As such,
    158

    Philip Marsden, ibid. at pp. 89. See also Kathy Y. Lee, The WTO Dispute Settlement
    and Anti-Competitive Practices: Lessons from Trade Disputes (2005) University of Oxford
    Centre for Competition Law and Policy Working Paper, (L) 10/05, at pp. 30 et seq.
    159
    Marco C.E.J. Bronckers and Pierre Larouche, supra note 21, at p. 540.
    160
    See Verizon Communications Inc v. Law Offices of Curtis V. Trinko, LLP, 540 US 682 (2004).
    161
    Marco C.E.J. Bronckers and Pierre Larouche, supra note 21, at p. 552.
    162
    Both the European Communities and all the EU Member States are full Members of
    the WTO. It is clear from Articles IX, XI and XIV of the WTO Agreement, that it is the
    European Communities, and not the European Community or the European Union, which
    is a Member of the WTO. The explanation for this can be found in EU constitutional law.
    The European Communities, and not the European Community, is a WTO Member since
    at the time of the negotiations it was unclear which of the then three Communities
    (European /Economic/ Community, European Community for Coal and Steel and
    Euratom) had the necessary competence to conclude the WTO Agreement. In Opinion 1/
    94 ([1995] I CMLR 205; [1994] ECR I-5267) the ECJ established that only the European
    Community needed in fact to be involved in the WTO. The ECJs clarification of the legal
    situation came however after the WTO Agreement had already been signed. As far as the
    European Union is concerned, the latter is not a WTO Member, since in 1994, at the time
    of the conclusion of the WTO Agreement, it had no competence to conclude international
    agreements.
    163
    See Council Decision 94/800/EC concerning the conclusion on behalf of the European
    Community of the agreements reached in the Uruguay Round, supra note 9. At that time
    (continued...)
    273

    EC Electronic Communications and Competition Law

    they are bound by these documents as part of the international legal


    order. The law of the European Community is accordingly influenced
    by the law of the WTO. To what extent will be briefly discussed below,
    since the status of the EC commitments is of importance to the
    Communitys communications regulatory framework.
    3.1

    Effect(s) of the WTO Law onto the EC Legal Order

    WTO law neither obliges the Members to impose direct effect164 in


    their domestic legal system, nor elaborates upon this effect.165 It is for
    the domestic law to give concrete parameters to the relationship between
    WTO law and domestic law.166 In the EC context, the final recital of the
    Council Decision adopting the WTO agreements of the Uruguay Round
    states that, by its nature, the Agreement establishing the World Trade
    Organization, including the Annexes thereto, is not susceptible to being
    directly invoked in Community or Member State courts.167 Despite the
    clarity of the latter statement, the question of the effect of WTO law
    onto the Communitys legal system is far from straightforward and, in
    any case, much disputed.168
    only 12 countries were Members of the EC, namely: Belgium, Germany, Denmark, Spain,
    France, the Netherlands, Luxembourg, Ireland, Italy, Portugal, Greece and the United
    Kingdom. The EC goods and services schedules apply to these, while there are schedules
    under their own names for the countries, which joined the EU in 1995 (Austria, Finland,
    Sweden), for the 10 countries (Cyprus, Czech Republic, Estonia, Hungary, Latvia,
    Lithuania, Malta, Poland, Slovak Republic, Slovenia), which joined in May 2004.
    164
    The term direct effect is used here in the sense that a private person may base a claim in
    the domestic courts (national or respectively, EC ones) against another private party or the
    State based on the States obligations existing under an international Treaty. Other terms
    used often as synonymous to direct effect or with subtle differences are direct applicability,
    invocability and/or self-executing effect. On the definition of direct effect, see eg Helen
    Keller, Rezeption des Vlkerrechts, Berlin: Springer, 2003, at pp. 13 et seq.
    165
    There is one exception, namely Article XX:2 of the Agreement on Government Procurement,
    which provides for judicial review based on the agreement. See WTO Panel Report, United
    States Sections 301310 of the Trade Act of 1974, WT/DS152/R, 22 December 1999.
    166
    Thomas Cottier, A Theory of Direct Effect in Global Law in Armin von Bogdany, Petros
    C. Mavroidis and Yves Mny (eds.), European Integration and International Co-ordination, The
    Hague/London/Boston: Kluwer Law International, 2002, pp. 99124, at p. 103.
    167
    Council Decision 94/800/EC concerning the conclusion on behalf of the European
    Community of the agreements reached in the Uruguay Round, supra note 9, at Recital 15
    (emphasis added).
    168
    See eg Piet Eeckhout, The Domestic Legal Status of the WTO Agreement:
    Interconnecting Legal Systems (1997) Common Market Law Review, Vol. 34, pp. 11 et seq.;
    Thomas Cottier, supra note 16; Thomas Cottier and Krista Nadakavukaren Schefer, The
    Relationship between World Trade Organization Law, National and Regional Law (1998)
    Journal of International Economic Law, Vol. 1, pp. 83122; Thomas Cottier, supra note 166;
    Steve Peers, Fundamental Right or Political Whim? WTO Law and the Court of Justice
    in Grinne de Brca and Joanne Scott (eds.), The EU and the WTO Legal and Constitutional
    Issues, Oxford/Portland, Oregon: Hart Publishing, 2003, pp. 111130; Armin von Bogdany
    and Tilman Makatsch, Collision, Co-existence or Co-operation? Prospects for the
    Relationship between WTO Law and European Union Law in Grinne de Brca and
    Joanne Scott, ibid, pp. 131150; Claus Dieter Ehlermann, On the Direct Effect of the
    (continued...)
    274

    ..)

    The WTO Regime for Telecommunications Services

    The European Court of Justice (ECJ) has addressed the status of


    international agreements on a number of occasions. In Racke, for instance,
    the court pointed out that, [a]n agreement with a third country
    concluded by the Council in conformity with the provisions of the EC
    Treaty is, as far as the Community is concerned, an act of Community
    institutions and the provisions of such Agreement form an integral part
    of Community law.169 The Court of Justice had stated further to that
    effect in Demirel that, [a] provision of an agreement concluded by the
    Community with non-member countries must be regarded as being
    directly applicable when, regard being had to its wording and the
    purpose and nature of the agreement itself, the provision contains a
    clear and precise obligation which is not subject, in its implementation
    or effects, to the adoption of any subsequent measure.170
    The latter cases do not, however, apply to the WTO agreements. The
    direct effect of GATT 1947 was tested and clearly rejected in the
    International Fruit judgment171 and this position remained unchanged
    after the establishment of the WTO and despite the development of the
    elaborate system of dispute settlement.172 In Portugal v. Council, the ECJ
    considered that the WTO agreements were based on the principle of
    negotiation,173 which distinguished them from other international
    agreements that were recognised as having direct effect. The court noted
    further that the major trading partners of the EC had not given direct
    effect to the multilateral agreements, and such an effect granted by the
    EC would effectively disadvantage the Community in future
    negotiations.174 The court concluded therefore that, having regard to
    WTO Agreements in Talia Einhorn (ed.), Spontaneous Order, Organization and the Law,
    Cambridge: Cambridge University Press, 2004, pp. 413 et seq.; Thomas Cottier and
    Matthias Oesch, supra note 12, at pp. 197 et seq.; Armin von Bogdany, Legal Effects of
    World Trade Organization Decisions within European Union Law: A Contribution to the
    Theory of the Legal Acts of International Organizations and the Action for Damages
    under Article 288(2) EC (2005) Journal of World Trade, Vol. 39, No 1, pp. 4566; Daniel
    Wger, Anwendbarkeit und Justiziabilitt vlkerrechtlicher Normen im schweizerischen Recht:
    Grundlagen, Methoden und Kriterien, Berne: Staempfli Publishers, 2005; Pieter Jan Kuijper
    and Marco Bronckers, WTO Law in the European Court of Justice (2005) Common Market
    Law Review, Vol. 42, pp. 13131355.
    169
    Case C-162/96 Racke GmbH & Co v. Hauptzollamt Mainz [1998] ECR I-3655, at para. 41
    (emphasis added).
    170
    Case 12/86 Meryem Demirel v. Stadt Schwbisch Gmnd [1987] ECR 3719, [1989] 1 CMLR
    421, at para. 14 (emphasis added).
    171
    Joined Cases 21-24/72 International Fruit Company NV v. Produktshap voor groenten en
    fruit [1972] ECR 1219, [1975] 2 CMLR 1, at paras 21 et seq.
    172
    See supra note 16.
    173
    Case C-146/96 Portugal v. Council [1999] ECR I-8395, at para. 42, confirmed recently by
    Case C-377/02 Lon Van Parijs v. Belgisch Interventie- en Restitutie Bureau, judgment of 1
    March 2005, nyr.
    174
    Ibid. Portugal v. Council, at paras 43 et seq. For the US counterpart rejecting direct
    effect of the WTO Agreements, see Section 102(a) of the US Implementing Bill, The
    Uruguay Round Agreements Act, 103D Congress, 2nd Session, House Document 103
    316, Vol. 1, 1994, 659.
    275

    EC Electronic Communications and Competition Law

    their nature and structure, the WTO agreements are not in principle
    among the rules in the light of which the court is to review the legality
    of measures adopted by the Community institutions.175
    This negative account of the Courts decisions by no means suggests
    that the WTO law is irrelevant within the EC legal order. Quite the
    contrary: first, there is the general principle of pacta sunt servanda, as
    expressed in Article 26 of the Vienna Convention on the Law of the
    Treaties.176 Pursuant to it, every treaty in force is binding upon the
    parties to it and must be performed by them in good faith. No State may
    invoke the provisions of its domestic law as justification for its failure
    to perform an international treaty.177 In that sense, Article XVI:4 of the
    WTO Agreement obliges each member to ensure the conformity of its
    laws, regulations and administrative procedures with its obligations as
    provided in the annexed agreements.178
    Secondly, Article 300(7) of the EC Treaty implies that international
    agreements enjoy supremacy over the Communitys secondary law and
    the law of the Member States.179 [The law of the WTO] is consequently
    endowed with the power to derogate national law and must be taken
    into account by Community authorities in the creation and interpretation
    of secondary law.180
    Thirdly, the law of the WTO affects the EC legal order through the
    principle of consistent interpretation.181 As the ECJ noted in the
    International Dairy Agreement,182 where the Community had entered
    into an international agreement, the provisions of secondary Community
    legislation must, so far as possible, be interpreted in a manner that is
    consistent with those agreements.183 In Herms International v. FHT
    Marketing,184 the court held further that national courts, when interpreting
    a Community measure that falls within the scope of a WTO agreement,
    175

    Ibid. at para. 47. See also Joined Cases C-390/98 and 392/98 Parfums Christian Dior SA v.
    TUK Consultancy BV and Asco Gerste and Rob Van Dijk v. Wilhelm GmbH & Co. KG and
    Layher BV [2000] ECR I-11304.
    176
    See supra note 157.
    177
    Ibid. at Article 27. On the principle of good faith, see eg Marion Panizzon, Good Faith
    in the Jurisprudence of the WTO, Oxford/Portland, Oregon: Hart Publishing, 2006.
    178
    See eg Appellate Body Report, Brazil Export Financing Programme for Aircraft (Recourse
    by Canada to Article 21.5 of the DSU), WT/DS46/AB/RW, 21 July 2000. There at para. 46, the
    AB stated that, a WTO Members domestic law does not excuse that Member from
    fulfilling its international obligations.
    179
    Case C-61/94 Commission v. Germany (International Dairy Agreement) [1996] ECR I-3989.
    See also Armin von Bogdany, supra note 168, at pp. 50 et seq.
    180
    Thomas Cottier and Matthias Oesch, supra note 12, at p. 200.
    181
    See eg Thomas Cottier and Krista Nadakavukaren Schefer, supra note 168, at pp. 88 et seq.
    182
    Case C-61/94 Commission v. Germany (International Dairy Agreement), supra note 179.
    183
    Ibid. at para. 52.
    184
    Case C-53/96 Herms International v. FHT Marketing Choice BV [1998] ECR I-3603.

    276

    The WTO Regime for Telecommunications Services

    must apply national legislation as far as possible, in the light of the


    wording and the purpose of the agreement.185 As the WTO rules could
    often be more detailed than the existing national provisions, they
    provide ample guidance as to the proper interpretation of national
    law186 and could thus have considerable influence.
    Finally, there are two constellations in which the WTO law has been
    granted direct effect, as found in Fediol187 and Nakajima.188 In these two
    cases, the ECJ stated that the GATT 1947 rules could have direct effect
    where (i) the adoption of the measures implementing obligations
    assumed within the context of the GATT is at issue and (ii) where a
    Community measure refers expressly to specific provisions of the
    General Agreement on Tariffs and Trade.189 This specific applicability
    was confirmed with respect to the WTO agreements in the judgment of
    Petrotub of 9 January 2003,190 as well as in the Microsoft decision of 2004.191
    Considering the foregoing, one can conclude that the WTO law has
    generally been denied direct effect in the EC legal order and Member
    States are presently without the possibility of bringing action against
    the acts of the EC institutions violating WTO provisions.192 Likewise,
    individuals cannot bring action against states.193 Nonetheless, the effect
    185

    Ibid. at para. 28 (emphasis added).


    Thomas Cottier and Matthias Oesch, WTO Law, Precedents and Legal Change (2001)
    Turku Law Journal, Vol. 3, pp. 2741, at p. 34.
    187
    Case 70/87 Fdration de lindustrie de lhuilerie de la CEE (Fediol) v. Commission [1989]
    ECR 1781.
    188
    Case C-69/89 Nakajima All Precision Co Ltd v. Council [1991] ECR I-2069. Confirmed also
    in Case C-280/93 Germany v. Council [1994] ECR I-4973. On the Fediol and Nakajima cases,
    see Pieter Jan Kuijper and Marco Bronckers, supra note 168, at pp. 1323 et seq.
    189
    Ibid. at para. 111.
    190
    Case C-76/00 P Petrotub SA and Republica SA v. Council [2003] ECR 79, in particular at
    para. 54. For a different view, see Pieter Jan Kuijper and Marco Bronckers, supra note 168,
    at pp. 13261327.
    191
    Commission Decision of 24 March 2004 relating to a proceeding under Article 82 of
    the EC Treaty, Case COMP/C-3/37.792 Microsoft, C(2004) 900 final. At para. 1053, the
    Commission stated that, [i]t is only where the Community intended to implement a
    particular obligation assumed in the context of the WTO, or where the Community
    measure refers expressly to the precise provisions of the WTO agreements, that it is for
    the Court to review the legality of the Community measure in question in the light of the
    WTO rules. In this case, these conditions are not satisfied and Microsoft can therefore
    not invoke the TRIPS Agreement or the TBT Agreement to challenge the legality of this
    Decision (footnotes omitted).
    192
    In the context of Article 230(2) EC.
    193
    See the ECJ judgment in Dior (supra note 175). One should however note that in its
    recent judgment in the Biret cases, the ECJ left the possibility open for an action for
    damages based on an EC measure, which was found to be inconsistent with the WTO
    obligations by the WTO DSB if the damage occurred after the end of the reasonable period
    of time for implementation of the ruling of the DSB. See Judgment of the Court of 30
    September 2003, Biret International SA v. Council, Case C-93/02 P and Judgment of the
    Court of 30 September 2003, Biret International SA v. Council, Case C-94/02 P. For a comment,
    see Armin von Bogdany, supra note 168.
    186

    277

    EC Electronic Communications and Competition Law

    of the WTO law onto the European legal environment is profound with
    elements not only of collision, but also of peaceful coexistence and even
    co-operation.194
    The 2002 European Community framework for electronic
    communications is positively in compliance with both the general rules
    under GATS and the specific provisions regarding telecommunications
    services.195 It makes explicit reference to the commitments made by the
    Community in the context of the WTO, for instance, in recital 29 of the
    Framework Directive,196 recital 3 of the Universal Service Directive,197
    Article 8(3) of the Access Directive198 and in paragraphs 116 and 125 of
    the Commission Guidelines on market analysis and assessment of
    significant market power (SMP).199 If we apply the doctrine affirmed in
    Germany v. Council that the GATT provisions have direct effect where a
    Community measure refers explicitly to them,200 then we could presume
    that certain rules of the Reference Paper would have such effect to the
    European regime for communications networks and services. 201 In
    addition, the WTO rules would have a general supremacy over the ecommunications Directives in their quality of secondary legislation
    instruments.202
    3.2

    Specific Commitments of the European Communities and


    Their Member States

    Having discussed the WTO instruments applicable to


    telecommunications services and their effect upon the EC legal order, it
    is essential to know to what extent the EC and its Member States have
    committed themselves in the field.

    194

    Armin von Bogdany and Tilman Makatsch, supra note 168, at p. 150.
    See Paul Nihoul and Peter Rodford, supra note 138, at paras 3.3883.394, 4.3754.378
    and 5.349.
    196
    Directive 2002/21/EC of the European Parliament and of the Council of 7 March 2002
    on a common regulatory framework for electronic communications networks and services
    (hereinafter the Framework Directive), OJ L 108/33, 24 April 2002.
    197
    Directive 2002/22/EC of the European Parliament and of the Council of 7 March 2002
    on universal service and users rights relating to electronic communications networks
    and services (hereinafter the Universal Service Directive), OJ L 108/51, 24 April 2002.
    198
    Directive 2002/19/EC of the European Parliament and of the Council of 7 March 2002
    on access to, and interconnection of, electronic communications networks and associated
    facilities (hereinafter the Access Directive), OJ L 108/7, 24 April 2002.
    199
    Commission Guidelines on market analysis and the assessment of significant market
    power under the Community regulatory framework for electronic communications
    networks and services, OJ C 165/6, 11 July 2002. See also infra Section 3.3.1.
    200
    See supra note 188.
    201
    See infra Section 3.3.
    202
    See Commission v. Germany (International Dairy Agreement), supra note 179.
    195

    278

    The WTO Regime for Telecommunications Services

    Upon examination, the EC Schedule of Specific Commitments203 reveals


    an almost full commitment of the Community regarding both basic and
    value-added telecommunications services, including a commitment to
    the Reference Paper. The few restrictions are limited to one or two
    Member States, and most of them have already expired. Only one subsector remains beyond the scope of commitments; this is, in terms of the
    W/120 classification, enhanced/value-added facsimile services,
    including store and forward, store and retrieve. No MFN exemptions
    regarding telecommunications have been made.
    A specific characteristic of the EC Schedule is the inclusion of an
    additional clarification to the definition of telecommunications services.
    The emphasis of this clarification is on the exclusion of broadcasting204
    from the scope of the commitments, so that they do not cover the
    economic activity consisting of content provision which require
    telecommunications services for its transport. The provision of that
    content, transported via a telecommunications service, is subject to the
    specific commitments undertaken by the European Union and their
    Member States in other relevant sectors.205 This peculiarity reflects a
    heated political discussion and has to do with the willingness of the EC
    to keep the audiovisual sector out of the overall liberalisation
    commitments for the sake of protecting certain cultural values.206

    203

    European Communities and their Member States, Schedule of Specific Commitments,


    Trade in Services, Supplement 3, GATS/SC/31/Suppl. 3, 11 April 1997.
    204
    Broadcasting being defined as the uninterrupted chain of transmission required for
    the distribution of TV and radio programme signals to the general public, but not covering
    contribution links between operators.
    205
    European Communities and their Member States, Schedule of Specific Commitments,
    Trade in Services, supra note 203, at p. 2.
    206
    See eg Lisa L. Garrett, Commerce versus Culture: The Battle Between the United States
    and the European Union Over Audiovisual Trade Policies (1994) North Carolina Journal
    of International Law and Commercial Regulation, Vol. 19, pp. 553 et seq.; Judith Beth Prowda,
    US Dominance in the Marketplace of Culture and the French Cultural Exception
    (1996/97) New York Journal of International Law and Politics, Vol. 29, pp. 193 et seq.; Ivan
    Bernier, Cultural Goods and Services in International Trade Law in Dennis Browne
    (ed.), The Culture/Trade Quandry: Canadas Policy Options, Ottawa: Centre for Trade Policy
    and Law, 1998, pp. 108 et seq.; Mary E. Footer and Christoph Beat Graber, Trade
    Liberalisation and Cultural Policy (2000) Journal of International Economic Law, Vol. 3,
    pp. 115 et seq.; Bruno de Witte, Trade in Culture: International Legal Regimes and EU
    Constitutional Values in Grinne de Brca and Joanne Scott (eds.), The EU and the WTO
    Legal and Constitutional Issues, Oxford/Portland, Oregon: Hart Publishing, 2003, pp. 237
    255; Patrick A. Messerlin, Stephen E. Siwek and Emmanuel Cocq, The Audiovisual Services
    Sector in the GATS Negotiations, Washington, DC: American Enterprise Institute Press,
    2004; Christoph Beat Graber, Michael Girsberger and Mira Nenova (eds.), Free Trade versus
    Cultural Diversity: WTO Negotiations in the Field of Audiovisual Services, Zurich: Schulthess,
    2004 and in particular, Christoph Beat Graber, supra note 26.

    279

    EC Electronic Communications and Competition Law

    In the context of the Doha round of negotiations207 and the request-offer


    mechanism, the initial conditional offer of the European Communities208
    made only few changes to the above outlined commitments. The additional
    definition for telecommunications in the sense of exclusion of broadcasting
    is preserved as such. The existing limitations on market access with regard
    to certain Member States are substantially reduced and full commitments
    are also made in the previously not included sub-sector enhanced/valuedadded facsimile services, including store and forward, store and retrieve.
    The EC revised offer of 2005209 however has significant novelties. These are
    not necessarily further-reaching commitments, although certain new
    commitments have been made (eg telecommunications services have been
    excluded from multiple limitations on horizontal commitments and
    Member States differences in committing have been reduced). The novelties
    are mainly in the terminology used for categorising telecommunications
    services.210 The existing basic versus value-added dichotomy has been
    abandoned and a new delineation has been adopted. This novel approach
    of the EC is symptomatic of the changes within the Community regulatory
    regime for electronic communications and will be elaborated upon in Section
    3.3.2 below.
    In terms of requests, in their proposal for new commitments in the field
    of telecommunications services,211 the European Communities hope for
    reciprocal commitments in the sector and suggest that all Members
    commit for Modes 1 (cross-border supply), 2 (consumption abroad) and
    3 (commercial presence) all sub-sectors and all modes without
    restrictions, including as additional commitment the Reference Paper
    on basic telecommunications in its entirety. Improvement and facilitation
    of the temporary movement of natural persons are suggested under
    Mode 4 (presence of natural persons) and elimination of the Members
    MFN exemptions related to satellites services and accounting rates.212
    207

    WTO, Doha Ministerial Declaration, WT/MIN(01)/DEC/W/1, 14 November 2001.


    Communication from the European Communities and its Member States, Conditional
    Initial Offer, TN/S/O/EEC, 10 June 2003, at pp. 8084.
    209
    For the Doha Round of negotiations in services, between 31 March 2003 and 15
    September 2005, 69 initial offers were submitted. Since 19 May 2005 to 8 November 2005,
    Members have submitted 30 revised offers (Australia, Bahrain, Bolivia, Brazil, Chile,
    China, Chinese Taipei, Colombia, Egypt, European Communities and its Member States,
    Honduras, Hong Kong China, Iceland, India, Japan, Korea, Liechtenstein, Macao, China,
    Mexico, New Zealand, Norway, Peru, Singapore, Suriname, Switzerland, Thailand,
    Turkey, United States and Uruguay). Several of those have been derestricted.
    210
    Communication from the European Communities and its Member States, Conditional
    Revised Offer, TN/S/O/EEC/Rev.1, 29 June 2005, in particular at pp. 187214 and
    Attachment C.
    211
    Communication from the European Communities and their Member States, GATS 2000:
    Telecommunications, S/CSS/W/35, 22 December 2000.
    212
    On accounting rates, see eg Peter F. Cowhey, Accounting Rates, Cross-Border Services
    and the Next Round on Basic Telecommunications Services in Damien Geradin and
    David Luff (eds), The WTO and Global Convergence in Telecommunications and AudioVisual Services, Cambridge: Cambridge University Press, 2004, pp. 5182.
    208

    280

    The WTO Regime for Telecommunications Services

    The urge for more extensive commitments in telecommunications and


    especially for committing to the Reference Paper has been reiterated by
    a joint Communication from Australia, Canada, the European
    Communities, Japan, Hong Kong China, Korea, Norway, Singapore, the
    Separate Customs Territory of Taiwan, Penghu, Kimmen and Matsu and
    the United States in 2005.213
    3.3

    WTO Telecommunications Rules vis--vis EC


    Telecommunications Rules

    After the discussion of the law of the WTO applicable to


    telecommunications services and after establishing its effect onto the
    Community legal order, it is interesting to consider how, precisely, these
    two bodies of law correlate and whether the current EC regime for
    electronic communications networks and services and the WTO
    provisions create a harmonious or a discordant pair.
    3.3.1 Harmony
    The WTO telecommunications rules and the EC regime, although they
    are separate bodies of law with different natures and at different levels,
    are both influenced and defined by the specific characteristics and the
    development of telecommunications markets. They have evolved in
    parallel and reflect the common underlying objective of liberalising
    telecommunications. That the date of entry into force of the EC Full
    Competition Directive and of the Fourth Protocol was the same is not a
    coincidence.214 Indeed, one of the reasons for the success of the EC
    liberalisation endeavour in the telecommunications sector in the 1990s215
    was the affirmation of this liberalisation trends at the global level and
    the inclusion of telecommunications in international trade law.
    Following this pattern of development, the 2002 electronic
    communications package would appear to be in line with the law of the
    WTO and the commitments made by the EC under its framework. The
    simultaneous application of the Community competition and
    communications specific rules ensures full consistency. As mentioned
    above, the EC instruments refer expressly to the WTO provisions,216
    although admittedly, this does not of itself guarantee a coherent
    relationship.
    213

    See Communication from Australia, Canada, the European Communities, Japan, Hong
    Kong China, Korea, Norway, Singapore, the Separate Customs Territory of Taiwan,
    Penghu, Kimmen and Matsu and the United States, TN/SW/50, 1 July 2005.
    214
    See supra Section 2.3
    215
    See supra Chapter 4, Section 3.
    216
    See supra Section 3.1.

    281

    EC Electronic Communications and Competition Law

    In terms of content, the principles contained of the WTO


    telecommunications law are currently consistent with the ones
    introduced at European level. The key concepts of interconnection, nondiscrimination, transparency and reasonable terms and conditions, as
    contained in GATS, the Annex on Telecommunications and the Reference
    Paper are reflected in the rules of the EC framework.217 A relevant
    example is the concept of major supplier, which is crucial as a trigger
    for the specific obligations related to interconnection and the prohibition
    of anti-competitive practices.218 The latter is explicitly included in the
    Community context. The Commission Guidelines on market analysis
    state in that regard: The EC and its Member States have given
    commitments in the WTO in relation to undertakings that are major
    suppliers of basic telecommunications services. Such undertakings are
    subject to all of the obligations set out in the ECs and its Member States
    commitments in the WTO for basic telecommunications services. The
    provisions of the new regulatory framework, in particular relating to
    access and interconnection, ensure that national regulatory authorities
    (NRAs) continue to apply the relevant obligations to undertakings that
    are major suppliers in accordance with the WTO commitments of the
    EC and its Member States.219
    Indeed, the definition of a major supplier, which is framed in
    competition law terms, ie generally, by reference to relatively
    indeterminate notions220 (such as control over essential facilities or use
    of the undertakings position in the market) appears to connect well to
    the formulation of significant market power under the present EC
    communications regime. Paul Nihoul and Robert Rodford define this
    consistency between the WTO and the European rules as a triple
    consistency, since (i) the obligations imposed on markets and relating
    to access, and/or interconnection, are similar in the two bodies of the
    law; (ii) these obligations must be imposed, depending on the case, on
    the same undertakings, ie those which, as a result of their market power,
    may influence market conditions; and (iii) the definition given to major
    supplier in the Reference Paper is identical for the regulatory sector
    specific principles introduced in the paper, and for the competition rules
    formulated therein.221
    217

    For an excellent account of the EC implementation and perspective, see Mark Clough,
    supra note 21, at pp. 5985. An example in point is that the Telmex Panel Report relied on
    the EC definition of interconnection, as contained in the Access Directive, at Article
    2(b). See WTO Panel Report, Mexico Measures Affecting Telecommunications Services, supra
    note 50, at para. 7.111.
    218
    See supra Sections 2.3.1 et seq.
    219
    Commission Guidelines on market analysis and the assessment of significant market
    power under the Community regulatory framework for electronic communications, supra
    note 199.
    220
    Marco C.E.J. Bronckers and Pierre Larouche, supra note 6, at p. 26.
    221
    Paul Nihoul and Peter Rodford, supra note 138, at para. 3.394.
    282

    The WTO Regime for Telecommunications Services

    We argue however that there may be some loopholes in this triple


    consistency. We have mentioned that the test of identifying a major
    supplier, albeit inspired by antitrust rationales, seems to require less
    market power than the test of dominance under EC competition law.222
    Consequently, although it could be maintained that in the majority of
    situations the Community framework for electronic communications
    (in particular the application of the SMP regime) will lead to an outcome
    consistent with the international trade rules, the possibility that
    divergence may occur cannot be excluded. Article 8(3)(vii) of the Access
    Directive is a proof of this hypothesis. It covers situations in which an
    undertaking will not qualify as having significant market power within
    the meaning of Articles 14-16 of the Framework Directive but would
    still fall under the major supplier category.223 In such cases, the NRAs
    will, exceptionally, impose sector specific obligations upon these
    undertakings in order to be in line with the Reference Paper
    commitments of the Community. Thus, one can conclude that the
    harmonious relationship between the EC communications rules related
    to control of market power and those of the WTO is ultimately secured
    by a special sectoral rule serving as a safety-net.
    Furthermore, it is possible that the WTO commitments of the EC, without
    being in discord with European framework, would curb certain aspects
    of its flexibility. The choice of remedies imposed on SMP operator(s)
    (that would also qualify as major supplier), for instance, might be limited.
    Under the Reference Paper,224 members are obliged to ensure that major
    suppliers grant interconnection to other operators at cost-oriented rates.
    Quite differently, under the Community regime, NRAs have the
    discretion in that regard and may or may not impose cost-orientation
    according to their judgment of adequacy of the measure for the case at
    issue.225 This reduction in the flexibility of the EC regulatory framework
    is unfortunate, since the pursuit of more flexibility to respond to new
    situations and less stringent regulatory intervention was the very reason
    for its review in 2002 and now in 2007.226
    Finally, although one can submit in line of the above that the Community
    rules are in conformity with those of the WTO, certain divergences may
    occur due to the dual nature of EC communications law. As elaborated
    222

    Mark Clough, supra note 21, at p. 67. See also Marco C.E.J. Bronckers and Pierre
    Larouche, supra note 21, pp. 519590, at pp. 535 et seq. and p. 569.
    223
    Neither the Access Directive nor any of the other EC instruments contain a specific
    explanation given as to when such a divergence between the concepts of major supplier
    and SMP operator might in practice occur.
    224
    Reference Paper, at Section 2.2(b).
    225
    On the imposition of remedies, see supra Chapter 4, Section 3.2.4.
    226
    See European Commission, Communication on the review of the EU regulatory
    framework for electronic communications networks and services, COM(2006) 334 final,
    29 June 2006.
    283

    EC Electronic Communications and Competition Law

    at the onset of Chapter 4, the EC communications rules have a multilayered structure and the instruments adopted at Community level have
    to be implemented at the national one. Since directives, which are by far
    the most widely used instrument of communications regulation, define
    only the objectives that need to be achieved and give guidelines as to
    their achievement,227 divergences in the process of implementation by
    the individual Member States may indeed occur. These divergences will
    however be scrutinised by the Commission,228 which also has the
    necessary toolkit to discipline the Member States229 and ensure harmony.
    3.3.2 Discord
    The provisions of the Annex on Telecommunications, the Agreement on
    Basic Telecommunications and the Reference Paper create a
    telecommunications specific regulatory framework within the law of
    the WTO. The latter is marked by some peculiar characteristics and these
    may have far-reaching implications for the development of international
    trade in communications and, as we shall see below, could come to be in
    discord with some of the positions of the current EC electronic
    communications regulation and its future design, in particular.
    a.

    Basic versus Value-Added Telecommunications Services

    The first peculiarity is the existing built-in division between basic and
    value-added telecommunications services that runs through all
    provisions of the WTO telecommunications regime, as discussed at the
    onset of this Section.230 Building upon the W/120 services classification
    model,231 the schedules of commitments listed certain categories of
    telecommunications services as basic or value-added without giving
    explicit definitions. The W/120 categorisation was furthermore
    inconsistently applied and there are substantial variations among the
    Members in the implementation of the categorisation. This is, first,
    because of the flexibility of the schedules model adopted for basic
    telecommunications, which authorises further distinction between local/
    long distance/international, wire or radio-based, public or non-public,
    resale or facility-based services232 and, second, because some countries
    have introduced additional technological distinctions (eg satellite/non227

    See supra Chapter 3, Section 2.2.


    The Commission Reports on the implementation of the regulatory package for
    communications a relevant example. The latest such report, which has been discussed in
    the course of this work, is European electronic communications regulation and markets
    2005, COM(2006) 68 final, 20 February 2006.
    229
    See eg Article 226 of the EC Treaty.
    230
    See supra Section 2.1.
    231
    See supra note 48.
    232
    Communication from the European Communities and their Member States, GATS 2000:
    Telecommunications, supra note 211, at para. 6.
    228

    284

    The WTO Regime for Telecommunications Services

    satellite, mobile/fixed). Moreover, some of the definitions used have


    relied upon as yet unadopted internal legislation or non-explicit (or nonexistent) internal definitions. In view of the above, a striking
    characteristic of the separation between basic and value-added
    telecommunications services is the lack of a clear criterion and coherent
    application of this distinction.233
    With hindsight, one could qualify the basic value-added delineation
    as a temporary solution. It was a helpful short-cut for facilitating
    negotiations, which allowed for gradual liberalisation of the
    telecommunications sector. In the aftermath, however, the distinction
    between basic and value-added telecommunications services has not
    proven auspicious and justifies the assessment of Bronckers and
    Larouche as having been rather unfortunately introduced in the GATS
    framework.234 Today, the basic/value-added separation has lost its
    relevance since the majority of the basic telecommunications markets
    have already been liberalised. It is in fact more confusing than
    helpful 235 and limits the application of the Reference Paper, which
    addresses only basic telecommunications services. It is discordant with
    the absence of such classification under the EC communications
    framework and contrary to the pressing need for convergence-conform
    and technologically neutral solutions.
    b.

    Telecommunications versus Audiovisual Services

    Another distinction with unfortunate regulatory repercussions in the


    face of rapidly developing communications markets and multiple
    overlaps between content and infrastructure is that between
    telecommunications and audiovisual services. Although this vertical
    sectoral separation made perfect sense when it was adopted at the outset
    of the services negotiations,236 it has become rather awkward in an
    233

    David Luff, supra note 21, at p. 38. For a comprehensive analysis of the definition and
    scheduling methods and the lack of consistency, see Communication from the European
    Communities and its Member States, Classification in the Telecom Sector under the WTOGATS Framework, TN/S/W/27, S/CSC/W/44, 10 February 2005, at paras 313.
    234
    Marco C.E.J. Bronckers and Pierre Larouche, supra note 6, at p. 16 (emphasis added).
    The authors note further in an updated contribution that, [t]his distinction stems from
    the idiosyncrasies of US telecommunications regulation, may cause complications, and
    may have outlived its usefulness given that no substantive consequences are attached to
    the distinction. It could be eliminated from the GATS framework. See Marco C.E.J.
    Bronckers and Pierre Larouche, supra note 21, at p. 526.
    235
    See Communication from the European Communities and its Member States,
    Classification in the Telecom Sector under the WTO-GATS Framework, supra note 233,
    at paras 913.
    236
    The category Communications Services as one of the twelve categories in the Services
    Sectoral Classification List (supra note 48) is subdivided into five categories: postal
    services, courier services, telecommunications services, audiovisual services and other.
    (continued...)

    285

    EC Electronic Communications and Competition Law

    environment of progressive convergence.237 The existing rigid W/120


    delimitation for telecommunications services238 and audiovisual
    services239 lacks a clear criterion. Furthermore, the sub-headings of
    audiovisual services are too broad,240 lumping together services related
    to sound/music and visual content (no distinction is made, for instance,
    between music and multimedia applications).241 It is thus difficult to
    classify some new services (eg video-on-demand) under either
    category.242 On the other hand, certain internet services could be fit under
    both and be categorised as either audiovisual, telephony, packetswitched or circuit-switched data transmission services, depending on
    the particular case. There are also a number of information technology
    services prone to convergence that complicate the picture.243 Online
    games, for instance, could be fitted into computer and related services,
    value-added telecommunications services, entertainment or audiovisual
    services.244
    As a result of these definitional shortcomings, some services might not
    be able to profit from the commitments made in the telecommunications
    sector because they would be classified (inadequately) as broadcasting.245
    While it is debatable whether the Reference Paper applies to basic
    telecommunications only or to value-added services as well, 246 it
    definitely does not cover audiovisual services. Neither does the Annex
    on Telecommunications. Such limitations diminish the effectiveness of
    237
    This has been largely acknowledged in the current negotiations. See eg Communication
    from Switzerland, GATS 2000: Audio-Visual Services, S/CSS/W/74, 4 May 2001, at para. 2.
    238
    See supra Sections 2.1 and 2.2.
    239
    There is no general definition of audiovisual services but an enumeration of services
    in the W/120 classification list. Therein audiovisual services are classified in 6 sub-sectors
    as: motion picture and video tape production and distribution; motion picture projection
    services; radio and television services; radio and television transmission services; sound
    recording; and other services, such as dubbing services (translation of the soundtrack of
    motion pictures and videotapes from one language to another). See Patrick A. Messerlin,
    Stephen E. Siwek and Emmanuel Cocq, supra note 206, at pp. 23 and in particular Table
    1 therein Audiovisual Services and Their Subcategories in the GATS. On the definition
    of audiovisual services, see also Paul L.G. Nihoul, supra note 51, at pp. 371381.
    240
    Ibid.
    241
    Sacha Wunsch-Vincent, The WTO, The Internet and Trade in Digital Products, Oxford/
    Portland, Oregon: Hart Publishing, 2006, at p. 73; David Luff, supra note 19, at p. 1073.
    242
    See David Luff, International Trade Law and Broadband Regulation: Towards
    Convergence? (2002) Journal of Network Industries, Vol. 3, pp. 239271, at pp. 244245
    and 259; David Luff, supra note 19, at pp. 1078 et seq.
    243
    On the difficulties of classifying digitally-delivered content products under the GATS,
    see Sacha Wunsch-Vincent, supra note 241, at pp. 70 et seq.
    244
    Ibid. at p. 71.
    245
    See, for instance, the case of satellites, as discussed by Paul Nihoul. Paul L.G. Nihoul,
    supra note 51, at p. 375.
    246
    Marco C.E.J. Bronckers and Pierre Larouche, supra note 21, at pp. 53435. Some of the
    new negotiation proposals do suggest that the Reference Paper should apply to all
    telecommunications services. See eg Communication from Colombia, Telecommunications
    Services, S/CSS/W/119, 27 November 2001.

    286

    The WTO Regime for Telecommunications Services

    the telecommunications instruments in a convergence environment and


    leave some content-related but genuinely transport communications
    services outside the scope of their provisions.
    Within the Communitys communications framework, the implementation
    of regulatory distinction between content and networks was found to be
    the appropriate response to convergence.247 As discussed in the preceding
    chapters, the current EC regime regulates only the latter,248 while the former
    content-related activities fall within the scope of the Television without
    Frontiers Directive.249 The content/networks separation brings clarity in
    the regulatory structures and the policy choices regarding these two spheres
    of activities, although it might be fairly hard to apply it in reality.250
    Various aspects of this separation between content and networks/
    distribution within the EC regulatory space conflict with the existing
    traditional telecommunications/audiovisual division at the international
    level. It would be interesting to see whether (and how) measures to
    address the convergence processes will be taken up in the WTO
    framework. The discussion on these issues is intensified from the EC
    perspective because the Community is particularly sensitive with regard
    to content. It has consequently made no commitments in the audiovisual
    sector,251 has scheduled a number of MFN exemptions therein252 and
    247

    See supra Chapter 4, Section 3.2.2. For an overview of the US approach to convergence,
    see Pierre Larouche, Dealing with Convergence at the International Level in Damien
    Geradin and David Luff (eds.), The WTO and Global Convergence in Telecommunications and
    Audio-Visual Services, Cambridge: Cambridge University Press, 2004, pp. 390422, at
    pp. 402408.
    248
    The scope of electronic communications is however broader than that of
    telecommunications. See supra Chapter 4, Section 3.2.2.
    249
    Council Directive 89/552/EEC of 3 October 1989 on the coordination of certain provisions
    laid down by law, regulation or administrative action in Member States concerning the
    pursuit of television broadcasting activities, OJ L 298/23, 17 October 1989, as amended
    by Directive 97/36/EC, OJ L 202/60, 30 July 1997. This Directive is currently under review.
    The soon to be adopted, new Audiovisual Media Services Directive will regulate all content
    services irrelevant of the mode of delivery.
    See Proposal for a Directive of the European Parliament and of the Council amending 89/
    552/EEC on the coordination of certain provisions laid down by law, regulation or
    administrative action in Member States concerning the pursuit of television broadcasting
    activities, COM(2005) 646 final, 13 December 2005.
    250
    Pierre Larouche, supra note 247, at pp. 394395. See also supra Chapter 4,
    Section 3.2.2.
    251
    In fact, only few Members have made commitments for audiovisual services with
    varying intensity. For summary of the specific commitments, see Patrick A. Messerlin
    and Emmanuel Cocq, Preparing Negotiations in Services: EC Audiovisuals in the Doha
    Round in Patrick A. Messerlin, Stephen E. Siwek and Emmanuel Cocq, supra note 206,
    Table 7 at p. 33. See also Martin Roy, Audiovisual Services in the Doha Round: Dialogue
    de Sourds, The Sequel? (2005) The Journal of World Investment and Trade, pp. 923952 and
    Sacha Wunsch-Vincent, supra note 241, at pp. 96 et seq.
    252
    See WTO, European Communities and Their Member States: Final List of Article II
    (MFN) Exemptions, GATS/EL/31, 15 April 1994.

    287

    EC Electronic Communications and Competition Law

    has declared no intention to give up these,253 with the purpose of


    safeguarding certain cultural policies.254
    c.

    Technological Neutrality

    Another issue of increasing significance rooted in the convergence


    phenomenon is that of technological neutrality. The national and,
    consequently, the international regulatory frameworks for
    telecommunications before liberalisation (and particularly in the preconvergence era) were extensively based upon technological concepts,
    such as fixed or mobile telecommunications, cable or satellite
    communications. These concepts identified different regimes and
    triggered different treatment of the related services. With the rapid
    development of telecommunications technologies, however, and
    especially in the face of convergence, these regulatory technological
    concepts have become outdated. What is more, the idea of regulation
    based on strict technological concepts has been strongly challenged. A
    response to this development is the introduction in domestic
    communications regimes of the principle of technological neutrality. This
    principle prescribes non-discrimination of the underlying technologies
    when regulatory decisions are taken255 and is considered to enable the
    ultimate selection of the most efficient technology by the market.
    The adoption of the principle of technological neutrality is a key one in
    the reform of the EC communications regulation.256 The networks/content
    delineation, as mentioned above, is one expression of it. In addition, as
    discussed in some detail in Chapter 4,257 the European sector specific
    regulation has been aligned with competition law and thus moved away
    from the communications technicalities towards concepts of generic
    economic regulation. This alignment with antitrust methodologies
    provides for detachment from technical definitions and flexibility in
    253

    See Communication from the European Communities and its Member States,
    Conditional Initial Offer (supra note 207) and Conditional Revised Offer (supra note 210).
    See also Council Resolution of 21 January 2002 on the development of the audiovisual
    services sector, OJ C 32/4, 5 February 2002. Recital 5 therein reads that, during the
    forthcoming WTO negotiations the Union will ensure, as in the Uruguay Round, that the
    Community and its Member States maintain the possibility to preserve and develop their
    capacity to define and implement their cultural and audiovisual policies for the purpose
    of preserving their cultural diversity.
    254
    See supra note 206.
    255
    According to the 1999 Communications Review, [t]echnological neutrality means that
    legislation should define the objectives to be achieved, and should neither impose, not
    discriminate in favour of, the use of a particular type of technology to achieve those
    objectives. See European Commission, Towards a new framework for electronic
    communications infrastructure and associated services: The 1999 Communications
    Review, COM(1999) 539 final, 10 November 1999, at p. 13. See also the Framework
    Directive, at Article 8(1) and supra Chapter 4, Section 3.2.4.
    256
    See supra Chapter 4, Section 3.2.3.
    257
    See in particular at Sections 3.2.4 and 3.2.5.
    288

    The WTO Regime for Telecommunications Services

    reacting to new developments within the electronic communications


    environment. Such alignment could thus also be interpreted as a
    movement towards technological neutrality.
    In contrast to these developments, the WTO law does not yet include
    any technologically neutral tenets,258 albeit there has been a growing
    appreciation of this need.259 An important step in this direction has been
    made through the US Gambling Report.260 It established, among other
    things, that the WTO and GATS rules are applicable to electronicallysupplied services. It concluded notably, that mode 1 [cross-border
    supply] under the GATS encompasses all possible means of supplying
    services from the territory of one WTO Member into the territory of
    another WTO Member. Therefore, a market access commitment for mode
    1 implies the right for other Members suppliers to supply a service
    through all means of delivery, whether by mail, telephone, Internet etc.,
    unless otherwise specified in a Members Schedule. We note that this is
    in line with the principle of technological neutrality, which seems to
    be largely shared among WTO Members.261 Accordingly, where a full
    market access commitment has been made for mode 1, a prohibition on
    one, several or all means of delivery included in this mode 1 would be a
    limitation on market access for the mode.262
    Despite the above evolutionary interpretation of what the panel defined
    as a means of delivery,263 the incoherent system of technical definitions,
    258

    On technological neutrality in the WTO context, see Pierre Larouche, supra note 247,
    at pp. 411415.
    259
    See eg Communication from the United States, Audiovisual and Related Services, S/
    CSS/W/21, 18 December 2000, at para. 10 and Communications from the United States,
    Market Access in Telecommunications and Complementary Services: the WTOs Role in
    Accelerating the Development of a Globally Networked Economy, S/CSS/W/30,
    18 December 2000, at para. 9.
    260
    See supra note 38.
    261
    Work Programme on Electronic Commerce Progress Report to the General Council,
    adopted by the Council for Trade in Services, S/L/74, 27 July 1999. Para. 4: It was also
    the general view that the GATS is technologically neutral in the sense that it does not
    contain any provisions that distinguish between the different technological means through
    which a services may be supplied. The US seems to agree as is evident from the following
    comments made by it in a submission contained in WT/GC/16, p. 3: there should be no
    question that where market access and national treatment commitments exist, they
    encompass the delivery of the service through electronic means, in keeping with the
    principle of technological neutrality.
    262
    See Panel Report, US Gambling, supra note 38, at para. 6.285 (emphases added;
    footnote in the original). See also Sacha Wunsch-Vincent, Cross-Border Trade in Services
    and the GATS: Lessons from the WTO US Internet Gambling Case, Institute for
    International Economics Working Paper, December 2005, in particular at pp. 20 et seq.
    263
    The expression means of delivery will be used in this Report to refer to the various
    technological means (mail, telephone, internet, etc.) by which a service can be supplied
    cross-border or remotely. Unless otherwise indicated, cross-border and remote supply
    cover all the various technological means of supplying services. See Panel Report, US
    Gambling, ibid. at para. 6.33.
    289

    EC Electronic Communications and Competition Law

    both within the GATS telecommunications instruments and especially,


    within the Members schedules has not really been overcome. Indeed,
    the very case of US Gambling stressed the crucial importance of the
    commitments listed in the Members schedules and the existence of a
    presumption that the structure and language of a schedule follow the
    W/120 and CPC nomenclature.264
    d.

    Solutions?

    The revised conditional offer of the European Communities and its


    Member States265 for the Doha Round has boldly attempted to solve the
    basic versus value-added telecommunications services dichotomy and
    to address (at least partly) the three points of divergence outlined above.
    It has abandoned this delineation in its entirety and bases its
    commitments upon the more comprehensive classification of telecom
    services as found in the Annex on Telecommunications Services to the
    GATS.266 The definition of telecommunications services is hence to be
    the transmission and reception of signals by any electromagnetic
    means.267 The EC believes that, [s]uch a definition based on the
    functions performed would cover unmistakably all telecom services.
    By putting such a definition in the first column of the schedule to identify
    the scope of services that are considered to fall within the sector in a
    functional manner, WTO Members would create greater legal certainty,
    and fall in line with the international consensus that regulators should
    not discriminate between different technologies in providing services,
    between different content being transmitted or between different
    business models.268
    In line with the above, the EC has completely changed its own schedule
    of commitments and now includes in the first column simply
    Telecommunications Services without any further categorisation.
    These services are then defined as [a]ll services consisting of the
    transmission and reception of signals by any electromagnetic means,
    excluding broadcasting.269 The additional definition of broadcasting
    that follows is preserved,270 while a new clarification in the sense that,
    264

    See Sacha Wunsch-Vincent, supra note 262, at pp. 16 et seq. and Markus Krajewski,
    supra note supra note 38, at pp. 427 et seq.
    265
    See supra note 210.
    266
    Communication from the European Communities and its Member States, Classification
    in the Telecom Sector under the WTO-GATS Framework, supra note 233, at para. 1.
    267
    Section 3(a) of the Annex on Telecommunications.
    268
    Communication from the European Communities and its Member States, Classification
    in the Telecom Sector under the WTO-GATS Framework, supra note 233, at para. 16
    (emphasis in the original). For a more detailed argumentation, see also ibid. at paras 17
    26.
    269
    See supra note 210, at p. 187.
    270
    See supra note 204.

    290

    The WTO Regime for Telecommunications Services

    [t]elecommunications services do not cover the economic activity


    consisting of the provision of content services which require
    telecommunications services for their transport271 has been added. This
    solution proposed by the EC is undoubtedly a step towards abolishing
    confusing definitions, and while maintaining the present level of
    commitments,272 allows for technological neutrality and flexibility.
    The EC approach, although evolutionary and positively accounting for
    the contemporary state of telecommunications, is however unlikely to
    succeed in the rather conservative environment of trade negotiations.
    The opposition of the United States 273 is the epitome of the more
    pragmatic attitude towards the trade discussions and scheduling. The
    US, while appreciating the efforts of the EC to clarify telecommunications
    commitments, seems concerned about the ECs proposal because of its
    potential to limit the scope of the telecommunications sector,274 and
    more specifically that it may add greater uncertainty into the sector
    with respect to value-added services.275 The US argues that valueadded services are an essential component of the telecommunications
    services sector and that a classification scheme that does not explicitly
    cover them may result in diminishing existing commitments.276 The US
    proposed an alternative to the EC definition, which ensures the inclusion
    of value-added services. In the opinion of the United States, such a
    definition could be: All services consisting of the transmission and
    reception of signals by any electromagnetic means, alone or in
    combination with enhancing, storing, forwarding, retrieving, or
    processing functions added to the transmission and reception of
    signals.277 Despite the US redefinition attempt, it did state that, if efforts
    to address the problems with the EC approach highlighted here fail, it
    would be preferable for all Members to continue to use the existing W/
    120 framework to schedule commitments, rather than schedule under a
    new classification system.278
    271

    See supra note 210, at p. 188.


    Communication from the European Communities and its Member States, Classification
    in the Telecom Sector under the WTO-GATS Framework, supra note 233, at paras 31 et
    seq. The Communication makes it clear that the Reference Paper as an additional
    commitment is an issue separate from the classification. See ibid. in particular at paras 1
    and 31.
    273
    Communication from the United States, Classification in the Telecommunications Sector
    under WTO-GATS Framework, TN/S/W/35, S/CSC/W/45, 22 February 2005.
    274
    Ibid. at para. 2.
    275
    Ibid.
    276
    Ibid. at paras 2 and 69.
    277
    Ibid. at para. 9 (emphasis in the original).
    278
    Ibid. at para. 17. Indeed, none of the revised conditional offers (see supra note 209)
    adopts the proposed EC classification. Although some of them do not explicitly mention
    value-added services (eg New Zealand, Revised Conditional Offer, TN/S/O/NZL, Rev.1,
    17 June 2005), the existing delineation and the W/120 classification are preserved.
    272

    291

    EC Electronic Communications and Competition Law

    In view of this, the three lines of discord between the EC communications


    framework and the WTO telecommunications rules, as illustrated above,
    are likely to persist. Indeed, if no changes in the realm of the WTO are
    made, the advance of convergence and technological developments may
    exacerbate the discord. Subscribing to a newer nomenclature, such as
    the updated UN Central Product Classification (CPC 1.1),279 for the Doha
    Round commitments may have solved certain problems and offered
    more convergence accommodating, technologically neutral solutions.280
    But this would most probably be just another piecemeal approach281
    and would not necessarily reflect the decisions taken at the EC level.
    The content related issues are, in any case, likely to remain highly
    sensitive and the dichotomy of commitments in audiovisual versus
    telecommunications services preserved.
    e.

    Lack of Global Competition Rules

    While the above definitional collisions could be related to the nature


    and structure of the WTO Agreements and have implications not only
    for the EC, there is another point of discord between the EC and the
    WTO regimes for telecommunications, which is EC-specific and perhaps
    also the most important one for the development of EC communications
    regulation and most crucial in the context of this work. This last point of
    potential discord is two-pronged. It relates, first, to the lack of general
    competition rules on the international level and secondly, to the lack of
    projected alignment of telecommunications regulation with antitrust
    rules.
    To recap, the EC regime envisages a phasing-out of the
    telecommunications specific regulation. In essence, this means that if
    (and when) the necessary level of effective competition in the EC
    electronic communications markets is achieved and the sectoral
    regulation is withdrawn, this might prove incompatible with the ECs
    WTO commitments since the regulatory principles contained in the
    Reference Paper are not and cannot be aligned with an international
    competition law framework that presently does not exist.282 Upon the
    withdrawal of the sectoral telecom rules, the Community will either
    279

    The UN Central Product Classification (see supra note 48) has in fact been amended
    twice since the end of the Uruguay Round. See CPC 1.0 (Central Product Classification
    Version 1.0, UN Statistical Papers, Series M, No 77, 1998, Ver.1.1, E.98.XVII.5) and CPC
    1.1 (Central Product Classification Version 1.1, UN Statistical Papers, Series M, No 77,
    Ver.1.1, 2002, ESA/STAT/SERM/77/Ver.1.1).
    280
    Sacha Wunsch-Vincent, supra note 241, at pp. 76 et seq.
    281
    Ibid. Sacha Wunsch-Vincent suggests alternatives based, for instance, on a negative
    list approach. See ibid. at p. 79, referring also to Aaditya Mattoo and Sacha WunschVincent, Pre-Empting Protectionism in Services: The WTO and Outsourcing (2004)
    Journal of International Economic Law, Vol. 7, No 4, pp. 765801.
    282
    Marco C.E.J. Bronckers and Pierre Larouche, supra note 21, at p. 569.

    292

    The WTO Regime for Telecommunications Services

    need to preserve a provision similar to the safety-net of the Access


    Directive, or rely on consistent interpretation in order to ensure
    conformity. The questions of whether this would be sufficient, on the
    one hand, and a positive development for the EC communications law,
    on the other, remain open.
    Although the complementarity between trade policy, domestic
    deregulation and competition policy has been widely acknowledged,283
    the developments on competition policy within the WTO, which
    commenced at the Singapore Ministerial Conference in 1996284 as part
    of the so-called Singapore issues285 have led to few tangible results.
    Competition policy was part of the Doha Development Agenda286 and
    the mandate of the Working Group on the Interaction between Trade
    and Competition Policy has been to clarify the core principles, including
    transparency, non-discrimination and procedural fairness, provisions
    on hardcore cartels, modalities for voluntary cooperation and support
    for progressive reinforcement of competition institutions in developing
    countries through capacity building.287 The competition issues, however,
    were subsequently dropped from the Doha Agenda owing to lack of
    consensus.288
    It is beyond of the scope of the present work to examine the advances of the
    Working Group,289 the submitted proposals, their content and possible
    283

    See eg Edward Iacobucci, Interdependence of Trade and Competition Policy (1997)


    World Competition, Vol. 21, No 2, pp. 533; Frdric Jenny, Globalization, Competition
    and Trade Policy: Issues and Challenges in Roger Zch (ed.), Towards WTO Competition
    Rules, The Hague/London/ Boston: Kluwer Law International/Berne: Staempfli Publishers,
    1999, pp. 341, at pp. 13 et seq. See also United Nations Conference on Trade and
    Development (UNCTAD), Exclusionary Anti-Competitive Practices, Their Effects on
    Competition and Development, and Analytical and Remedial Mechanisms, a Report
    prepared by Philip Marsden, UNCTAD/DITC/CLP/2005/4, Geneva: United Nations, 2005.
    284
    WTO, Singapore Ministerial Declaration, Conf. Doc. WT/MIN(96)/DEC/W, 13 December
    1996. The Singapore Declaration (at para. 20) mandated the establishment of a working
    group to study issues raised by Members relating to the interaction between trade and
    competition policy, including anti-competitive practices, in order to identify any areas
    that may merit further consideration in the WTO framework. On the development since
    Singapore, see Philip Marsden, supra note 93, at pp. 59 et seq.
    285
    The Singapore Ministerial identified four rules that might be well suited for the
    development of new multilateral disciplines. These were investment policies, competition
    polices, transparency in government procurement and trade facilitation. See ibid. at
    paras 2023.
    286
    WTO, Doha Ministerial Declaration, supra note 207, in particular at paras 2325.
    287
    Doha Ministerial Declaration, ibid. at para. 25.
    288
    WTO, Doha Work Programme: Decision Adopted by the General Council on 1 August
    2004, WT/L/579, 2 August 2004, at para. (g). See also WTO, Hong Kong Ministerial
    Declaration, WT/MIN(05)/DEC, 22 December 2005.
    289
    See eg Report (2003) of the Working Group on the Interaction between Trade and
    Competition Policy to the General Council, WT/WGTCP/7, 17 July 2003. All annual reports,
    minutes and working papers are available at http://www.wto.org/english/tratop_e/
    comp_e/comp_e.htm.

    293

    EC Electronic Communications and Competition Law

    impact290 or to engage in a more sophisticated debate of whether the WTO


    is the appropriate forum for developing competition rules and whether
    such rules can function at all.291 It is, however, important to stress in the
    present context that, first, the next steps in committing to competition rules
    in the realm of the WTO are likely to be fairly modest292 and that, secondly,
    if such rules on competition policy are drawn up, it is unlikely that they
    would ever be comprehensive enough to be capable of addressing the
    complex communications-specific antitrust cases. To add another dose of
    scepticism and in the context of our reflections upon the Telmex Report,293
    one could further question the process of creation of these rules and
    ultimately, whether they will be the right ones.294
    4.

    Chapter 5: Conclusion

    The general provisions of the WTO law and those with particular regard
    to telecommunications services complete, together with the EC
    competition and sector specific rules, the law applicable to European
    Community communications. The above discussion has shown that the
    WTO provides a comprehensive framework of telecommunications
    rules, which is essential to the development of the communications
    industry that is by its very nature transnational. We have also seen that
    the EC communications regulation, as it stands, conforms to the law of
    the WTO and the commitments of the EC and its Member States made
    in the frame of the WTO agreements.
    The EC regulatory framework has however evolved in the last decade:
    building upon the successful transition from monopoly to competition
    in the telecommunications sector, it has adapted to meet the new
    challenges posed by the rapid development of communications
    technologies and markets and the correlated process of convergence. In
    response to these novel developments, the 2002 framework for electronic
    communications formulated, among other things, three new
    fundamental principles embodied in the (i) separation of content and
    networks regulation; (ii) alignment of sector specific rules with antitrust
    methodology, including mechanism for withdrawal of sectoral rules and
    290

    For an excellent critical analysis, see Philip Marsden, supra note 93, at pp. 161 et seq.
    See eg Philip Marsden, ibid. at pp. 192 et seq.
    292
    Merit E. Janow, Trade and Competition Policy in Patrick F.J. Macrory, Arthur E.
    Appleton and Michael G. Plummer, The World Trade Organization: Legal, Economic and
    Political Analysis, New York: Springer, 2005, Vol. III, pp. 487510, at p. 508.
    293
    See supra Section 2.3.4.
    294
    Philip Marsden has noted in this regard: It is an ineluctable fact that new WTO
    competition rules are going to be agreed formally and that further commitments will be
    created through interpretation in dispute settlement proceedings. In the process, they
    will be used by business and governments alike to open up foreign markets. The question,
    though, is whether they will be the right rules. See Philip Marsden, supra note 93, at
    p. 253.
    291

    294

    The WTO Regime for Telecommunications Services

    (iii) introduction of technological neutrality. As evident from the


    overview of the WTO telecommunications rules, these principles cannot
    (yet) be appropriately reflected at the international level. If the EC
    framework follows its path of evolution (which is expected295), the gap
    between EC communications law and the WTO rules is likely to increase,
    especially with regard to the obligations of the Community under the
    Reference Paper for major suppliers.
    To conclude in the context of the more general discussion of governance
    of international telecommunications, convergence as a phenomenon and
    an ongoing process and the ubiquitous digitisation make it impossible
    to maintain the traditional criteria, and calls for adjustments in
    communications regulation. In the WTO context, however, the very
    structure of GATS may constrain the available choices because of the
    bottom-up approach of the Agreement,296 under which the substance of
    the commitments is contained in the individual schedules of the members
    and the GATS applies only to those sectors tabled therein. The unreliable
    classification list, the multiple sub-headings and their different
    interpretation in different members schedules of commitments provide
    rather unsuitable bases for adjustment to convergence and the
    introduction of technological neutrality.
    Clearer definitions and appropriate distinctions between networks,
    services and content, coherence in the interpretation and the application
    of the Reference Paper, and most importantly, a greater willingness to
    commit to a definite adaptation are needed. This is not to say that the
    WTO should necessarily regulate competition and harmonise all rules
    within the communications markets of its members since its role as an
    international trade forum is different.297 It should, above all, try to observe
    and reflect the contemporary developments occurring in the markets
    for electronic communications.298 Although it has been wisely said that,
    [i]t cannot be helped, it is as it should be, that the law is behind the
    times,299 the law should at least try to keep up.

    295

    See European Commission, Communication on the review of the EU regulatory


    framework for electronic communications networks and services, supra note 226.
    296
    John H. Jackson, supra note 12, at p. 308.
    297
    Armin von Bogdany, Law and Politics in the WTO Strategies to Cope with a Deficient
    Relationship in Jochen A. Frowein and Rdiger Wolfrum (eds.), Max Planck Yearbook of
    United Nations Law, Vol. 5, Leiden/Boston: Martinus Nijhoff Publishers, 2001, pp. 609
    674.
    298
    See Andreas Fischer-Lescano and Gunther Teubner, Regime-Collisions: The Vain
    Search for Legal Unity in the Fragmentation of Global Law (2004) Michigan Journal of
    International Law, Vol. 25, pp. 9991046.
    299
    Oliver Wendell Holmes, Jr., US Supreme Court, 18411935.

    295

    EC Electronic Communications and Competition Law

    The above examination of the WTO telecommunications rules completes


    our analysis of all the tools and the multi-layered, multi-pillared structure
    of EC communications law. Without losing the focus of our overall
    analysis, we should view the above heterogeneous texture of Chapters
    4 and 5 through the filter of our unvarying question: Can competition
    law do it all?, triggered by the reform of the EC regime for electronic
    communications networks and services. Having gone to the end of the
    logical line object of regulation goals tools, we are now equipped to
    assess the regulatory potential of competition law against the specific
    challenges of the electronic communications environment.

    296

    PART 3:
    CAN COMPETITION LAW DO IT ALL?
    THE FINAL ASSESSMENT

    CAN COMPETITION LAW DO IT ALL?


    THE FINAL ASSESSMENT
    It is hard to believe, if one observes the current state of the
    communications markets that, [f]or much of the twentieth century,
    competition between different operators was very much the exception
    rather than the rule in the telecommunications industry.1 The evolution
    of communications regulation is certainly less impressive than the
    industrys technological and market transformation but the
    modifications of the law are, as we saw in the preceding chapters, of
    appreciable value. We are indeed fortunate to be witnessing this ongoing
    modernisation of the communications regulatory regime (not only at
    the regional level of the European Community but also nationally and
    globally) and to contemplate its effects and possible future shapes.
    Being at the final stage of our journey and having walked to the very
    end of the logical line object of regulation goals tools, we can now
    simply put together all of the above chapters and finally answer our
    pending question of whether competition law can do it all. Indeed, we
    may even be prepared to go a step further and reflect upon the optimal
    regulatory design for electronic communications as a dynamic,
    converging network industry, driven by innovation and playing an
    increasingly significant economic and societal role as a platform for
    distribution of information and communication.
    In order to provide structure and clarity in the concluding part of this
    work, the following Sections will mirror the structure of the above
    chapters. The first two Sections will provide concluding observations
    on the potential of generic EC competition law (i) to deal with the specific
    characteristics of electronic communications (Section 1) and (ii) to
    achieve the goals and objectives pertinent in communications (Section
    2). Section 3 will then look at the limitations of antitrust and the dangers
    related to expanding beyond these limitations. After these three
    analytical steps, Section 4 will provide the final answer and conclude
    with a brief contemplation of the future of communications regulation.

    1
    Damien Geradin and Michel Kerf, Controlling Market Power in Telecommunications, Oxford:
    Oxford University Press, 2003, at p. 1.

    299

    EC Electronic Communications and Competition Law

    1.

    Step 1: Competition Law versus the Intrinsic Characteristics of


    Electronic Communications

    In Part 1 of this work, we identified the telecommunications sector and


    its contemporary successor the electronic communications sector,
    through their specific characteristics (Chapter 1) and the inherent specific
    regulatory goals (Chapter 2). In the context of the former, we submitted
    that communications are truly unique and distinct from other economic
    sectors. Notably, in such a way that seriously calls into question the
    capability of generic competition law to face all challenges resulting
    from the specificities of e-communications, as discussed in Chapter 4.
    We shall look briefly into these challenges in order to recapitulate our
    earlier observations and provide sound argumentation for our final
    verdict.
    1.1

    Network Effects

    As we ascertained in Chapter 1, communications markets exhibit


    network effects.2 They are indeed perceived as the classical example of
    direct network effects, whereby there are physical linkages between the
    networks nodes, and the utility for an individual consumer (member of
    the network) increases the more members of the network there are.
    Markets for communications networks and services do however also
    exhibit indirect network effects, whereby the utility depends on the
    availability of complementary goods to a given platform, once again
    generating a positive effect of other users on the individual utility.
    As we discussed in detail in Chapters 1 and 4, network effects may call
    into question some conventional economic theorems and can thus have
    multiple immediate and less immediate implications for competition
    law. All of these implications are complex and multifaceted and in
    addition could be ambiguous and counterintuitive. Unfortunately, there
    is no single, coherent theory on the implications of network effects and
    how policy should be shaped in order to account for them properly.
    Often different theoretical models generate very different outcomes
    dependent on the assumptions about agents behaviour and the strength
    of the network externalities.3
    Despite the above uncertainties related to these economic theories, it is
    fairly certain that due to the inherent network effects, the antitrust
    2

    See supra Part 1, Chapter 1, Section 4.1. For a lucid summary of the lessons of network
    economics, see Carl Shapiro and Hal R. Varian, Information Rules, Boston, MA: Harvard
    Business School Press, 1999, at pp. 224225.
    3
    Heli Koski and Tobias Kretschmer, Survey on Competing in Network Industries: Firm
    Strategies, Market Outcomes, and Policy Implications (2004) Journal of Industry,
    Competition and Trade (Bank Papers), pp. 531, at p. 6.

    300

    Can Competition Law Do It All? The Final Assessment

    analysis of communications markets is rendered difficult at all its levels,


    ie market definition, market analysis and remedies design and
    implementation. Furthermore, some conventional underlying
    assumptions of competition law are called into question, since network
    markets may often send false signals.
    First, an inequality of market shares and profits (even an extreme one)
    is not atypical in network industries. This inequality of market shares,
    profits and prices stems from the winner-takes-all or winner-takesmost scenarios that frequently arise in network-bound markets.4
    Inequality may in fact be the natural state of a communications market,
    even in equilibrium.5 Free entry will not automatically change the
    situation and lead to multiple players, equality of market shares and
    rivalry between equals, as normally construed under classical antitrust.6
    Secondly, because inequality is natural in communications markets, or as
    Nicholas Economides puts it, they often constitute natural oligopolies,7 no
    anti-competitive acts are necessary to cause this inequality. Due to this
    specific market power creation in communications markets, no abuse in
    the sense of Article 82 EC will be manifested. The benchmark for the analysis
    of what constitutes an abuse falling under the scope of Article 82 EC, or
    what is unfavourable to consumers in general terms, will therefore be
    essentially different from standard competition law analysis. It would have
    to be adjusted to an environment of significant inequality and profits.8
    Network specific instances of abuse, due to the typical competition for the
    market (instead of competition in the market), such as tipping markets and
    leverage of market power will however need to be carefully explored.
    Thirdly, if an abuse of dominant position is found and leads to an
    antitrust intervention, the latter may not be effective. It may even be
    counterproductive if it attempts to superimpose a different market
    structure, whereby ignoring the intrinsic network characteristics of the
    communications market.9 Both the US and EC version of the Microsoft
    case,10 as recent examples of antitrust intervention in new network
    4

    See supra Part 1, Chapter 2, Section 2.3.


    Nicholas Economides, Competition Policy in Network Industries: An Introduction NET
    Institute Working Paper 0424, June 2004, at p. 12; published also in Dennis W. Jansen (ed.), The New
    Economy and Beyond: Past, Present and Future, Cheltenham, UK: Edward Elgar, 2006, pp. 96121.
    6
    Massimo Motta analyses monopoly power and argues that it is likely to persist even if
    free entry is available, due to the existence of sunk costs, switching costs and network
    effects. See Massimo Motta, Competition Policy: Theory and Practice, Cambridge: Cambridge
    University Press, 2004, at pp. 7679, 7981, 8289.
    7
    Nicholas Economides, supra note 5, at p. 24.
    8
    Nicholas Economides, ibid. at p. 14.
    9
    Ibid. at p. 15.
    10
    US v. Microsoft Corp, 87 F.Supp.2d 30 (D.D.C. 2000) and Commission Decision of 24 March
    2004 relating to a proceeding under Article 82 of the EC Treaty, Case COMP/C-3/37.792
    Microsoft, C(2004) 900 final.
    5

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    EC Electronic Communications and Competition Law

    industries, show an imperfect understanding of the dynamics of these


    industries11 and above all, little practical effect of the judgments.12
    The above fleeting overview of some of the effects of network
    externalities upon communications markets structure and dynamics
    reveals the lack of clear and coherent criteria for assessment of what is
    anti-competitive and what is not. Moreover, the standard antitrust rulesof-thumb for finding an abuse of market power, such as number of
    market players, market shares, barriers to entry, etc. are (at least) put
    into doubt, if not rendered entirely wrong. The concrete example of tying
    as an abuse under Article 82 EC, given in Chapter 4, showed that based
    upon these criteria, there might be situations where commercial
    behaviour is inadequately sanctioned.
    Besides these serious challenges that competition agencies face when
    analysing communications markets, there are some concrete problematic
    situations for the solution of which antitrust seems to have insufficient
    capacity. One such crucial issue is access in light of the vital role of
    communications networks and services for distribution of information.
    As we discussed in Chapter 4, the idea that communications constitute
    a natural monopoly, whereby it is more beneficial in terms of welfare to
    have one firm operating on the market (due to the high sunk and fixed
    costs and the network effects), has been squashed in theory and in
    practice. Nonetheless, some communications segments remain
    technologically natural monopolies. These segments can easily turn into
    bottlenecks13 to the extent that they are controlled by one or a small
    number of firms. Clearly, such situations exacerbate the predicament of
    access and control. Even in a normal (ie not bottleneck)
    communications market environment, access issues are likely to become
    problematic due to the remnants of the historic monopoly14 and due to
    11

    See supra Part 2, Chapter 4, Sections 2.3.1 et seq. See also Nicholas Economides, The
    Microsoft Antitrust Case (2001) Journal of Industry, Competition and Trade, Vol. 1, No 1,
    pp. 739 and Nicholas Economides, The Microsoft Antitrust Case: Rejoinder (2001)
    Journal of Industry, Competition and Trade, Vol. 1, No 1, pp. 7179.
    12
    See eg Steve Lohr and James Kanter, Microsoft Is Warned by Europe, The New York
    Times, 23 December 2005.
    13
    Bottleneck can be defined as a deficiency of some kind in the availability or functioning
    of an intermediate good or service. In economic terms, bottlenecks present problems for
    the producers and consumers by increasing the cost of resource supply and/or output
    distribution. For a different, public interest definition, see Martijn Poel and Richard
    Hawkins, The Evolution of Access Bottlenecks in Europe: Re-Locating the Regulatory
    Issues (2001) Communications and Strategies, Vol. 44, pp. 71101, at p. 72.
    14
    As the latest market overview shows, the historic monopolists have continued to be
    dominant in the classic telecommunications markets, such as connection to a fixed
    telephony and the local loop. See European Commission, Communication on market
    reviews under the EU regulatory framework: Consolidating the internal market for
    electronic communications, COM(2006) 28 final, 6 February 2006, at pp. 7 et seq. and
    (continued...)
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    Can Competition Law Do It All? The Final Assessment

    the concentration of market power inherent to network sectors, or as we


    repeatedly called it, the winner-takes-all scenario. The market power,
    the technological interdependence and/or the existing switching costs
    in communications markets give the incumbent undertaking incentives
    and possibilities to manipulate market entry to its own advantage. The
    latter could be then realised using different price and non-price
    strategies.15
    A primary tool of the antitrust arsenal to tackle access situations in
    network-bound markets is the application of the essential facilities
    doctrine (EFD), or the broader category of refusal to supply under Article
    82 EC. We elaborated on these in the context of Chapter 4 and showed
    against the backdrop of the case law and practice of the European
    Commission and the Courts that the EFD is nothing like a self-executing
    formula. Hence, it cannot readily address all bottleneck situations where
    access by the bottleneck owner has been denied or made difficult. While
    the nature of the resource is not a determining factor16 and the EFD is
    capable of covering diverse bottleneck scenarios that might arise in
    electronic communications, the test of essentiality is rather strict. In fact,
    one can submit that the test is so strict that in practice it will be
    insurmountable for a number of access requests, especially with the
    increasing availability of alternative communications networks.
    The limiting of the scope of the EFD is not necessarily a negative
    development. In a dynamic environment, driven by innovation, the EFD
    could otherwise punish important inventions,17 in particular with
    regard to the application of the doctrine to intellectual property rights.18

    ..)

    European Commission, Annexes accompanying the Communication on market reviews


    under the EU regulatory framework: Consolidating the internal market for electronic
    communications [COM(2006) 28 final], SEC(2006) 86, 6 February 2006, at Annex II.
    15
    Heli Koski and Tobias Kretschmer, supra note 3, at pp. 2021. See also Pierre-Andr
    Buigues, The Competition Policy Approach in the New Regulatory Framework for
    Electronic Communications. Comments on Koski and Kretschmer (2004) Journal of
    Industry, Competition and Trade (Bank Papers), pp. 4148, at p. 43. An example in point is
    the local loop and the persisting dominance of the incumbents in local markets. For
    relevant references, see supra Part 1, Chapter 2, Section 2.3.3.
    16
    As apparent from the case law of the Court of First Instance and the European Court of
    Justice. See Paul Nihoul and Peter Rodford, EU Electronic Communications Law, Oxford:
    Oxford University Press, 2004, at para. 4.60.
    17
    James Turney, Defining the Limits of the EU Essential Facilities Doctrine on Intellectual
    Property Rights: The Primacy of Securing Optimal Innovation (2005) Northwestern Journal
    of Technology and Intellectual Property, Vol. 3, No 2, pp. 179202, at p. 197, referring also to
    Paul D. Marquard and Mark Leddy, The Essential Facilities Doctrine and Intellectual
    Property Rights: A Response to Pitofsky, Patterson and Hooks (2003) Antitrust Law Journal,
    Vol. 70, pp. 847 et seq.
    18
    Lipsky and Sidak point out in that regard that, the essential facilities doctrine cannot
    be applied to intellectual property. To do so would threaten the basic objective of the
    legal systems that create incentives for the production of information, and would thus
    threaten technical progress. See Abbott B. Lipsky, Jr. and J. Gregory Sidak, Essential
    Facilities (1999) Stanford Law Review, Vol. 51, pp. 11871249, at p. 1220.
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    EC Electronic Communications and Competition Law

    From the perspective of the debate on facility-based versus servicebased competition, this narrowing of the scope of the EFD allows for
    less short- to mid-term access and thus, less service-based competition,
    while indirectly promoting facility-based entry, which could be more
    beneficial in the long term.19 Still, despite the above possible positive
    interpretation of the insufficient potency of the EFD, it does leave a
    variety of access situations existing in communications markets without
    a proper regulatory response.
    On the other hand, even if such a response is indeed given and an access
    situation falls within the scope of the EFD and a case under Article 82
    EC is brought to the court, the eventual resolution of that case is
    postponed for a substantial period of time. This time delay could
    minimise the value of the final decision, even if affirmative, since access
    issues are typically urgent ones, demanding timely action. This is even
    more so in the markets for communications networks and services, which
    are in a constant state of flux, as we showed in Chapter 1. Furthermore,
    an access related dispute raises not only the question of whether the
    EFD applies but involves complex decisions as to how it should be
    applied, such as notably, the pricing of access. Competition authorities
    and the Courts are likely to be ill-equipped to deal with these questions.20
    First, because of the sheer complexity of such issues and the lack of
    corresponding specific expertise of these institutions. Secondly, and
    perhaps more importantly, because the decisions that need to be taken
    would be essentially regulatory in nature, thereby raising questions of
    constitutional value as to the separation of powers21 (especially if one
    considers the opaqueness of EC competition rules and the related
    procedures).22
    To conclude on the access issues, as Lipsky and Sidak state, [g]iven the
    existence of the essential facility, antitrust intervention must confront
    19

    See supra Part 1, Chapter 2, Section 2.3.3.


    Richard Whish points out in this regard that, [i]t may be sensible in principle that
    situations of natural or persistent monopoly should be dealt with by a system of ex ante
    regulation rather than by competition law: a competition authority is likely to be illequipped to deal with the persistent disputes in relation to access, and the appropriate
    price for access, that arise in relation to essential facilities. See Richard Whish, Competition
    Law, 5th edition, London: Butterworths LexisNexis, 2003, at p. 669. For the difficulties of
    determining charges for access that are not excessive, where the supplier of the essential
    facility is itself a competitor with its customer in the downstream market, see Telecom
    Corporation of New Zealand Ltd v. Clear Communications Ltd [1995] 1 NZLR 385.
    21
    See Damien Geradin and J. Gregory Sidak, European and American Approaches to
    Antitrust Remedies and the Institutional Design of Regulation in Telecommunications,
    December 2003, at pp. 6 et seq. available at http://ssrn.com/abstract=351100, also published
    in Martin Cave, Sumit K. Majumbar and Ingo Vogelsang (eds.), Handbook of
    Telecommunications Economics, Vol. 2, Amsterdam: North-Holland, 2005, at Chapter 13.
    22
    Pierre Larouche, Competition Law and Regulation in European Telecommunications, Oxford/
    Portland, Oregon: Hart Publishing, 2000, at pp. 349353.
    20

    304

    Can Competition Law Do It All? The Final Assessment

    the fact that any solution to the problems of economic inefficiency is


    inherently regulatory. Structural solutions can change the competitive
    dynamics of cartelized markets and unlawful mergers and
    consolidations, but, by hypothesis, those alternatives are unavailable in
    an essential facility case. Thus, proper treatment of such a case must
    depend on the costs and benefits of specific conduct remedies: Under
    what circumstances is judicial intervention in the conduct of the business
    of a natural monopoly likely to do more good than harm?.23
    In the broader context of network externalities and welfare, another key
    issue besides access is interconnection. 24 Interconnection is indeed
    essential in telecommunications and consumer welfare may be
    substantially decreased when networks are not interconnected since the
    positive feedback of the enlarged network is lost. Considering the
    higher level of regulatory objectives, as discussed in Chapter 2, and
    the significance of networks for the creation and distribution of content
    over them, in the era of the Information Society one should also take
    into account the importance of the existence of a network of networks.
    Under generic competition rules, if no undertakings are found to be in a
    dominant position, no obligation of interconnection can be imposed and
    these significant values cannot be warranted. Thus, as far as network
    externalities are concerned, it seems that certain rules regarding
    interconnection will remain continually necessary.25 So will a minimum
    23

    Abbott B. Lipsky, Jr. and J. Gregory Sidak, supra note 18, at pp. 12201221.
    For the definition of interconnection as a specific type of access, pursuant to the current
    EC communications framework, see Directive 2002/19/EC of the European Parliament
    and of the Council of 7 March 2002 on access to, and interconnection of, electronic
    communications networks and associated facilities, OJ L 108/7, 24 April 2002 (hereinafter
    the Access Directive), at Article 2(b).
    25
    Mats A. Bergman, Competition in Services or Infrastructure-based Competition?,
    September 2004, available at http://pts.se/Archive/Documents/SE/M_Bergman_
    Service_competition_or_ infrastructural.pdf, at pp. 40 et seq., also published in Swedish
    Post and Telecom Agency, An Anthology of the Foundations for Competition and
    Development in Electronic Communications Markets, Stockholm: PTS, 2004, pp. 655.
    William Melody states in this regard that, [e]fficient interconnection is crucial to the
    effective implementation of virtually all public policies permitting competitive
    opportunities in telecom. Without regulatory intervention, interconnection agreements
    are likely to reflect the respective market power of the players at the time of the negotiation,
    and be used by the PTO [Public Telecommunications Operator] to create artificial barriers
    to entry and shape competitive opportunities to its own interest. Even under a market
    structure where there is a significant competition in all markets, the PTO will retain
    significant monopoly power over the terms and conditions of interconnection. By being
    an active informed participant in establishing principles and practices on an ongoing
    basis, the regulator can ensure they reflect considerations of efficiency, equity and broader
    public policies, while maximising competitive opportunities. Pro-active regulation on
    interconnection is necessary for competitive markets to get established and to continue
    functioning effectively. See William H. Melody, Interconnection: Cornerstone of
    Competition in William H. Melody (ed.), Telecom Reform: Principles, Policies and Regulatory
    Practices, Lyngby: Technical University of Denmark, 1997, pp. 4961, at p. 61.
    24

    305

    EC Electronic Communications and Competition Law

    set of rules relating to the integrity of the network in order to prevent


    negative network effects, particularly likely to occur in the context of
    intense post-liberalisation competition and attempts at rapid expansion
    of the network coverage.26
    Yet, network effects and their repercussions (real or probable) should
    not be overstated. Although they do appear to generate far-reaching (and
    often unpredictable) results, one can observe, on the other hand, that
    over time, the market structure and leadership remain relatively stable.27
    Put in everyday terms, this means that although we have the Windows
    operating system on almost every PC and almost all CD players can
    play all CDs, there are different formats for digital music (wma, mp3,
    wav, ogg, etc.) and Switzerland has four languages that have coexisted
    for centuries.28
    Thus, network effects should not be taken for granted in the broader
    sense of network externalities cause market failures but should be
    cautiously analysed and their potential as a source of inefficiencies
    clearly identified.29 When applying generic competition law rules,
    competition authorities will have to develop certain sensitivity towards
    the communications environment and analyse it taking utmost account
    of its specific characteristics and their possible implications. Inequality
    should not be taken as a clear sign of distortion of competition and
    uncertainty is something that both the communications undertakings
    and the competition agencies will have to live with.
    1.2

    Dynamism

    Perhaps the most outstanding feature of electronic communications is


    their speed of evolution and the inherent potential for further
    development. Moores law30 postulating that the transistor density on a
    microchip doubles approximately every eighteen months is still valid
    and clearly demonstrates the incredible potential for progress in terms
    of technologies for all information and communication technology (ICT)
    industries.
    However, the pace of progress in communications is affected not only
    by the mere availability of new technologies. The influence of network
    26

    On the mandate of sectoral rules, see Pierre Larouche, supra note 22, at p. 359 et seq.
    Heli Koski and Tobias Kretschmer, supra note 3, at p. 8.
    28
    For more examples, see Heli Koski and Tobias Kretschmer, ibid.
    29
    Pierre Rgibeau suggests following an algorithm by means of which one can identify
    the network effects, their extent and the requisite antitrust reaction to these. See Pierre
    Rgibeau, Network Externalities and Competition Policy: Comments on Koski and
    Kretschmer (2004) Journal of Industry, Competition and Trade (Bank Papers), pp. 3339, at
    pp. 34 et seq.
    30
    See supra Part 1, Chapter 1, Section 4.2.
    27

    306

    Can Competition Law Do It All? The Final Assessment

    effects is again manifest.31 As we discussed in Chapters 1 and 2, the


    adoption of a certain technology, which is an integral part of the
    innovation cycle, depends on the consumers reaction to it. In network
    markets, consumers reaction depends not only on the price and quality
    of the product or service but more crucially, on the expectations as to its
    adoption, ie on the expectations as to the size of the future network.32
    Furthermore, owing to the possibilities of tipping markets and the
    winner-takes-all scenarios, as already discussed, the rhythm of
    dynamism is furthermore made uneven.33
    Antitrust analysis of communications markets is (again) rendered
    difficult by this constantly present opportunity for change.
    First, the critically important for competition law process of market
    definition is challenged. The mechanism and the application of the SSNIP
    (Small but Significant Non-Transitory Increase in Price) test,34 which is
    in itself not an exact science, are called into question, since this test is
    based on static rather than dynamic determinants.35 The importance of
    supply-side substitution and potential competition as elements of the
    analysis is substantially increased in dynamic markets, where the sources
    of competitive constraints are often undertakings not yet active on the
    market in question. Furthermore, the lack of data due to the constant
    fluctuation of communications markets makes any analysis difficult in
    practical terms and renders less reliable its results.
    Secondly, at the level of analysis of market power, [t]he world of
    network and dynamic effects brings to the forefront the fact that
    behaviour that exhibits static efficiency may lack dynamic inter-temporal
    efficiency.36 This means in essence, similarly to our elaborations in the
    preceding Section on network externalities, that the normal evidence of
    dominance, such as high market shares and radical inequality of the
    market players, may not be sustainable over time and not the result of
    anti-competitive behaviour (as our in-depth analysis of tying under
    31

    Heli Koski and Tobias Kretschmer, supra note 3, at p. 6.


    See eg Michael L. Katz and Carl Shapiro, Technology Adoption in the Presence of
    Network Externalities (1986) Journal of Political Economy, Vol. 95, pp. 822841; Joseph
    Farrell and Garth Saloner, Installed Base and Compatibility: Innovation, Product
    Preannouncement, and Predation (1986) American Economic Review, Vol. 76, pp. 940955.
    33
    It is often said that the communications sector does not follow a line of gradual evolution
    but rather leaps to the next level.
    34
    See supra Part 2, Chapter 4, Section 2.2.1.a.
    35
    See eg Atilano Jorge Padilla, The Role of Supply-Side Substitution in the Definition of
    the Relevant Market in Merger Control, A Report for DG Enterprise A/4, Madrid, June
    2001, at pp. 67; Mark Naftel, Market Implications of Technologically Neutral
    Regulation (2002) Journal of Network Industries, Vol. 3, pp. 231237, at p. 233.
    36
    Nicholas Economides, supra note 5, at p. 23.
    32

    307

    EC Electronic Communications and Competition Law

    Article 82 EC showed). If sanctioned, the penalising intervention may


    be inadequate and decrease rather than increase welfare.37
    Generally, the potential damage that any regulatory intervention, be it
    sector specific or antitrust-based, can produce is greater in a dynamic
    industry, where while new technologies are expected, their specific
    nature and parameters are largely unknown. Intervention could often
    be futile or even counterproductive. 38 Economides suggests in this
    context that, lacking the knowledge of the effects of their actions, it
    is in the public interest that antitrust authorities and courts avoid
    extensive intervention in industries with fast technological change. It is
    best to intervene only to the extent that (i) intervention reverses the effects
    of actions for which liability was established; and (ii) the effects of the
    intervention are predictable.39 In view of this, it should be noted that,
    while admittedly sectoral regulation could be more intrusive than
    antitrust, it could cease to apply in certain situations, provided that a
    previously defined set of circumstances (eg a need for safeguarding
    media pluralism) is found. Competition rules, in contrast, cannot stop
    applying their task of protecting competition in the pursuit of economic
    efficiency, while allowing a fair amount of flexibility, does not permit
    refraining from intervening.40
    As a conclusion to the above, it must be clearly acknowledged that the
    perpetual state of flux of communications markets influences essentially
    all elements of the system and demands a regulatory model that is
    sufficiently flexible. Flexibility alone, however, does not suffice. The criteria
    for the accuracy of the regulatory intervention, be it antitrust or sector
    specific, are equally strict. One should further consider that, [b]ecause of
    the importance of critical mass, because customer expectations are so
    important in the area of information infrastructure, and because technology
    is evolving so rapidly, the timing of strategic moves is even more important
    in the information industry than in others.41 This observation adds a
    temporal aspect to the requirement of accuracy for regulatory tools and a
    new test of promptness in the assessment of their efficiency.
    37

    As the US Supreme Court stressed in Trinko, [m]istaken interferences and the resulting
    false condemnations are especially costly, because they chill the very conduct the antitrust
    laws are designed to protect. See Verizon Communications Inc v. Law Offices of Curtis V.
    Trinko, LLP, 540 US 682 (2004), citing Matsushita Elec. Industrial Co v. Zenith Radio Corp,
    475 US 574, 594 (1986).
    38
    See Pierre Larouche, Legal Issues Concerning Remedies in Network Industries in
    Damien Geradin (ed.), Remedies in Network Industries: EC Competition Law vs. Sector-Specific
    Regulation, Antwerp: Intersentia, 2004, pp. 2145, at pp. 34 et seq. See also Nicholas
    Economides, supra note 5.
    39
    Pierre Larouche, ibid. at p. 24.
    40
    Pierre Larouche, supra note 22, at p. 347. EC competition law allows an exception in
    the case of services of general economic interest pursuant to Article 86(2) EC. See infra
    Section 2 Some Speculations on the Future.
    41
    Carl Shapiro and Hal R. Varian, supra note 2, at p. 15 (emphasis in the original).
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    Can Competition Law Do It All? The Final Assessment

    1.3

    Convergence

    As discussed in Chapter 1, the process of convergence is technologically


    based upon the phenomenon of digitisation, whereby all types of
    information, be it audio, text, images or moving images, are expressed
    in lines of zeros and ones. Networks have gone digital in order to make
    full use of this technological breakthrough leading to an increased
    substitutability between the different network platforms and fading
    boundaries between the traditionally separate telecommunications,
    media and information technology sectors.
    This development has (at least) two important ramifications for
    communications regulation. First, in the concrete context of application
    of competition rules, it presents some considerable challenges. The
    diversity of products and services and the increased flexibility of market
    players to provide a greater variety of products in different price
    categories and product/service packages complicate standard antitrust
    analysis, both where market definition and where the finding of
    dominance are concerned: With respect to market definition,
    technological convergence both eliminates the geographical borders on
    which markets are commonly based and raises questions about what
    constitutes supply and consumers. [] With respect to product
    definition, difficulties arise in determining what constitutes like
    products, especially when similar services, which nonetheless may not
    be substitutes, appear in both traditional and new media.42 In addition,
    [a]lthough technological convergence does not restrict competition per
    se, it increases the likelihood of abuse of dominance or other anticompetitive behaviour.43 Neither the segments of the value chain
    (creation, packaging, distribution), nor the boundaries of previously
    clearly identified sectors limit the market players any longer and leverage
    of market power to neighbouring markets becomes an enticing and
    simultaneously, more easily realisable option. The analysis of tying and
    the Microsoft predicament in Chapter 4 provided a practical example in
    this regard.
    On the other hand, owing to the converging environment, the
    possibilities of entry are multiplied and this demands a new perspective
    on the analysis of barriers to entry, supply-side substitution and potential
    competition as important criteria for the assessment of market power.
    The examination of the network effects should also be readjusted, since
    there are new networks emerging that encompass not only
    42

    Arlan Gates, Convergence and Competition: Technological Change, Industry


    Concentration and Competition Policy in the Telecommunications Sector (2000)
    University of Toronto Faculty of Law Review, Vol. 58, Issue 2, pp. 83120, at p. 97.
    43
    Arlan Gates, ibid. at p. 94.

    309

    EC Electronic Communications and Competition Law

    telecommunications but also internet services, television and other


    content services (for instance, the so-called triple play offers of TV,
    internet and telephony bundled together).44 In the light of the latter
    development, one should acknowledge that successful entry into the
    content-related communications markets has become progressively
    dependent upon access not only to network infrastructure but also to
    premium content. The importance of content will even be enhanced over
    time due to the development of high-speed connectivity, increased
    capacity of networks and the strategy of placing available content across
    all platforms.45 Indeed, consumers tend increasingly to choose platforms
    depending on the availability and price of premium content, which
    strongly influences competition in communications, ie in the
    infrastructural and transport services markets.
    The last point brings us to the second key regulatory implication of
    convergence, namely the resulting difficulty of separating content and
    infrastructure. This implication relates not only to the possible intricacies
    of antitrust application but also, on a general level, to the design of an
    adequate regulatory model for electronic communications.
    Historically, broadcasting and telecommunications services were offered
    over distinct infrastructures by different organisations that supplied
    different types of messages (point-to-multipoint and point-to-point,
    respectively). Broadcasting and telecommunications were both heavily
    regulated but by separate, different regimes. Telecommunications
    regulation was mainly concerned with the provision, operation of and
    access to infrastructure. Telecommunications regulators set in addition
    rules for market entry, pricing and technical specifications ensuring
    interoperability of equipment and universal coverage. In contrast, within
    the audiovisual sector, the emphasis has always been on the regulation
    of content. In the film industry, control has been exercised through a
    system of classification and censorship, while in broadcasting licensing
    regimes have provided the basis for regulation upon political and
    cultural criteria for the achievement of certain objectives, such as
    pluralism, impartiality and promotion of cultural diversity. One can thus
    observe that the regulatory systems for the audiovisual and
    telecommunications sectors have had substantially different underlying
    rationales because of the different objectives that were pursued. In the
    process of convergence, where the boundaries between the sectors
    become blurred, the convergence of these different sets of objectives
    44

    See Stefano Vannini, Competition and Regulation in Network Industries: Not an Easy
    Balance to Strike. Comments on Koski and Kretschmer (2004) Journal of Industry,
    Competition and Trade (Bank Papers), pp. 4965, at p. 50.
    45
    The so-called COPE (Create Once Place Everywhere) strategy. See eg OECD, Media
    Mergers, DAFFE/COMPETITION(2003) 16, Paris, 19 September 2005.

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    Can Competition Law Do It All? The Final Assessment

    and regulatory justification is not unproblematic. As Paul Nihoul points


    out, [u]nfortunately law does not always function like economics and
    technologies: it is sometimes difficult to combine regulatory systems
    with different inspirations.46
    The solution offered by the current EC regulatory framework follows
    the original model and makes explicit the separation between content
    and the networks, through which the content is being transported. This
    division seems a logical one. Since convergence implies that networks
    are neutral as to the nature of the services they carry, it is reasonable to
    separate them in this way. Additionally, [t]he regulatory distinction
    between content and network/distribution has obvious practical
    advantages: it allows some order to be brought in the overall regulatory
    scheme and enables policy review processes to tackle each branch of
    the distinction one at a time. At the same time, [however] the network/
    content divide shows the hallmarks of distinctions which are borne out
    of convenience.47 It is indeed too simplified for the complex reality of
    convergence.48
    In practice, the distinction between content and transmission is not a
    clear-cut one. Transport of data can often influence the content itself
    and in return, the content could influence the transport.49 The existing
    must carry obligations are a vivid example of the acknowledgement
    of the relation between networks and content transferred by these
    networks.50 In addition, one must not forget that, ...there is more to
    content than audiovisual content51 and that convergence is occurring
    46

    Paul Nihoul, Competition or Regulation for Multimedia? (1998) Telecommunications


    Policy, Vol. 22, No 3, pp. 207218, at p. 207.
    47
    Pierre Larouche, Dealing with Convergence at the International Level in Damien
    Geradin and David Luff (eds.), The WTO and Global Convergence in Telecommunications and
    Audio-Visual Services, Cambridge: Cambridge University Press, 2004, pp. 390422, at
    pp. 394395.
    48
    International Telecommunication Union, Regulatory Implications of Telecommunications
    Convergence, Briefing Report of the Sixth Regulatory Colloquium, Geneva, 1997.
    49
    See Paul Nihoul and Peter Rodford, supra note 16, at paras 1.148 et seq.
    50
    Article 31(1) of the Universal Service Directive (Directive 2002/22/EC of the European
    Parliament and of the Council of 7 March 2002 on universal service and users rights
    relating to electronic communications networks and services, OJ L 108/51, 24 April 2002)
    provides that, Member States may impose reasonable must carry obligations, for the
    transmission of specified radio and television broadcast channels and services, on
    undertakings under their jurisdiction providing electronic communications networks used
    for the distribution of radio or television broadcasts to the public where a significant
    number of end-users of such networks use them as their principal means to receive radio
    and television broadcasts. Such obligations shall only be imposed where they are necessary
    to meet clearly defined general interest objectives and shall be proportionate and
    transparent. The obligations shall be subject to periodical review.
    51
    Martin Cave and Pierre Larouche (Rapporteurs), European Communications at the
    Crossroads, Report of the CEPS (Centre for European Policy Studies) Working Party on Electronic
    Communications, Brussels: Centre for European Policy Studies, October 2001, at p. 30.

    311

    EC Electronic Communications and Competition Law

    not only between telecommunications and broadcasting. In that sense,


    while the network/content divide may have some meaning against the
    backdrop of the traditional telecommunications and media sectors, it
    becomes more difficult to apply in newer sectors where communications
    networks are infused with non-audio-visual content52 (such as, for
    instance, games, ring tones or the local weather forecast over mobiles).
    On a more general level, when reflecting upon the adequate regulatory
    design for electronic communications networks and services, the
    emerging converged object of regulation should be examined as a
    whole and the role of regulation in this converged system should be
    carefully considered from all angles. In the words of Yochai Benkler,
    [t]he technological, organizational, and market convergence of two
    central models of remote communications in the past century broadcast
    and switched point-to-point telephony have led to a regulatory
    reshuffling. One question that must be addressed in this transition is
    the role democratic values should play in shaping the new regulatory
    environment, and how these values should be incorporated into the
    emerging regulatory regime. In traditional telecommunications
    regulation, the democratic impetus found in its primary expression in
    the effort to provide universal access to a minimal level of
    communications services. In traditional broadcast regulation, democratic
    values were pursued through the imposition of content regulation aimed
    at assuring that broadcast provide the diverse information necessary
    for an informed citizenry. [] The challenge posed by convergence for
    policy makers concerned with serving democratic values is how to take
    these values into consideration in context of the transformation of
    communications infrastructure law.53
    In light of the above, one could interlink the issues of withdrawing sector
    specific communications regulation and convergence. Firstly, because
    convergence involves sectors with historically different regulatory
    traditions and concerns, such as broadcasting and telecommunications.
    Secondly and out of this dual context, because convergence brings
    together sectors, which have typically been heavily regulated
    (broadcasting and telecommunications) and those, which have not been
    regulated at all (information technology, multimedia products and
    Internet services). The issue of sectoral regulation withdrawal should
    thus be addressed not on a piecemeal basis but rather as a whole
    considering all elements of the emerging communications system in the
    context of moving to competition, while securing certain core public
    interest objectives.
    52

    Pierre Larouche, supra note 47, at p. 395.


    Yochai Benkler, Communications Infrastructure Regulation and the Distribution of
    Control over Content (1998) Telecommunications Policy, Vol. 22, No 3, pp. 183196, at p. 183
    (emphasis added).
    53

    312

    Can Competition Law Do It All? The Final Assessment

    Step 1: Conclusion
    As a conclusion to the above and essentially to Chapters One and Four,
    it is evident that communications markets exhibit particular
    characteristics. The intrinsic network effects (both direct and indirect),
    the constantly changing environment and the ongoing process of
    convergence are a few of these characteristics. They are likely to have a
    plethora of ramifications for the regulatory tools directed at electronic
    communications networks and services and most importantly in our
    context, they do pose considerable challenges for standard competition
    law.
    It would be nonetheless fallacious to hold that competition rules would
    not be able to somehow meet these challenges. As we saw in Chapters 3
    and 4, antitrust is a flexible instrument able to address new situations
    and developments. With the advancement of competition in the
    European post-liberalised communications markets, one (notably, the
    EC regulator) could indeed imagine a purely antitrust-based regulation
    of the sector. However, in order to meet the challenges of the
    communications sector, antitrust would have to stretch far beyond its
    current boundaries. Some conventionally applied rules-of-thumb built
    upon past experience in old, non-network sectors would have to be
    forgotten in order to capture the new network-determined
    situations. Antitrust authorities would have to develop sensitivity
    towards the specific communications environment and apply thorough
    economic analyses in order to provide an adequate intervention. Most
    crucially, all elements of the complex communications system would
    have to be simultaneously accounted for, because of the close linkages
    between them and an interdependence of their effects. This may be
    especially difficult (if not impossible) since, as we have seen in the course
    of this work, not all communications specifics relate to dominance and
    could be properly subsumed under an Article 82 case.
    Furthermore, all these fairly tough challenges would have to be met
    in a situation of uncertainty and possible fluctuations in multiple
    directions. This uncertainty as to the direction of the future developments
    is indeed another intrinsic characteristic of e-communications markets.
    It stems first from the uncertainty related to the ramifications of network
    effects. Secondly, the direction(s) and the extent of convergence and the
    emerging converged constellations are difficult to foretell. There is
    regrettably little help from economics, where no coherent model of
    network externalities and their policy effects exists yet. Competition
    agencies would thus have to cope with these substantial uncertainties,
    while attempting to provide a level of legal certainty, which is a constant

    313

    EC Electronic Communications and Competition Law

    and essential requirement for any regulatory regime, and particularly


    crucial for new and emerging markets.54
    2.

    Step 2: Competition Law versus the Goals and Objectives of


    Communications Regulation

    Chapter 2 analysed a number of policy goals that are and/or should be


    pursued in the communications ecosystem. Competition law is certainly
    not expected to address all these goals. It is a tool of economic regulation
    and as such meant to contribute to the achievement of economic goals
    by controlling market power. The concrete question in this context is
    then whether competition law could properly address all the economic
    goals and sufficiently acknowledge the existence of other goals, directly
    or indirectly affected by the economic ones. A consideration of these
    other goals is necessary since the separation of economic and societal
    goals is only made for the sake of convenience. There are in reality
    constant spillovers between the goals. Furthermore, while it is clear that
    through the achievement of the economic goals, the societal objectives
    receive positive input, this is not always the case.
    2.1

    Economic Goals and Objectives

    2.1.1 Consumer Welfare


    We concluded in Chapter 2 that the intermediate objective of economic
    regulation is the creation of conditions for competition to exist and
    ensuring that it continues to exist, which leads to the achievement of
    the ultimate goal of consumer welfare and maximisation of wealth at
    the lowest possible cost for society. Indeed, Robert Bork holds that, [t]he
    only goal that should guide interpretation of the antitrust law is the
    welfare of consumers.55
    As we discussed further in the context of the economic goals, competition
    law is the primary tool of economic regulation, which relies upon the
    mechanisms of free markets and corrects the movements of the invisible
    hand56 only in a number of chosen situations that would otherwise
    endanger the very market mechanisms. In that sense, the goal of
    consumer welfare in general and that of effective competition in
    particular are achieved if antitrust functions properly in the environment
    54

    Knut Blind et al., New Products and Services: Analysis of Regulations Shaping New
    Markets, Fraunhofer Institute Systems and Innovation Research Study funded by the European
    Commission, Karlsruhe, February 2004, at p. 26.
    55
    Robert H. Bork, The Antitrust Paradox: A Policy at War with Itself, New York: The Free
    Press, 1993 (first published New York: Basic Books, 1978), at p. 405 (emphasis added).
    56
    Referring to Adam Smith, An Enquiry into the Nature and Causes of the Wealth of Nations,
    New York: Modern Library, 1937 (first published 1776). See supra Part 1, Chapter 2, Section
    2.1.
    314

    Can Competition Law Do It All? The Final Assessment

    of communications markets. This logically brings us to our preceding


    analysis on the specific characteristics of e-communications and how
    antitrust rules address them. Considering the substantial difficulties
    stemming from the specific characteristics of electronic communications,
    one can submit that the achievement of the goal of consumer welfare
    may be seriously endangered.57 Furthermore, in the process of applying
    the EC competition rules in practice, it seems that sometimes the objective
    of consumer welfare is substituted erroneously with the objective of
    reducing harm to competitors. The cases of tying and refusal to supply
    provided fitting examples, where protection of competitors, rather than
    that of the consumers, could be discerned.58
    In addition to this general scepticism as to the potential of competition
    rules to achieve welfare in the complex environment of electronic
    communications, we pointed to some particular cases, where antitrust
    is indeed most likely to fail. Innovation was one of these instances.
    2.1.2 Innovation
    Ensuring that the conditions for innovation are not impaired could be
    framed as a sub-objective of economic regulation in communications,
    first, since it constitutes an integral dynamic aspect of competition59 and,
    secondly, since it is the very force driving the development of the
    communications industry. Thirdly, in terms of EC policy goals and the
    current Lisbon Strategy,60 innovation has been assigned a key role in
    securing growth and employment. In this sense, it is vital that antitrust
    as a tool of economic regulation ensures conditions advantageous to
    innovation. This, however, might not be as easy as it appears on the face
    of it.
    As we observed, communications markets are marked by the historical
    burden of monopoly and by network effects. In addition, the expectations
    of consumers and consumers adoption of new technologies influence
    57

    Confirming this, Pierre Larouche points out that, [i]n its current interpretation, EC
    competition law might not extend to the possible consequences beneficial or not of
    standardization, interconnection or interoperability agreements on overall welfare, in
    the form of internalization of network effects. See Pierre Larouche, supra note 22, at
    p. 334.
    58
    See supra Part 2, Chapter 4, Sections 2.3.1 et seq. See also the recently expressed position
    of the Commission as to its application of Article 82 EC: European Commission, DG
    Competition Discussion Paper on the Application of Article 82 of the Treaty to
    Exclusionary Abuses, Brussels, December 2005. For a critique, see Christian Ahlborn,
    Vincenzo Denicol, Damien Geradin and Atilano Jorge Padilla, DG Comps Discussion
    Paper on Article 82: Implications of the Proposed Framework and Antitrust Rules for
    Dynamically Competitive Industries, 31 March 2006, available at http://ssrn.com/
    abstract=894466.
    59
    See supra Part 1, Chapter 2, Section 2.3.
    60
    See supra Part 1, Chapter 2, Section 3.5.

    315

    EC Electronic Communications and Competition Law

    critically the process of innovation,61 leading to a level of uncertainty


    related to every new technology. This already complex picture is further
    blurred by the communications specific dilemma of facility-based
    versus service-based competition62 and by some intellectual property
    rights related issues,63 as discussed in Chapter 2.
    Network effects and the dominant position of a single undertaking, due
    to either the remnants of monopoly or a winner-takes-all state, make
    it particularly hard for other firms to overcome the initial advantage of
    the incumbents, even if they possess a technology of higher quality.64
    This naturally reduces the incentives for innovation and leads to an
    overall reduction of consumer welfare, firstly, because it chills innovation
    coming from other market players and secondly, because of the danger
    of excess inertia, 65 ie the socially undesirable persistence of the
    incumbent technology. While competition law generally supports the
    natural mechanisms of free markets and thus, innovation, it can do little
    to address such situations.
    In contrast, sector specific regulation might be a fairly helpful tool. It
    could create a sustainable level playing field for the future, while
    temporarily applying uneven regulatory measures. Asymmetric
    sectoral rules could serve further as a commitment device attract[ing]
    entry which might not take place otherwise66 and thus stimulate firms
    (other than the incumbent) to innovate.
    Admittedly, the use of sectoral tools is however not a readily applicable
    or always a valid remedy: In new and emerging markets, where the
    incumbent does not possess the installed base advantage, a different
    approach should be employed and sectoral regulation should not be
    applied. Following this line of reasoning, Bourreau and Dogan
    summarise various studies on innovation and regulation67 and observe
    61

    The participation of the consumers is so important and active that they could be viewed
    as source of some innovation and not only as consuming it. See Eric von Hippel,
    Democratizing Innovation, Cambridge, MA; MIT Press, 2005. For a brief commentary, see
    The Economist, The Rise of the Creative Consumer, 10 March 2005.
    62
    See supra Part 1, Chapter 2, Section 2.3.3.
    63
    See supra Part 1, Chapter 2, Section 2.3.2.
    64
    See supra Part 1, Chapter 2, Section 2.3.
    65
    Joseph Farrell and Garth Saloner, Standardization, Compatibility, and Innovation
    (1985) RAND Journal of Economics, Vol. 16, pp. 7082. It should be noted that excess
    inertia is not a phenomenon that occurs at all times and its extent is difficult to assess
    empirically in a strict product-introduction context. See Heli Koski and Tobias Kretschmer,
    supra note 3, at p. 13.
    66
    Marc Bourreau and Pinar Dogan, Regulation and Innovation in the Telecommunications
    Industry (2001) Telecommunications Policy, Vol. 25, pp. 167184, at p. 169.
    67
    The authors refer to studies by Michael H. Riordan, Regulation and Pre-emptive
    Technology Adoption (1992) Rand Journal of Economics, Vol. 23, No 3, pp. 334349; Gianni
    De Fraja, Entry, Prices, and Investment in Regulated Markets (1997) Journal of Regulatory
    (continued...)
    316

    Can Competition Law Do It All? The Final Assessment

    that, ex post control mechanisms are expected to provide better


    incentives for innovation, at least to the incumbent firm. [] As for new
    entrants, their incentives to innovate may be stronger under asymmetric
    regulation. Therefore, there may be a social trade off between innovation
    by incumbents and innovation by new entrants.68
    Still, one cannot argue with certainty that such a trade-off will indeed
    materialise. The leader might choose to work harder to maintain its
    lead than the follower to catch up.69 Hence, [i]t cannot be postulated
    that a specific regulatory measure will lead inevitably to more
    innovation, since there are many subtle variations within each category
    of regulations. Moreover, most regulatory requirements generate
    contradictory effects on innovation, being both positive to certain phases
    or actors in the innovation process and negative regarding other phases
    or economic actors.70 Accounting for this, one can submit that what is
    needed, above all, is increased awareness of the regulatory agencies,
    when faced with situations of importance for innovation and an ability
    to discern these situations. This awareness may not however be present.71
    A further element influencing innovation is the willingness of consumers
    to adopt a new technology. This adoption, as discussed previously, is
    however largely unknown and hard to predict in network industries.
    This uncertainty about future adoptions is arguably biggest when
    several technologies compete for the future standard72 and could lead
    to intense standard wars that are detrimental to consumers.
    Standardisation could reduce this uncertainty and accelerate the
    diffusion of new technologies.73 It could further be seen as a tool for
    ensuring interoperability, which is vitally important in communications.
    Economics, Vol. 11, pp. 257270; Thomas P. Lyon and Haizou Huang, Asymmetric
    Regulation and Incentives for Innovation (1995) Industrial and Corporate Change, Vol. 4,
    No 4, pp. 769776. See Marc Bourreau and Pinar Dogan, ibid. at pp. 170173. See also
    Carl Shapiro, Competition Policy and Innovation, OECD Science, Technology and Industry
    Working Paper DSTI/DOC(2002)11, Paris, 2002.
    68
    Marc Bourreau and Pinar Dogan, supra note 66, at p. 173 (emphasis added).
    69
    Heli Koski and Tobias Kretschmer, supra note 3, at p. 18, referring to Christopher Budd,
    Christopher Harris and John Vickers, A Model of the Evolution of Duopoly: Does the
    Asymmetry Between Firms Tend to Increase or Decrease? (1993) Review of Economic
    Studies, Vol. 60, pp. 543573.
    70
    Knut Blind et al., supra note 54, at p. 3.
    71
    Blind et al. point out in their study of innovation that there is a significant lack of
    awareness regarding the issue of new products and services within the regulatory bodies
    and that, at the same time, the implementation of regulations is crucial for the incentives
    of companies to develop and market new products and/or services. See ibid. at p. xi.
    72
    Heli Koski and Tobias Kretschmer, supra note 3, at p. 13 (footnote omitted).
    73
    Ibid. referring to Heli Koski and Tobias Kretschmer, Entry, Standards and Competition:
    Firm Strategies and the Diffusion of Mobile Telephony (2002) ETLA Discussion Paper
    No 824.
    ..)
    317

    EC Electronic Communications and Competition Law

    In the current EC e-communications regime, while it has been pointed


    out that, [s]tandardisation should remain primarily a market-driven
    process,74 it is equally stressed that, there may still be situations where
    it is appropriate to require compliance with specified standards at
    Community level to ensure interoperability in the single market.75 In
    response to this need, the communications regulatory package contains
    mechanisms for standardisation within European markets,76 including
    the possibility of making standards compulsory.77 Such an intervention
    can hardly be provided by antitrust, whose original goal is rivalry rather
    than cooperation.78 Lock-ins to inferior technologies, as discussed in
    Chapter 2,79 and the related negative path-dependence may further call
    for regulatory intervention.80 Switching costs, due, for instance, to lack
    of number portability in mobile or fixed telephony, discourage moving
    to a different network or standard and thus, require a specific remedy.
    Even if competition rules could be applied to address such situations,
    when an undertaking is found to be dominant in the relevant or
    neighbouring market, the final outcome of the intervention is likely to
    be substantially delayed. Considering the short innovation cycles in
    electronic communications, such a delay could be fatal for the
    undertaking(s) in question. Moreover, it would be detrimental to
    consumer welfare in general and in particular, to dynamic efficiency,
    thus failing to realise the regulatory objectives.
    74

    Directive 2002/21/EC of the European Parliament and of the Council of 7 March 2002
    on a common regulatory framework for electronic communications networks and services
    (hereinafter the Framework Directive), OJ L 108/33, 24 April 2002, at Recital 30.
    75
    Ibid. Interoperability is also set as an important policy target within the European
    Information Society project. See eg European Commission, 2010 A European Information
    Society for Growth and Employment, COM(2005) 229 final, 1 June 2005, at p. 5.
    76
    See Articles 17 and 22 of the Framework Directive. See also List of standards and/or
    specifications for electronic communications networks, services and associated facilities
    and services, OJ L 331/32, 31 December 2002 and Decision 676/2002/EC on a regulatory
    framework for radio spectrum policy in the European Community, OJ L 108/1, 24 April
    2002.
    77
    If the standards and/or specifications [] have not been adequately implemented so
    that interoperability of services in one or more Member States cannot be ensured, the
    implementation of such standards and/or specifications may be made compulsory under
    the procedure laid down in para. 4, to the extent strictly necessary to ensure such
    interoperability and to improve freedom of choice for users. See Article 17(3) of the
    Framework Directive.
    78
    For an interesting input on competition and cooperation, see P.H. Longstaff,
    Competition and Cooperation: From Biology to Business Regulation, Program on
    Information Resources Policy, Harvard University, October 1998, available at http://
    www.pirp.harvard.edu.
    79
    See supra Part 1, Chapter 2, Section 2.3.1.
    80
    Preventing lock-in to an inferior technology might however be not an easy task, since it
    would require detailed information on the state of technological progress and knowledge
    about consumer preferences. See Heli Koski and Tobias Kretschmer, supra note 3, at p. 25.

    318

    Can Competition Law Do It All? The Final Assessment

    2.2

    Societal Goals and Objectives

    As elaborated upon in the second part of Chapter 2, there are goals


    beyond the economic ones that need to be considered. We defined these
    as societal goals and showed that they comprise a number of objectives
    that are different in nature but share a common public interest rationale.
    Universal service and consumer protection were outlined as particularly
    pertinent and socially justified in communications. The in-depth analysis
    of the goal of universality and the EC universal service regime exposed
    the complexity of issues that the pursuit of a single objective involves.
    The example of universal service showed further that the policy goals
    can evolve and over time, the means for achieving a certain goal can
    change considerably. Although the role of the market as an efficient
    mechanism has been clearly recognised and more flexibly utilised in
    the achievement of these public interest objectives, a definite layer of
    social regulation is (still) required. Indeed, the need for a more thorough
    consumer protection, for instance, may be exacerbated by the evolution
    of communications markets and the intensified competition therein.
    As part of our more broad-spectrum thoughts upon the desired
    communications regulatory model in an environment of digitisation,
    convergence and globalisation, it is however more interesting to
    contemplate further upon what we called the higher objectives. These
    referred to certain intangible values, such as cultural diversity, protection
    of freedom of expression and human rights in general. This discussion
    is essential since [t]he emergence of a new electronic communications
    system characterized by its global reach, its integration of all
    communication media, and its potential interactivity is changing and
    will change forever our culture.81 In as far as the means of distribution
    (ie the networks) change the content and in as far as competition law
    regulates these networks, we need to examine them together.82
    The present EC communications regime, although it regulates only
    electronic communications and services, recognises this relation and
    provides that, [t]he separation between the regulation of transmission
    and the regulation of content does not prejudice the taking into account
    of the links existing between them, in particular in order to guarantee
    media pluralism, cultural diversity and consumer protection.83 Further,
    and with specific reference to antitrust, the Access Directive states that,
    [c]ompetition rules alone may not be sufficient to ensure cultural
    81

    Manuel Castells, The Information Age: Economy, Society and Culture, Vol. 1: The Rise
    of the Network Society, 2nd edition, Oxford: Blackwell Publishing, 2000, at p. 357 (emphasis
    added).
    82
    See also supra the elaborations in the context of convergence and the position of Yochai
    Benkler (Section 1.C).
    83
    Framework Directive, at recital 5.

    319

    EC Electronic Communications and Competition Law

    diversity and media pluralism in the area of digital television.84 The


    existing must carry rules 85 are another example of the
    acknowledgement of the essential connection between infrastructure and
    the content being distributed over it and of the importance of access in
    that relationship.
    It is indeed clear that increased competition does not necessarily bring
    diversity among competitors, at least not in the long run.86 Digitisation,
    as the underlying technology, carries in itself the potential for
    homogenisation, at least technically.87 We dare to disagree with Milton
    Mueller, who holds that, [d]iversity of content is not much of a policy
    issue in the digital economy, any more than it is in the printed
    publications. [] True, we may not approve of choices of the masses of
    consumers, who prefer Britney Spears to Bach. But diversity is there,
    available to those who choose to take advantage of it.88
    We hold in contrast that considering the institutional nature of human
    rights89 and in particular, the freedom of expression, it is crucial in the
    Information Society that these are guaranteed in a proper manner.
    Markets alone can do little in this regard. In a converged environment,
    a pure content (media) regulation may also not suffice. We should thus
    acknowledge the role of telecommunications in public speech90 and that
    these higher goals need to be taken into account in any system of
    communications regulation, even if this means going against
    competition.
    84

    The Access Directive, at Recital 10 (emphases added). Recital 10 states further that,
    Directive 95/47/EC provided an initial regulatory framework for the nascent digital
    television industry, which should be maintained, including in particular the obligation
    to provide conditional access on fair, reasonable and non-discriminatory terms, in order
    to make sure that a wide variety of programming and services is available. Technological
    and market developments make it necessary to review these obligations on a regular
    basis, either by a Member State for its national market or the Commission for the
    Community, in particular to determine whether there is justification for extending
    obligations to new gateways, such as electronic programme guides (EPGs) and application
    program interfaces (APIs), to the extent that is necessary to ensure accessibility for endusers to specified digital broadcasting services. Member States may specify the digital
    broadcasting services to which access by end-users must be ensured by any legislative,
    regulatory or administrative means that they deem necessary.
    85
    See supra note 50.
    86
    P.H. Longstaff, The Communications Toolkit, Cambridge, MA: MIT Press, 2003, at Chapter
    4.
    87
    Milton L. Mueller, Convergence: A Reality Check in Damien Geradin and David Luff
    (eds.), The WTO and Global Convergence in Telecommunications and Audio-Visual Services,
    Cambridge: Cambridge University Press, 2004, pp. 311322, at p. 313.
    88
    Ibid. at p. 322.
    89
    See supra Part 1, Chapter 2, Section 3.4.
    90
    Michael L. Katz, Antitrust or Regulation? US Public Policy in Telecommunications
    Markets in Pierre A. Buigues and Patrick Rey (eds.), The Economics of Antitrust and
    Regulation in Telecommunications, Cheltenham, UK: Edward Elgar Publishing, 2004,
    pp. 243260, at p. 248.
    320

    Can Competition Law Do It All? The Final Assessment

    In the words of Mel Kenny, [a]t the extreme those arguing for stringent
    competition and deregulation can be driven to a state of apoplexy in the
    face of such distortions [of competition], yet precisely these distortions
    may reflect political and social expressions central to the modern liberal
    democracy, crucial to the acceptability of the European project and
    arguably, more fundamental to any concept of citizenship than a Charter
    of Rights.91
    Step 2: Conclusion
    In the contemporary world of real virtuality,92 the objectives standing
    before communications regulation are indeed multiple. Furthermore,
    they are not static objectives to be attained once, but must be maintained
    in a very dynamic environment, and could accordingly change. The
    complex linkages between the economic and societal goals and the
    existing interdependence between them demand above all the
    achievement of a balance within the system.
    As evident from the regulatory transformation of (tele)communications
    regulation, illustrated in Chapters 1 and 4, the role of the government
    has changed in the pursuit of these objectives and shifted from direct
    market participation to indirect control. Even in domains, once reserved
    for pure state regulation, such as universal service, the role of the market
    mechanisms has been significantly intensified, as illustrated by our
    analysis of the EC universal service regime in Chapter 2. We further
    stressed that antitrust is not meant to achieve all regulatory objectives
    but rather by focusing on the economic ones (namely, consumer welfare)
    contribute to the achievement of the whole package. Because of the
    limitations of competition law in addressing some specific characteristics
    of electronic communications (both related and not related to market
    power), it might however fail in accomplishing this task, most notably
    in securing the dynamic efficiencies of competition.
    Moreover, despite the submission in the spirit of the Chicago School
    that, [t]he only goal that should guide [] antitrust law is the welfare
    of consumers,93 against a dynamic background, such as doubtlessly
    electronic communications are, the regulatory tools might not be able
    to isolate neatly the regulatory objectives or the effects of the applied
    regulatory tools. In that sense, while it is true that antitrust should focus
    exclusively on economic efficiencies, there is a need for an overall
    regulatory approach and a corresponding coherent model of regulation
    taking into account the linkages between the physical layer (ie electronic
    91

    Mel Kenny, The Transformation of Public and Private EC Competition Law, Berne: Staempfli
    Publishers, 2002, at p. 35.
    92
    See Manuel Castells, supra note 81, at pp. 355407.
    93
    Robert H. Bork, supra note 55, at p. 405.
    321

    EC Electronic Communications and Competition Law

    communications networks and services) and the content layer. The role
    of electronic communications as the platform for communication and
    dissemination of information calls for such a model that guarantees the
    proper functioning of the communications system as such and would
    further allow a consideration of the non-economic objectives and ensure
    a sort of mutual supportiveness of the different goals. Because, while
    admitting that an elaboration upon the conflicting values and the clashes
    inherent to modern economic and social life is beyond the scope of this
    work, it is important to assert that we are not only consumers but also
    citizens.
    3.

    Step 3: Endangering the Authority and Integrity of Competition


    Law

    The above Sections revealed a series of real and likely deficiencies of


    competition rules, if they were applied as a sole regulator of the
    communications sector. It is interesting to contemplate what is about to
    happen if the EC regulator nonetheless withdraws sectoral regulation
    and ultimately leaves it all to antitrust. In view of the overall analysis
    within this work, one thing appears clear: If Community competition
    law becomes the sole instrument applying to the markets for electronic
    communications networks and services, it would definitely have to
    change. It would have to expand in an attempt to cover the existing and
    emerging communications unique situations and as we saw in Chapter
    4, [c]ompetition law would [] be stretched beyond reasonable
    bounds94 in order to cope with them.
    The communications specific characteristics cannot simply be ignored.
    Their effects and magnitude determine the entire environment of the
    electronic communications market to which regulation is applied. If
    the specificities of the electronic communications sector are ignored and
    economic regulation is left in the hands of competition law alone or
    with SSR [sector specific regulation] acting as a competition law proxy,
    chances are that those specificities will re-assert themselves in one way
    or another. With the passage of time, a sector-specific competition law
    might arise, comprising elements of competition law which were
    developed to address the problems of electronic communications []
    but which are not readily applicable elsewhere.95 Paul Nihoul and Peter
    Rodford predict in the same vein that the years ahead will be a period
    of intense litigation and negotiation in the field of electronic
    communications networks and services,96 leading ultimately to a hybrid
    version of competition rules, a sui generis system within the general
    94

    Pierre Larouche, A Closer Look at Some Assumptions Underlying EC Regulation of


    Electronic Communications (2002) Journal of Network Industries, Vol. 3, pp. 129149, at p. 148.
    95
    Pierre Larouche, ibid. at p. 149.
    96
    Paul Nihoul and Peter Rodford, supra note 16, at para. 1.13.
    322

    Can Competition Law Do It All? The Final Assessment

    antitrust system with rules applying exclusively to electronic


    communications.
    Even if such a radical development does not become a reality,
    competition law will have to be substantially warped, twisted or
    stretched, which will undoubtedly endanger its authority and
    integrity, and call into question legal certainty in general. Standard
    antitrust rules-of-thumb, such as the hypothetical monopoly test or
    the calculation and weight of market shares would have to be readjusted
    with specific regard to communications.97 There is a further danger that
    core concepts like the essential facilities doctrine would be used as a
    regulatory tool (considering the lack of other instruments) to allow access
    of new market players, thus twisting the very EFD and in the long term
    securing less, instead of more, consumer welfare.
    Furthermore, in litigation situations, the courts will often be faced with
    complex technical cases that would require first, special expertise and,
    secondly, an essentially regulatory decision. However, as we discussed
    above and as Robert Bork stresses, [a] court is not the proper institution,
    either by equipment, responsiveness to the electorate, or specialization
    of function, to write ab initio detailed specifications of political
    compromise between conflicting and incommensurable values.98
    Even if courts take upon themselves the burden of making decisions
    and choosing in essence between short-term and long-term competition,
    such a choice is by no means a straightforward one, as we stressed in
    Chapters 2 and 4: Indeed, balancing ex ante vs. ex post efficiencies is
    [] a very difficult process, which even the most sophisticated
    economists may find daunting. The risk of mistaken decisions is therefore
    high, Moreover, as a balancing text can be approached from several
    different angles, the methodology used by the competition authority
    will always (rightly or wrongly) be criticized by the defendant thereby
    triggering a battle of experts and steering the case away from the more
    crucial points.99
    97

    On the other hand, this readjustment might not reflect the reality, since in a great number
    of cases the conventional rules will remain fully valid.
    98
    Robert H. Bork, The Goals of Antitrust Policy (1967) Papers and Proceedings of the
    American Economic Association, at p. 246, as cited by Alex P. Jacquemin, The Criterion of
    Economic Performance in the Antitrust Policies of the United States and the European
    Economic Community (1970) Common Market Law Review, Vol. 7, pp. 205225, at p. 218.
    99
    Damien Geradin, Limiting the Scope of Article 82 EC: What Can the EU Learn from
    the US Supreme Courts Judgment in Trinko in the Wake of Microsoft, IMS and Deutsche
    Telekom (2004) Common Market Law Review, Vol. 41, pp. 15191553, at p. 1542. An example
    in point is the ongoing battle between Microsoft and the European Commission (see
    supra Part 2, Chapter 4, Section 2.3.3), currently examined before the Court of First
    Instance.

    323

    EC Electronic Communications and Competition Law

    It is furthermore quite likely that a courts judgment might not be able


    to set the price of the access once and for all. Typically, prices will have
    to be reset depending on a variety of factors, such as the presence of
    additional investments made to maintain or improve the infrastructure,
    etc. Only dedicated regulators, whose duty is to monitor a sector would
    seem to be able to handle such price revisions.100 As the US Supreme
    Court has underscored in the context of refusal to supply, [n]o court
    should impose a duty to deal that it cannot explain or adequately and
    reasonably supervise. The problem should be deemed irremedia[ble]
    by antitrust law when compulsory access requires the court to assume
    the day-to-day controls characteristic of a regulatory agency.101
    One could argue against the above backdrop that soft-law instruments
    (ie non-binding acts in the form of notices, guidelines or
    recommendations) could be a helpful supplement and assure consistency
    of application of EC competition law and clarify how the European
    Commission intends to decide individual cases. The experience with
    soft-law instruments in the field of EC communications law has been
    indeed positive until now and important concepts such as significant
    market power or complex dominance have been helpfully clarified by
    the Commission. However, one has to view the advantages of soft law
    measures in clarifying antitrust application in a specific industry context
    against the broader framework of competition law. A soft-law shortcut
    may in fact substantially distort the path of incremental evolution of EC
    competition law.102 Moreover, soft law is a body of rules by an industrial
    regulator,103 which is outside the normal political process for adoption
    of law. There is hence a certain risk that its adoption may not adequately
    take into account concerns of industry participants, consumers or other
    affected parties. Increased reliance on soft law can also raise issues of
    transparency, democracy and accountability.104
    Furthermore, the doctrine of precedent might not be easy to apply in all
    communications situations since different circumstances in different
    markets, such as a particular market strategy, would mean different facts
    100

    Damien Geradin, ibid. at p. 1545.


    Verizon Communications Inc v. Law Offices of Curtis V. Trinko (see supra note 37), citing
    the seminal article on the essential facilities doctrine of Philip Areeda, Philip E. Areeda,
    Essential Facilities: An Epithet in Need of Limiting Principles (1990) Antitrust Law
    Journal, Vol. 58, pp. 841 et seq., at p. 835 (emphasis added).
    102
    Pierre Larouche, supra note 22, at p. 329 and at pp. 112 et seq.
    103
    Alexadre de Streel, Remedies in the European Electronic Communications Sector in
    Damien Geradin (ed.), Remedies in Network Industries: EC Competition Law vs. Sector-Specific
    Regulation, Antwerp: Intersentia, 2004, pp. 67124, at p. 94.
    104
    Naftel and Spiwak point out in this context, that this situation is aggravated by the
    Commissions reliance on external studies and experts as a basis for many of its
    recommendations and soft law documents. See Mark Naftel and Lawrence J. Spiwak, The
    Telecoms Trade War: The United States, the European Union and the World Trade Organization,
    Oxford/Portland, Oregon: Hart Publishing, 2000, at p. 359.
    101

    324

    Can Competition Law Do It All? The Final Assessment

    of the case and naturally demand an individual decision reflecting these


    facts.105 While the unification of cases and practice by the Commission
    is an attractive option, applying precedents may be rendered difficult
    by the sheer dynamics of communications markets.
    As we discussed in Chapter 5, the Community level and the national
    level of the Member States do not exhaust the law applicable to electronic
    communications. The law of the WTO, even though not directly
    applicable, constitutes an integral part of the EC communications law.
    Since communications are being progressively globalised and all major
    market players are truly international ones, the role of international trade
    law is indeed likely to increase.
    The law of the WTO encompasses a number of instruments that are
    relevant to the telecommunications industry. During our brief analysis
    of these rules, we saw that they are not instruments of antitrust nature.
    Even the Reference Paper, as a widely acknowledged revolutionary act
    of international trade law, prescribing regulatory formulae and including
    antitrust-like norms, is not an antitrust tool. Rather it is a sector specific
    one and likely to remain so.
    In that sense, [i]f EC competition law would become the hard core of EC
    telecommunications regulation, then, it would have to cope with an
    international framework where competition law does not play a comparable
    role, and where the substance of the law tends to be influenced more by
    trade law or sector-specific considerations than by the general principles of
    competition law.106 Conditions for an alignment of telecommunications
    regulation with competition law principles are unlikely to be realised in
    the foreseeable future,107 even if one accounts for the significant efforts on a
    bilateral basis108 and at the international level.109
    105

    Pierre Larouche, supra note 22, at pp. 344 et seq.


    Pierre Larouche, supra note 22, at p. 343.
    107
    Pierre Larouche, supra note 47, at p. 415.
    108
    See United Nations Conference on Trade and Development (UNCTAD), Exclusionary
    Anti-Competitive Practices, Their Effects on Competition and Development, and
    Analytical and Remedial Mechanisms, a Report prepared by Philip Marsden, UNCTAD/
    DITC/CLP/2005/4, Geneva: United Nations, 2005, at pp. 69 et seq. For a list of existing
    bilateral and trilateral cooperation agreements on competition law enforcement, see Julian
    L. Clarke and Simon J. Evenett, A Multilateral Framework for Competition Policy in
    Swiss State Secretariat of Economic Affairs (seco) and Simon J. Evenett (eds.) The Singapore
    Issues and the World Trading System: The Road to Cancun and Beyond, Berne: seco, 2003,
    pp. 77168, Figure 1 at p. 95. On the EC-US cooperation efforts, see eg Simon J. Evenett,
    Alexander Lehmann and Benn Steil (eds.), Antitrust Goes Global: What Future for
    Transatlantic Cooperation?, Washington, DC: The Brookings Institution Press, 2000.
    109
    For the competition policy endeavours in the realm of the World Trade Organization,
    see supra Chapter 5, Section 3.3.2. For developments outside the WTO, see eg Julian L.
    Clarke and Simon J. Evenett, ibid. at pp. 98 et seq.; Philip Marsden, A Competition Policy
    for the WTO, London: Cameron May, 2003, at pp. 5152; Merit E. Janow, Trade and
    (continued...)
    106

    325

    EC Electronic Communications and Competition Law

    Contemplating future positive developments in the direction of creating


    a common global competition policy framework, it could be submitted
    that even if some kind of multilateral document comes into being, it
    would be centred around the so-called hard-core cartels,110 without
    necessarily touching upon those parts of competition law that are really
    relevant to communications, namely the policing of dominant positions.
    In any event, international competition law principles are unlikely ever
    to go as far as EC competition law in areas such as access to facilities,
    excessive pricing, tying practices, non-discrimination or crosssubsidisation.111
    Furthermore, we argued that, in the context of conformity of Community
    law with the law of the World Trade Organization, a withdrawal of all
    EC communications specific rules would risk a violation of the
    obligations of the European Communities and their Member States as
    signatories to the WTO agreements, in particular with regard to the
    Reference Paper.
    4.

    Yes or No? The Answer

    It is my hope that after the preceding pages the answer to the question
    Can competition law do it all? is clear beyond reasonable doubt,
    although not necessarily a precise yes or no. It ranges somewhere
    between yes, but and no, but and what follows after the but
    is rather critical for the design of the appropriate regulatory toolkit for
    communications and in that sense, for the future of the European
    electronic communications industry.
    As pointed out at the outset, this work is not a case against competition
    rules and a case for sector specific regulation. Competition law is
    undoubtedly a potent tool of economic regulation that allows for the
    achievement of distributive, allocative and dynamic efficiencies by
    securing effectively competitive markets. Indeed, the historical
    development of the communications industry clearly shows the benefits
    of open markets and less regulation. In the pursuit of deregulation,
    however, we should not substitute the set regulatory goals with the
    objective of deregulation as such. We should rather examine all elements
    of the system and weigh the costs and benefits of deregulation or
    reregulation. In that sense, while the goal of competition law substitution
    Competition Policy in Patrick F.J. Macrory, Arthur E. Appleton and Michael G. Plummer,
    The World Trade Organization: Legal, Economic and Political Analysis, New York: Springer,
    2005, Vol. III, pp. 487510, at pp. 493 et seq.
    110
    See eg World Trade Organization, Report (2003) of the Working Group on the Interaction
    between Trade and Competition Policy to the General Council, WT/WGTCP/7, 17 July
    2003.
    111
    Pierre Larouche, supra note 47, at p. 415.

    326

    Can Competition Law Do It All? The Final Assessment

    must be supported, the network effect of such substitution must be


    cautiously calculated, most notably in a longer time frame: [I]f we
    truly want to maximise consumer welfare in the long run, then we must
    not sacrifice sustainable competition just to give the appearance of
    immediate competition in the present.112
    Generally, the application of regulation as an additional tool is justified
    in two cases, namely: (i) for rectifying market failures and (ii) when there
    are public interest goals that cannot (or cannot satisfactorily) be achieved
    through the market mechanism.113 In the context of the former, we proved
    that electronic communications markets are such that, due to the existing
    network effects and the intrinsic exceptional dynamism, they generate
    inefficiencies that need to be rectified. On the basis of concrete situations
    of application of EC competition rules, we proved further that
    competition law may not be able to adequately address these
    inefficiencies, thereby causing a decrease in consumer welfare and thus
    failing to meet the regulatory objectives. The challenges posed by
    electronic communications at the level of product and geographical
    market definition and at the level of market analysis are substantial and
    hardly surmountable. The delays and lack of accuracy of antitrust
    intervention further diminish antitrusts efficiency as a tool for
    controlling market power in communications. Furthermore, there are
    situations in communications that require a regulatory choice.
    Competition law could not (and should not in terms of its mandate)
    provide guidance as to such policy choices (eg between service-based
    and facility-based competition). In that sense, as Pierre Larouche points
    out, competition law cannot alone determine the appropriate mix of
    incentives that might achieve the desired balance between innovation
    and competitiveness. It can thus be said that there is a gap in competition
    law in this respect. 114 Over and above this, we noted that not all
    specificities of communications markets stem from dominance and
    consequently, they do not fall within the regulatory mandate of antitrust
    law and could not thus be internalised. If EC competition rules attempt,
    112

    Mark Naftel and Lawrence J. Spiwak, supra note 104, at p. 2.


    Nicholas Economides suggests a more detailed version of this rule in the sense that
    economic regulation can be established as a last resort (i) for those markets where it is
    clear that competitive outcomes cannot be achieved by market forces (eg the notorious
    natural monopolies); (ii) where deviation from economic efficiency is deemed socially
    desirable: (iii) where the social and private benefits are clearly different, including cases
    where minimum safety standards increase social welfare; (iv) to allow for coordination
    in technical standards or market equilibria. See Nicholas Economides,
    Telecommunications Regulation: An Introduction, Stern School of Business Working Paper
    0420, August 2004, at p. 7 (also published in Richard R. Nelson (ed.), The Limits of Market
    Organization, New York: Russell Sage, 2005, pp. 4876). See also Anthony I. Ogus,
    Regulation: Legal Form and Economic Theory, Oxford: Clarendon Press, 1994, at pp. 28 et
    seq.
    114
    Pierre Larouche, supra note 22, at p. 329 (emphasis added). See also ibid. at pp. 323 et seq.
    113

    327

    EC Electronic Communications and Competition Law

    nonetheless, upon the withdrawal of sectoral regulation, to address such


    situations, this would significantly endanger the development of the
    European communications sector and may, in addition, distort the very
    system of EC competition rules. Thus, to summarise, a justification for
    additional rules because of market failures is clearly present.
    In the context of the public interest objectives, the pursuit of which would
    equally justify regulatory intervention, we asserted that antitrust alone
    would fail in the achievement of consumer welfare and endanger the
    Community specific goal of creating and consolidating the internal
    market. Considering the uniqueness of electronic communications,
    which are emerging as the most important platform for information
    distribution, we proved that there is a need for regulation ensuring the
    proper functioning of the communications sector because of its special
    significance and role, as revealed in Chapter 1. We proved further the
    need for a regulatory model taking into account the linkages between
    the physical and the content layers. As discussed in Chapter 2 of this
    work, beyond the pure economic rationale, there are certain core societal
    values that must be guaranteed in the converging dynamic ecosystem
    of contemporary electronic communications. Consequently, the need for
    a certain layer of regulation providing these protection mechanisms
    (which are beyond the regulatory task of antitrust law) is also established.
    As a conclusion, our submission (surprisingly) coincides with the stance
    of the European Commission expressed in the 1999 Access Notice that,
    Community competition rules are not sufficient to remedy all of the
    various problems in the telecommunications sector 115 and some
    regulatory intervention remains necessary.
    5.

    Some Speculations on the Future

    While it all depends is a very profitable rule for the consulting side of
    our profession, it does not provide much useful guidance to
    policymakers.116 That is why this last Section will attempt to outline
    some future developments (although such attempts are always rife with
    contretemps).
    As we discussed in some detail in Chapter 4 of this book, the current EC
    regulatory regime for electronic communications services and networks
    is meant to lead to a withdrawal of sector specific rules (for an illustration,
    see Figure 7(a)). After the peak of reregulation during the liberalisation
    period in the nineties (see Figure 7(a) at point B), it envisages a gradual
    115

    Commission Notice on the application of the competition rules to access agreements


    in the telecommunications sector, OJ C 265/3, 22 August 1998, at para. 14.
    116
    Pierre Rgibeau, supra note 29, at p. 33.

    328

    Can Competition Law Do It All? The Final Assessment

    but real deregulation (point B to C). Ultimately, all of the economic


    regulation of the electronic communications sector is to be left to the
    generic EC competition rules (see Figure 7(b)), while the existing layer
    of social (public interest) regulation will remain, focusing on universal
    service provision and consumer protection.
    Throughout this work, we argued that this transformation is not likely
    to happen (or at least, not likely to happen in this form). The question
    then is what is more plausible?
    As we have already discussed, market failures and public interest
    objectives that cannot be otherwise attained, may justify additional
    regulation. This axiom is unlikely to change and in that sense,
    considering our elaborations throughout this work, one can postulate
    the continuation of the current or the emergence of new hybrid
    regulatory models, where competition and sectoral rules coexist.
    Without doubt, the role of the market and the benefits of deregulation
    must be fully acknowledged. The market is indeed a superior discovery
    process especially under conditions of great uncertainty less likely
    to make big mistakes and quicker to correct small mistakes.117 On the
    other hand, it should likewise be recognised that, a consumer welfare
    paradigm is not necessarily a rule of non-intervention.118 Even from
    the standpoint of institutional economics, which are particularly sceptical
    of regulations efficiency, market mechanisms are clearly not the only
    efficient method of framing transactions.119
    Hence, it is crucial, in the broader context of regulatory design, that the
    antagonism between antitrust and regulation is not overstated and the
    existing inertia in that regard is overcome. Neither competition law nor
    sectoral regulation is a perfect solution in itself. Nor is sector specific
    regulation a better tool than competition law. It is, as we discussed in
    Chapter 3, above all, a different tool. The significant advantage of sector
    specific rules is that they can be tailored to specific situations. The
    intervention itself could then also be more timely and accurate, and more
    expertly implemented by the specific regulatory agencies (at national
    117

    Robert E. Litan and William Niskanen, Going Digital: A Guide to Policy in the Digital
    Age, Washington, DC: The Brookings Institution Press, 1998, p. 67, as referred to by P. H.
    Longstaff, New Ways to Think about the Visions called Convergence: A Guide for
    Business and Public Policy, Program on Information Resources Policy, Harvard
    University, April 2001, available at http://www.pirp.harvard.edu, at p. 77.
    118
    Eleanor M. Fox, We Protect Competition, You Protect Competitors (2003) World
    Competition, Vol. 26, No 2, pp. 159165, at p. 153.
    119
    Jean-Michel Glachant, Why Regulate Deregulated Network Industries? (2002) Journal
    of Network Industries, Vol. 3, pp. 297311, at p. 298, referring also to Ronald Coase, The
    Firm, the Market and the Law, Chicago: Chicago University Press, 1988 and Oliver E.
    Williamson, The Economic Institutions of Capitalism, New York: Free Press, 1985.

    329

    EC Electronic Communications and Competition Law

    or European level). Sectoral rules could further legitimately pursue


    objectives other than pure economic efficiency and thus, promote
    competition and/or provide for the achievement of societal goals having
    an economic aspect. In that sense, the appropriateness of using SSR
    [sector specific regulation] must be assessed for its own sake, and not as
    an alternative to competition law. The correct way of asking the question
    would thus be: considering that competition law is there and applies in
    any event, does the use of SSR bring added value?.120
    Admitting the complementarity of both instruments of regulation, the
    inherent costs and the trade-offs between them,121 one could focus not
    on their form but rather on their effects and thus create hybrid regulatory
    models, based upon the concrete efficiency of each instrument for
    addressing concrete circumstances and achieving concrete goals.122
    Lean and flexible models using this complementarity could emerge,
    where sectoral regulation will be justified as a means of supporting the
    transition from a situation of market inefficiency to one of effective
    competition and when this is established, cease to apply. From the
    perspective of the development of the policy mix over time, sectoral
    regulation should not only cope with concrete market failure but also
    pursue its elimination in the long term. 123 The mandate of
    communications specific regulation could be framed around the few
    specific phenomena that characterise the electronic communications
    sector and which could cause its sub-optimal functioning and market
    failures (such as network effects, proneness to bottlenecks, etc., as
    identified in Chapters 1 and 2). The pursuit of access, interoperability
    and innovation will be the concrete tasks of sectoral regulation (for an
    illustration, see Figure 7(c)) and will be subject to periodic (or ongoing)
    review. Based upon the reviews, the regulatory mandate may be
    formulated differently or withdrawn, while newly emerged
    communications specific situations may call for new rules. This will in
    essence mean a series of multiple transition sector specific regulatory
    models or, to put differently, a perpetuation of a thin layer of modifiable
    sectoral rules. The current EC regime for electronic communications
    networks and services, as discussed in Chapter 4, is indeed a version of
    120

    Pierre Larouche, supra note 94, at p. 135.


    The costs of intervention will need to be constantly and cautiously calculated. They
    would in essence have to fall short of the costs due to market failures. See Raymond De
    Bondt and Patrick Van Cayseele, Government Policy Towards Industrial Innovation
    (1985) Maandschrift Economie, Vol. 49, No 3, pp. 214226, as referred to by Patrick Van
    Cayseele and Roger Van den Bergh, Antitrust Law in Boudewijn Bouckaert and Gerrit
    De Geest (eds.), Encyclopaedia of Law and Economics, Cheltenham, UK: Edward Elgar
    Publishing, 2000, pp. 467497, at p. 470. See also Nicholas Economides, supra note 5, at
    p. 25.
    122
    Stefano Vannini, supra note 44, at p. 61.
    123
    Stefano Vannini, ibid. at p. 55.
    121

    330

    Can Competition Law Do It All? The Final Assessment

    the above described model, although it remains an open question


    whether its architecture and mechanisms are fully adequate.
    Competition policy will focus exclusively on efficiencies, while public
    interest regulation will seek to achieve societal objectives unrelated to
    competitive conduct. Through this delineation, situations, which
    Lawrence Spiwak, although somewhat radically perhaps, describes as
    neo-competition, blatantly disregarding (or, to use current parlance,
    re-inventing or moving beyond) basic economic first principles124
    will be avoided.
    In all likelihood, taking into account the specific characteristics of
    electronic communications, the level of social (public interest) rules is
    to be increased (see Figure 7(c)). As discussed in Chapter 2, the need for
    consumer protection may be intensified due to the competitive multimarket-player, multi-services communications environment.125 As far
    as universal service is concerned, depending on certain political
    developments, it might receive an entirely new (or additional) content.
    These political developments relate, above all, to the possibilities for an
    increased role of the government in view of the significance of electronic
    communications as the backbone for other economic activities and as
    the platform for communication and distribution of information.
    Furthermore, new rules may become requisite due to the emergence of
    new technologies and the increased level of complexity and
    interdependence of the different layers (networks / logical / applications
    / content). A key concern in this regard may be to ensure the so-called
    network neutrality a concept currently under debate as part of the
    reform of the US Telecommunications Act126 and referring to the ability
    of a network provider to offer different levels of quality-of-service for
    content transferred over its network and discriminate between thirdparty applications, content or portals.127
    124

    Lawrence J. Spiwak, Antitrust, the Public Interest and Competition Policy: The Search
    for Meaningful Definition in a Sea of Analytical Rhetoric (1997) Antitrust Report, pp.2
    23, at p. 2.
    125
    See supra Part 1, Chapter 2, Section 3.3.
    126
    For excellent account of the net neutrality discussions, see Susan P. Crawford,
    Network Rules (2006) Benjamin N. Cardozo School of Law Working Paper No 159; Tim
    Wu, Network Neutrality, Broadband Discrimination (2003) Journal on Telecommunications
    and High Technology Law, Vol. 2, pp. 41 et seq. For an opposing view, see J. Gregory Sidak,
    A Consumer Welfare Approach to Network Neutrality Regulation on the Internet (2006)
    Journal of Competition Law and Economics, Vol. 2, pp. 334347.
    127
    The European Commission deems the existing provisions for NRAs to impose
    obligations on SMP operators, and the powers for NRAs to address access and
    interconnection issues (Article 5(1) of the Access Directive are sufficient to prevent any
    blocking of information society services, or degradation in the quality of transmission of
    electronic communication services for third parties, and to impose appropriate
    interoperability requirements. It envisaged no changes presently in this respect. See
    (continued...)
    331

    EC Electronic Communications and Competition Law

    Finally, the awareness that communications are a valuable source of


    welfare creation would most likely lead to new governmental actions,
    instrumentalising communications as a means for achieving other ends,
    as exemplified by the i2010 agenda128 in the European context and the
    World Summit on the Information Society129 at the global level. Indeed,
    one might venture to say that the overall role of the government is likely
    to increase continually (instead of decrease) in the broader context of
    the governance of the converging communications ecosystem because
    of this instrumentalisation and because of the intensified effects of digital
    communications networks.
    Following this line of reasoning, universal service as a tool (and not
    necessarily in the classical sense of a telephone at every home at an
    affordable price) could be an advantageous way of preserving a certain
    layer of regulation. As discussed in Chapter 2, the model of universal
    service obligations is fairly flexible and could be changed over time,
    both in terms of its content and its mechanism. Universal service
    obligations (USOs) could be broadly defined in terms of access to
    networks (without necessarily including access to concretely defined
    package of services), which would allow the application of sectoral
    rules ensuring this access, while also being technologically neutral (a
    condition that is not fulfilled under the current USO system 130).
    Furthermore, in terms of the pursuit of what we defined as higher
    societal objectives,131 USOs may be even construed as access to content
    or access to information, thereby allowing for new types of rules,
    which move beyond regulation of the physical layer and ensure
    coordination with the content layer. This coordination between
    regulation of infrastructure and the content being transported over it
    could be vital in the context of the Information Society and the special
    role of electronic communications in it.
    In the framework of EC law, universal service is undoubtedly bettersuited than services of general economic interest,132 which is arguably
    Commission Staff Working Document annexed to the Commission Communication on
    the review of the EU regulatory framework for electronic communications networks and
    services [COM(2006) 334 final]: Proposed Changes, SEC(2006) 816, 28 June 2006, at pp.
    2627 and 3233.
    128
    European Commission, i2010 A European Information Society for growth and
    employment, supra note 75 and i2010 Annual Information Society Report 2007. On all
    Information Society endeavours, employing communications, see supra Part 1, Chapter
    1, Section 4.5 and Chapter 2, Section 3.5.
    129
    See supra Part 1, Chapter 1, Section 4.5.
    130
    See supra Part 1, Chapter 2, Section 3.2.2.c.
    131
    See supra Part 1, Chapter 2, Section 3.4.
    132
    See Paul Nihoul and Peter Rodford, supra note 16, at paras 5.2655.336. See also Vito
    Aurucchio, Services of General Economic Interest and the Application of EC Competition
    Law (2001) World Competition, Vol. 24, No 1, pp. 6591 and Antonio Bavasso,
    (continued...)
    332

    Can Competition Law Do It All? The Final Assessment

    another instrument that could be applied for the achievement of public


    interest goals. Universal service involves notably no derogation from EC
    or national competition rules in contrast to services of general economic
    interest133 and thus remains within the market mechanism. Further, it is
    questionable whether the concept of services of general economic interest
    is still applicable to electronic communications,134 since, due to the
    comprehensive harmonisation of EC communications regulation, the
    prerogative of the Member States to invoke it may not be present any
    longer135 in almost all aspects.136
    Figure 7: Possible Regulatory Models
    Intensity of
    regulation

    Competition rules

    Sector specific economic rules


    A

    C
    Social (public interest) rules

    Time

    Figure 7(a)

    Communications in EU Antitrust Law, The Hague, London, New York: Kluwer Law
    International, 2003, at pp. 359 et seq.
    133
    See Article 86(2) EC.
    134
    For an extensive analysis of the conditions for applicability of Article 86(2) EC and the
    relevant cases, see Paul Nihoul and Peter Rodford, supra note 16, at paras 5.266 et seq.
    See also Tony Prosser, The Limits of Competition Law: Markets and Public Services, Oxford:
    Oxford University Press, 2005, at pp. 125 et seq.
    135
    Paul Nihoul and Peter Rodford, ibid. at paras 5.308 and 5.330.
    136
    The comprehensive harmonisation of communications rules allows no derogation for
    the Member States on the basis of Article 86(2) EC for behaviour falling under Article 82
    EC or the State Aids provisions (Articles 8789 EC). Article 81 EC by contrast has not
    been regulated in the harmonisation or liberalisation frameworks, which would allow a
    direct application of the Treaty provisions. Thus, in theory, cartels or mergers, which are
    normally prohibited, might still benefit from the derogation of Article 86(2) EC. See Paul
    Nihoul and Peter Rodford, ibid. at para. 5.317.

    ..)
    333

    EC Electronic Communications and Competition Law

    Intensity of
    regulation

    Competition rules

    Social (public interest) rules

    Time

    Figure 7(b)

    Intensity of
    regulation
    A

    Competition rules

    Social (public interest) rules

    Time

    Figure 7(c)

    Finally, in the context of communications being a complex system, we


    reiterated throughout this work the need for achieving a balance within
    the system. Such a balance is indeed only possible through the
    application of a certain policy mix. Since communications are also an
    adaptive system, the ingredients of the policy mix will have to be
    regularly assessed, mixed differently or withdrawn. Over time and
    as a result of technological changes and market developments, a market
    that requires regulation may transform into one that does not,137 as the
    (short) history of EC communications law already shows.138

    137

    Nicholas Economides, supra note 113, at p. 4.


    See European Commission, Communication on market reviews under the EU regulatory
    framework: Consolidating the internal market for electronic communications, supra
    note 14.
    138

    334

    Can Competition Law Do It All? The Final Assessment

    In that sense, if we construe the process of electronic communications


    as a learning adaptation process,139 it is sensible and important that
    certain mechanisms to facilitate this process are put in place. There is
    thus a need for a coherent theoretical framework, encompassing studies
    on the specificities of communications, their effects and the potential of
    different toolkits, and capable of giving a stable basis for the future
    modelling of communications regulation and for moulding patterns
    applicable to other network sectors, 140 currently in the process of
    liberalisation or at the post-liberalisation stage. Such a theoretical
    framework will also reduce future information costs and uncertainty
    when regulators make choices.141 The reduction of this uncertainty is
    crucial since, as elaborated within this work, the values at stake in the
    communications sector are fundamental.

    139

    See Andreas Fischer-Lescano and Gunther Teubner, Regime-Collisions: The Vain


    Search for Legal Unity in the Fragmentation of Global Law (2004) Michigan Journal of
    International Law, Vol. 25, pp. 9991046, at p. 1000.
    140
    While naturally accounting for their specific characteristics. See European Commission,
    Green Paper on services of general interest, COM(2003) 270 final, 21 May 2003, Annex, at
    para. 31.
    141
    Because obtaining information is costly, we continuously act on incomplete
    information, and make our choices under the conditions of uncertainty. See Yochai
    Benkler, Overcoming Agoraphobia: Building the Commons of the Digitally Networked
    Environment (1998) Harvard Journal of Law and Technology, Vol. 11, No 2, pp. 290403, at
    p. 367, referring to Douglass C. North, Institutions, Institutional Change, and Economic
    Performance, Cambridge: Cambridge University Press, 1990, at pp. 16, 2735.

    335

    EPILOGUE
    The European Commissioner for Information Society and Media, Viviane
    Reding stated that, [t]he current [European Community electronic
    communications] framework is anchored to the fact that competition is
    the best way to guarantee choice, new innovative services and valuefor-money for consumers.1
    It is, however, a mere assumption that competition law is a better-suited
    regulator for the communications sector and could indeed carry out this
    duty properly on its own. Our task was consequently not to prove that
    sector specific rules are the more potent regulatory instrument but,
    simply, to cast doubt upon the first assumption.
    It is a canon of evidence in most jurisdictions that the burden of proof
    rests upon the party, whether complaining or defending, who asserts
    the affirmative of a particular claim or defence. If a party adduces
    evidence sufficient to raise a presumption that what is claimed is true,
    the burden [of proof] then shifts to the other party, who will fail unless
    it adduces sufficient evidence to rebut the presumption.2
    It is our hope that the burden of proof has herewith shifted. It is now for
    someone else or for the market itself to prove the contrary in the sense
    that competition law can do it all.

    Viviane Reding, The Review of the Regulatory Framework for e-Communications,


    speech at the First meeting of the Centre for European Policy Research Studies Taskforce
    on Electronic Communications (SPEECH/05/515), Brussels, 15 September 2005, at p. 2.
    2
    Appellate Body Report, United States Measure Affecting Import of Woven Wool Shirts and
    Blouses from India, WT/DS333/AB/R, 23 May 1997, at para. 335.

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    ABOUT THE AUTHOR


    Mira Burri Nenova, Dr. iur., MAES, is a senior research fellow at the
    World Trade Institute of the University of Berne and at the research centre
    i-call (International Communications and Art Law Lucerne) of the
    University of Lucerne. She is the alternate leader of the project
    eDiversity: The Legal Protection of Cultural Diversity in a Digital
    Networked Environment, which is part of the Swiss National Centre
    of Competence in Research International Trade Regulation. Mira Burri
    Nenova is co-editor of the publications Free Trade versus Cultural
    Diversity: WTO Negotiations in the Field of Audiovisual Services and
    Digital Rights Management: The End of Collecting Societies?.

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