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4.3 Discrimination between a third party and a subsidiary
Discrimination means undertakings, especially vertically integrated undertakings, with market power applies dissimilar conditions with other trading parties to supply equivalent services to undertakings with whom they compete on downstream markets, thereby placing them at a competitive disadvantage. In telecommunications sector, the undertaking with market power would grant more favourable conditions to a third-party affiliate or a joint subsidiary with other business customers with an objective to exploit its market power or exclude competitor out of the market. As we will see below, the remedies of competition law and regulation concerning discrimination are very different.
The key point with regard to discriminative activities is to determine the benchmark of reasonable conditions for the equivalent transaction. The Commission said an upstream dominant firm supplying an essential input to rivals may its prices so as to allow a reasonably efficient sufficient to enable it to survive in the long-term.” There are two approaches under general competition law to determine whether the pricing of the facilities needed for the overlay networks of the competitors is non-discriminatory. Firstly, on the assumption that the incumbent’s accounting system is well-developed and able cope with regulatory demands, it should be possible to calculate the true cost of the incumbent’s downstream operations, which would likely involve assigning to those operation a portion of the costs of the public network. The second approach goes in the opposite direction: the price of the service required by the reasonably efficient competitors of the incumbent’s operations can taken as basis. If a discriminatory behavior would be identifies, competition authority can demand the undertaking in question to set price at this reasonable level.
As regards this problem, regulation can do more. When an undertaking is designated to have SMP and the SMP undertaking has great incentive to discriminate the downstream operators, it would be imposed by the regulator ex ante obligations to (1) keep separate accounts for the activities associated with the provision of electronic communications networks or services, (2) to make public specified information, such as accounting information, technical specifications, network characteristics, terms and conditions for supply and use, and prices . Even more, in order to avoid discriminatory activities when the regulator consider it is necessary, it can impose obligations, price cap or rate of return, relating to cost recovery and price controls, including obligations for cost orientation of prices and obligations concerning cost accounting systems, for the provision of specific types of interconnection and/or access.
4.4 Anti-competitive pricing
Price become anti-competitive when they reach one of the ends of the spectrum, either because they are to so high and enable the dominant firm to derive monopoly profits (excessive pricing), or because they are too low and drive competitors of the dominant firm out of the market, so that in the end its dominant position could be bolstered (predatory pricing). And a situation which should be paid more attention is margin squeeze a situation of which a vertically-integrated dominant firm uses its control over an input supplied to downstream rivals to prevent them from making a profit on a downstream market in which the dominant firm is also active. The most favourable argument to deal with competition problems with regard to anti-competitive pricing is that an operator cannot increase its rival’s costs without increasing its own.
In the course of applying Article 82 EC to pricing issues, therefore, an inquiry into the costs of production of the dominant firm is likely to be necessary in order to determine the ‘economic value’ of the product in question. Anti-competitive price will be assessed according to the unavoidable cost and the anti-competitive pricing would be remedied to its cost level. However, with few exceptions the costs of production are difficult to determine. Because of this difficulty, pricing issues can be seen as a weak point in the field of application of Article 82, especially for the telecommunications sector. Therefore, the competition authority is in principle reluctant to delve into the examination of pricing policies of telecommunications operators.
These are good reasons to apply regulation to remedy anti-competitive pricing, even which have not come out actually, coming from market power. When identifying the existence of a SMP undertaking and the insufficiency of competition law remedy on the relevant telecommunications markets, the regulator can impose ex ante obligations on the SMP undertaking. One solution for removing incentives to discriminate against downstream competitors discussed in the literature is a so-called global price cap, covering wholesale and retail charges set by the regulated firm, the legal basis of which could be price control obligations in Access Directive. Other affiliate obligations also are good for control, which are accounting separation obligations, transparency obligations and non-discrimination obligations.
5. The Relationship between Competition Law and SSR
Ex-ante obligations imposed by NRAs on undertakings with SMP aim to fulfil the specific objectives set out in the relevant directives, whereas competition law remedies aim to sanction agreements or abusive behaviour which restrict or distort competition in the relevant market. Although competition and regulation both can applied to the competition problems in telecommunications sector, the distinction between them are rather clear. First, it could be argued that regulation and competition law are two distinct sets of rules that apply in distinct situations. Second it could also be considered that overlaps are limited because competition law essentially are used for ex post enforcement to eliminate actual abuses of market power through prohibition decisions and fines, whereas regulation generally applies on an ex ante basis through the imposition of detailed and adjustable remedies where competition law cannot sufficiently deal with. Finally, it could be advanced that competition regulation applies to broader issues which are hence left out of reach under sector regulations (concentrations and state aid), while the basket of remedies available under sector regulations are wider (transparency, non-discrimination, obligations to supply and pricing practices) and more far-reaching in respect to the specific conditions and requirements of the communication sector.
Thus, the relationship between competition law and regulation is often pictured as exclusive; it is assumed that regulation is inimical to competition law, so that either one or the other will apply. 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. It is expected that effective cooperation between NRAs and NCAs would prevent the duplication of procedures concerning identical market issues.
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