Competition Policy and Regulated Markets: Experience of Turkey Presentation by: Halil Baha Karabudak Head of Department II (ICT Sectors) Turkish Competition Authority Seminar on Competition Provisions in Regional Trade Agreements: How to measure development gains organized by UNCTAD and Yeditepe University, Turkey with the support of IDRC, Canada 31 July – 01 August 2006

What is competition policy? Those tools of public policy that lay the foundation for markets or facilitate the creation or growth of efficient and competitive firms that can both deliver goods and services to the nation’s own citizens and engage in trade and competition in international markets. The set of rules governing the conduct and transactions of enterprises, commonly known as “anti-trust” rules.

In its narrow sense competition policy, in the form of competition law, would prohibit anti-competitive action and transactions by enterprises (anti-trust rules). It would also expose state-owned enterprises to these same anti-trust rules, and would not grant exemptions from anti-trust except where justified by market failures.

In the broader sense, competition laws would additionally entail all aspects of the proposition that neither governments nor commercial enterprises shall stand in the way of market competition. They would prohibit or limit government powers in imposing tariff and non-tariff barriers to trade; restricting foreign investment and freedom of establishment of business; controlling prices and adopting overly broad trade-restraining laws; granting state aids.

Where markets are supplied by state- owned monopolies whose ownership and structure were designed to reflect different conditions in the past that no longer prevail, competition policy (in the broader sense) would support any changes in ownership and structure that would result in greater efficiency. In the case of formerly planned economies, questions of privatization and restructuring would come under any broad definition of competition policy.

In cases of market failure, (natural monopoly, asymmetric information, network externalities, etc.) regulation is normally the chosen instrument to deal with this problem. Given that some degree of competition may be introduced into even a substantially regulated industry, regulation is not necessarily in conflict with competition policy and there may be synergies.

Regulation: Application of continuous and focused control by a public agency, drawing upon its legal authorisation obtained by legislation, on activities deemed to be necessary and desirable by the society.

Sectoral regulators Cover one or a small number of sectors where the government believes the public interest would not be adequately advanced merely by relying on private markets supervised by a competition agency, and decides therefore to empower an individual or institution to directly specify acceptable technologies, marketing methods and\or prices charged.

Goals – Objectives: In contrast to competition policy, regulation often serves as a substitute for market forces, in that it involves stipulating a fairly complete set of prices and accompanying commitments regarding supply and quality of service.

Main Sector Specific Regulators in Turkey: Capital Markets Board (1982) Radio and Television High Council Banking Regulation and Supervision Board (2000) Telecommunications Authority (2000) Energy Markets Regulatory Authority (2001)

Competition agencies Economy-wide in coverage, these agencies administer framework laws primarily intended to protect consumer interests by prohibiting firms from reducing competition through colluding or merging with their rivals, or seeking to eliminate competitors by means other than offering superior products to consumers.

Goals – Objectives: Most competition agencies see their primary job as enforcing a set of economy wide prohibitions that, together with other framework laws of general application, constitute a type of market constitution. Intervention by the agency is focused on the maintenance of competition as a process, rather than on the survival of individual competitors.

Turkish Competition Authority (TCA) Adoption of the Competition Law in Parliament: December 7, 1994 Entry into force: December 13, 1994 Appointment of the Competition Board: February 27, 1997 Establishment of the organization completed: November 4, 1997

Competition Policy in Regulated Industries Structure Liberalization Conduct regulation

Structure Structural policies include break-up decisions such as those taken (or not taken) at the time of privatization, merger controls, and scope-of business decisions.

TCA’s intervention in the privatization of Turk Telekom (2005) The sale of Turk Telekom (TT) should be conditioned upon the requirement that the purchaser divest the cable-tv operation to a different entity within one year after purchase. The Internet operation (TTNet) of the TT to be established as a separate legal entity from the divested company within six months after purchase. The dominant GSM operator not to be permitted to acquire TT nor hold a controlling interest in any consortium that submitted a bid. The “special communication tax” that were charged to the private sector operators but not to TT be eliminated.

TCA’s intervention in the privatization of Tekel (2004) Tekel’s overall retail share in the cigarette market was approximately 60%, with higher shares in some of the segments. TCA recommended that Tekel’s brands be divided and sold separately; in order to enable smaller enterprises to participate in the tender auction and to increase the likelihood of entry by more firms not already participating in the cigarette market. TCA also stated that selling the brands as a single block would make more likely enforcement action under Article 7, once the purchaser was identified. The tobacco products were sold as a block.

Liberalization Liberalization policy simply is about the removal of barriers to entry...

The National Roaming Case In 2002 TCA Board decided that the two incumbent GSM operators held joint dominance over the infrastructure necessary as an essential facility to provide national roaming capability for GSM mobile phone services. The incumbents had denied the newcomer Aria the use of their infrastructure without a legitimate basis. The incumbent operators were fined by an amount of USD 21 million. The High Administrative Court has suspended the TCA Board’s decision pending appeal.

Conduct Regulation Conduct regulation may take the form of explicit monopoly controls and\or competition policy measures, constrains the pricing and other behaviour of dominant firms.

The Turk Telekom v. ISPs Case (2002) Turk Telekom (TT), the formerly state owned fixed line monopolist was found guilty of abusing its dominance in the Internet service providers (ISP) market. The TCA Board found that independent ISPs could not effectively compete for retail customers because of the spread between the low prices charged by TT’s ISP branch TTNET to its own retail customers and the high prices charged to the competing ISPs for leased lines.

The ÇEAŞ Case (2002) ÇEAŞ held a monopoly concession for the distribution and transmission of electricity in one of the designated distribution areas in southern Turkey. TCA found that ÇEAŞ had abused its dominant position by refusing to provide system interconnection for independent electric generation facilities.

The TT ADSL Case (2003) TT, the only provider of broadband ADSL internet service, refused to allocate ADSL ports to other ISPs. The TCA Board in an interim measure decision told TT to cease selling ADSL ports to new retail customers until promulgation of access regulations which were pending before the Telecoms Authority. TCA observed that severe entry barriers could arise if TT sold all of its ADSL ports to retail customers without reserving any for reseller ISPs.

Alternatives: Combine technical and economic regulation in a sector specific regulator and leave competition law enforcement entirely in the hands of the competition agency. Organise technical regulation as a stand-alone function and include economic regulation within the competition agency. Combine technical and economic regulation in a sector specific regulator and give it all or some competition law enforcement functions limited to the sector.