1. Access and Termination Charges in Telecoms: Antitrust considerations
European Commission
DG Competition
Chief Economist Team
Access and Termination Charges in Telecoms: Antitrust considerations
Eliana Garces Tolon
European Commission- DG Competition
Toulouse 30 June 2006
The views expressed in this presentation are those of the presenter and do not attempt to portray the official position of the European Commission

2. Economic Issues and Antitrust Concerns
Optimal access and termination prices depend on
Price Elasticity and calling patterns of callers
Relative size of network
Nature of competition (price/non price, extent of differentiation, access vs. usage)
Number of related services (bundling opportunities)
Prevalence of cross subsidisation and non linear pricing
Antitrust consequences
Might no be so obvious to define markets
Impact on consumer welfare difficult to assess
Collective dominance implications: effects of lack of transparency in pricing - agreements
large network leads to higher termination costs (because it originates also more calls to the other operator so that the other network)
There is competition to attract customers but then there is no competition on call origination once they are in the network. Price fog adds to this, incentives may be more visible.
Can’t use SNIP. In fact not used. Based on barriers to entry and substitution possibilities.
Collective dominance: current pricing can be a competition softening device to compete for customers but not so much through per minute prices.

3. Approach by the European Commission
Market definition based on substitution possibilities and entry barriers at each level of the communication process  Narrow markets
Intervention based on competition concerns if SMP and
Abuse: Art. 82 cases (Roaming UK and DE, margin squeeze cases)
Presumption of harm: Regulatory framework
Harm is foreclosure or excessive price
Price related remedies: No price discrimination, Cost orientation
But asymmetric remedies in termination fees have been allowed
 Simple economics
basically ignores MSM issues – ignores potential bundling and/or price discrimination incentives.
Regulations criteria to assess whether market is subject to regulation result in narrow market definition - NRA then needs to prove SMP
Regulation 3 criteria: Non transitory entry barriers, absence of dynamic conditions that will remedy, competition law cannot tackle the issue
¨Motivation of regulation an intervention: counter the clout and dominant position of previous regulated monopolies. Priority: ensure viability of competitors. This can be a the justification for the narrow definitions.
Potential Regulatory remedies in the access directive are: transparency, non discrimination, accounting separation, access and price control including cost orientation.
Remedies: (Access directive, Merger Remedies in Vodafone and Telia Sonera, Art.82 Roaming and Roaming regulation proposal)
Assymetric remedies: smaller operators had less obligatoins (higher termination costs?)
The commission also promotes interoperability.
Art.82 charges: based on costs no analysis of demand EX: pb. of benefiting only from a fraction of your price decrease given random allocation.
Roaming: charges up to now market is wider because of the possibility to direct traffic by customer. Alliances are being signed and there is competition. No more possibility of art.82 cases. No harm found on collective dominance.
Collective dominance case in Spain is solved by regulation measure  controversial

4. Current Revision of the Framework Regulation for Electronic Communications
Same criteria as before
Movement towards deregulation?
Take out some markets: retail except universal service obligation
Add some others: wholesale SMS
Are market definition and SMP the right criteria for ex-ante regulation?
What would be viable alternatives (performance measures,…)?
Should there be a harmonisation of remedies?
(revision of directives 2009)
If wholesale is regulated, retail is not needed. Some people want margin squeeze test at retail anyway.
Consultation publique jusqu’à Octobre. Janvier: nouvelle regulation.
Impact of narrow regulation unclear.

5. International Roaming Sector Inquiry
Regulation proposal based on excessive pricing allegations
BUT:
No theory of harm has been developed (excessive price w/o SMP)
No SMP has been demonstrated
 Difficult to intervene on anti-trust grounds or even using current regulatory framework.
Concerns with the proposed regulation:
Regulating prices without understanding pricing mechanism
What are the incentives to price high on wholesale international roaming?
What determines (lack of) pass-on? How much pass-on is there?
Impact assessment incomplete
There could be several non individual SMP related reasons for high pricing: intransparency, price discrimination, inelastic demands… - regulation is a better tool than competition policy because there may be no ‘abuse’. Even the current regulatory framework may be inadequate (no SMP). Consumer protection criteria (= the decision to force a transfer of rents).
Incentives to price high on wholesale roaming. Could be explained by the nature of competition: facilitator of coordination, or competition on bundles (roaming + local calls with higher elasticities) or…?
Is there a very low P elasticity on international roaming due to low usage or lack of transparency?
The advent of call steering is like a natural experiment. How does it affect prices? What do we learn from this?

6. General Considerations
EC should understand firms’ motivation and incentives for pricing before taking action
This would help better identify the source of potential inefficiencies and design the best appropriate remedy
Examine consequences of remedies on entry, consumer welfare and innovation.
Competition policy should only be used when there is harm to the competitive process
Things are not going that way