Select Committee on European Scrutiny First Report


COM(01) 175

Commission working document on proposed new regulatory framework for electronic communications networks and services.

Legal base:
Document originated: 28 March 2001
Forwarded to the Council: 2 April 2001
Deposited in Parliament: 17 April 2001
Department: Trade and Industry
Basis of consideration: EM of 4 May 2001
Previous Committee Report: None
Discussed in Council: April 2001 Telecommunications Council
Committee's assessment: Politically important
Committee's decision: Not cleared; EM on Commission's definitive version requested


17.1  On 28 March 2001, we cleared the draft Directive for a common regulatory framework for electronic communications networks and services,[29] on the basis of an unofficial Swedish Presidency text. The Swedish proposals, which the then Minister for Small Business and E-Commerce (Ms Patricia Hewitt) described in a letter dated 26 March, were for amendments to Articles 13 and 14, defining "significant market power", an important aspect of the proposal.

The document

17.2  The Commission has now issued a working document for consultation in which it has set out its draft guidelines on the principles to be used by national regulatory authorities (NRAs) in analysing effective competition in the new regulatory framework for electronic communications networks and services. These guidelines will complement the legislation proposed in the main draft Directive mentioned above, as well as that in the draft Directive on access to, and interconnection of, electronic communications networks and associated facilities,[30] the draft Directive on the authorisation of electronic communications networks and services[31] and the draft Directive on universal service and users' rights relating to electronic communications networks and services.[32]

17.3  The aim of the guidelines is to ensure consistency of approach by NRAs in applying certain provisions of these Directives, especially where they designate undertakings as having significant market power (SMP). In so doing, NRAs must act in accordance with the guidelines.

17.4  The Minister has summarised the draft guidelines, in her Explanatory Memorandum of 4 May, as follows:

    "—  section 1 introduces the scope and purpose of the guidelines, places them in the context of the principles and policy objectives of the sector-specific measures set out in the Directives and describes their relationship to competition law;

    "—  section 2 describes the methodology for market definitions;

    "—  section 3 describes the criteria for assessing SMP in a relevant market;

    "—  section 4 outlines the possible outcomes that NRAs may reach in their market assessments and sets out the possible actions in respect of each possible outcome;

    "—  section 5 describes the investigative powers of NRAs, suggests procedures for coordination between NRAs and with national competition authorities (NCAs) and describes coordination and cooperation procedures between NRAs and the Commission; and

    "—  section 6 describes procedures for public consultation and publication of NRAs' proposed decisions."

17.5  Section 3 examines the calculation of significant market power (dominance)[33] in some detail. It introduces the section by noting that, according to Article 13 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 of economic strength affording it the power to behave to an appreciable extent independently of competitors customers and ultimately consumers".

17.6  The Commission then comments:

    "This is the definition that the Court of Justice case-law ascribes to the concept of dominant position in Article 82 of the Treaty. The legislator has decided to align the definition of SMP to the Court's definition of dominance within the meaning of Article 82 of the Treaty. Consequently, in applying the new definition of SMP, NRAs will have to ensure that their decisions are in line with the Commission's practice and in conformity with the relevant jurisprudence of the Court of Justice and the Court of First Instance on dominance. However, the application of the new definition of SMP, ex-ante, calls for certain methodological adjustments to be made regarding the way market power is assessed. In particular, when assessing ex-ante whether one or more undertakings are in a dominant position in the relevant market, NRAs are, in principle, relying on different sets of assumptions and expectations than those relied upon by a competition authority applying Article 82, ex post. Often, the lack of evidence or of records of past behaviour or conduct will mean that the market analysis will have to be based on a purely prospective assessment. The accuracy of the market analysis carried out by NRAs will thus be conditioned by information and data existing at the time of the adoption of the relevant decision.

    "The fact that an NRA's initial market predictions do not finally materialise in a given case does not necessarily mean that its decision was inconsistent with the Directive. In applying ex-ante the concept of dominance, NRAs must be accorded wide discretionary powers correlative to the complex character of the economic, factual and legal situations that will need to be assessed. In accordance with the Framework Directive, market assessments by NRAs will have to be undertaken on a regular basis, typically once a year. In this context, therefore, NRAs will have the possibility to react at regular intervals to any market developments and to take any measure deemed necessary".

17.7  There then follow ten paragraphs on the criteria for assessing SMP and further paragraphs on leverage of market power, collective dominance, Court of First Instance and European Court of Justice jurisprudence, the Commission's decision-making practice and collective dominance and the telecoms sector.

The Government's view

17.8  The Minister comments that the Government broadly welcomes the draft guidelines. When definitively adopted by the Commission, they will give both NRAs and market players greater certainty about the application of key provisions of the new regulatory framework.

17.9  The Minister adds:

    "The Government nonetheless believes that there is scope for the Commission to further refine the guidelines before they are definitively adopted. In particular:

    "—  the political agreement reached at the 4-5 April Transport and Telecommunications Council on the proposal for a European Parliament and Council Directive on a common regulatory framework for electronic communications networks and services would see the Commission identifying relevant product and service markets in a Recommendation (from which NRAs could depart following a public consultation) rather than in a Decision (from which NRAs could only depart with the consent of the Commission). If this is reflected in the final Directive agreed by the European Parliament and the Council, significantly more guidance from the Commission would be appropriate in assisting NRAs in making judgements not only about the geographic extent of markets but also about the products and services that fall within them;

    "—  similarly, the political agreement reached at the Transport and Telecommunications Council introduced more detail on the relationship between the competition-law concept of joint dominance and the sectoral concept of SMP. If this is reflected in the final Directive, the guidelines should aim to further clarify and exemplify some of the terms used in the amended definition of SMP, particularly 'coordinated effects', 'transparency' and 'market concentration.' The Government remains generally satisfied with the approach taken to assessing the market power of individual undertakings, where criteria such as vertical integration and switching costs to consumers are recognised as relevant in markets including those for digital television;

    "—  the guidelines do not make sufficiently clear the relationship between defining relevant markets, finding a lack of effective competition and designating an undertaking as having SMP. There is particular confusion over the use of the 'hypothetical-monopolist test' (used to assess the impact of a price rise) in circumstances in which the market is already characterised by a lack of effective competition (i.e. where prices are already raised above the competitive level);

    "—  the guidelines give a detailed, if not exhaustive, picture of the European courts' interpretation of the concept of joint dominance. However, there are few relevant cases, and only one has particular relevance to the electronic-communications sector. A description of these cases alone is therefore unlikely to provide sufficient guidance as to how joint dominance should be interpreted. The Commission should instead be providing that interpretation, describing how the concept should be applied in this new context of ex ante regulation of the electronic-communications sector; and

    "—  the guidelines fail to distinguish clearly between criteria that may indicate the presence of a dominant position and criteria common between two or more undertakings that jointly hold a dominant position. There is also no attempt to prioritise the criteria to identify which are necessary to a finding of SMP and which merely provide supporting evidence but are not in themselves necessary for a finding."

17.10  The Department has provided us with a copy of the text of the draft Directive for a common regulatory framework for electronic communications networks and services29 on which political agreement was reached at the April Council, but this will not be deposited.

17.11  The Commission has issued the guidelines as a consultation paper, with a view to adopting a definitive version in the light of the outcome of the consultation and when the Directives which they complement are in what the Minister calls "agreed form".


17.12  We note the Minister's comments on further refinements which she believes that the Commission should make before finalising these guidelines. We ask the Government to submit an Explanatory Memorandum on the Commission's "definitive" version, preferably before it is issued as a final document. We also ask her to send us a copy of the Common Position text of the draft Directive on a common regulatory framework for electronic communications networks and services, which we note from the Explanatory Memorandum differs from the draft we cleared on 28 March.

17.13  Meanwhile, we shall not clear this document.

29  (21562) 10962/00; see HC 28-x (2000-01), paragraph 10 (28 March 2001). Back

30  (21560) 10960/00); see HC 28-ix (2000-01), paragraph 7 (21 March 2001). Back

31  (21567) 10979/00; see HC 28-ix (2000-01), paragraph 8 (21 March 2001). Back

32  (21566) 10963/00; see HC 23-xxix (1999-2000), paragraph 16 (15 November 2001). Back

33  In its Explanatory Memorandum on document 10962/00 (see footnote 29), the Commission noted that the term "significant market power" is modified in this section to cover a dominant operator. Back

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