BEREC Report on Oligopoly analysis and regulation. Questions to stakeholders

Transcription

1 BoR PC01 (15) 05 BEREC Report on Oligopoly analysis and regulation Questions to stakeholders Telenor Group submission to BEREC 23 January 2014

2 Introduction Telenor Group is pleased to provide input to BEREC in its considerations related to the implications of oligopolistic structures on the functioning of the Electronic Communications markets in Europe. Please find below the required mandatory information: Name of the organization: Telenor Group Role of the organization: Telenor Group is one of the world s major mobile operators with 179 million mobile subscriptions. We have mobile operations in 13 markets and in additionally 14 markets through our ownership in VimpelCom Ltd. Telenor Group has a leading position in the Nordic mobile, broadband and TV services market and a strong footprint in Central and Eastern Europe and Asia. Contact details: Sverre Holt-Francati, Head of Group Regulatory sverre.holt-francati@telenor.com

3 Situations of oligopolistic competition in the electronic communications sector 1. In the electronic communications sector, do you consider that there are markets that were characterized by oligopolistic structures from the outset? In your view, which factors (scarcity of spectrum, high level of required investments, etc.) explain the existence of these market structures? Are wholesale markets more prone to oligopolies than retail markets? A formal definition of oligopoly used by OECD in 1999 report is:...a market structure with a small number of sellers - small enough to require each seller to take into account its rivals current actions and likely future responses to its actions. 1 In other words, the number of producers or sellers is small and there is some form of interdependence between them. Historically telecom markets where monopolistic. Through liberalisation and technological developments the market structures today are very different. At a retail level in particular competition has evolved to be particularly fierce with traditional telecom operators facing increased competition from OTT s and operators face requirements to offer wholesale access to retail providers. On a wholesale access level the picture is slightly different due to barriers to entry through spectrum scarcity, investment requirements and the underlying cost structures dominated by economies of scale, scope and density. The resultant market structure at wholesale level is therefore one that typically is dominated by only a few players. However, there are linkages between wholesale and retail, and the competition picture that arises in the telecom sector is dynamic, and from a competition perspective turbulent. 2. Do you consider that there has been an increase in oligopolistic market structures (including duopolies) in any of the electronic communications services markets or more generally in the sector? i. If so, please state in which electronic communications services markets you observe this evolution, making reference to specific retail and wholesale electronic communications services markets. Please state whether you observe this evolution at a subnational, national, or European level. ii. What do you consider to be the main drivers of this increase (if any) in oligopolistic situations (mergers, fixed-mobile convergence, bundled offers, roll-out of next generation or other networks, operators strategies, etc.)? Do you expect this trend to continue? At the network level the market structures in the mobile sector have since liberalisation become less concentrated with the entry of new players and today reflect a structure with 3 or more players. Even with recent M&A activity in Europe these structures remain, although the picture is complicated by the increased proliferation of network sharing agreements. Going forward, we believe two key factors will affect market structure: Internet players and operators value chain overlap. The players competing have different ways of making their profits creating a highly competitive environment. At a retail level the 1 1

4 competition will therefore be highly disruptive and not promote the existence of oligopolistic market structures. Traffic will continue to grow and the demand for high speed high quality broadband access services will increase and thus drive investment. Mobile operators must invest in networks to offer the best coverage and capacity. Network sharing deals become more common to handle data traffic growth more cost efficiently and industry consolidation occurs at both national and trans-national level. At the network level in the mobile industry it is therefore likely that a market structure with few players will remain. For the fixed network fibre technology and economics of density will be the key drivers of the long term market structure and we would expect a mix of structures to emerge including local fibre monopolies and areas that are uneconomical to cover and will remain unserved without intervention. Possible effects of oligopolistic competition 3. What are the main threats to competition and to the interests of end-users, which might result from the oligopolistic market structures referred to above? As noted above an oligopoly is characterised by the number of producers or sellers being small and with some form of interdependence. An oligopolistic market structure may result in aggressive competition, and it may also result in less competitive outcomes under certain circumstances. A primary threat to competition in an oligopoly setting is anti-competitive cooperation, i.e. joint dominance. Anti-competitive co-operation leads to prices that are too high from society s perspective and is therefore addressed by competition law. Coordinated behaviour in the electronic communications sector is unlikely given its dynamic or turbulent nature; demand grows, old services and old technologies are replaced by new services and new technologies etc. Further, competitive strengths change driven by shifts in technology and convergence of platforms as well as shifts in consumer preferences. In addition, competition law constrains firms in their ability to act jointly. We therefore do not see any threats of the current industry structures to the interests of end-users and do not believe that an oligopolistic market structure should be of specific regulatory concern. However, if single SMP is found in an oligopolistic market structure then the imposed regulation may pose a threat to development of competition and the interest of end-users. 4. Do you consider that there are any benefits or opportunities (for instance related to the roll-out of NGA networks in the context of broadband access) that could arise from oligopolistic situations? Please explain your reasoning. A certain degree of concentration given the characteristics of the telecom market (economies of scale, scope and density, spectrum scarcity, sunk costs etc.) is efficient and will ensure a healthy and sustainable competitive environment, in terms of prices, network differentiation, quality and innovation. 2

5 5. In your view, are there any electronic communications services where oligopolistic markets are more susceptible than others to uncompetitive outcomes? Please, explain your view. As noted above threats to competition in an oligopoly setting are essentially about coordinated action or joint dominance. The fact that a market is characterised as oligopolistic is not sufficient to justify predicting that firms will engage in co-ordinated interaction. While fewer firms in a given market coupled with high barriers to entry, economies of scale, regulated transparency requirements and multi-market presence, all else equal, suggests firms could engage in some form of co-ordinated interaction, evidence shows that there have been very few instances of collusion and findings of joint dominance / SMP. See also response to previous questions. Regulating oligopolies 6. In your view, are there any areas of concern in relation to oligopolistic outcomes which are not adequately addressed by the current regulatory framework (i.e. both the European Union relevant texts and NRAs policies)? In particular, what is your appreciation of the concept of collective dominance? What do you consider to be the most effective regulation of anti-competitive oligopolistic situations? In our view the current regulatory framework and competition law are sufficient to deal with oligopolistic structures/outcomes and any problems (market failures) that may arise. There is, however, a need to consider whether the existing framework can appropriately deal with dynamic efficiencies and the need to ensure efficient investment for the benefit of end-users. Remedies in the context of oligopolies 7. In your view, what are the main ex ante remedies (which are currently present or could be introduced in the European ex ante regulatory framework) that could be applied to electronic communications services markets exhibiting oligopolistic market structures? (similar or differentiated remedies, symmetric regulation, etc.)? Any application of remedies must consider the specifics of the situation at hand and cannot be determined in advance. However, we would expect to see more cautious use of the SMP remedies and more nuanced assessments of hypothetical competition problems than in a monopoly situation. Other issues 8. Please, provide any other insight or opinion regarding oligopoly analysis and regulation. None. 3