Seminar 5: Competition and/or Sector Specific Regulation (6 November)

We consider the relationship between antitrust law and sector-specific regulation, with particular emphasis on telecommunications markets. In brief, these markets were opened to competition since the mid 1990s, leading to the disappearance of state monopolies. The regulatory framework is designed to facilitate the entry of new competitors on the one hand, and also to ensure other policy goals (for example the protection of vulnerable consumers, and the healthy development of the market by stimulating investment).  The relationship between regulation and antitrust was confronted in Trinko and Deutsche Telekom. However, there is division on how to move forward.

Reading

Verizon Communications Inc. v. Law Offices of Curtis v. Trinko, LLP, 540 U. S. 398 (2004)

Case C-208/08 P Deutsche Telekom AG v Commission [2010] ECR I-9555, get a grip of the essential facts and look at  paragraphs 55 to 110

Shelanski, ‘The Case for Rebalancing Antitrust Regulation’ 109 Michigan Law Review 683 (2011)

Möschel, ‘The Future Regulatory Framework for Telecommunications: General Competition Law instead of Sector-Specific Regulation – A German Perspective'(2009) 10 European Business Organization Law Review 157

Huigen and Cave, ‘Regulation and the promotion of investment in next generation networks: A European Dilemma’ (2009) 32(11) Telecommunications Policy 713

For Discussion

How do US and EU Laws differ in their answer to this question: a market is regulated by sector-specific regulation, does antitrust law apply?

Why does this difference exist?

How far, if at all, does it make sense to design a regulatory framework along lines similar to antitrust law?

Is the distinction between ex ante (sector-specific regulation) and ex post (competition law) a helpful one? if not how else might one best draw a line between the two domains of sector specific regulation and competition law?

Is there a compelling argument for phasing out sector-specific regulation in telecommunications?

 

 

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32 comments on “Seminar 5: Competition and/or Sector Specific Regulation (6 November)

  1. Marita says:

    I wonder whether Trinko can be seen as an illustration of the maxim “hard cases make bad law”, or rather “bad cases make bad law”. The claim put forward by Trinko was weak at best, not just as a matter of US substantive law on refusal to supply, but also because the plaintiff largely failed to substantiate their plea, however daring it might have been. Perhaps it would have been better if the case was dismissed at the point of deciding the question of standing, in line with the concurring opinion of the Supreme Court, since it was largely an opportunist claim. Yet, Trinko v Verizon became a seminal case in the area, and indeed it came to be influential in fields far removed from the context of telecommunications regulation, or even regulated industries, for example IPR. Personally, I’m not sure if this is a good development, given how strongly the Supreme Court seemed to be influenced by the particular circumstances of the case at hand.

    Although ultimately both Trinko and Deutsche Telekom concern the question of applicability of competition law to regulated conduct, the argument entertained by the Courts seems to be held at slightly different angles. The general policy argument on the virtues of applying competition law to a regulated industry is not visible on the face of the CJEU judgment, rather it focuses on more technical questions of attributability of conduct and possibility of creating legitimate expectations. Especially DT’s argument on attributability seems to be considered largely already within the realm of article 102. The question examined there was not whether existence of regulation absolved DT from antitrust liability, but whether it left DT with a sufficient scope for action, so that any alleged abuse could be meaningfully said to be committed by DT.

    • giorgiomonti says:

      I agree – on Trinko, normally the Supreme Court selects a case for decision becauseit wants t o make a point to guide the lower courts, so yes it was a bad case, but perhaps the motivation for selecting it was because it allowed the court to intervene in the discussion on regulation/competition law generally. This would account for its significance. It would help if you developed how precisely Trinko had effects beyond telecoms.

  2. Fabrizio says:

    I agree with Shelanski’s argument that Trinko has reduced the trust of antitrust law in the US. However, I think that he did not stress enought the detrimental consequences of this decision for the customer.
    Consider the following case. You sign a delivery contract with company A. In order to delivery the good, company A has to cross a river. The only bridge is owned by company B. Company B is also an undertaking in the delivery market. When A’s employee tries to cross othe bridge, company B closes the facility. B is fined by the Bridge authority. You had negotiated a penalty clause because the good is very important to you. You try to enforce the clause, but your claim is dismissed under impossibility doctrine, with the court holding that “A did not assume a risk such as B’s behavior, nor there was something that A could have reasonably done”. You sue B then, claiming damages and an injuction for the future. You argue B did what it did for having you switch delivery company. Your claim is dismissed again, with two opinions. In the first, it is stated that the injunction would transform the court in a regulatory authority, a whole new type of difficult litigation would skyrocket; and by the way the Bridge authority is doing a great job on its own – no word about damages. In the second opinion your claim is dismissed for lack of causality.
    Can one say you actually had a right to the delivery? What are the relevant differences with Verizon? If not, by develping the division of labour between antitrust and regulation, the Supreme Court actually reduced also the application of the institution of contract.

    • giorgiomonti says:

      This is really interesting – I think your point about the possible private law consequences is vvery important.
      The example might need some clarification, however. when A agrees to deliver to You, normally the risk of non-delivery is assigned between the parties by terms in the contract. (e.g. you can sell on fob or cif terms in a shipping contract). If the contract is for ‘delivery’ this means that A has a duty to deliver. as far as English law is concerned, it is hard for A to claim frustration of contract for impossibility and so A would have to pay damages. Even so, your point stands because A would not be able to make a claim against B for losses incurred, for the reasons you mentioned.

      There is perhaps a more general discussion aboutthe relationship btw. antitrust and contracts that is worth developing here

  3. Maria H says:

    Thoughts on the question: Is the distinction ex ante (regulation) and ex post (competition law) a helpful one?

    In the Deutsche Telekom case the CJEU rejects Deutsche Telekom’s argument that EU competition rules cannot be applied to the conduct by companies that is already regulated by national regulatory authorities. In para 92 of its decision the Court responded by arguing that EU competition rules “supplement … by an ex post review, the legislative framework adopted by the Union legislature for ex ante regulation of the telecommunication market” and that this ex ante regulation did not deny Deutsche Telekom the possibility of adjusting its retail prices for end-user access services and therefore “of engaging in autonomous conduct”. The Court thus makes this distinction between ex post review and ex ante regulation. If we take ex ante regulation to mean the determination of future behaviour of a company and ex post review to be the subsequent rectification of a company’s behaviour then we can see the parallel between this distinction and the distinction between competition law and sector-specific regulation. A general ex-ante-ex-post-differentiation might be a little bit oversimplified, because can’t competition policy also enforce ex ante rules and decisions?

    I do think, however, that making this distinction is favourable for the CJEU’s argument that the Commission is not bound by a decision taken by a national regulatory body. As Shelanski points out: “the evolving marketplace will … make the effects of ex ante conduct rules less predictable, rendering prospective conduct regulation more difficult. In such cases, the availability of antitrust enforcement allows regulation to diminish without leaving a gap in oversight of competitive conduct in the relevant markets.”

    • giorgiomonti says:

      Interesting take, but I wonder if the ex ante/ex post was really so crucial to the Deutsche Telekom case. There the issue is more about compulsion of the dominant player.
      Yes, competition law can be enforced ex ante, one issue you could have developed is what, precisely, ex ante means. if rules are set out in advance (eg art 102) is this ex ante? presumably we need more.
      shelanski’s quite raises a slightly different issue: why are ex ante rules less workable in an ‘evolving marketplace’?

  4. Maria says:

    The readings help to show the different approaches to the issue of the relationship between sector-specific regulatory frameworks and competition law, as well as the concerns they raise in markets in transition from legal monopolies to competitive frameworks. Especially, I have found very interesting how Shelanski traces the evolution of the Supreme Court’s interpretation before and after 2004, and how he relates the implications of the Court’s findings to previous cases, putting forward his arguments against
    This comparative approach also allows us to trace a distinction between the way in which the problem is faced in the EU and the US. While in Trinko, the Court limits the scope of competition law in the presence of regulation, in the Deutsche Telekom case, the ECJ does not seem to question in any moment the application of competition rules to the telecomm sector as a regulated market. Competition rules apply, the question is to discern who was liable for the infraction, that is to say, to determine the “attributability of the infringement”.
    The two cases, though somewhat related, present also some other differences, because in Trinko, Verizon had infringed the regulatory framework when refusing to deal, while Deutsche Telekom’s behaviour respected the existing regulations. Thus, what the ECJ argues is that compliance with the regulation does not exclude an infringement of competition rules if the undertaking had the possibility to alter the prices it charged within the limits of the regulation, therefore avoiding the anticompetitive effect. Because Deutsche Telekom’s scope of action was wide enough to avoid the squeeze effect, it can be considered liable for the infringement of competition rules, even if, as the ECJ admits.
    Focusing on the ECJ’s decision, If I find it easier to agree with the conclusions it reaches regarding the “attributability of the infringement”, I do not completely share the conclusions it arrives to when discussing the legitimate expectatives claim, because one thing is to say that Deutsche Telekom could have avoided the anticompetitive effects of its behaviour within the limits of the regulatory framework, but other very different is to disregard the fact that it had obtained authorization from the national regulatory authority responsible for promoting competitive behaviour in the telecomm sector. It is true that the regulatory framework applied by the national authority is based on national legislation and may promote objectives other than competition, but it is nevertheless true that Member states have to ensure fulfilment of the obligations derived from the Treaties, including competition law. In this sense, even the Court admits at one point that “it is not inconceivable, as the appellant observes, that the national regulatory authorities may themselves have infringed Article 82 EC in conjunction with Article 10 EC, and therefore that the Commission could have brought an action for failure to fulfil obligations against the Member State concerned”.
    I do not deny that the regulation did not make the squeeze effect totally unavoidable; the undertaking maintained a possibility to change the prices it charged. What I challenge is the little importance given to the authorization of the national entity responsible for promoting national, and European, regulatory objectives, and its contribution to –and shared responsibility for- the infringement.

    • giorgiomonti says:

      Good. On your comment at the end, I think there is scope for debating the co-responsibility of the regulator. Note perhaps that, atthe time, the German regulator was perceived to be quite weak. In this respect the Commission’s action was correcting an ineffective regulatory approach. This justto add context to your point.
      Note also that there is a tricky procedural issue if the Commission wishes to pursue both the regulator and the undertaking. if you attack the regulator you need to start infringement proceedings against the state and this is time consuming & gets politicised (potentially). if you pursue the firm there is a swifter procedure (relatively given the lag between decision and judgment).

  5. Mariajo says:

    On the issue of how the answer varies to the question whether antitrust/competition law applies to markets regulated by sector specific regulation, Deutsche Telekom v COM and Trinko suggest that the EU and the US have completely opposed approaches. In Deutsche Telekom, the ECJ held that competition law certainly applied to regulated telecommunication incumbents that used margin squeezes to deter competitors from entering the market. This was even the case when the national regulatory agency had given green light to the prices charged by the incumbent. In his opinion on the Deutsche Telekom case, AG Mazak picked up an image of the relationship between sector-specific provision and the Treaty rules on competition borrowed from the Commission as two barriers that have to be passed cumulatively by dominant undertakings, the first barrier being compliance with sector-specific regulatory law and the second barrier being compliance with competition rules. In his argument, sector-specific regulation in telecoms does no more than to generate a more specific/certain set of rules for the same purpose as Article 102 TFEU. Specificity could be another way to draw a line between sector-specific regulation and competition law, rather than ex-ante and ex-post. Furthermore, the Court mentions that national sector-specific regulation does not necessarily have to have the same goals as EU competition law. Difference in regulatory goals might be yet another possible distinction between competition law and sector-specific regulation, rather than thinking in the binary of ex-ante and ex-post.

    Trinko on the other hand would be an example of a single-barrier / antitrust-immunity model. Once an undertaking is subject to a sector-specific regulatory framework, which is already designed to deter anticompetitive conduct, antitrust rules do not apply (irrespected of whether Congress wanted antitrust rules to apply!). The Supreme Court seems to have base its decision mainly on the fear that the likelihood of false positives (overenforcement of antitrust law) would increase otherwise. Furthermore, the monitoring costs for behavioural remedies imposed under antitrust law would be too high. As Shelanski points out, the court seems to implicitly assume that sector-specific regulation is more efficient than enforcement through antitrust – which is not necessarily the case at all (also Möschel argues along these lines).

    A fact I found interesting when reading Shelanski was that Trinko constituted a ‘new’ approach under US antitrust law. Previously, especially when looking at the antitrust proceedings against AT & T in the 1970/80s, it appears that the approach was very similar to an EU approach of cumulative application of sector-specific regulation and antitrust law, very much Deutsche-Telekom-EU-Commission-style. (Hm. Which begs the question whether this is just another example of EU competition law lagging 30 years behind US antitrust law.)

    One last point refers to Möschel in comparison to Huigen and Cave. Möschel points to the issue (which also Shelanski points out) of the special case of sector-specific regulation, which is aimed at bringing about a transition from a highly concentrated/monopoly market situation to a competitive market in a specific sector. According to Möschel the problem in EU telecommunication regulation is that the desired effects of sector-specific regulation have materialized turning regulation obsolete; but the regulatory framework is now perpetuating itself to the detriment of competition. According to Möschel, it would now be sufficient to leave it to general competition law to take care of this market. Interestingly, Huigen and Cave appear to suggest that complete deregulation of the telecommunications market as in the US leads to a problem however; undertakings do not sufficiently invest into new infrastructure. Apparently, the countries that have promoted the building new infrastructure as a matter of industrial policy have had the best results in bringing about broadband coverage.

    • giorgiomonti says:

      Lots of stuff here. Just a point on Trinko where I disagree. the Court did not say antitrust did not apply at all. It said that we should be wary about extending antitrust doctrine. as Shelanski says this could risk being read widely but the Court does not say there is a single barrier.
      Note the single/double barrier analysis was used in the 1960s in Walt Wilhelm to discuss the parallel application of national and EEC competition law. there the court held that stricter national law could apply.

  6. Elias says:

    1/ How do US and EU Laws differ in their answer to this question: a market is regulated by sector-specific regulation, does antitrust law apply?

    The Deutsche Telekom and Trinko judgment reveal different approaches in the EU and the US with regard to the application of antitrust law and sector-specific regulation. On the one hand, in the US prevails a mutually exclusive relationship between the application of sector-specific regulation and antitrust law. This approach is based on the concept of ‘implied impunity’, which assumes that as soon as a sector is subject to specific and burdensome regulatory obligations, there is no reason for and benefit from the application of antitrust law. The legal standard for the application of the ‘implied impunity’ approach is the ‘plain repugnancy’ test. This test aims at avoiding a potential/actual conflict between antitrust law and sector specific regulation in cases where the enforcement of antitrust rules might sanction conduct that has been authorized by regulators under regulatory statue. In Trinko and Credit Swiss the ‘implied immunity doctrine’ has been prominently extended by the US Supreme Court despite the existence of antitrust-specific saving clauses in the sector-specific regulatory statutes. Moreover, according to Shelanski, the US Supreme Court departed in its recent case-law increasingly from the ‘plain repugnancy’ standard.
    On the other hand, in the EU sector-specific regulation and EU competition law apply in a complementary/parallel manner to regulated sectors. The Deutsche Telekom case indicates that EU competition law also applies in cases where the conduct of a dominant incumbent has been authorized by the national regulatory authority (in this case: level of wholesale and retail prices). The EU Commission and the ECJ carried on this approach for instance in the telecommunication sector with regard to margin squeeze in Telefoníca, TeleaSonera and most recently in Slovak Telecom and assumed the risk of a potential conflict between competition law and sector-specific regulation.

    2/ Why does this difference exist?

    There are different reasons for this divergent approaches. The first explanation is directly linked with the hierarchy of norms. In the US, sector-specific regulatory statutes and antitrust statutes (Sherman Act, etc.) are both federal statutes. Hence, they are both situated on the same level in the hierarchy of norms. None of them can prime over the other and their application is consequently mutually exclusive. By contrast, within the EU legal order, EU competition law and sector-specific regulation are part of different levels of the hierarchy of norms. EU competition law has the status of EU primary (constitutional?) law since it is enshrined in the Treaties, whereas sector-specific regulation is part of EU secondary law. Therefore, EU competition law still applies despite the parallel application of sector specific regulation and in certain cases, as in Deutsche Telekom, competition law trumps over EU sector specific regulation. This interpretation has been confirmed in 2012 by the General Court in the Case T-398/07 Spain v Commission (para 55)concerning the Commission decision on margin squeeze committed by Telefoníca. This case is one of the rare occasions where a Union Court directly referred to US antirust case-law and held: ‘There is no need to rule on the relevance of the judgment of the Supreme Court of the United States of 13 January 2004 (Verizon Communications Inc. v Law Offices of Curtis V. Trinko, LLP 540 U.S. 398 (2004).[…] In any event, even if the sectoral regulation referred to by the Kingdom of Spain derives from European Union secondary legislation, it must be stated that, in view of the principles governing the hierarchical relationship of legal rules, such secondary legislation could not, in the absence of any enabling provision in the Treaty, derogate from a provision of the Treaty, in this case Article 82 EC.’ (para 55).

    Second, Justice Scalia’s Majority Opinion in Trinko and the ECJ’s ruling in Deutsche Telekom also reflect two contrasting perceptions of market/monopoly power by US and EU competition law. Whereas Scalia affirms that the mere possession of monopoly power ‘is not only not unlawful but an important element of the free-market systems’ and the most important incentive which attracts ‘business acumen’, the Deutsche Telecom ruling reflects a more skeptical stance of EU competition law towards market power. This is reflected by the concept of special responsibility of dominant undertakings under EU competition law which is also invoked in Deutsche Telekom (para. 83). It is exactly because of this special responsibility as a dominant undertaking under Art. 102 TFEU, that Deutsche Telekom cannot – despite prior authorization of its conduct by the German NRA – rely on legal certainty and ‘implied immunity’ as long as it disposes of a tiny margin of discretion on its own pricing conduct.

    Third, these different approaches to market power and consequently the interplay between sector specific regulation and competition law also root in two different perceptions of the auto-regulatory capacity of markets. Thus, Scalias cost-benefit analysis in Trinko reflects the presumption of US antitrust that type I error (false positives) are most costly than type II errors (false negatives). On the other hand, EU competition law is rather concerned by the risk of under-regulation (type II errors), in particular in cases of market power. Consequently, EU competition law also applies in cases where sector-specific regulation failed to prevent abuse of market power. For this reason, the ECJ is also more eager than the US Supreme Court to extend the boundaries of EU competition law (in particular Art. 102 TFEU) by recognizing new types of abuses, such as margin squeeze.

    Fourth, this divergent approach towards the application of competition law and sector-specific regulation in the US and in Europe could also be explained by the vertical fragmentation of the EU political, legal and administrative system. Whereas in the US sector-specific regulation is enacted as federal statute and applied by one single regulator, in the EU sector-specific regulation takes the form of directives which have to be transposed in 28 different national laws and are enforced by 28 different national regulators. Thi gives rise to conflicts of interest and a principal-agent problems, since national regulatory authorities sometimes misinterpret or misapply sector-specific regulation (as in the Deutsche Telekom case). The application of EU competition law constitutes in these cases for the EU Commission a supplementary tool, which is more effective tool than infringement procedures under Art. 258-60 TFEU, to ensure the correct enforcement of EU secondary law. This raises, however, certain questions with regard to legal certainty and the “abuse” of EU competition law.

    3/ Is there a compelling argument for phasing out sector-specific regulation in telecommunications?

    There are different compelling arguments for phasing out sector-specific regulation
    – 1/ The sector-specific regulation successfully eliminated the existing market failures and created a competitive market. This opens the path to the transition to competition law. This is the ‘official narrative’ of EU sector-specific regulation.
    – 2/ It is also conceivable that technical innovation creates new tools allowing competitors to curtail bottlenecks controlled by monopolistic/dominant incumbents. Thus, wireless networks could potentially substitute fixed networks and thus circumvent the local-loops controlled by powerful incumbents
    – 3/ Despite the high fixed and sunk costs, it is also possible that competitors create their own infrastructure and try to compete with the incumbents’ infrastructure instead of competing on their infrastructure. Sufficient infrastructure competition could render sector-specific regulation superfluous.
    – 4/ Technical innovation together with changing political priorities could also entail the phasing out of sector-specific regulation. The general access to internet broadband is gaining a political salience and it is currently discussed to what extent it could even be provided as a ‘universal service’. At the same time, the current access-regulation approach prevents/ dis-incentivizes incumbents and competitors to invest in the creation of new/modernization of existing networks. Therefore, other regulatory approaches such as ‘regulatory holidays’ or industrial policy measures instead of sector specific access-regulation are currently discussed.

    • giorgiomonti says:

      Just on your first set of points: note that in Trinko the issue if implied immunity could not be discused because the telecommunications act specifically mainatined antitrust law, see part II of the opinion.

      are the 4 points you made in favour of phaisng out sector specific regulation convincing?

      There is a nice point you develop about the Commission using antitrust to monitor the national regulators which might be worth oursuing further. is this legitimate? are there otehr ways of achieving this end?

  7. Jotte says:

    It can be argued that the distinction between ex ante (sector-specific regulation) and ex post (competition law) is not accurate. That is to say that the distinction on this basis will not allow an answer to the question whether and to what extent competition law should have a role to play in regulated sectors, mostly because competition law is not a purely ex post rule system. There are various instances where the competition rules function or are applied as ex ante rules. This is the case in merger remedies, commitment decisions and the application of article 102 TFEU (perhaps most clearly illustrated in the Microsoft case). Furthermore, the effects of block exemptions, guidelines on horizontal or vertical agreements all have clear ex ante objectives.
    A better distinction would perhaps be to look specifically at the objectives that are being pursued and to determine on a context-specific basis whether it makes sense to apply a competition law based rationale to a given situation or not. If a sector is in the process of liberalisation and is closely regulated and guided towards a situation of full competition it would make sense to have the EU competition rules play a complementary (for a situation where there is space for competition as in Deutsche Telekom) or supervisory role (to salvage situations where national regulators are weak or ill equipped).
    However, where there is a regulatory framework in place that pursues an legitimate objective that falls outside of the objectives that are normally associated with what competition can achieve, then a complementary or supervisory rule for the competition rules would appear less desirable. One could argue, as has been done, that such a position would be supported by the fact that Article 2(3) TEU states that ‘The Union shall establish an internal market. It shall work for the sustainable development of Europe based on balanced economic growth and price stability, a highly competitive social market economy, aiming at full employment and social progress, and a high level of protection and improvement of the quality of the environment.’ This replaced the previous Article 4 EC Treaty that read that the Union shall pursue ‘an internal market where competition is free and undistorted’.
    The suggestion here would be that restricting the application of competition law in circumstances where non-competition aims are pursued would properly reflect the new constitutional balance in favour of more non-competition objectives to the detriment of competition objectives (a position that is arguably supported by some case law: Wouters, Meca-Medina, CNG). This would however presume that it is clearly understood what we want competition law to achieve. This is not the case. For example, one alternative way to implement the focus on non-competition in the Treaty, instead of the option of non-application of the competition rules, would be to conceive the objectives of the competition rules as to include a wide array of non-competition objectives. This is an interpretation which the (grand chamber of the) Court seems to pursue when it held in 2013 (C-105/12 Essent para. 58) that ‘the objective of undistorted competition […] is also pursued by the FEU Treaty, the preamble to which underlines the need for concerted action in order to guarantee, inter alia, fair competition, the ultimate aim of that action being to protect consumers.’
    The discussion illustrates that, whilst the dichotomy between ex-ante and ex-post regulation is probably not a very useful one, the question whether or not to apply competition law in a regulated sector requires, ultimately, a clear understanding of what competition law should achieve and this is currently still a contestable idea.

    • giorgiomonti says:

      I’m not sure what you see in Essent.
      But I take the wider point about the legitimate space for competition law in a regulated sector. actually if you see the debate in this way Trinko is unobjectionable because the regulator uses its powers to achieve the broad goal of creating competition, and this is more important than using antitrust to protect a single victim of past anti-competitive conduct. Conversely it woudl be hard to see how in DT the regulator could give any good reason for its policy.
      then the question might also be: what is the best way of proceduralising your approach in the context of the regulatory framework?

  8. Leticia says:

    In my opinion the issue in the sector-specific European milieu is not so much whether regulations aim at protecting other interests that are not competition-related, but rather what actors are in charge of establishing these interests and how much the ECJ would be willing to defer to them.

    Elias’ point on the fragmentation of the EU legal system is, to me, a central element in the discussion. We haven’t got ex ante regulation and ex post competition law enacted by the same legislature. Instead, regulations (which could theoretically foster broader goals than fierce competition) have been enacted at the national level, and competition law is enforced form EU level. In Deutsche Telekom the ECJ seems to acknowledge the possibility of ‘plain repugnancy’ at para. 80 (it is only if anti-competitive conduct is required of undertakings by national legislation, or if the latter creates a legal framework which itself eliminates any possibility of competitive activity on their part, that Article 81 and 82 EC do not apply’). And yet high expectations can seem a bit watered down at para. 227 (‘That point [national legislation relating to the telecommunications sector having different objectives from those envisaged by the European Union] has no bearing on the issue whether legislation relating to the telecommunications sector may be taken into account for the purpose of the application of Article 82 EC to the conduct of a dominant undertaking’). It seems to be that the EU versus National legislation generates a bias in favour of competition law and detrimental to the national regulatory schemes, whatever the variety of legitimate interests they might pursue. In this sense there could be a parallelism with the ‘free market versus welfare state’ conundrum unless all regulatory frameworks are taken up at EU level.

    (Mind you, Deutsche Telekom itself did not clearly allege what it meant by ‘national legislation having different objectives to those envisaged by EU competition policy’; it would have been interesting to see the ECJ dealing with more substantive arguments of competition versus other objectives).

    • giorgiomonti says:

      However, note that the ‘national’ legislation in DT was actually coming from an EU Directive. There is another issue here, which is the absence of legislative competence to regulate telecooms via the EU diretcly (that whichthe US clearly has). This leads to the EU needing to delegate teh task of regulating (in the interests of the EU) to national regulators and then having to police them.

  9. Essentially, the Verizon case shows that although competitiveness was to some degree established through legislation and oversight by FCC or local authorities, that even when a enforcement measures were taken, these seem often not to be of particular longevity. (anecdotal evidence, of course, but to some degree I think it was similar in the US Microsoft case(s))
    One part of the judgement is, that to rely on the essential facilities doctrine, there has to be no regulatory oversight and the relevant act has to apply.

    On the contrary, in the Telekom case, it was held that it doesn’t matter whether there is regulatory oversight (in this case by RegTP) for deciding whether EU Competition law applies and whether it is infringed. The applicant argued that there was no margin squeeze and to rely on RegTPs decisions, which didn’t even mention Art. 82 and even if they had, the argument brought by RegTP (cross-subsidization) still would likely not have convinced anyone.
    Also on an institutional level, this part of the reasoning is very important, as DG Comp/The Commission even reserves the right to overrule the national competition authority (Bundeskartellamt) so it seems doubtful that it would feel bound by the decision of a sectorial administrative body. In any case margin squeezes in the telecom market seemed/seem? to be very popular, see also (TeliaSonera A-08/11) that was referred form Sweden. For relation between national authorities and the competence of the Commission/DG Comp please also see the Tele 2 Polska case. (C-375/09)

    Shelanski: After both cases discussed (Trinko and Credit Suisse) Antitrust will play a dimnished role in regulated industries than before.
    Möschel: Argues more or less according to what was decided in the Telekom case, that there should be no sectorial division/exceptions any more. Though maybe it is just that in DG Connect (or Market …) working with DG Comp there is in that way more than just a normal ‘EU Competition Authority’…
    Cave/Huigen: Comparison of investment and empirical models for next gen networks across some states of the Union.

    • giorgiomonti says:

      I didn’t get the Verizon/Microsoft point. the regulatpry scheme in Verizon was about giving access to competitors in the local markets, how was this short-lived? To a degree the issue might be that the consent decree of the FCC might well have solved the issue (in 2000 it was revoked), and that the antitrust lawsuit came too late?

      • The Verizon/Microsoft point was that measures imposed were imposed only for a limited amount of time. Maybe I read the facts wrong, but I got the impression that even after the revocation of the consent decree there were a lot of problems (evidenced by complaints by competitotrs and consumers) “short lived” is of course relative here. In the Microsoft case(s) it referred to the fact that none of the harsher punishments that were brought up at first were enacted in the end.

      • (but granted, I see your point that one can see it in a way that the lawsuit came too late – the way I read it however it seemed like the lawsuit was brought on purpose after the decree / measures were revoked.

  10. Kayahan says:

    I find Deutsche Telekom’s argument concerning legitimate expectation quite interesting. From the treatment of the Court (see paragraph 88 for example), I understand that the argument was construed in a way akin to a lawfulness and/or lack of fault argument in continental tort law. This seems to be complemented with a presumption of lawfulness of administrative acts – see para. 91 where DT argues that even if that the RegTP decision infringed Art. 82 EC, such infringement does not affect the lawfulness of DT’s conduct which was done in compliance with the administrative act. As the Court correctly points out, this line of argument does not preclude ‘attribution’ of the anti-competitive conduct to DT, but if Art. 82 EC (TFEU 102) liability share the general contours of tort liability, then the RegTP decision in my opinion may be considered as a basis for a finding of lack of fault, and perhaps a reduction or cancellation of the Commission’s imposition of a fine.

    • Kayahan says:

      Please ignore my last sentence, it does not read correctly. I mean to the extent the Commission’s fine in relation to an Art. 82 infringement is determined according to ‘faultiness’ next to economic loss caused, the fine in this case could be reduced.

      • giorgiomonti says:

        quite: there shoudl be a distinction btw the attribution of an infringement & the fine set. in fact in a later case (Telefonica) tehcourts noted this and suggested that the regulatory context can serve to mitigate the fine.

  11. Agnieszka says:

    As mentioned in the comments above, key factors accounting for the difference in US and EU approaches, seem to be the divergencies between institutional set-ups, hierarchies of norms and repartitioning of responsibilities across federal/EU and national actors. Here it could be argued that the European institutions have a special interest in ensuring that competition policy, an exclusive EU competence enshrined in the Treaty, does not “loose” its force (or as little as possible) where sectoral regulation is put in place. This gets even more interesting where the sector is regulated via domestically implemented EU directives adopted on the basis of 114 TFUE (telecoms, energy etc).

    In this sense, the case of the European Commission brought against Deutsche Telekom can be seen to be just as much as a case oriented at the German regulator – RegTP – a questionable route chosen perhaps for relatively easier procedure from the point of view of the EC. Competition law coming from primary EU law level could be seen here as the instrument for ensuring coherence of Member State approaches in sector-regulated industries on a case-by-case basis (implying a continued interplay of competition law and regulation rather than ex post/ex ante framework) with view of achieving a level-playing field and internal market integration. This then leads back to the question of whether competition law and regulation neecssarily have the same objectives (as per Shelanski), and to what extent the Commission would “cloak” the pursuit of other policy objectives in competition law enforcement language to gain from the broader toolbox at its disposal in this area (as arguably in the ongoing case of anti-competitive bevaviour of Gazprom – which also hinges on the provisions of Third Energy Package, such as third party access).

    • giorgiomonti says:

      so in your reading the enforcement of competition law here can be said to be instrumental in 2 ways:
      1) as ameans of policing national regulators
      2) as a means of achieving the aims of telecoms liberalisation (or TPA for energy).

      are these approaches legitimate?

  12. stavros says:

    a. Antitrust and regulation after Trinko: the US model

    The US model on the relationship between antitrust and regulation could be summarized to the conceptualization of antitrust as a residual regulator. This means that competition should be promoted as long as it has not been preempted by some other alternative regulatory enterprise. Further, this model could be described through three basic immunities: i) the federal regulatory immunity (i.e. a statute expressly confers an antitrust immunity, or an immunity seems necessary in order to avoid conflicts between regulatory and antitrust requirements), ii) the state action immunity (i.e. a state “affirmatively expresses” that certain conduct should be exempted from antitrust and “actively supervises” it e.g. residential rents, taxi fares etc.), and iii) the noerr pennington immunity (pursuant to which, citizens have a right to ask the government for a regulation, even if the regulation they want is anticompetitive). In this respect, antitrust and regulation are competing models for determining the appropriate scope of state intervention in the microeconomy, but antitrust intervention is ex post and aims at maintaining competition in the market, while regulation is ex ante and may serve public interest or societal values that go beyond antitrust’s main concerns. The US model differs significantly from the EU, since it seems quite idiosyncratic and could be explained if we turn on the particular institutional design and the historical and political context of the US.

    Under this background we may be able to explain how Supreme Court’s judgment in Trinko frames the relationship between antitrust and regulation. In particular, in Trinko the Court examined under which conditions should we apply antitrust to a regulated market, and favoured a certain antitrust immunity even in a partially deregulated industry. The issue was settled by asking two questions: i) how well the regulatory enterprise facilitates the alleged competitive harms, and ii) how much confidence do we have that antitrust will improve competition in the relevant market. The Court concluded that the relevant regulatory regime significantly diminished the likelihood of major antitrust harm, for the regulator supervised adequately the interconnection disputes between dominant LECs and their competitors. Hence, an antitrust immunity is granted to the 1996 Act, since it satisfied the existing antitrust standards, and “it does not create new claims that go beyond existing antitrust standards”.

    The antitrust claim in Trinko as amended, was heavily based on the “essential facility” doctrine (under the essential facility doctrine a dominant firm violates §2 of the Sherman Act if it refuses to share certain indispensable requirements with its competitors). The Court refrained from applying the Aspen Skiing “essential facilities doctrine”, for it did not want to substitute the regulator by employing a burdensome regulatory vehicle. Following a “lightweight antitrust” and distinguishing its role from the role of the regulator, the Court seems to presuppose that the solution to the problem of monopoly is not to force monopolists to share with rivals at judicially determined prices, but to have each firm obtain its own inputs and set its own prices.

    Furthermore, the Court, cautiously, neither approved nor repudiated the essential facility doctrine, but it did impose severe limitations on the use of such claims. The unilateral refusal to deal is defined as a refusal that is profitable only because it tends to create or maintain a monopoly and is coupled with an “anticompetitive malice”. The Court also refused to apply the essential facility doctrine because the law imposed the sharing obligation; there was no firm refusing to provide to a competitor products already sold at retail as in Aspen Skiing. Court’s self-restrain implied that the regulator is competent to decide on such intensive measures. Under Trinko antitrust will be less of a constraint to regulator’s discretionary power.

    Moreover, Court’s focus on false positives (false convictions) presupposes and eschews a substantive judgment: an under-deterrent rule may permit a few instances of false negatives (false acquittals), but the social cost of such false negatives is less than the social cost of false positives. So an under-deterrent rule is preferable to an over-deterrent rule. This is the case because the markets are likely to correct themselves and government intervention (in this case court’s intervention) is likely to make things worse. Consequently, the basic rule should be nonintervention; the court should intervene only under specific circumstances (i.e. when it has identified anticompetitive conduct and can apply an effective remedy). In light of the above, Shelanski is right arguing that under Trinko antitrust will play a diminished role in regulated industries compared to that which it played before 2004.

    b. Arguments in favour of deregulation in telecommunications

    As Möschel observes the sector-specific ex ante regulation of telecoms should have a transitory character and should be preserved as long as it is justified by the specific structure and circumstances of the market at issue. In general, the deregulation enterprise should be very cautious especially in markets that manifest many of the characteristics of natural monopoly, or where technologically complex networks make the transition to competition unusually difficult.

    Two additional arguments in favour of deregulation in telecoms could be the following:

    Most economic justifications for regulation have rested on various theories of market failure (e.g. natural monopoly, information asymmetries). In addition, the neo-classic approach towards regulations suggests that the only goal of regulation is the efficient allocation of resources or the restoration of competition as the state of affairs in which prices are sufficient to cover marginal costs. In the same line, regulation is not appealing due to the regulatory costs and error costs that are associated with it. It follows that regulation in telecoms costs too much in proportion to the benefits it promotes, while bad results are magnified, since it distorts incentives and rewards inefficiencies. This argument could be coupled with a public choice critique, pursuant to which small homogenous groups could influence the regulators much more than larger, heterogeneous unorganized interest groups, “while competition has no lobby”. Such lobbies are benefited by maintaining a an inefficient regulatory regime. However, the public choice approach could be used to explain both socially harmful decisions to regulate and not regulate telecoms.

    Another argument against regulation in telecommunications could derive from Hayek’s conception of competition as a discovery procedure. In particular, pursuant to that approach competition is a procedure for discovering facts, which if the procedure did not exist, would remain unknown or at least would not be used (otherwise, competition would be nothing but a highly wasteful method of achieving our goals). The “spontaneous order of the market” should be preferred in comparison to regulation, since the latter suffers from two problems: (a) it is heavily based on the knowledge of the organizers or managers alone, and (b) it entails that all members of the structure must serve a predetermined and uniform hierarchy of objectives. On the contrary, the spontaneous market order is able to use the knowledge of all participants, and this can be proven of major importance in sectors where technology and innovation play a critical role such as telecommunications.

    • giorgiomonti says:

      two notes on your first point: the first is I am not sure I see the link with the state action and Noerr-Pennington doctrines. They do point to the possibility of excluding antitrust, but I wonder if Trinko is in the same line of approach because for me it suggests that there is a case-by-case assessment given the statutory language.
      then on your agreement with Shelanski: I wonder if you also agree that Trinko increases the residual role of antitrust or if your point is that it is in line with that residual role.

  13. Marcos says:

    It seems to me that antitrust law and sectoral regulation are complementary to each other. Sectoral regulation seems to have a double folded aim: firstly, to eliminate monopolies (opening markets that are dominated by a single undertaking) and, secondly, to correct other possible market failures that might arise in those sectors.
    Considering the first objective, regulation has a constitutive role, since it fosters competition where there was not a competitive environment. If this is to be considered the sole aim of sectoral regulation, as Möschel seems to do, than there might be few reasons to maintain a regulatory framework, especially in those markets where the effects of natural monopolies can be mitigated through the development of new technologies/infrastructure (as it is the case in telecom sector).
    However, the regulatory approach to some sectors appears to have other objectives in sight other than the opening of markets. EU regulatory law also aims at the correction of market failures and promotion of political values, such as the protection of consumer (and the asymmetry of information), universal access and the promotion of regional integration (lack of investments in isolated regions). Sure enough, pursuing these objectives entails costs (as Shelanski puts it ‘the cost of regulation’), and these costs can be either high, which could be the case of price regulation (particularly fixed prices or price caps), or lower, depending on the distortive effects to competition. That’s why it is important to strike a balance between regulatory measures and the protection of competition.
    In the case of European regulatory directives, competition seems to have a predominant role in achieving both economic and non-economic goals. However, Member States have also the possibility of imposing ‘public service obligations’ on undertaking(s) in order to achieve the goals set out by EU legislation itself or other goals of ‘general interest’, taking into account the effects that these obligations (and their funding) can have in the market.
    In the US, the complementary function of the objectives pursued by regulation and competition seemed to be safeguarded with the ‘repugnancy standards’ first developed by the Supreme Court to grant antitrust immunity. With Trinko and, later, Credit Suisse, it has given too much weigh to the regulatory standards and to the activity of regulatory bodies, relying on questionable assumptions about the marginal benefits of an antitrust enforcement.

    • giorgiomonti says:

      Good distinction btw constitutive and corrective. One one level one might say that we need regulation for the corretcive issues, so the point that regulation can be wished away is somewhat overstated anyway.
      But I agree with you that somehow competition thinking semes to underpin all of the regulatory efforts. why might this be so?

  14. Theodosia says:

    In my opinion case C-280/08 shows that in some sectors the application of the general rules of competition law might be problematic. DT’s main arguments are the following: when a dominant undertaking is subject to regulation by a national regulatory authority created for that purpose in a legal framework geared towards competition and a particular conduct is reviewed, and not challenged, by the national regulatory authority, the dominant undertaking’s responsibility for preserving the structure of the market is supplanted by the responsibility of that authority. In such a situation, as the DT alleges, the responsibility of the dominant undertaking is limited to the obligation to send the national regulatory authority all the information necessary in order for its conduct to be reviewed. In addition it is maintained that the principle of legal certainty requires that a dominant undertaking which is subject to regulation at national level should be able to rely on the correctness of that regulation. While I was reading the DT’s argumentation I was thinking the following: if we accept that in some sectors of the economy such as the energy, the telecoms or the health sectors sectoral guidance and regulation is needed due to their economic characteristics or due to their significant importance for society, why do we need to apply general competition rules at the same time? Isn’t it contradictory to admit that some sectors have special characteristics and as a result they should be treated differently and at the same time to enforce general competition rules in these sectors? And if we accept that in these highly regulated sectors competition law should be applied, wouldn’t it be more effective if a framework was established which would facilitate the cooperation between regulators and antitrust enforcers?

    • giorgiomonti says:

      good questions. all valid but then most markets are regulated in some ways and we don’t disapply competition law for that reason. so we need to find a more fine tuned approach. This is what the courts were struggling with.
      obviously if the two regulatory agencies worked more closely together, many of the issues here woudl have been avoided, or at least could have been. but see above for reasons why the Commissin might want to retain the use of competition law.

  15. Christopher Johnson says:

    The Commission, in a decision upheld by the Court of Justice has found that Deutsche Telekom has been abusing its dominant position in the German telecommunications market. Despite this, they have my sympathies.

    Deutsche Telekom, if abiding by compliance best practice, will have considered, when setting their retail prices, whether the price chosen is likely to constitute an abuse of their clear dominant position. Abuse is a fluid concept based on economic analysis. It will not always be easy for a firm to determine if their behaviour is an abuse or not. In a borderline situation, as in this case, a firm is justified in looking for guidance from the national regulator. In my opinion, it is unjust to rule that in a market where prices are regulated (in the case of retail telephone prices, by a price ceiling) that prices within the range stated to be permissible can nonetheless be incompatible with Union law. If the Commission believes that prices permitted by regulation are anticompetitive, it should bring an action against the regulator, not against the firm that believed itself compliant.

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