Liberalization and increased competition in telecommunications markets require active regulatory involvement to provide new entrants with a level playing field when attempting to compete against well-established incumbent operators. Incumbent operators usually have substantial advantages, such as a legacy ubiquitous network that is largely depreciated, a substantial customer base, and market power. New entrants require assurances that adequate regulatory protection will in place so that the incumbent operators will not be permitted to engage in anticompetitive behavior or abuse their dominant position. Accordingly, regulators are generally given the power to establish competition policy and address anticompetitive practices in the telecommunications market. Regulations developed in this regard generally include elements such as market definitions, definitions of thresholds for market power, and accounting separation. See Section 3.3 for a detailed discussion on the relationship between competition policy and telecommunications regulation.
(a) Jurisdiction and Mandate over Competition Matters
Many regulators have explicit mandates in the telecommunications law to deal with anticompetitive practices in their sector. Nevertheless, countries frequently also have a separate competition authority with statutory responsibility for competition matters, generally in consultation with a sector-specific regulator. One example where this approach has been followed is Peru.
Although there is an established competition bureau, Instituto Nacional de Defensa de la Competencia y de Protección de la Propiedad Intelectual (INDECOPI), the telecommunications regulator Organismo Supervisor de Inversíon Privada en Telecomunicaciones (OSIPTEL) was given primary responsibility to regulate anticompetitive behavior in the telecommunications sector. OSIPTEL’s regulation states that “the rules of free competition are ancillary to regulations issued by OSIPTEL within its areas of competence. In cases of conflict, the rules issued by OSIPTEL shall prevail.”1
(b) Mandate to Issue Regulations on Competitive Safeguards
A major responsibility of a regulator in a liberalized telecommunications market is to ensure that operators with market power or dominance do not abuse their position with respect to their customers and existing and potential competitors. In the telecommunications industry, a dominant operator has the ability to control the essential facilities involved in interconnection unless measures are in place to restrict the operator from doing so. For example, the power to deny or overprice interconnection and network facilities gives a dominant service provider unfair and potentially insurmountable advantages over its competitors. Thus, safeguards must be designed to define, deter, and punish anticompetitive activities while at the same time creating an enabling environment that will attract the investment needed to establish competing ventures.
As telecommunications markets become more competitive, many ways exist in which dominant operators can engage in anticompetitive behavior (e.g., predatory pricing, cross-subsidization, price discrimination, discriminatory provisioning of network facilities, overpricing of essential facilities and other network elements and services provided to competitors, unfair trade practices, tie-in sales, and anticompetitive bundling). Regulators can anticipate many complaints from new entrants in this regard and it is extremely important that clearly defined rules are in place to deal effectively and transparently with such allegations.
Regulators have several tools to deal with competition issues. Competitive safeguards applied to dominant operators may be: 2
- structural, by requiring the establishment of a fully separate subsidiary to draw a clear distinction between the provision of competitive and non-competitive services;
- non-structural, such as accounting safeguards employing cost allocation rules for various services;
- conduct compliance requirements and specific obligations; and
- explicit pricing rules.
Finally, regulators must demonstrate their credibility from the outset when dealing with competition issues. This requires resources to thoroughly investigate cases brought forward by complainants as well as to initiate investigations in instances where the regulator determines there is a need to do so. Furthermore, regulators also require strong enforcement powers in order to impose penalties and apply remedies in proven cases of anticompetitive behavior. Without these powers, the regulator cannot adequately ensure that sufficient incentives and protection exist for potential new entrants and thus the market will not be fully competitive.
ENDNOTES
1 OSIPTEL General Regulations D.S 008-2001-PCM, 2 February 2001.
2 A complete analysis of the relationship between telecommunications regulations and competition policy is included in Section 3.4.