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Speech Fonteijn bij the IBA Conference, Amsterdam

06-06-2016

Op 6 juni 2016 was bestuursvoorzitter Chris Fonteijn keynote speaker op de IBA Communications and Competition Law Conference in Amsterdam. Zijn bijdrage ging onder meer uit over netneutraliteit, fusies & overnames en de online consument. Zijn speech is terug te lezen in onderstaande bijlage.

Lees hieronder de volledige speech van Fonteijn over onder andere netneutraliteit, fusies en overnames en de online consument.

Introduction

Ladies and gentlemen, good morning.

The Netherlands ACM combines sector-specific regulation with competition and consumer protection. As Chairman of this multifunctional authority, I have easy access to expertise on the different aspects of the telecommunications value chain. We have the benefit of a broad perspective on Electronic communications Regulation and our focus is on generating improvements in consumer-welfare. Consumer harm is a central element in our recent market analyses on local loop unbundling.

Our focus, at ACM, is on generating improvements in consumer-welfare. We use what we call a problem-oriented approach. First, we clearly identify whether there is a problem and what the problem is. When a problem is identified our objective is to solve it in the most effective and efficient way. This approach is visible also in our perspective on telecoms regulation and competition.

The topic of this conference – communications and competition law - is a topic which is close to my heart. Prior to being Chair at ACM, I was Chairman of the OPTA – the Independent Post and Telecommunications Regulator of the Netherlands, and also Chairman of BEREC - the European body of Regulatory Authorities on Telecommunication.

When I was asked to speak to you today, I recalled the last time I spoke at this IBA conference, in Vienna in May 2011. We hadn’t heard of Uber. I-pads were big news. What’sApp was just getting off the ground. Android and iOS emerged as the superpowers of mobile operating systems. Netflix had had a rough time on the stock exchange. At the European Commission, we had Neelie Kroes in Competition and Viviane Reding in Communications. Google launched Google +. I was standing here with my Blackberry. Crucially, I don’t think I mentioned any of these when I spoke to you.

And ACM did not exist! And even worse, I did not believe it ever would exist! The idea of combining telecommunications regulation with its specialized technical experts, with the arrogant competition authority, and the tiny consumer authority seemed like an ill-conceived plan. Doomed either to failure, or to years of frustration. And yet here we stand 5 years on. The ACM merger has been successful. We work well together, and we reap the benefits of working well together. And the technological world continues to develop at a lightening pace.

There are three points I will address here today. First, the regulation of access to networks. This is about which market circumstances justify access regulation and how this regulation should look like. I will include a comment here on net-neutrality. The second point relates more specifically to consolidation and merger control. The third point relates to the online consumer, and I will comment briefly on the recently published Communication from the European Commission on the subject of online platforms.

Access regulation

First, access regulation. The European Commission has recently consulted on how the new framework for electronic communication regulation should take shape. No doubt, you will hear a lot on this topic later today.

If you look at the results of the European Commission’s public consultation two main views can be distinguished. The first view is that of incumbents who are advocating lighter access regulation. They argue that this would increase return and therefore the incentives to invest. This would lead to more dynamic competition and eventually a better deal for users.

The second view is that of parties using regulated access. They argue that access regulation is still necessary to ensure sufficient competition and it is this competition that drives investment. Notwithstanding these opposite views, it is worth noting that both sides agree on one thing. We must have sufficient investment. The debate centres on the optimal level of competition that is needed to drive that investment.

So where is ACM in this debate? Well – it may sound clichéd – but I would say we are somewhere in the middle. I will explain with examples of the markets in the Netherlands, which is of course the market I know best. When you look at the fixed market in the Netherlands, a very important characteristic is the equally balanced market positions of the incumbent – KPN – and the cable operators. Of these cable operators it is Ziggo – which is owned by Liberty Global – that is by far the largest with more than 90% household coverage.

In terms of fixed market shares, cable and the incumbent are more or less equal. This means that the traditional single dominance disappears. But does that mean that we have a competitive market in which no access regulation is necessary?

We think this is not the case. We focus on the problem in the market. We start with the market structure. What would it look like in the absence of access regulation. Hypothetically speaking. In this situation there would be only two fixed network operators serving the consumer market. What is the problem with having only two fixed networks? It’s better than one. But we think this market structure has characteristics that make it conducive to coordination.

The most important issue in this assessment is the equally balanced market position, especially visible in market share. It is a duopoly. Yes, there are also differences between the incumbent and cable – for example in the technologies they employ – but are these the differences that provide incentives to compete vigorously? We doubt this. They hold the same position in the value-chain. The incentives to maintain the status quo are the same on both sides. And why should they voluntarily provide access at competitive conditions?

It is also worthwhile to look at the US market where there is no access regulation. Does this market deliver a great outcome for consumers? We doubt it, because the prices are quite high. The average American pays more than 100 dollars for triple play.

Our assessment is that such access regulation is not only important on the fixed market itself but also for the mobile market. Fixed-mobile bundles – Quad Play – are becoming more important and mobile operators without a fixed arm could be vulnerable. So regarding the need for access regulation we would agree with access seekers and conclude that access regulation is still necessary, at least in the Netherlands. Two is not enough – that is what we said many years ago, and what we still say today.

The question is whether the current regulatory regime is able to cope with this duopoly situation in an optimal way. We think not. There could be costly errors: if access seekers disappear from the market, following a withdrawal of access regulation, they will not return very easily, even when access regulation is reintroduced. In the new framework we have to keep in mind the problem, (consumer harm) on the national markets, that we are trying to solve.

In the Netherlands, for example, our Ministry argues for the adoption of a symmetrical regulatory model in the New Regulatory Framework. This model would allow us to deal with a duopolistic market structure in fixed access networks (incumbent and cable). Such a symmetric model would entail an obligation for both networks to negotiate access on request of access seekers. But it is not enough to focus solely on the need for access regulation, because we also need to examine the investment incentives very closely. This is why we are positioned, as a regulator, between the views of the access providers and the access seekers, as I sketched earlier.

One example of how we take investment incentives into account is in our recent market analyses on local loop unbundling. KPN wanted more regulatory space to upgrade parts of its copper access network; but that prevented certain types of regulatory access. It negotiated terms with access seekers in a private settlement but under the pressure of our regulation. After a deal was struck, we were able to embrace the deal in our decision.

So I would argue that we need a balanced approach that takes the legitimate interests of both access seekers and access providers into account. An approach that ensures that parties get to the table, but leaves as much room as possible for them to reach their own common understanding.

Net-neutrality

When talking about competition and online services, one has to address the issue of net-neutrality. Especially today. As some of you are aware, BEREC will publish draft guidelines on net neutrality later today. I’m sure this will arise in the next session this morning, on hot topics. With these
guidelines, BEREC further defines the rules for net neutrality resulting from the political compromise agreed in Brussels last Autumn. These rules are set down in the Open Internet Regulation.

The idea behind the Regulation is that end-users have the right to determine themselves how they use the internet. On a different level, the regulation recognizes the importance of “the continued functioning of the internet ecosystem as an engine of innovation”. And this innovation is an essential ingredient for competition on the internet, that is competition between online services (or app providers).

Now, you might wonder whether I am going to tell you what is in the draft guidelines. Well, I am not, as BEREC will dedicate a press conference to net neutrality in Brussels later today. But let me give you some thoughts on one of the key subjects in this regulation. The issue of Zero-rating. What is zero-rating? Most mobile internet subscriptions have a data cap. When the provider does not count data used by an application against the cap, this is called zero-rating. These data are zero-rated, other data are paid for and these affect your bundle.

The problem is that by applying zero-rating, the telecom provider actually intervenes in the competition process between online services. The service that is zero-rated gets an advantage over the ones that are not, regardless of the quality or the price of the service itself. Opponents of Net neutrality argue that by applying zero-rating, the telecom provider can also distinguish himself from other telco’s, by associating with a certain popular service. Proponents claim that zero-rating should be banned as it positively discriminates friendly services over other services

The Netherlands has a law, since 2012, and the widely accepted reading of it is that zero-rating is not allowed. The main goal of the Net Neutrality regulation is to have a harmonized approach in the EU on this subject. The Dutch law would seem to interfere with this goal of harmonization. The EU regulation seems to leave room for certain types of zero-rating. It is in this grey area that the BEREC guidelines will give more clarity.

Whether it is access regulation or net neutrality regulation, we need to think, what is the problem, and how can we help the consumer? And this requires effort on the part of the national regulator. It’s not a question of sitting back and waiting for the Commission to come up with the answers.
So just in case you thought the NRAs were going to be out of a job….

Mergers

Now, we know that these technological and accompanying regulatory changes carry the likelihood of increased consolidation as companies endeavour to ensure enough crucial mass to finance their network. Which brings me to my second point, the issue of telecommunications mergers. You have a session this afternoon, after lunch, devoted to Consolidation, Incentives to Invest and Convergence.

In relation to telecommunications mergers, I would like to say the following. The move to more consolidations was predicted. If we look back over the past years, since I last stood here we see Mobile mergers proposed in Austria, Ireland, Germany, Norway, Denmark, the UK and Italy. We see fixed line mergers in Portugal, Germany, Spain, the UK and Belgium. Plus the UPC Ziggo merger in the Netherlands in cable, and the current joint venture proposal between Vodafone and Ziggo in the Netherlands in February of this year.

I read in the professional commentaries and literature statements about how the “Competition Commissioner is a known opponent of market consolidation” or that merging parties can expect “a stricter review of their deals by the national authorities”. under their national merger control rules compared to a review carried out by the European Commission under the EU Merger Regulation. These statements are simplistic and unfounded.

In fact we have the same merger rules as the European Commission and face the same increasingly complex questions of market definition and a rigorous analysis of competitive effects. We cannot assess mergers on subjective criteria and nor do we do so. We look at the facts before us, on a case by case basis. We look at the theory of harm.

Regardless of whether the merger is dealt with at national or European level, the European and national authorities consult with eachother. The Commission makes use of the expertise of the independent authority in the relevant member state. Especially, when that expertise relates to whether proposed remedies are likely to alleviate the competition problems caused by the merger. ACM has the added advantage of being a combined authority with competition and regulatory powers in telecoms. And the Commission knows this and makes use of it.

Even in the UPC Ziggo merger, where I was very frank and public about ACM’s disappointment at the Commission’s refusal of our request for referral. Even in that case, we subsequently enjoyed an excellent level of cooperation between our case team and that of the Commission in the actual merger assessment.

Institutional design

I think that being a multifunctional authority gives us a broader perspective. We have the benefit of access to expertise on the consumer front, on the competition front, and on the regulatory front. ACM has its origins in the combination of three authorities, the OPTA, the Netherlands Competition Authority and the Netherlands Consumer Authority. Antonio Capobianco from the OECD and Professor Annetje Ottow will be talking later today about the advantages and disadvantages of multifunctionality.

Synergy

A recent example of synergy at ACM is the market analysis decision that we published in 2015 to extend the access conditions imposed on Dutch telecom incumbent, KPN. The market analysis was concluded around the same time that ACM was requested to reassess the remedies in the KPN/Reggefiber merger. As a result of the measures following the market analysis, KPN would continue to allow other parties to offer consumers and businesses access on its fiber-optic network as well. Therefore, KPN’s full acquisition of fiber-optic provider Reggefiber could be approved without remedies.

This decision was recently upheld by the Dutch court. The Court affirmed that there was no need for specific remedies in this situation. Back in 2008, OPTA and the NMa dealt with a concentration decision between these two parties. We cooperated effectively on that decision.

The difference between 2008 and now, is that in 2008, the cooperation required far more effort and negotiation between the two authorities. Today, we are in a position to use joint teams, with experts from the regulatory and the competition side. We can work far more swiftly. We can decide the issues jointly at management level, and the authority can speak with one voice.

We see structural changes on international telecommunications markets – and this raises a legitimate question about the need for structural changes among regulators. The shifting boundaries between content and infrastructure are evident in the Commission’s proposals last week on keeping markets open and non-discriminatory to foster a data-driven economy.

Online sales and ‘platformisation’ have opened multiple new distribution dimensions that may require a fresh look on the application of competition rules. Also in our contacts with the Dutch data protection agency, we see the increasing importance of privacy, due to new business models, where data has become the new currency.

Online consumer

One of ACM’s priorities for 2016-2017 is the online consumer, and this is the last point I want to address today. We need to shape and sharpen the debate on the appropriate competition regime for the age of online distribution. The world has changed in the last five years. Online sales and ‘platformisation’ have opened multiple new distribution dimensions that may require a fresh look on the application of competition rules. Regulating digital platforms is also the subject of a session here later this morning.

A lot of study has been devoted to the way internet shapes distribution of goods and services, both from the business and consumer perspective. The potential effects of increased transparency, lower search costs and network effects have been well described.

I believe that the debate would benefit from a clear consumer welfare perspective. What is driving business response to the opportunities and challenges that internet offers? Is the business response aimed at legitimately protecting investments that benefit consumers, or is it, in a harmful way, aimed at shielding itself from strong price competition?

Consumers are becoming footloose. They can switch suppliers, instantly and on a large scale. This is not the moment, in my view, to rush to label more types of vertical arrangements as hard core, or to crush budding business models.

Privacy

The importance of consumer data for many online platforms brings legitimate concerns. In that regard, I was pleased to see the reference to privacy in the Commission’s Communication on Online Platforms. We have the General Data Protection rules, which were recently overhauled in order to take the digital environment into account. It will be interesting to see whether in light of the recent overhaul of the General Data Protection rules, whether sector-specific rules will still be warranted, and if so, in which circumstances. I’m sure this will be the subject of discussion in this afternoon’s debate on this issue.

While competition and privacy interests may coincide, they may at times also conflict. For example, online platforms may have an incentive to reserve consumer data for their own use. Competitors may face an unsurmountable barrier if certain data is really crucial to their business but is not available. On the other hand, forcing online platforms to share data with others may be against consumer interest from a privacy perspective. How do we balance competition and privacy interests in this context? This is a dynamic problem and it requires dynamic thinking.

As I said in the beginning: we value a problem-oriented approach. When no problem is found: no regulation is necessary.

Conclusion

The fact is we do not yet fully understand how the different effects balance out in the internet era. We need more data, empirical knowledge, a better understanding of the interaction between consumers and companies, between online and offline distribution. The discussions within the European Competition Network (ECN) and the European Commission’s E-commerce sector inquiry are helping us in that regard.

In conclusion, these are topics that require an open debate, within the community, within the ECN and within national competition and regulatory authorities. That debate should be based on a thorough understanding of effects on consumer welfare. Drawing stricter boundaries in these dynamic markets is like increasing the height of a dike and expecting to control the entire sea. I believe that by focusing on the consumer perspective and restricting our interventions to truly harmful conduct, we can reap the benefits of innovation and competition.

I will leave you with ACM’s recent attempt  to teach consumers about the role they play in this new data-driven marketplace. Because at ACM we believe that competition cannot work properly unless consumers understand their role in the competitive process.