Dealing with Market Power in Emerging Communications Markets Franco - - PowerPoint PPT Presentation

Dealing with Market Power in Emerging Communications Markets

Franco Papandrea Communication and Media Policy Institute University of Canberra ACCC Conference: Regulation, Industry Structure and Market Power Gold Coast, 31 July – 1 August, 2003

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Convergence and Regulation

Increasing substitution of delivery platforms Distortion because of distinct regulatory treatment of:

Telecommunication services Free to air broadcasting (radio and TV) Pay TV Other broadcasting (narrowcasting, datacasting, Multichannelling) Internet

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Convergence and Competition

Convergence suggests greater competition However, outcome is not clearcut At least three distinct possibilities

Dominant player in one market loses dominance in converged market Dominant player in one market retains dominance in converged market Non-dominant player in both markets becomes relatively more powerful in converged market

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Convergence & Market Power

Convergence poses problems for regulators and regulation Assessment of market power difficult

Power in pre-existing markets provides indication only where attributes of products do not change significantly in converged markets

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Implications for Regulation

Do not impede convergence if there is no undesirable concentration of market power Avoid different treatment of competitors Reduce regulation if competition increases Reconsider need for regulation when new services emerge Consider how to treat new substitutes for regulated services Increased risk for new investment

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Assessment of Competition

Substitutability is key determinant

Effect of price change in one product on customer demand for other product (SSNIP)

Other factors include:

Market shares (indicates concentration) Market behaviour (indicates market power) Vertical and horizontal integration (indicates potential leverage of power in related market) Barriers to entry (indicates contestability) Dynamic characteristics of market

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Assessment of New Technology

Lack data to test rigorously for market power Care required in defining converging markets

Narrow definition likely to overstate market power Wide definition likely to understate market power

Traditional tests may define markets narrowly

Static framework inappropriate for rapidly changing markets With changing market potential competition more important than existing competition

Important to complement traditional tests with qualitative analysis

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Some Examples of Problems

Cases illustrating some difficulties of defining markets and power

Foxtel-Australis merger proposals ULLS declaration and ADSL competition notice Bundling Digital TV/Datacasting policy

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Foxtel-Australis

Illustrates difficulty of defining market power changing market

“rapid growth of alternative … service provision means that market boundaries may change and … new markets may emerge in the near future” ACCC ACCC’s concluded Pay TV and FTA TV were in different markets. Merger seen as substantial reduction of competition in Pay TV market ACCC also concerned with effects in other markets including local telephony and broadband services First-mover advantage also a concern

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ULLS And ADSL

Concern about first-mover advantage Written assurances by Telstra not to introduce ADSL ahead of ULLS Simultaneous introduction did not avert attempts to use to frustrate competition Several disputes on ULLS pricing and issue of Competition Notice on ADSL one year later Telstra took further nine months to comply with notice and settle ULLS pricing disputes

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Bundling

Depending on nature of market bundling can be beneficial or detrimental to competition Benefits – improved efficiency in supply, pricing and marketing In competitive markets many of the benefits are passed to consumers Where there is market power in at least one of the bundled goods, bundling can be anticompetitive Difficult to set a standard approach to regulation

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Digital TV & Datacasting

Example of wrong approach Costly policy that stifles competition Main anticompetitive effects are

Ban on new FTA TV at least before 2007 HDTV standard that locks up all the available spectrum until digital conversion is completed Ban on multichannelling; and Arbitrary definition of a new service resulting in no

• ne interested in bidding for a datacasting licence