Regulate telecom oligopolies on a case-by-case basis, Dutch authority says

7 February 2017. By Magnus Franklin. 

The Dutch telecom regulator has questioned a senior EU official's apparent suggestion that "oligopolies" in the sector shouldn't be regulated, calling it an invitation for a "romantic dance" between operators.

Johan Keetelaar, director of telecom at the consumer and market authority ACM, has penned a joint letter with ACM economic adviser Marcel Canoy, arguing that authorities must be able to decide "on the merits of each case" whether a telecom market requires intervention — ensuring operators engage in what they call a "disruptive dance."

The Netherlands is a poster child for a duopolistic fixed-network market, and the pair were pushing back at a warning by Anthony Whelan, the European Commission's director in charge of telecom, who had argued against automatic regulation of oligopolies.

They reject the argument that introducing regulatory obligations in a market with only two players is "effectively to say that regulation should be there forever," as Whelan said at a conference on Jan. 25.

"We don't want a tango, a romantic dance where partners synchronize their moves in a smooth and elegant way," the Dutch duo wrote. "What we want are disruptive dances such as pogo, circle pit or Balinese monkey dances" among operators that are "constantly on the move in a dynamic fashion." Regulation helps make sure that operators dance the right kind of dance, they said.

How, or if, oligopolies should be regulated is one of telecom policy's most-contested topics.

Traditional telecom regulation is based on the assumption that a dominant operator — typically a former state monopoly — should have to allow rivals to access key parts of its network to establish a foothold and eventually offer "sustainable" competition. That then allows for the withdrawal of the market-opening regulations.

But years of analysis have failed to establish a way to deal with situations such as those in the Netherlands and Belgium, where a nationwide cable operator matches the market power of the former state monopoly, creating a duopoly.

If the duopoly or oligopoly is "tight," and the main operators have no interest in continuing to give wholesale deals to others, removing obligations under the traditional model could mean those smaller operators being ejected from the market. The upshot is limited choice and higher prices for consumers.

Tendencies and uncertainties

Whelan's caution over regulating oligopolies was a corollary to what he said was an apparent tendency of telecom markets to consolidate around one or two players.

One feature of the European telecom landscape is a recent trend both toward operators pooling money to co-invest in mobile networks, and toward two-player fixed-network markets similar to that in the Netherlands.

But Keetelaar told MLex that the telecom market is too dynamic for such situations to be inevitable. "I don't believe endgame-type stories," he said.

He called for "more clarity" on how oligopolies are treated when EU lawmakers update the law underpinning telecom-sector regulation — a process launched in September 2016 and expected to continue into spring 2018.

In parallel, the European Commission will in the coming months launch a review of its "significant market power" guidelines. Though non-binding, they should offer another opportunity for national watchdogs to spell out when operators need to be regulated.

Canoy said regulators, governments and the commission "should share the same logic, and historically have shared this logic" that regulation should be underpinned by detailed economic analysis, rather than a "bias" towards deregulation.

"Yes, there is a tendency to deregulate, but this is not because of political or ideological reasons. It is because at every moment where an authority decides to deregulate, there was — on the merits of that case — no reason to regulate," Canoy added. "That should always be the logic."

Economic perspective

Keetelaar called for the updated law and significant-market-power guidelines to contain detailed advice — which he insisted should be based on economic evidence — to help regulators judge how to approach the regulation of duopolies.

He was also keen to point to a recent commission decision approving a Dutch joint venture between mobile operator Vodafone and cable operator Liberty Global.

That approval, the commission wrote, came "against the backdrop of existing access obligations" imposed on incumbent KPN. Keetelaar said this showed that even competition authorities see the value of access rules also in markets with two national operators, rather than just one dominant one.

He also dismissed the argument often made by incumbent operators that regulation hampers investment. "For instance, in the Netherlands, we have regulation and plenty of investment. It is by no means clear that if we stop regulation, it will be good for investment."

Canoy, meanwhile, also pointed to the risk that automatic deregulation for oligopolistic markets could give regulators an "incentive" to let a dominant operator stay dominant in a market, otherwise "they would not be able to regulate it anymore."

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