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July 1999 Background; Conditional Access and Access Control The regulation of Access Control Regulated Supplier determinations The rationale for additional regulatory rules for Regulated Suppliers The purpose of market definition Access Control market definition in practice 3. Assessing market power for the purposes of Regulated Supplier determinations Factors relevant to assessing market power in the context of Regulated Supplier determinations 4. Effect of a Regulated Supplier determination These guidelines set out the approach the Director expects to take when considering a Regulated Supplier determination. A Regulated Supplier determination can only be made in respect of Access Control services. Access Control services are services which control the supply of digital services to end-users. Examples of Access Control services include services for authenticating identity and services for encrypting or decrypting digital services that are not intended to be available to all. The digital services that might be controlled include home shopping and home banking services delivered via a set-top box or a digital interactive television set. Access Control services are not supplied directly to end-users but are supplied to third parties (such as retailers or banks) who wish to supply digital services to end-users. A Regulated Supplier determination ‘triggers’ additional obligations that would otherwise lie dormant within the licence. The conditions that are triggered by a Regulated Supplier determination are designed to prevent the licensee using its position in the supply of Access Control services to behave anti-competitively towards third parties who wish to supply digital services to end-users. The ultimate purpose of the triggered conditions is to prevent anti-competitive behaviour against third parties that would result in reduced consumer welfare; for example by restricting the choice of digital services available to end-users where no good substitutes exist or by raising the prices of digital services to end-users by restricting the availability of alternative digital services. A Regulated Supplier determination can only be made in respect of Access Control services and can therefore only be made in instances where the licensee supplies or intends to supply Access Control services and third parties have requested the provision of Access Control services from the licensee for the purposes of supplying end-users with digital services. However, a Regulated Supplier determination will only be made where the supplier of Access Control services is in a dominant position or has Market Influence within the relevant market within which those Access Control services fall. In making a Regulated Supplier determination the Director must, therefore, define the relevant market and assess whether the licensee is in a dominant position or has Market Influence within that relevant market. The contents of the guidelines are as follows;
Background; Conditional Access and Access Control 1.1 Services which control the supply of digital television services to end-users are referred to as ‘Conditional Access services’. Conditional Access services are used for a number of reasons including, for example, ensuring that only end-users who have paid for a particular digital programme receive it. Conditional Access services include services such as the scrambling of digital television broadcasts; the receipt and processing of impulse pay-per-view; and, the origination and encryption of messages authorising end-users receipt of digital television services. Conditional Access services are not supplied directly to end-users but are supplied to third parties (broadcasters, such as the BBC) who wish to supply digital television services to end-users. 1.2 Oftel is responsible for regulating Conditional Access services for digital television services under the Advanced Television Services Regulations 1996 and the Class Licence for Conditional Access Services issued in January 1997. The Regulations and Class Licence implement the Advanced Television Standards Directive (95/47/EC) in the UK. For further discussion of the regulation of Conditional Access services, see The Regulation of Conditional Access for Digital Television Services: Oftel Guidelines, March 1997. 1.3 However, there was concern that there was no corresponding regime for the regulation of services which control the supply of digital services other than digital television services to end-users. Services which control the supply of digital services other than digital television services to end-users are referred to as ‘Access Control services’. Access Control services are not supplied directly to end-users but are supplied to third parties (that might include retailers and banks) who wish to supply digital services to end-users. The types of digital services third parties might want to provide end-users which Access Control services might be used to control could include;
1.4 The following list contains the five general types of Access Control services as set out in the draft Access Control licence that are expected to be offered in the foreseeable future. Such a list cannot, by the nature of Access Control services, be exclusive as rapid technological makes it possible that different ways of delivering Access Control services may appear;
1.5 It should be noted that network services and services provided to systems service providers (e.g. mobile air-time providers) are not Access Control services. 1.6 Conditional Access regulation was, following a joint Oftel/DTI consultation in July 1997 (Extending the regulatory regime for conditional access services), extended to cover Access Control services. This was implemented as part of the Telecommunications Services Licence, issued in December 1997 (conditions relating to the regulation of Access Control are now contained in the draft Access Control Licence which is currently being consulted on). The Access Control regime was thus designed to extend the scope of the Conditional Access regime to cover services which control access to digital services excluding those services (i.e.; digital television services) already covered by the Conditional Access regime. The regulation of Access Control 1.7 The Conditional Access regime automatically applies to all suppliers of Conditional Access services. The Access Control regime (outlined in section 4) only applies to suppliers of Access Control services who have been determined by the Director to be ‘Regulated Suppliers’. This is to ensure that the regulatory regime is not extended unnecessarily while putting in place a framework to enable swift and direct action if competition problems emerge or are likely to emerge in respect of Access Control. 1.8 These guidelines are intended to set out the general principles that the Director would expect to follow when considering a Regulated Supplier determination. However, they do not form part of the licence and they do not affect its legal scope. The Director would normally expect to follow them and to give his reasons if he departed from them. The Director cannot legally fetter his discretion in advance and therefore he retains the ability to depart from the guidelines where the circumstances warrant it. The guidelines are, therefore, not legally binding on the Director. The guidelines will be updated from time to time to take into account developments in the telecommunications sector in the future. Regulated Supplier determinations 1.9 The Regulated Supplier determination trigger requires that certain tests are passed (see the revised draft trigger in the draft Access Control licence on the DTI website which is currently being consulted on). These tests are as follows;
1.10 Once these tests are passed the Director must consider the position of the Access Control supplier before making a Regulated Supplier determination. A Regulated Supplier determination depends on the Access Control supplier being in a dominant position or having Market Influence within the relevant market in which Access Control services are provided. Thus, in making a Regulated Supplier determination the Director must;
1.11 When defining markets and assessing whether the licensee is in a dominant position or has Market Influence within the relevant market, the Director will have regard to any relevant judgement of the European Court of Justice or decision or statement of the European Commission and will act so as to ensure there is no inconsistency with the principles contained in the Competition Act. The rationale for additional regulatory rules for Regulated Suppliers 1.12 This sub-section outlines why it is necessary to impose additional regulatory rules on suppliers of Access Control services that are in a dominant position or have Market Influence in the relevant market within which Access Control services fall (i.e.; ‘Regulated Suppliers’). 1.13 A Regulated Supplier determination ‘triggers’ additional obligations that would otherwise lie dormant within the licence. The triggered conditions are outlined in section 4. The conditions that are triggered by a Regulated Supplier determination are designed to prevent the licensee using its position in the supply of Access Control services to behave anti-competitively towards third parties who wish to supply digital services to end-users. 1.14 The ultimate purpose of the triggered conditions is to prevent anti-competitive behaviour by the Regulated Supplier against third parties that would result in reduced end-user welfare; for example by restricting the choice of digital services available to end-users where no good substitutes exist or by raising the prices of digital services to end-users by restricting the availability of alternative digital services. Thus, the concern over dominance or Market Influence in the relevant market within which Access Control services fall is predicated on concerns over the possibility that dominance or Market Influence in that market may be levered into a related market. Such anti-competitive behaviour may distort competition in the related market to the detriment of end-users. 1.15 As a general proposition, therefore, dominance or Market Influence in the relevant market within which Access Control services fall is most likely to lead to significant competition concerns where the supplier of Access Control services also operates in related markets. Thus, where a firm is in a dominant position or has Market Influence in one market and is integrated into markets related to that market, then, as a general proposition, it may have the ability to affect adversely competition in those related markets. 1.16 For example, third parties may rely on a vertically integrated company for the provision of Access Control services while at the same time competing with that vertically integrated operator in the relevant end-user market. If the vertically integrated operator were in a dominant position or a position of Market Influence in the provision of Access Control services there could be scope for it to leverage its dominant position or Market Influence into the relevant end-user market by, for example, raising the price of Access Control services to third parties or offering Access Control and other services only as a bundled package, etc. The EC Notice on the application of the competition rules to access agreements in the telecommunications sector states that the European Court of Justice analysis in the Tetrapak case (which concerned the leverage of dominance between closely related horizontal markets) is "equally applicable…to closely related vertical markets". That Notice goes on to state that where an operator has; "a very high degree of market power on at least one of those [closely related markets]…it may be appropriate…to find that the particular operator was in a situation comparable to that of holding a dominant position on the markets in question as a whole."
2.1 This section on market definition reflects current practice by competition authorities in Europe, North America and elsewhere. In particular these guidelines have taken the approach of the European Commission as set out in its Notice on the definition of the relevant market for the purposes of Community competition law into account. The approach to market definition outlined here is also consistent with that set out in the Office of Fair Trading’s guidelines; Competition Act 1998: Market definition. The purpose of market definition 2.2 In order to establish whether an operator is in a dominant position or has Market Influence in respect of the supply of Access Control services, it is necessary to define the relevant market (or markets) within which the Access Control services are provided and then to set the analysis of market power against the background of the operation of competition in the relevant market(s). 2.3 Market definition can thus be regarded as one stage of a Regulated Supplier determination, with the investigation of the operation of competition in the relevant market for Access Control services to establish whether the licensee is in a dominant position or has Market Influence being a closely related stage. The purpose of defining the relevant market is to provide a framework within which to analyse the operation of competition - market definition is not an end in itself. 2.4 However, it is important to be clear that these two stages should not be regarded as separate, self-contained exercises. There is an interaction between the two stages, not least because there is often an overlap in the sort of information required to define the relevant market and to assess the extent of competition. In any case, market definition is not an exact science and therefore invariably involves some element of judgement; it cannot be based purely on mechanistic rules. A consideration of the factors that are important in market definition is a useful discipline in that it should involve a careful review of the information required to build up a picture of the relevant product market and the way in which operators operate and compete within it. 2.5 Market definition is therefore an important stage in making an Regulated Supplier determination because:
2.6 Firms often use the term ‘market’ to refer either to the area where they sell their products (the terms ‘products’ and ‘services’ are used interchangeably throughout the text) or more generally the sector to which they belong. However, in the context of a Regulated Supplier determination, the term ‘market’, or more specifically the relevant market, is used with a specific economic meaning and combines both a description of the product(s) (such as Access Control services and, potentially, other methods of providing the services in question) that make up the market and an assessment of the geographical dimension of the market. 2.7 The approach to market definition focuses on identifying the constraints on the price-setting behaviour of suppliers. There are two main competitive constraints to consider: how far it is possible for customers (who, in the case of Access Control services will not be end-users but will be third parties who wish to supply other digital services to end-users) to substitute other services or products for those in question (so-called demand-side substitution) and how far suppliers could increase or switch production capacity to supply, or supply more of, the relevant products (so-called supply-side substitution). It is also important to consider the geographical scope within which demand and supply-side substitution can take place. 2.8 In terms of examining the pricing constraints on an operator, the concept of the ‘hypothetical monopolist’ can be a useful analytical tool for identifying close demand-side and supply-side substitutes. Although it is not intended to be a representation of the actual market situation, the ‘hypothetical monopolist’ concept can be constructive in trying to set the boundaries to the relevant product market in practical terms. See the Office of Fair Trading’s guidelines; Competition Act 1998: Market definition for a general discussion of this concept. Access Control market definition in practice Product markets 2.9 A Regulated Supplier determination can only be made in respect of Access Control services. Examples of Access Control services are set out in paragraph 1.4 above. Thus, any market definition undertaken in the context of a possible Regulated Supplier determination will focus on defining the relevant market within which the Access Control services under consideration fall. As Access Control services are not supplied directly to end-users but are supplied to third parties who wish to supply digital services to end-users, the relevant market within which the Access Control services fall will hereafter be referred to as ‘the relevant intermediate market’. The hypothetical monopolist test can be applied to the Access Control services under consideration to see whether alternative (but not necessarily identical) services are available to third parties to which they could switch, without significant effort and expense, if a hypothetical monopoly supplier of the Access Control services in question tried to implement a small but significant, non-transitory price increase. 2.10 However, while the focus will be on the relevant intermediate market within which the Access Control services in question fall, it is also necessary to define the relevant downstream market within which the digital services requiring Access Control services fall. The relevant market containing the digital services for which Access Control services are necessary will hereafter be referred to as ‘the relevant end-user market’. It is necessary to look at this market as, while Access Control services are not supplied directly to end-users but are supplied to third parties who wish to supply digital services to end-users, the potential impact on end-users of a decision to make or not make a Regulated Supplier determination is of central importance. A Regulated Supplier determination is not made to protect third parties but to protect the competitive process and in doing so ensuring that end-users are not harmed by positions of dominance or Market Influence in the relevant intermediate market. 2.11 If the digital services third parties wish to provide to end-users for which Access Control services are necessary have characteristics which mean close substitutes could be provided via non-digital means or via alternative digital means not requiring the Access Control services in question, the relevant end-user market may be quite wide. For example, if the digital service requiring Access Control services were the ordering of floral deliveries via set-top boxes or digital interactive television sets, the downstream relevant end-user market might also include high street florists and Personal Computer (PC) floral delivery services if these were considered as acceptable substitutes from the end-user perspective for the floral delivery services in question. 2.12 If this were the case, the implication would be when considering the relevant intermediate market that alternative digital (e.g.; PCs) and non-digital (e.g.; high street florists) forms of delivery may represent an equivalent and economic media for the delivery of services which are acceptable substitutes for those services which access is or could be controlled. This may mean that the relevant intermediate market is very wide and incorporates a number of gateways of which the Access Control services in question represent just one. In such a case, it is relatively unlikely that the supplier of those Access Control services (even if it were the only supplier of Access Control services) could be found to be in a dominant position or a position of Market Influence within that market. 2.13 Thus, while any Regulated Supplier determination will be based on the licensee’s position in the relevant intermediate market, the scope of this market will in part be determined by the scope of the downstream relevant end-user market. The interests of the end-user is at the heart of any market definition and is, therefore, central to any Regulated Supplier determination. Geographic markets 2.14 The relevant market is defined not only in terms of the products or services but also in terms of a particular geographic area: e.g. part of the UK, the whole UK etc. In trying to define the geographical boundaries to a product market the aim is to identify the extent to which the proximity of rival suppliers can impose competitive constraints on the operator in question. As with the analysis of the demand-side and the supply-side, the definition of the geographical scope of the market is based on an assessment of substitutability in response to changes in relative prices. The European Commission Notice on the definition of the relevant market for the purposes of Community competition law states that: "The relevant geographic markets comprises the area in which the undertakings concerned are involved in the supply and demand of products or services, in which the conditions of competition are sufficiently homogeneous and which can be distinguished from neighbouring areas because the conditions of competition are appreciably different in those areas." Prices 2.15 There is a risk that if the current price level for Access Control services is too high - i.e. because there is little competition in the provision of those services - an assessment of demand-side substitution based on this price level might encompass products which would not in fact be close substitutes if the price were closer to the competitive level. Any assessment of market definition must therefore take into account this potential difficulty. However, Oftel intends to proceed on the basis that the prevailing price levels provide a reasonable basis from which to start the analysis unless there is evidence to suggest that this is not in fact the case. Applied market definitions for the purposes of Regulated Supplier determinations 2.16 As the Director has not to date made any Regulated Supplier determinations it is not possible for Oftel to provide examples of how it has gone about defining the relevant market for the purposes of a Regulated Supplier determinations in the past. However, The European Commission (DGIV), in the context of British Interactive Broadcasting (BiB) Limited’s application for negative clearance or an individual decision to grant an Article 85(3) exemption have looked at, amongst other things, market definition where Access Control services are concerned (see OJE, 98/C 322/05). In considering Regulated Supplier determinations, the Director would, given his intention to have regard to any relevant judgement of the European Court of Justice or decision or statement of the Commission, expect to take the market definitions set out by the EC in this instance into account where relevant.
3. Assessing market power for the purposes of Regulated Supplier determinations 3.1 A Regulated Supplier determination will always involve assessing whether the licensee in question possesses market power to the extent that it is in a dominant position or has Market Influence in the relevant intermediate market(s). 3.2 Dominance was defined by the European Commission in United Brands (United Brands v Commission, ECR 207, 1978) as; ‘a position of economic strength enjoyed by an undertaking which enables it to prevent effective competition being maintained on the relevant market by affording it the power to behave to an appreciable extent independently of its competitors, customers and ultimately consumers.’ 3.3 Telecommunication Act licences define ‘Market Influence’ as the situation where an operator in any particular market has; ‘the ability to raise prices above the competitive level in that market for a non-transitory period without losing sales to such a degree as to make this unprofitable.’ 3.4 This section reviews some of the factors that may be taken into account when assessing whether a licensee is in a dominant position or has Market Influence. The approach set out here reflects current practice by competition authorities in Europe, North America and elsewhere. The approach to assessing market power outlined here is also consistent with that set out in the Office of Fair Trading’s Draft guidelines; Competition Act 1998: Assessment of market power and Oftel’s Draft Guidelines on Market Influence determinations. Factors relevant to assessing market power in the context of Regulated Supplier determinations 3.5 There are a number of factors which need to be considered when assessing whether a licensee supplying Access Control services is in a dominant position or has Market Influence and is therefore likely to be determined as a Regulated Supplier. A non-exhaustive list of relevant factors are set out below. They are:
3.6 See The Competition Act 1998; Assessment of market power Draft guidelines issued by the Office of Fair Trading for a general discussion of the above and other relevant factors (including, for example, a discussion of the number of other suppliers within the market which is particularly relevant in the case of Access Control services). Oftel’s Draft Guidelines on Market Influence determinations are also relevant. The sub-sections below on these factors focus on their relevance to a finding of dominance or Market Influence for the purpose of Regulated Supplier determinations. Market share 3.7 Although market share alone is a poor measure of market power, it is unlikely that a firm without a significant share of the relevant intermediate market would be in a dominant position or position of Market Influence. However, a large market share may not be sufficient to establish a dominant position or Market Influence – for example, if entry into the market is easy, there may be a strong threat of competition from new entrants. There could also be countervailing buyer power. If the relevant market has been defined correctly and firms have very low market shares, then they will almost certainly not themselves be in a dominant position or Market Influence. 3.8 The European Court of Justice held in the AKZO (ECR I-3359, 1991) case that there was a presumption of dominance, in the absence of evidence to the contrary, if a firm has a market share persistently above 50%. Above this level the onus would normally be on the firm to demonstrate that the specific market conditions meant it was not dominant. In United Brands the Court held that 40 - 45% may be sufficient but it would depend on other factors, notably the shares of other competitors and entry conditions. 3.9 Oftel considers that a market share of 25% can be used as a rule of thumb approximation below which operators are unlikely to possess market power. The 25% market share rule of thumb is consistent with the market share required for an investigation under the scale or complex monopoly provisions of the Fair Trading Act, 1973 and also consistent with the level beneath which the Director General of Fair Trading (and the regulators with concurrent powers) will take the view that an agreement, decision or concerted practice will generally not have an appreciable effect on competition for the purposes of the Chapter I (equivalent to Article 81 of the EC Treaty) prohibition of the Competition Act, 1998. Market share in the context of Market Influence is discussed further in Oftel’s Draft Guidelines on Market Influence determinations. 3.10 High market shares at a given point in time are not necessarily indicative of a dominant position or Market Influence: the AKZO case explicitly refers to a market share persistently in excess of 50%. There is thus a need to examine changes in the pattern of market shares over time. This will also mean that just because a firm is first into a new market (and hence temporarily has a 100% market share) that firm would not automatically be presumed to be dominant. This test – considering changes in the pattern of market shares over time - applies equally when considering Market Influence determinations. Barriers to entry 3.11 The extent to which the actions of existing players in a market are constrained by the threat of new entry into the market is a significant factor in assessing the degree of competition in a given market. The Competition Act 1998: Assessment of market power Draft guidelines issued by the Office of Fair Trading distinguish three sources of entry barriers: absolute advantages; strategic advantages, and exclusionary behaviour, and discusses entry barriers in some detail. 3.12 One relatively unfamiliar barrier to entry may arise specifically in the context of Access Control due to the possibility of ‘technological lock-in’. In some cases, end-users will have to have a device (hereafter referred to as the end-user component) for receiving digital services in respect of which the use of Access Control services is necessary. Set-top boxes for the receipt of digital interactive services delivered via television sets is one example of such an end-user component. When considering a Regulated Supplier determination, the extent to which an end-user component ‘locks’ end-users in to one provider of Access Control services may represent a significant barrier to entry for alternative suppliers of Access Control services. 3.13 The end-user component may represent a significant capital outlay from the end-users’ perspective. If it does, it may be uneconomic for the end-user to be in a position to receive digital services by means other than via the end-user component (and, therefore, the Access Control services) in question. In effect, the high ‘switching costs’ associated with the end-user component may effectively ‘lock-in’ the end-user to a single supplier of Access Control services acting as a barrier to entry to other potential suppliers of Access Control services. It should be noted that non-financial switching costs (such as end-user investment in knowledge relating to the correct use of the end-user component) may also arise. 3.14 The entry barrier represented by the technological lock-in may be taken into account in the context of a Regulated Supplier determination during the process of defining the relevant intermediate market. The inability of end-users to switch to alternative end-user components that embedded alternative Access Control services to the Access Control services in question would mean that the relevant intermediate market did not include these alternative Access Control services. Alternative Access Control services would not represent meaningful substitutes (as end-users could not switch to the end-user components within which alternative Access Control services were embedded) and they could not therefore be considered as part of the relevant intermediate market. In effect, the relevant intermediate market would only contain the Access Control services in question. However, as discussed in section 2, the relevant intermediate market may still include alternative digital (e.g.; PCs) or non-digital (e.g.; high street shops) means of delivery. 3.15 When considering the extent to which the barrier to entry represented by the technological lock-in excludes alternative Access Control services from the relevant intermediate market, Oftel would take into consideration the following;
3.16 This is a non-exhaustive list of factors relevant to the analysis of end-user switching costs (both financial and other): in the context of a Regulated Supplier determination they would each have to be considered on a case-by-case basis. Control of access to end-users 3.17 The extent to which an alternative supply of Access Control services can be obtained by the third party that wishes to supply digital services to end-users on an economic basis or at all may be an important factor in a Regulated Supplier determination. If there is no alternative supplier of Access Control services and services that may represent an effective substitute from the end-user perspective do not exist or cannot be delivered by other digital (e.g. PCs) or by non-digital (e.g. high-street shops) media, then the licensee who runs the Access Control services may well be in a position where it controls access to end-users. 3.18 However, in many instances it may not be possible to say unambiguously that there is no potential or actual alternative supplier of Access Control services. It would involve an element of judgement, but it may be that alternative Access Control services could not be secured from another source without imposing ‘unreasonable’ costs, penalties or inhibitions on the third party wishing to supply digital services. ‘Unreasonable’ costs, penalties or inhibitions would mean that those digital services cannot be brought to market or cannot compete with similar digital services already available on the market, and the licensee who runs the Access Control services may therefore be considered as having effective control of access to end-users. 3.19 It should be noted that control of access to end-users will often be related to switching costs. The entry barrier switching costs represent may lead to the Access Control provider having control of access to end-users as no other (potential) provider of Access Control services can establish itself as an effective competitor. It should also be noted that control of access to end-users is related to the availability of effective substitutes for the services in question in the relevant end-user market. If, for example, digital or non-digital services delivered via high street shops, PCs or other media are acceptable substitutes from the end-users perspective for the digital services in question, then the licensee who runs the Access Control services through which the digital services in question could pass may not have control of access to end-users even where it is the only supplier of Access Control services. 3.20 The possibility of a supplier of Access Control services having control of access to end-users has parallels with the essential facilities doctrine – which has been developed in the context of the EC competition rules (Article 82 of the EC Treaty – abuse of a dominant position). The EC Notice on the application of the competition rules to access agreements in the telecommunications sector (OJE 98/C 265/02) states that; ‘the expression essential facility is used to describe a facility or infrastructure which is essential for reaching customers and/or enabling competitors to carry on their business, and which cannot be replicated by any reasonable means.’ 3.21 One of the key points made in the EC Access Notice is whether "access to the facility in question is generally essential [i.e.; refusal of access must lead to the proposed activities being made either impossible or seriously and unavoidably uneconomic] in order for companies to compete on that related market." 3.22 However, while there are strong parallels between the essential facilities doctrine and control of access to end-users that will be taken into account where appropriate given the Director’s commitment to have due regard to relevant EC decisions and notices, it must be stressed that the essential facilities doctrine may only apply in very limited circumstances (see for example Oscar Bronner v Mediaprint ECJ C-7/97). Control of access to end-users is, as this section makes clear, only one (albeit a very important) factor that will be taken into account when considering a Regulated Supplier determination. Similarly, a licensee that supplies Access Control services may be found to be dominant (or in a position of Market Influence) even if it does not have absolute control of access to end-users. Applied assessments of market power in relation to Regulated Supplier determinations 3.23 As the Director has not to date made any Regulated Supplier determinations it is not possible for Oftel to provide examples of how it has gone about assessing market power for the purposes of a Regulated Supplier determinations in the past.
4. Effect of a Regulated Supplier determination 4.1 A Regulated Supplier determination based on dominance ‘triggers’ eight additional conditions that would otherwise lay dormant within the licence. A Regulated Supplier determination based on Market Influence ‘triggers’ two additional conditions that would otherwise lay dormant within the licence. 4.2 It should be emphasised that the conditions that are triggered are only relevant insofar as they apply to the licensee’s Access Control activities within the relevant intermediate market(s) in which it is determined to be a Regulated Supplier. However, certain of the conditions (prohibition on undue preference and undue discrimination, prohibition of linked sales and confidentiality of customer information) are designed to prevent the supplier of Access Control services levering its position into markets that are adjacent to the relevant intermediate market (in particular, the downstream relevant end-user market) - however, the prevention of leverage is achieved by regulation in and only in the market within which the licensee is determined to be a Regulated Supplier. 4.3 It should be noted that anti-competitive behaviour by Regulated Suppliers that breaches one or more of the triggered conditions may in some cases also breach the Fair Trading Condition which appears in the relevant Class Licences. A similar overlap between the triggered conditions and the Competition Act 1998 may also occur when that Act comes into force in March 2000. The draft guidelines Competition Act 1998: Application in the telecommunications sector (currently being consulted on) discuss which route the Director would expect to take in such instances. 4.4 The forbearance principle is contained in the revised draft trigger in the relevant Class Licences which are currently being consulted on. This empowers the Director to disapply some or all of the conditions or parts of the conditions that are triggered as a result of a Regulated Supplier determination. The Director may do this where the conditions or parts of conditions are unnecessary as the objectives of the conditions are being achieved by market forces or other means, or it is felt that the condition imposes an obligation on the Regulated Supplier that is disproportionate. The Director will set out in the relevant Regulated Supplier determination the conditions or parts of the conditions (if any) that he will forbear from applying. Any such dispensation may be time limited and the Director will only be able to revoke such a dispensation by making a new Regulated Supplier determination or with the consent of the licensee. 4.5 For example, the requirement to charge on a ‘fair and reasonable’ basis could amount to a form of rate of return regulation – the Director may in certain cases feel that this is disproportionate to the anti-competitive practices additional regulatory rules seek to address (and may also act so as to discourage supplier investment in providing alternative Access Control services) and would consider disapplying it. The Director will look at various factors when considering the application of the forbearance principle including the extent of any integration into related markets and the countervailing power of firms in related markets. For example, a third party that is dominant in the provision of a digital service for which there is strong end-user demand may be able to negotiate favourable terms with a Regulated Supplier of Access Control services in the absence of the full application of all the Regulated Supplier conditions. Indeed, it is possible that the full application of all the Regulated Supplier conditions may be counter-productive in that it could in such instances tip the relative balance of power between the third party and the Access Control supplier. 4.6 Conditions (1) and (2) apply to all Regulated Suppliers (i.e.; those who are either in a dominant position or Market Influence). (1) Prohibition on undue preference and undue discrimination 4.7 This condition prohibits the licensee from practising undue preference and undue discrimination in respect of charges, terms and conditions in the market within which it is a Regulated Supplier. Discrimination and preference within that market are not prohibited per se. Only undue discrimination or undue preference is prohibited. Oftel considers that discrimination or preference when practised by Regulated Supplier is likely to be considered to be undue when there is a material adverse effect on competition in downstream markets. In the context of Access Control, the Director assumes that discrimination or preference is not likely to be undue where;
4.8 In circumstance where these criteria are not met and the Director investigates a complaint or initiates an investigation, he will have particular regard to whether:
4.9 For further discussion of the application of this condition, see Section 3 of The Regulation of Conditional Access for Digital Television Services: Oftel Guidelines (March 1997), which are equally applicable to Access Control services. For a further discussion of this condition insofar as it relates to pricing issues, see The Pricing of Conditional Access and Access Control Services: Oftel Guidelines (April 1999). (2) Publication of charges, terms and conditions (the ‘price publication obligation’) 4.10 This condition requires that the licensee publishes in advance the precise charges, terms and conditions of those services that it supplies in the market within which it is determined to be a Regulated Supplier. The purpose of the price publication obligation is to allow Oftel and third parties to monitor discrimination and preference as they relate to the charges, terms and conditions that the Regulated Supplier is prescribing and hence to detect possible instances of undue discrimination and undue preference. 4.11 Conditions (3) to (8) only apply to Regulated Suppliers who are dominant. (3) Requirements relating to the provision of Access Control services 4.12 To ensure fair and reasonable pricing of Access Control services to third parties, Oftel will require Regulated Suppliers to charge according to the following general principles:
4.13 These principles ensure that Regulated Suppliers:
4.14 For further discussion of pricing issues, see The Pricing of Conditional Access and Access Control Services: Oftel Guidelines (April 1999). (4) Co-operation with network operators 4.15 This condition would be relevant where an access control service could have the effect of preventing customers of certain networks from receiving the underlying retail service at all, even though that network was interconnected with another network whose customers were able to receive the retail service. For example, an access control service designed in connection with satellite TV-based interactive services might have the effect of preventing cable TV customers from accessing the interactive services, even though they had access to the underlying TV service. In such circumstances, the provider of the access control service would be obliged to give reasonable co-operation to the cable operator to facilitate reception of the interactive services by authorised cable customers. (5) Prohibition of linked sales 4.16 This condition requires that the Regulated Supplier must not offer services bundled with other services to prevent the leverage of dominance into the markets within which those other services are provided. Examples of linked sales that may breach this prohibition include where:
(6) Intellectual property 4.17 This condition requires that Intellectual Property Rights (IPRs) under the control of the Regulated Supplier or any member of the Regulated Supplier’s group be made available to others on reasonable charges, terms and conditions. This condition aims to prohibit the Regulated Supplier abusing IPRs for anti-competitive purposes. (7) Requirement to keep separate financial accounts 4.18 The requirement to keep separate financial accounts in this condition underpins the operation of the requirement to offer access control services on fair and reasonable terms, and also the prohibition on undue preference and undue discrimination. It is a mechanism to ensure that where questions arise in relation to alleged anti-competitive behaviour and/or failure to offer services on the required terms, adequate information is available to the Director to come to the necessary conclusions in a timely manner. (8) Confidentiality of customer information 4.19 This condition contains a number of requirements with respect to the confidentiality of subscriber data and other confidential information provided by third parties to the Regulated Supplier during the course of supply of Access Control services. It includes an obligation on the Regulated Supplier to take positive steps to ensure that, for example, data is not passed to any business with which the Regulated Supplier is linked and to prevent data being used for purposes other than those for which it is intended.
The consultation on these draft Guidelines will run until 20 August 1999. Comments are invited on any aspect of these draft Guidelines. Written comments should be submitted to: David O’Neill Oftel Fax: 0171 634 8757 Written comments will be made publicly available on Oftel’s website except where respondents indicate that their response or parts of it are confidential. Respondents are therefore asked to separate out any confidential material into a confidential annex which is clearly marked as such. In the interests of transparency, respondents are requested to avoid confidentiality markings wherever possible. Oftel is willing to set up a link between this document on Oftel’s pages and any responses placed on respondents’ own Internet pages. Please contact Lauren Ryner at Oftel on 0171 634 8753 should you wish to arrange this. Confidential responses should not be sent via the Internet. Alternative formats Oftel documents are also available in alternative formats. Copies on disk in various formats and in large print are available. We also offer braille and tape copies of the summary on request. Please contact the Oftel Research & Intelligence Unit on 0171 634 8617, or e-mail, or call Textphone 0171 634 8769 for more information.
Advanced Television Standards Directive (95/47/EC) Class Licence for Conditional Access Services, January 1997 Telecommunications Services Licence, December 1997 Access Control (Draft) Licence (see DTI website), July 1999 European Commission, Notice on the definition of the relevant market for the purposes of Community competition law European Commission, Application for negative clearance or an individual decision to grant an exemption pursuant to Article 85(3) of the EC Treaty (OJE, 98/C 322/05) European Commission, EC Notice on the application of the competition rules to access agreements in the telecommunications sector (OJE 98/C 265/02) Oftel, The Regulation of Conditional Access for Digital Television Services: Oftel Guidelines, March 1997 Oftel, Draft guidelines on Market influence determinations, April 1999 Oftel, The Pricing of Conditional Access and Access Control Services: Oftel Guidelines May 1999 Oftel/DTI, Extending the regulatory regime for conditional access services, July 1997 Office of Fair Trading Guidelines, Competition Act 1998: Market definition Office of Fair Trading Draft Guidelines Competition Act 1998: Assessment of market power.
Access Control services: services which control the supply of digital services (other than digital television services) to end-users. Examples of Access Control services include services for authenticating identity and services for encrypting or decrypting digital services that are not intended to be available to all. Conditional Access services: services which control the supply of digital television services to end-users. Examples of Conditional Access services include the scrambling of digital television broadcasts End-user component: a device for receiving digital services in respect of which the use of Access Control services is necessary. Set-top boxes for the receipt of digital interactive services delivered via television sets is one example. Market Influence: the ability to raise prices above the competitive level for a non-transitory period. Regulated Supplier: a supplier of Access Control services that has been determined by the Director to be a Regulated Supplier (the determination will be based on finding that the firm in question is dominant or has Market Influence in the relevant intermediate market within which the Access Control services it supplies fall). Relevant end-user market: the generic term used when referring to the relevant market within which the digital services requiring Access Control services fall. Depending on the digital services in question the relevant end-user market may include non-digital services and digital services not requiring Access Control service. Relevant intermediate market: the generic term used when referring to the relevant market within which the Access Control services fall; it recognises that Access Control services are not supplied directly to end-users but are supplied to third parties who wish to supply digital services to end-users. Third party: a firm that wishes to provide end-users with a digital service in respect of which the use of Access Control services is necessary. Third parties could be retailers or banks, for example.
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