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1. Under the new
EU directives Oftel is required to carry out reviews of a wide range
of markets to identify the competitiveness of the market and propose
appropriate regulatory responses. These reviews will take place over
the period to summer 2003. Draft market definitions for the markets
to be examined have now been published and can be accessed at: http://www.oftel.gov.uk/ind_info/eu_directives/eu_mr/index.htm
2. The reviews will
need a solid evidence base on which to define markets, assess market
power and understand the wider market. The purpose of this document
is to outline the existing sources of data within Oftel and the processes
which we are planning to put in place to maximise the effectiveness
of data gathering where it is necessary to collect additional data to
inform our analysis. It also sets out the type of information Oftel
will use in order to analyse markets and decide what the appropriate
regulatory responses should be.
3. It is important
to recognise that the review process is split into three distinct phases:
- Initial
information and data gathering
This is intended
to provide an evidence base on which to analyse current and future
market developments, to assess whether an operator(s) has SMP, and
consider the appropriate regulatory remedies.
- Public
consultation
Following the data
gathering process a consultation document will be issued and comments
will be invited from interested parties on the competitiveness of the
market reviewed and the appropriate remedies.
- Publication
of a Statement by the Director General of Oftel
This will conclude
the review process. It will set out the competitiveness of the market
and also any regulatory remedies which Oftel deems appropriate to
introduce or to roll back.
4. Operators are
required to provide the Director with specified information under various
provisions. Oftel hopes that stakeholders will provide information to
Oftel on a voluntary basis, but will consider using these powers if
necessary. Typically, Oftel intends to allow data providers two to four
weeks from the initial request to compile and submit information to
the review teams.
Existing data
sources
5. Oftel holds a
significant amount of in-house information and collects a wide range
of data on various aspects of the industry. This data is used to inform
policy decision making and to monitor the effects of regulation. Wherever
possible, Oftel will draw from existing sources for the purposes of
the EU reviews, however, despite this comprehensive evidence base there
will remain specific areas where it is necessary to collect additional
data. The main existing data sources are outlined below:
- Market
information (MI)
The market information
project involves the regular collection of data from industry. Oftel
has recently reviewed its regular market data requirements and believes
that the current scope is broadly sufficient for the review process,
although there will be specific areas which emerge in the course of
individual reviews.
- Market
research (MR)
The main requirements
of Oftel’s market research program are already well established and
relatively easy to expand upon. This means that there should be little
additional burden on operators, although Oftel would consider the
results of any research that stakeholders have conducted themselves.
- Price trends
(PT)
Oftel has a range
of sources for UK price information, which at most require operator
input only in terms of quality assurance.
- Benchmarking
(BCH)
In addition to
its own international benchmarking work Oftel can draw on other international
comparisons and information from other regulators. As for the regular
price monitoring work, there is some role for operators in quality
assurance.
- Market
analysis (MA)
Oftel already undertakes
its own analysis, but is likely to seek stakeholder views on a range
of issues relating to investment plans, current market conditions
etc.
- Financial
statistics (FS)
Accounting information
provided to Oftel by operators under regulatory accounting obligations.
- Technological
expertise (TE)
As for market analysis,
there is a broad base of Oftel knowledge but it may be necessary to
seek more information, particularly on future technologies.
6. Oftel also has
a number of additional data sources which it may draw on from time to
time. These include comparable performance indicator information (CPI),
quality of service information and consumer complaints information.
7. As well as the
regular collection of data, we monitor product and service availability.
For example, we keep a regular broadband product log and monitor fixed
and mobile packages as part of our price monitoring work. Our engineers
monitor technical developments by talking with stakeholders and suppliers
and by attending
seminars and courses. This additional information will also feed into
the EU market reviews.
Additional data
gathering
8. It is anticipated
that much of the data required for the EU market review programme will
be available from existing sources. However, it is inevitable that some
additional information will be necessary to ensure that Oftel review
teams have a sufficient evidence base on which to conduct the reviews
and that this will mean that there is some additional burden placed
on data providers.
9. While being aware
of the importance of this additional information, Oftel is conscious
of the need to ensure that the process of requesting additional ad-hoc
data for the market reviews minimises the burden placed on operators
and does not result in unnecessary duplication of effort. Oftel intends
to introduce a number of processes to ensure that this is the case,
concentrating on four main areas:
- prevention
of the duplication of data requests by Oftel;
- promoting
a joined up approach to data provision within operators;
- cross referencing
with data previously supplied to Oftel; and
- dialogue between
Oftel and data providers.
- Prevention
of the duplication of data requests by Oftel
10. A record of
all data requests for the EU review programme will be kept centrally
within Oftel. This will ensure that any ad-hoc data requested for the
reviews is not already available, or has not already been requested
for use in another review. Unless otherwise stated, Oftel intends to
share any information received between market reviews in order to minimise
the burden placed on data providers.
Promoting
a joined up approach to data provision within operators
11. Each operator
or service provider’s market information contact will be copied in on
all additional requests for data, regardless of whether the data is
to be sourced from themselves or an alternative contact within the company.
Cross
referencing with data previously supplied to Oftel
13. It is important
that any data submitted to Oftel for the EU review programme is consistent
with existing data sources. For example, more detailed information on
a product or service should reconcile with previously submitted aggregate
data. Where possible, any additional quantitative data submitted to
review teams in the course of the review will be cross referenced with
existing market information data by Oftel’s market information team.
14. It is in the
interests of both Oftel and data providers to minimise inconsistencies
between submissions as they will lead to additional demands on operators
in order to resolve any discrepancies. Where market information contacts
are not the source of EU review data they will have been made aware
of any data requests, enabling them to quality check the information
and cross-reference it with that previously submitted to Oftel.
Dialogue between
Oftel and data providers
15. Oftel intends
to maintain ongoing dialogue with data providers regarding the collection
of market information and information requests relating to the EU review
programme. This dialogue will at first be by letter, with further meetings
and forums on a company and industry basis to discuss data needs in
general and provide clarification of data requirements where necessary.
Types of information
16. The
reviews will assess SMP using the criteria set out in EU Guidelines.
These criteria are not exhaustive, neither are they cumulative: each
review will consider those criteria most relevant to the market being
analysed. The criteria can be viewed at: http://www.oftel.gov.uk/publications/about_oftel/2002/smpg0802.htm
17. The following
tables set out the type of data Oftel will need for its market reviews,
and the SMP criteria that each type of data will inform. Some data will
inform more than one SMP criterion; for example, market information
on customer numbers, minutes and revenues will inform the single dominance
criteria of ‘market shares’, ‘overall size of the undertaking’ and ‘highly
developed distribution and sales network’. Where Oftel has in-house
information, the in-house sources are indicated in the third column
of each table.
18. The data needs
set out in the tables below are not exhaustive and any information received
may be used to inform Oftel’s consideration of what, if any, the appropriate
regulatory remedies should be. Each review team will assess whether
it has sufficient in-house data or whether more is required from stakeholders.
It is likely that most reviews will require additional information from
stakeholders.
Table 1: Single
dominance criteria listed in EU Guidelines
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Data needs
|
EU
Criteria |
Main Oftel
sources
|
| Oftel’s
market information will form the basis of market share assessment;
some data may be collected regularly by Oftel but not published
as part of the regular series. More detailed market share data may
be requested specifically for the reviews. Any data not published
regularly will only be used when appropriate confidentiality issues
have been discussed with stakeholders. Further publicly available
information on the size, scale and history of companies may also
be used. |
Market shares
Overall size
of the undertaking
A highly developed
distribution and sales network
|
MI, MR,
MA
MI, MA
TE
|
| Oftel
may ask about the technologies stakeholders are using or may use
in future and whether these are unique to individual stakeholders.
We may already have this knowledge from our in-house engineering
expertise. |
Technological
advantages or superiority
|
TE, MR
|
| The
size of undertakings may inform this criteria. We may also ask stakeholders
who are customers of operators which services and how much they
purchase and ask for views on the competitiveness of wholesale markets.
Conversely, we may ask suppliers of wholesale services for similar
information and views. We may use market research or discussions
with stakeholder groups such as the large business forum to assess
countervailing power at the retail level. |
Absence of
or low countervailing buying power
|
MR, MA,
FS
|
| Publicly
available information, particularly from city analysts, on the availability
of capital for investment may be used along with regulatory accounts
data already held by Oftel. We may also seek input directly from
stakeholders on this issue. |
Easy or privileged
access to capital markets/ financial resources
|
MA, FS
|
| We
may ask for details of the services sold by companies in a given
market. In some cases we may already be holding this information
in house. |
Product/ services
diversification (e.g. bundled products or services)
|
MI, MA,
TE
|
| Publicly
available information, particularly from city analysts, on the availability
of capital for investment may be used along with regulatory accounts
data already held by Oftel. We may also seek input directly from
stakeholders on this issue. |
Easy or privileged
access to capital markets/ financial resources
|
MA, FS
|
| Oftel
may request data on numbers and type of customers served, network
and other infrastructure employed and technology developments. We
may already have this knowledge from our in-house engineering expertise.
|
Control of
infrastructure not easily duplicated
Economies
of scale & scope
|
MI, TE
MI |
| Publicly
available information on the size and scope of an organisation will
inform Oftel on the extent to which vertical integration may exist.
More detailed information on products and services may also be requested
and details of the separation between vertically related units.
|
Vertical
integration |
MI,
MA, FS, TE |
| Oftel
may ask stakeholders the extent of their plans to enter or develop
particular markets. The extent of existing infrastructure, technology
developments and the cost of rolling out new infrastructure will
also inform Oftel’s assessment of the potential for competition
in a given market. |
Absence
of potential competition |
MI,
MR, MA |
| Evidence
of past market entry (and exit) will be assessed from trends in
market share data. Market data will also be used to assess the impact
of barriers to entry (likely to be greater where the market is growing
slowly). The extent to which costs are sunk may be derived from
data on network infrastructure and investment costs. Oftel may have
this information in-house or it may be requested from stakeholders.
Market research may inform the review as to whether there is potential
for further players to have a significant impact on a given market.
|
Ease
of market entry |
MI,
MA, MR, TE |
Table 2: EU criteria
to assess collective dominance (in addition to those for single dominance)
|
Data needs
|
EU
Criteria |
Main Oftel
sources
|
| Information
on the market shares of undertakings will be used to assess the
concentration of a market and inform Oftel's findings of whether
a market is conducive to collective dominance. This data may already
be collected or more detailed data may be requested for the review. |
Market
concentration
Similar market
shares
|
MI,
MA
MI
|
| Transparency
of pricing at the retail level may be assessed from publicly available
tariffs, or from discussions with consumer (including business)
stakeholders. Whether prices are regulated or not will also influence
transparency. Oftel may request information from stakeholders on
the extent to which prices are transparent. |
Transparency |
|
| Oftel
may request data on the technological developments in a market where
this information is not already held in-house. Oftel market research
and the views of stakeholders who are customers of operators may
also be used to assess how users perceive different product types. |
Lack
of technical innovation
Homogenous
product
|
TE
MR, TE
|
| Oftel
may use market data and publicly available information and analysis
to assess how demand for a product changes in response to price
changes. Additional data may be requested where the data held is
not sufficient for the purposes of the review. |
Low
elasticity of demand
|
MI,
MR, BCH, PT |
| Regulatory
accounts to inform Oftel of network infrastructure and investment
costs may already be held in-house, however Oftel may request additional
details on relevant costs. |
Similar
cost structures |
FS,
MA, TE |
| Market
data already collected on a regular basis will allow Oftel to assess
the maturity of a market and the level of demand side growth. Where
this information is not already held in-house Oftel may need to
request additional data for the review process. Oftel may also ask
stakeholders the extent of their plans to enter particular markets
segments. |
Mature
market
Stagnant or
moderate demand side growth
Lack of potential
competition
|
MI,
MA
MI, MR
|
|
Information
on the amount of excess capacity in a market may be used. This
information may already be held in-house or may be requested from
stakeholders.
|
Absence of
excess capacity
|
TE
|
|
Oftel may
use information on the degree to which there are links between
companies to assess the potential for collusion. Oftel may also
look for mechanisms to deter actions that may break collective
agreements.
|
Various kinds
of informal links between the undertakings concerned
Retaliatory
mechanisms
|
TE, MA
|
|
Oftel may
study price trends to look at the level of price competition in
a market as the potential for tough price competition may act
as an incentive not to compete actively.
|
Lack of or
reduced scope for price competition
|
PT, MI
BCH
|
18. The EU Guidelines
state that these criteria are not exhaustive. Oftel considers that the
following information may also provide useful evidence in the assessment
of both single and collective dominance. The criteria are end user focussed,
in following with Oftel’s objective of getting the best deal for UK
consumers in terms of quality, choice and value for money.
Table
3: dominance criteria further to those in the EU Guidelines
|
Data needs
|
Criteria
|
Main Oftel
sources
|
|
We may request
data from operators regarding the prices of a service and the
costs of providing it in order to assess whether prices and profits
are maintained above the competitive level without loss of sales.
Oftel may already hold some of this information.
|
Excess pricing
and profitability
|
PT, FS,
BCH
|
|
Market research
may be used to assess how customers perceive the differences in
terms of quality that providers are promoting.
|
Lack of active
competition on non-price factors
|
MR
|
|
Oftel may
look at data on the ability of customers to switch between providers.
Potential barriers may include the cost and difficulty of changing
supplier and reluctance to switch on the part of customers due
to perceived quality of service differences and the reputation
of alternative suppliers.
|
Barriers to
switching
|
MR, TE,
CPI, MR
|
|
Oftel may
consider the availability of reliable consumer information on
prices and other aspects of services as the lack of such information
may reduce customer switching between operators.
|
Customers’
ability to access and use information
|
MR, CPI
|
Other indicators
19. Oftel considers
that in addition to the criteria outlined above there are other indicators
which can provide a valuable input into the market reviews. These include:
- benchmarking
of the deal received by UK consumers against those received by consumers
in similar economies;
- consumer satisfaction
with service; and
- evidence of previous
anti-competitive behaviour.
Next steps
20. By implementing
the above data collection processes outlined in this paper, and with
careful co-ordination, Oftel hopes to reduce the associated burdens
placed on operators. The tables above should also provide an outline
of the types of additional information that Oftel may request from stakeholders
in order to inform the reviews, and a rationale of how they will be
used in the review process.
21. Oftel is also
considering extending these arrangements and adopting a similar approach
to co-ordinating all of its data requests to stakeholders. If successful,
the procedures could be expanded beyond those for the EU review process,
and include other data requests such as those for non-market reviews.
Nick Collins
Market Database
Manager
Oftel
50 Ludgate
Hill
London EC4M
7JJ
E-mail:
nicholas.collins@oftel.gov.uk
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