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Guidelines on Regulated Supplier determinations - Issued by the Director General of Telecommunications |
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September 2000 Chapter
1 Access Control Chapter
2 Market definition Chapter
3 Assessing market power for the purposes of Regulated Supplier
determinations Chapter
4 Effect of a Regulated Supplier determination Annex I Relevant sources Annex II Glossary S.1 These guidelines set out the approach the Director General of Telecommunications (‘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 as defined in the Class Licence for the provision of Access Control Services of 31 August 1999 (hereafter referred to as ‘the Access Control Licence’). Access Control Services are services which control the supply of certain digital telecommunications services (as specified in the Access Control Licence) 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 an integrated digital 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. S.2 A determination which makes a licensee a Regulated Supplier will ‘trigger’ additional obligations that would otherwise lie dormant within the Access Control Licence. The conditions that are triggered by such a determination are designed to prevent the licensee using its position in the supply of Access Control Services to behave with an anti-competitive object or effect toward 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. S.3 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 made a reasonable request for the provision of Access Control Services from the licensee for the purposes of supplying end users with the relevant digital services. S.4 However, a determination making a licensee a Regulated Supplier 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. S.5 The contents of the Guidelines are as follows:
Access Control Background; Conditional Access and Access Control 1.1 Services which control the supply of digital television services to end users (ie the ultimate consumers of the digital television services in question) 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 television service 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 (ie broadcasters, such as the BBC) who wish to supply digital television services to end users. 1.2 The Director 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 EC Directive on the use of standards for the transmission of television signals, (95/47/EC) in the UK. For further discussion of the regulation of Conditional Access Services, see the Oftel guidelines, The regulation of conditional access for digital television services, March 1997. 1.3 Following the publication of these guidelines, there was concern that there was no corresponding regime for the regulation of services which control the supply to end users of digital services other than digital television services. Services which control the supply to end users of digital services other than digital television services, and certain other exclusions specified in the Access Control Licence, are referred to as ‘Access Control Services’. Access Control Services are not supplied directly to end users (ie the ultimate consumers of the digital services in question) but are supplied to third parties (for instance, retailers or banks) who wish to supply digital services to end users. The type of digital services third parties might want to provide to end users, which Access Control Services might be used to control could include:
1.4 The Access Control Licence describes the five general types of Access Control Services, that are being offered now or are expected to be offered in the foreseeable future. Such a list cannot be exhaustive as rapid technological change makes it possible that different ways of controlling the supply to end users of the relevant digital services may appear in the future. The Access Control Licence requires the Director, when making a Regulated Supplier determination, to establish that Access Control Services are or may be supplied. The Access Control Licence also requires him to specify which Access Control Services are or may be supplied. Where there are differing interpretations as to what is an Access Control Service (as opposed to a Conditional Access Service, for example) the Director, in making a Regulated Supplier determination, will decide the issue on a case-by-case basis after considering all the available evidence. Such evidence would normally include the representations made to him as part of the procedure outlined in paragraph 6 of Part 1, Schedule 1 of the Access Control Licence. 1.5 Although the definition of Access Control Services is a general one, the Director is not currently aware of Access Control Services which fall outside the following categories:
1.6 It should be noted that Network Services as defined in Schedule 3, of the Access Control Licence are not Access Control Services. Services provided to systemless service providers (eg mobile airtime providers) are also excluded from within the definition of Access Control Services as systemless service providers do not operate systems by which digital services are supplied to end users. 1.7 Following a joint Oftel/DTI consultation launched in July 1997 (Extending the regulatory regime for conditional access services), it was decided to extend the regulatory regime for Conditional Access Services to services which control access to digital services excluding, amongst others, those services (ie digital television services) already covered by the Class Licence for the provision of Conditional Access Services. Conditions regulating the provision of access control were therefore included in the Telecommunications Services Class Licence which came into force on 31 December 1997, in Public Telecommunication Operators licences issued after 1 January 1998, and in the International Simple Voice Resale Standard Licence issued on 31 December 1997. As part of the implementation of the EC Licensing Directive (97/13/EC) these conditions have now been incorporated into the Access Control Licence, so that they apply equally to all providers of Access Control Services regardless of the particular telecommunications system used to provide those services. The regulation of Access Control 1.8 The Access Control Licence applies to all providers of Access Control Services. Certain conditions contained within the Access Control Licence, however (outlined in Chapter 4) only apply to suppliers of Access Control Services who have been determined by the Director to be ‘Regulated Suppliers’. This is consistent with the need to focus regulation only on areas that require it, as related in the Oftel strategy statement: Achieving the best deal for telecoms consumers, published in January 2000. The level of competition in the markets for Access Control Services will therefore be monitored by the Director in periodic effective competition reviews. See the Oftel publication, Implementing Oftel’s strategy: Effective competition review guidelines, August 2000, for more details of these reviews. 1.9 These guidelines are intended to set out the general principles that the Director would expect to follow when making a Regulated Supplier determination. However, they do not form part of the Access Control Licence and they do not affect its legal scope. The Director would normally expect to follow the guidelines 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 not, therefore, legally binding on the Director. The guidelines may be updated from time to time to take into account future developments in the telecommunications sector and the state of competition in the markets for Access Control Services. A review of effective competition in the markets for Access Control Services will be held in the first half of 2001. Regulated Supplier determinations 1.10 The procedure for determining a supplier of Access Control Services to be or not to be a Regulated Supplier requires that certain tests are passed (see Condition 9 of the Access Control Licence). These tests are as follows:
1.11 Once these tests are passed the Director must consider the market power of the supplier of Access Control Services before making a Regulated Supplier determination. A determination making a supplier of Access Control Services a Regulated Supplier requires that supplier to be in a dominant position or have Market Influence within the relevant market in which Access Control Services are provided. Thus, in making a Regulated Supplier determination the Director must:
1.12 When defining markets and assessing whether the licensee is in a dominant position or has Market Influence within the relevant market, the Director is under an obligation to have regard to any relevant judgement of the European Court of Justice or decision or statement of the European Commission. Section 6 of the Competition Act guidelines, The Major Provisions, explains in greater detail how this obligation will work in practice. The Director must also act with a view to ensuring that there is no inconsistency with the principles contained in the Competition Act 1998. The rationale for additional regulatory rules for Regulated Suppliers 1.13 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 (ie ‘Regulated Suppliers’). 1.14 A determination making a supplier of Access Control Services a Regulated Supplier ‘triggers’ certain conditions within the Access Control Licence that would otherwise lie dormant. The conditions which are triggered differ according to whether the licensee is determined to be in a dominant position or have Market Influence. The triggered conditions are outlined in Chapter 4. These conditions are designed to prevent the licensee from using its position in the supply of Access Control Services to behave with an anti-competitive object or effect toward third parties who wish to supply the relevant digital services to end users. 1.15 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 leveraged into a related market. Such anti-competitive behaviour may distort competition in the related market to the detriment of end users. 1.16 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 adversely affect competition in those related markets. 1.17 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:
Market definition 2.1 This section on market definition reflects current practice by competition authorities in Europe, North America and elsewhere. In particular, the approach to market definition outlined here is consistent with that set out in the Competition Act guidelines, Market definition and in the Competition Act guidelines, The application of the Competition Act in the telecommunications sector. It should also be noted in this context that the Director has an obligation under Condition 9.10(ii) of the Access Control Licence to have regard to any relevant decision or statement of the European Commission. 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 markets 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 a Regulated Supplier determination because:
Approach to market definition 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 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 Competition Act guidelines, 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 1.5. Thus, any market definition undertaken in the context of a 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 deem or not deem a licensee a Regulated Supplier is of central importance. A decision to deem a licensee a Regulated Supplier would not be made to protect third parties but instead to protect the competitive process and in doing so serve to ensure that end users are not harmed by positions of dominance or Market Influence in the relevant intermediate market. 2.11 If the digital services in question have characteristics which mean close substitutes could be provided via either alternative non-digital means (eg high street shops) or via alternative digital means which would not require Access Control Services (eg personal computers), the relevant end user market may be quite wide. Thus, while a 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 relevant end user market. Geographic markets 2.12 The relevant market is defined not only in terms of the products or services but also in terms of a particular geographic area: eg part of the UK, the whole UK etc. In trying to define the geographical boundaries of 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:
Prices 2.13 There is a risk that if the current price level for Access Control Services is too high – 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, the Director 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.
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:
3.3 Telecommunication Act licences define ‘Market Influence’ as the situation where an operator in any particular market has:
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 Competition Act guidelines, Assessment of market power, and Oftel’s Guidelines on Market Influence determinations, published in February 2000. 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 is set out below. They are:
3.6 See the Competition Act guidelines, Assessment of market power, 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 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 a high market share alone is not sufficient to establish the possession 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. 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, in which case there may be a strong threat of competition from new entrants. There could also be countervailing buyer power which restricts the market power of a firm. 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 had a market share persistently above 50 per cent. 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 per cent may be sufficient but it would depend on other factors, notably the shares of other competitors and entry conditions. 3.9 The Director considers that a market share of 25 per cent can be used as a rule of thumb approximation below which operators are unlikely to possess market power. The 25 per cent 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 prohibition of the Competition Act 1998 (which is equivalent in effect to Article 81 of the European Communities [EC] Treaty). Market share in the context of Market Influence is discussed further in Oftel’s 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 per cent. 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 per cent market share) that firm would not automatically be presumed to be dominant. The likelihood of entry by other firms would also have to be considered. The Director will therefore need to take into account whether there is any prospect of any relevant regulatory restrictions being eased or any relevant technological barriers being surmounted in the short to medium term and, if so, to gauge how quickly entry might occur. 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 guidelines, Assessment of market power, distinguish between three sources of entry barriers: absolute advantages, strategic advantages, and exclusionary behaviour, and discuss entry barriers in some detail. 3.12 An example of a possible absolute advantage in the context of Access Control Services would be if a provider of Access Control Services owned intellectual property rights (IPRs) which allowed it to provide those services at a far lower cost than any potential entrant. In a market such as that for Access Control Services, however, where technological innovation is likely to be high, the short-term profits which the IPRs confer are likely to act as an incentive to innovate and so are likely to promote competition in terms of innovation. Because of this, the Director may take the view that the possession of relevant IPRs alone should not be regarded as a significant barrier to entry in the context of Access Control Services (although their use may affect the terms on which Access Control Services are provided; see paragraph 4.15). See the Competition Act guidelines, Agreements and conduct involving intellectual property, for more details on assessing the effect of IPRs on competition. 3.13 Strategic advantages occur when an undertaking gains an advantage from being in a market first. This is often known as the ‘first-mover advantage’. This may occur if the first entrant into a market for Access Control Services reduces the potential for other firms to enter the market, or deters them from doing so. Of particular importance in the markets for Access Control Services is the level of sunk costs, ie the costs incurred when an undertaking enters a market which it cannot recover if it subsequently exits. Possible sunk costs involved in the provision of Access Control Services include research and development costs, and the costs of establishing an installed base of equipment, such as set-top boxes or integrated digital television sets, which have the Access Control Services embedded within them. The level of sunk costs involved may constitute a significant barrier to entry to new operators. 3.14 One relatively unfamiliar barrier to entry may arise specifically in the context of Access Control Services due to the possibility of ‘technological lock-in’. End users will usually have to have a specific 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 or integrated digital television sets for the receipt of digital interactive television services are examples of such an end user component. The end user component is likely to have only one provider of Access Control Services associated with it. 3.15 The end user component may represent a significant capital outlay from the end users’ perspective. This is particularly likely to be true in the case of integrated digital television sets. In such a case, 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. 3.16 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, the Director may, amongst other factors, take into consideration the following:
Control of access to end users 3.17 The extent to which an alternative source of Access Control Services can be obtained on an economic basis or at all by the third party that wishes to supply digital services to end users may be an important factor in making 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 any other means, 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 created by the level of switching costs may lead to a situation where the provider of Access Control Services has 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, personal computers or other media are acceptable substitutes from the end user perspective for the digital services in question, then the licensee who runs the Access Control Services used by the digital services in question may not have control of access to end users even where it is the only supplier of Access Control Services. The question of whether or not other digital or non-digital services are acceptable substitutes from the end user perspective for the digital services in question will usually have been settled when the relevant market is defined. 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 Notice on the application of the competition rules to access agreements in the telecommunications sector (OJE 98/C 265/02) [‘the EC Access Notice’] states that:
3.21 One of the key points made in the EC Access Notice is whether "access to the facility in question is generally essential [ie 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 regard to any relevant decisions and statements from the European Court of Justice and the European Commission, 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 factor (albeit very important) 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.
Effect of a Regulated Supplier determination 4.1 A Regulated Supplier determination based on Market Influence ‘triggers’ two additional conditions that would otherwise lie dormant within the Access Control Licence. A Regulated Supplier determination based on dominance ‘triggers’ six additional conditions that would otherwise lie dormant within the Access Control 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, some of the conditions (prohibition on undue preference and undue discrimination and confidentiality of customer information) are designed to prevent the supplier of Access Control Services leveraging its position into markets that are related to the relevant intermediate market (in particular, the 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 Competition Act 1998 which came into force in March 2000. The Competition Act guidelines, The application in the telecommunications sector, discuss which route the Director would expect to take in such instances. The forbearance principle 4.4 A Regulated Supplier determination based on Market Influence triggers Conditions 14 and 15 of the Access Control Licence. A Regulated Supplier determination based on dominance also triggers Conditions 10 to 13 of the Access Control Licence. However, the Director will consider forbearing from applying certain conditions, or parts of certain conditions, in some circumstances. 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. The Director will only be able to revoke such a dispensation by making a new Regulated Supplier determination, or alternatively with the consent of the licensee. 4.5 The Director must have regard to his statutory duties in considering forbearance and in this context he will consider a number of different types of issues including:
The conditions triggered 4.6 Subject to the application of the forbearance principle, Conditions 14 and 15 of the Access Control Licence potentially apply to all Regulated Suppliers (ie those who are either in a dominant position or have Market Influence). Condition 14: 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 and undue preference are prohibited. The Director is likely to find discrimination or preference when practised by a Regulated Supplier to be undue when there is a material adverse effect on competition in related markets. In the context of Access Control Services, the Director is likely to judge that discrimination or preference is not likely to be undue where:
4.8 In circumstances 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 Oftel guidelines, The regulation of conditional access for digital television services (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 Oftel guidelines, The pricing of conditional access and access control services (April 1999). Condition 15: Publication of charges, terms and conditions 4.10 This condition (the ‘price publication obligation’) requires the licensee to publish in advance the methodology which will be used to calculate 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 the Director 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 Subject to the application of the forbearance principle, Conditions 10 to 13 of the Access Control Licence potentially apply only to Regulated Suppliers who are dominant. Condition 10: Obligation to supply Access Control Services 4.12 To ensure fair and reasonable pricing of Access Control Services to third parties, the Director 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 Oftel guidelines, The pricing of conditional access and access control services (April 1999). Condition 11: Intellectual property 4.15 This condition primarily aims to ensure that Intellectual Property Rights (IPRs) under the control of either the Regulated Supplier or any person related to the Regulated Supplier are not used to prevent the supply of Access Control Services on reasonable charges, terms and conditions. It is designed to prevent the Regulated Supplier from withholding IPRs with an anti-competitive object or effect. It enables the Director, where it appears to him that an IPR is being used to prevent Access Control Services being offered either at all or on reasonable charges, terms and conditions to require the licensee to take such steps as are within its power to rectify the situation. This may – but does not necessarily – include licensing the use of the relevant IPR. If the Director considers that there would otherwise be a material distortion in competition, and no other action would, in his view, prove effective, he will use the powers available to him to secure the licensing of the necessary IPR. Condition 12: Requirement to keep separate financial accounts 4.16 The requirement to keep separate financial accounts 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 designed to ensure that when questions arise in relation to alleged anti-competitive behaviour and/or failure to offer services on the required terms, the Director has enough information to come to the necessary conclusions as quickly as possible. Condition 13: Confidentiality of customer information 4.17 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. This condition is without prejudice to the licensee’s obligation to comply with other relevant legislation such as the Data Protection Act.
Relevant sources Competition
Act 1998
Glossary Access Control Services: services which control the supply to end users of digital services other than digital television services and certain other specific exclusions. Access Control Services are not supplied directly to end users but are supplied to third parties (for instance, retailers or banks) who wish to supply 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. Conditional Access Services: services which control the supply to end users of digital television services. Examples of Conditional Access Services include the scrambling of digital television broadcasts Dominant position: a position of economic strength which enables an undertaking 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. End user: the ultimate consumer of the digital service for which the use of Access Control Services is necessary. 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 certain 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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