Oftel's five-minute guide to….the Competition Act

Oftel recently published its Competition Act strategy setting out how it intends to use the Competition Act in its work. In this five-minute guide we explain what that means for Oftel and for the telecoms industry.

Originally, Oftel's regulatory powers came from the Telecommunications Act 1984 (the Telecoms Act). Telecoms operators' licences are currently granted under the Telecoms Act, and most of Oftel's enforcement action to date has been where companies have failed to comply with their licences.

This system is known as sectoral regulation because it relates only to the telecoms sector.

The Competition Act 1998 came into force in March 2000 and gave Oftel power to apply and enforce the Competition Act in the telecommunications sector.

This power is exercised concurrently (shared) with the Office of Fair Trading (OFT), but cases relating to telecommunications will generally be dealt with by Oftel because of its specialist knowledge of the sector.

Unlike the sectoral regime, the Competition Act allows Oftel to fine companies up to 10 per cent of a company's UK turnover for each year that the infringement has lasted, up to a maximum of three years. Companies can also claim damages from competitors which they believe have infringed the Competition Act.

An investigation under the Competition Act can be prompted by a complaint or Oftel can start an investigation on its own initiative. The Competition Act also provides increased powers of investigation, including the power to carry out unannounced visits, and if companies fail to comply with requests for information they can be prosecuted.

The serious consequences that can follow infringement of the Competition Act should strongly deter anti-competitive behaviour and Oftel's objective is to use the Competition Act wherever possible.

The Competition Act contains two prohibitions, which are modelled on Articles 81 & 82 of the EC Treaty.

The Chapter I prohibition prohibits anti-competitive agreements, such as price-fixing cartels.

Chapter II prohibits abuses of a dominant position. There is a wide range of potential abuses of dominance, ranging from excessive pricing to a refusal to supply access.

Because a company's behaviour will only be prohibited if it has a dominant position in the market, the first stage of any investigation is to define the relevant economic market.

In the context of a Competition Act investigation a market is defined by two things: the products that are sold in the market (the product market) and the geographical area within which the products are sold (the geographical market).

In deciding whether a company is dominant Oftel looks at a number of factors. Market share is important: generally, a company is unlikely to be dominant if its market share is less than 40 per cent. Also important, however, are other factors, such as whether there are factors which prevent competitors entering the market (barriers to entry) and the relative strength of the company's competitors.

The definition of dominance that is used in competition law has been incorporated into the new regulatory framework that will govern the telecommunications sector as a result of the EC directives that were adopted in April of this year.

This means that usually, only companies which are dominant will be considered to have Significant Market Power and will be subject to regulation. Oftel must review markets to assess whether there are any companies which are dominant in order to implement the Directives.

Oftel's Competition Act guidelines, providing more detail about the types of behaviour that are prohibited, are published on Oftel's website at www.oftel.gov.uk/publications/ind_guidelines/cact0100.htm.