Review of the SMP Guidelines

Competition in the European telecoms markets has strongly increased in the last decades. Today, the level of competition for wholesale and retail telecoms services – compared to what was observed by the designers of the 1998 and 2002 EU regulatory framework – is indisputably higher. There is continued innovation, driven by technological developments, as well as differentiation in both products and services, delivering good outcomes for consumers.

In 2017, the European Commission has started a consultation on the SMP Guidelines. Regulators and some other stakeholders have responded by advocating changes based on a negative view of the competitive effects of oligopolies and an apparent inefficiency/insufficiency of the current available tools in the telecom framework. If accepted into the revised Guidelines, these views may have negative consequences, not only for any telecoms businesses with own infrastructure, but also for the long-term market outcomes and ultimately for consumers of all services that use telecoms as inputs.

Taking into account the evolution of the European telecoms markets as well as of the regulatory and legal developments, this report provides an account of the competitive situation in telecoms markets with a forward-looking view towards potential areas of revision of the current SMP Guidelines:

The high investments needed in telecoms markets unavoidably lead to concentrated market structures. Such a setting is favourable to investment and innovation, enabling markets to achieve dynamic efficiencies which ultimately increase consumer welfare. Given the oligopolistic nature of telecoms markets, we discuss the concept of dominance, in particular collective dominance, and describe in detail how competition law developments detailed the tools to address any concerns in this area. We also show that other general market failures beyond market power are addressed by other instruments available in the regulatory tool kit, hence there is no gap that would make any further regulation legitimate.

Therefore, we advise for a targeted revision of the SMP Guidelines that would not undermine but support the long-term development of telecom markets. We note the insufficient prescriptiveness in the current guidelines as regards geographical market definition and indirect constraints from retail to wholesale level. This may have the risk of a superficial assessment of cases that may lead to an unfortunate outcome of over-regulation.

In addition, we develop an in-depth framework to assess potential collective dominance, based on competition law principles, economic analysis and taking into account the specific characteristics of telecom markets.

The report is commissioned by ETNO – the European Telecommunications Network Operators’ Association.