Newsletter
EXPLANATION ON THE REGU-LATION OF TELECOMMUNICA-TIONS ENTERPRISES UNDER THE FAIR TRADE ACT
With the liberalization of the telecommunica-tions market, the focus of regulations on this industry has now shifted to the safeguard of fair competition. The Fair Trade Commission (FTC) has developed certain Explanations on the Regulation of Telecommunications Enterprises under the Fair Trade Act (FTA). The Explana-tions draw on the experience of advanced coun-tries, and includes a catalogue of practices that are considered likely to violate the FTA. How-ever, although the Explanations enumerate such practices on the basis of industry characteristics, the treatment of individual cases will still have be determined according to the specific facts.
The Explanations first set out the areas of over-lap between the provisions of the FTA, the Telecommunications Act, and the Consumer Protection Act, and the principles for the appli-cation of each. Some of the duties imposed by the Telecommunications Act, such as controls on charging rates, network interconnection, equal access, separate accounting, and number port-ability, do also involve competition issues, but because the Telecommunications Act contains special provisions on these matters, they should primarily be handled under the Telecommunica-tions Act. On the other hand, simple consumer disputes over matters such as charging and bill-ing, service quality, and service contract condi-tions, are best handled under the relevant provi-sions of the Telecommunications Act and the Consumer Protection Act.
The Explanations also explain the definition of a market and the calculation of market share. A specific market is defined after taking into con-sideration such factors as product markets, geo-graphical markets, substitutability of demand and supply, wholesale and retail markets, and the impact of technological development. The cal-culation of market share is based on the relative proportions of numbers of subscribers, volume or monetary value of business, and capacity.
In addition, the Explanations clearly set out the practices of a monopoly telecommunications enterprise that may violate the FTA. Predatory pricing, vertical price pressure, cross-subsidies, differential pricing, abuse of bottleneck facilities, favoritism, unequal treatment, long-term con-tracts, and restrictions on change of trading counterpart, are all practices that are likely to violate the prohibitions that the FTA imposes on monopoly enterprises.
In view of the high frequency of merger and acquisition activities in the telecoms market, the Explanations also state that when enterprises report an intended business combination, the FTC will first apply its procedures for defining a market to determine the relevant product markets and geographical markets, identify their partici-pants, and calculate the market share of each participant, and will then analyze the factors af-fecting the degree of competition in those mar-kets, such as the degree of market concentration, barriers to entry, degree of vertical integration, and whether there are buyers of sufficient power to exert a counterbalancing influence.
Finally, the FTC will consider the effects of the proposed business combination in terms of "overall economic benefit" and "disbenefits of restricted competition." The factors to be con-sidered with regard to overall economic benefit include: (1) the effects of the proposed combi-nation on efficiency; (2) whether it is conducive to competition in the affected markets; (3) whether it is conducive to providing greater coverage, greater diversity, and higher quality of service; and (4) whether it is conducive to en-hancing international competitiveness.
Factors to be considered with regard to "dis-benefits of restricted competition" include: (1) the effect on market structure and degree of market concentration in the affected markets; (2) whether the combination will markedly reduce the degree of competition in the affected markets; (3) whether it will create entry barriers to the relevant markets; (4) whether it will markedly reduce consumer choice; (5) whether it will lead to an increased likelihood of concerted actions; and (6) whether it will lead to an increased like-lihood of abuse of market power.
The Explanations also enumerate practices that constitute concerted actions and unfair competi-tion. Practices such as joint price setting, joint limits on production, subdivision of markets, joint action against another entity, or agreements to exchange information, are all likely to be re-garded as concerted actions. Practices that are likely to be regarded as unfair competition in-clude vertical trade restrictions, boycotts, dif-ferential treatment, anticompetitive discounts (selective discounts, loyalty discounts, deferred discounts), gifts, prize-giving activities (except for those that do not violate the provisions of the Principles on Case Handling Promotion by Means of Gifts and Prizes), tying, and untruthful advertising.
Finally, the Explanations provide that when a telecoms enterprise places advertisements re-garding change of its tariff, it must fully disclose relevant information, and must not conceal in-formation about tariff increases. If when pro-moting adjustments in tariff, it merely stresses items subject to reduction, and fails to also dis-close items subject to increase, in a way that amounts to a false or misleading representation, it is likely to violate Article 21 of the FTA.