FTL REGULATION OF THE TELECOMS INDUSTRY

07/01/2000

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To give telecommunications operators a clear understanding of the provisions of Fair Trade Law (FTL) relevant to their industry, the FTC recently finished drafting its Guidelines on the Regulation of the Telecommunications Industry. The document sets out and analyses actions by telecoms operators which may contravene the FTL, and draws on examples of competition regulation as applied to the telecoms industry in advanced countries to illustrate how telecoms operators should conduct their market activities, and how the FTC will handle cases in this sector.

With regard to controls on telecoms operators with monopoly status, the document explains how monopoly operators may contravene the FTL by such actions as predatory pricing, non-price predatory activity, cross-subsidies, refusal of service or of network interconnections, improper long-term contracts or restrictions on change of trading counterpart, or abuse of mo-nopoly purchasing power. It also sets out the main points to be reviewed by the FTC when considering applications for mergers and acqui-sitions between telecoms operators.
With respect to overall economic benefit, the main points for review include:

Impact of the merger on production efficiency, efficient allocation of resources, and dynamic efficiency;

Whether the merger is conducive to promoting competition in the market concerned;

Whether it is conducive to the provision of services of broader scope, greater diversity and higher quality;

Whether it is conducive to enhancing national competitiveness;

Whether the merger is the only means by which one of the above goals may be achieved; and

Plans by parties to the merger to externalize their internal gains.

With respect to disadvantages of restraining competition, the main points for review include:

The effect on the structure of the market con-cerned and on the degree of concentration within that market;

Whether there will be any marked adverse impact on the degree of competition in the market concerned;

Whether the merger will create barriers to en-try to the market concerned;

Whether it will markedly reduce consumer choice;

Whether it will lead to an increased likelihood of concerted actions in restraint of competition; and

Whether it will lead to an increased likelihood of abuse of market power.

Actions by telecoms enterprises which may constitute concerted actions in restraint of com-petition include joint pricing, production limits and market subdivision, concerted actions by exchanging competition-sensitive information, joint actions against third parties, joint R&D and joint establishment of technical and quality standards, and interconnection charging agree-ments. Actions by telecoms enterprises which may be classed as hindering fair competition include boycotts, differential treatment, anti-competitive discounts, gifts and prizes, and tying-in.