The Interdependence of Competition Policy, Consumer Policy and Regulation in Introducing and Safeguarding Effective Competition in the EU Telecommunications Market

Bartels, Andreas; Pleșea, Doru Alexandru; Studeny, Michael; Just, Vanessa Article The Interdependence of Competition Policy, Consumer Policy and Regulation in Introducing and Safeguarding Effective Competition in the EU Telecommunications Market Amfiteatru Economic Journal Provided in Cooperation with: The Bucharest University of Economic Studies Suggested Citation: Bartels, Andreas; Pleșea, Doru Alexandru; Studeny, Michael; Just, Vanessa (2017) : The Interdependence of Competition Policy, Consumer Policy and Regulation in Introducing and Safeguarding Effective Competition in the EU Telecommunications Market, Amfiteatru Economic Journal, ISSN 2247-9104, The Bucharest University of Economic Studies, Bucharest, Vol. 19, Iss. 45, pp. 367-380 This Version is available at: https://hdl.handle.net/10419/169077 Standard-Nutzungsbedingungen: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. 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If the documents have been made available under an Open Content Licence (especially Creative Commons Licences), you may exercise further usage rights as specified in the indicated licence. http://creativecommons.org/licenses/by/4.0/ Competition's Policy – a Tool to Protect Consumer's Rights and Interests AE Vol. 19 • No. 45 • May 2017 367 THE INTERDEPENDENCE OF COMPETITION POLICY, CONSUMER POLICY AND REGULATION IN INTRODUCING AND SAFEGUARDING EFFECTIVE COMPETITION IN THE EU TELECOMMUNICATIONS MARKET Andreas Bartels1 ∗ , Doru Alexandru Pleșea2, Michael Studeny3 and Vanessa Just4 1)2)3)4)The Bucharest University of Economic Studies, Romania Please cite this article as: Bartels, A., Pleșea, D.A., Studeny, M. and Just, V., 2017. The Interdependence of Competition Policy, Consumer Policy and Regulation in Introducing and Safeguarding Effective Competition in the EU Telecommunications Market. Amfiteatru Economic, 19(45), pp. 367-380. Article History Received: 29 December 2016 Revised: 20 February 2017 Accepted: 3 March 2017 Abstract Currently, the European Union finds itself in troubled waters. It has to prove that its benefits outweigh the costs of its endeavour. In this respect, an EU competition policy that focuses on consumer welfare is one way to gain support by the citizens of its member states. The Roaming Regulation that has reduced the mobile communications costs while travelling abroad serves as a good example for this approach. The EU Commission views consumer policy as another important factor to protect and benefit customers. In markets with natural monopolies, the two policies require the support of an effective regulatory policy. The research demonstrates that these three policies – if harmonised – are able to lead to an increase in consumer welfare (primarily by reducing prices) and that they protect the rights and interests of consumers. In the case of telecommunications, several initiatives of the European Commission and of national regulatory authorities to falls in prices and forced operators to implement customer friendly rules and to protect customer data and privacy. The authors consider that the European Commission has tried to establish and harmonise rules across all member states in order to protect the interests and rights of consumers on the telecommunication market. The enforcement of competition and consumer policy within institutions from the telecom field certainly could promote the focus on consumers and the possibility to use a large “toolbox”. Harmonising and adjusting the policies across different countries and institutions and minimising any possible side effects is nevertheless a challenging task for the EU Commission in the future. Keywords: Competition policy, consumer policy, regulation, European Union, telecommunications JEL Classification: D18, D40, K20, L96. ∗ Corresponding author, Andreas Bartels – andie.bar[email protected]om AE The Interdependence of Competition Policy, Consumer Policy and Regulation in Introducing and Safeguarding Effective Competition in the EU Telecommunications Market 368 Amfiteatru Economic Introduction The intent of competition policy is to assure that consumers have a wide choice of products and services with prices close to their costs (OECD, 2009; Parnes, 2006). However, competition policy alone is not sufficient to ensure that consumer interests and rights are protected. Products might be unsafe, relevant price information could be missing, standard consumer contracts might include unfair terms and the labels on products could be inadequate or unclear (Buttigieg, 2005). Competition policy alone also does not ensure that customers can change service providers easily. A wide choice therefore does not guarantee that consumers select the product or service they intended to. Here, consumer policies play a central role. The protection of personal data and consumers' privacy is now also a high priority in consumer policies (Parnes, 2006) – especially in a digitalised economy. The EU Commission has placed a stronger emphasis on protecting consumer rights within the last years apparently as to gain support for the European single market (Howarth, 2008). In liberalised markets with a former natural monopoly – as for example in telecommunications -these two policies have to be supported by regulation as the instruments of competition and consumer policy are limited. The three policies have to be well-designed and balanced in order to achieve the desired goal of consumer (and producer) welfare and to avoid negative side effects. The commonalities and discrepancies of the three policies and how they can influence each other will be discussed in section 1. This paper also examines the different goals of these policies and the tools they utilise. The methodology of the research will be described in section 2. The analysis of the design and application of the three policies in the European telecommunications industry will be illustrated in section 3. It evaluates their effects especially on consumer welfare and the protection of consumer rights in the European context. 1. The link between competition, regulation and consumer policies Competition policies, regulation and consumer policies usually reinforce each other, but there are also topics where they collide. Competition policy and consumer interests are now approaching each other more than ever - as regards goals and also institutionally. In several countries - like the UK, Canada, France and Australia - the enforcement of consumer protection and competition laws is handled within one institution which leads to benefits as the policies can be treated as instruments that can be flexibly blended within a common toolbox of policy instruments (OECD, 2009; Parnes, 2006). The increasing links between competition and consumer policy - with a focus on the European policies - will be evaluated in section 1.1 while the connections between these two policies and regulation will be discussed in section 1.2. 1.1. Competition and consumer policy An effective competition motivates vendors to outperform their rivals and thus leads to a better end (Vickers, 2002). It will ensure that sellers offer customers not only a competitive price. A competitive company will also try to provide a good quality, ensure a good Competition's Policy – a Tool to Protect Consumer's Rights and Interests AE Vol. 19 • No. 45 • May 2017 369 customer service with fair terms and conditions in order to retain the customer and to reduce the churn rate. In this respect, an effective competition can decrease the issues for consumer policy (OECD, 2009). An essential way to increase the competitiveness of markets is to augment the basis for consumer choice - policies can fortify the position of consumers inter alia by improving information available to consumers and to reduce switching costs (Vickers, 2002). The traditional competition policy distinguishes between the following goals and functions of competition (Knieps, 2001): • Economic freedom (function): protection of the freedom to act on a market and to select a partner; • Prevention of the emergence and the reduction of not performance-related income (distribution function); • Adjustment of the supply structure and factor input to changes in demand (allocation function); • Technical advancement (discovery and progress function respectively). According to the EU Parliament, the aims of competition policy should focus on protecting the society from detrimental competitive behaviour (European Parliament, 2015). More specific goals are represented in European competition law. The main ones are (Lianos, 2013): • Consumer protection; • Freedom to compete on a market; • Economic welfare; • Completion of the EU internal market. The focus of competition policy was - also in the EU - until some decades ago more on issues like mergers, cartels and abusive actions of dominant market players. Competition law has been protecting smaller businesses against larger companies and other social and political goals other than consumer welfare were followed (Buttigieg, 2005). In this respect, several early decisions of the European Commission also focused on protecting smaller companies or less efficient businesses – to the disadvantage of economic efficiency and consumer interests (Buttigieg, 2005). Competition policy in this sense underwent an evolutionwhile it was based on different rationales in the past, the focus is now primarily on the increase of consumer welfare (OECD, 2009). Competition is nowadays more and more conceded as a central consumer issue (Vickers, 2002). Nevertheless, it should be kept in mind that putting consumer welfare in the heart of competition law involves distributional concerns e.g. shielding vulnerable consumers (Monti, 2007). Consumer interests are usually not as capable as producer interests in getting their voices heard in competition matters (Vickers, 2002). This opens up the opportunity for the EU to act in the interest of consumers. Economic welfare and consumer protection have become more important and central in the EU within the last years as here progress is still possible and necessary. The EU Commission is responsible for the implementation of the competition policy (Wise, 2007). It has experienced a large autonomy in the development and enforcement AE The Interdependence of Competition Policy, Consumer Policy and Regulation in Introducing and Safeguarding Effective Competition in the EU Telecommunications Market 370 Amfiteatru Economic of competition policy. Other EU institutions and the national governments of the member states do not possess formal instruments to intervene (Guidi, 2015). In order to correct or discourage an abuse of dominance, the EU Commission holds a large array of remedies - financial sanctions and behavioural orders remain the primary ones (Wise, 2007). Concerning the EU-wide implementation of competition policy a study of Central Eastern European countries - encompassing inter alia Romania, Hungary, Poland and Czech Republic - in connection with the EU accession process revealed that also the relatively new EU members successfully established the EU competition policy (Hölscher and Stephan, 2004). There are some core issues where consumer and competition policy overlap (Parnes, 2006): • Price; • innovation; • truth (by the seller in dealings); • choice (a large assortment of products and services). Competition policy is not as diverse as consumer policy (OECD, 2009). Consumer policies govern inter alia the interaction, the exchange of information and the relationship between buyers and sellers. Laws and regulations inter alia protect consumers against fraudulent behaviour of sellers and assure that the consumer obtains all relevant legal information in order to make (at least in theory) a well-balanced buying decision. Consumer policy did - in practice - not play a role in the neoclassical theory (Oehler and Reisch, 2008). Consumer protection is included in the EU Treaty and is therefore the responsibility of the EU. Article 169, paragraph 1 states: “In order to promote the interests of consumers and to ensure a high level of consumer protection, the Union shall contribute to protecting the health, safety and economic interests of consumers, as well as to promoting their right to information, education and to organise themselves in order to safeguard their interests.” Since the 1990s, the strategy on single market and competition policies of the EU Commission has given increasing importance to consumer interests - although the focus was more on product and food safety at the beginning (Howarth, 2008). It appears that this increased effort is mainly based on the notion of getting support for the European idea. The Commission seems to react to the worries of citizens in respect to the social and economic consequences of liberalisation and globalisation - and aims with this message at citizens that traditionally did not consider the EU market integration as beneficial for them (Howarth, 2008). A different concept of “the consumer” should nevertheless lead to a heightened alertness as this frequently marks a turning point in politics (Oehler and Reisch, 2008). The EU Commission can enact Directives and Regulations in order to protect consumers. However, while the Commission is in the position to act on competition issues and apply competition policy directly, this does not pertain to consumer protection - here, the enforcement occurs at the national level (Wise, 2007). Competition policy is enforced via administrative procedures and decisions by courts. Consumer policy is much more varied in its tools, forms and impact. Some measures are quite soft as for example the information of Competition's Policy – a Tool to Protect Consumer's Rights and Interests AE Vol. 19 • No. 45 • May 2017 371 consumers. Not only the EU and national governments are involved in consumer policy. NGO consumer institutions are also often engaged in shaping consumer policy (OECD, 2009) and in protecting the rights and interests of consumers. According to Vickers (2002, p.142), competition and consumer policy need to be viewed as “inextricably linked and interdependent”. They need to work harmoniously together - otherwise they could work contradictorily and actually undermine each other (Parnes, 2006).It should also be mentioned that consumers are the only economically important group that is not organised or at least not very effectively (Oehler and Reisch, 2008). Behavioural economics offers chances for integrating the two policies (OECD, 2009). It emphasizes the influence cognitive limitations exert on consumer choice. Consumers will not always act and decide rationally due to this imperfection. Even educated consumers display a systematic and substantial deviation from the rational and wise consumer - they are led by spontaneous emotions and consumers are dependent on the force of the situation i.e. the influence of groups, situational time pressure, the influence of sensory stimuli at the point of sale, the complexity and the form of representation of the information they receive and the currently experienced feelings (Oehler and Reisch, 2008).The designers of consumer policies need to be aware of these facts as consumers display a bounded rationality. More information might not always solve these limitations that prevent a sound decision on the side of the consumer. On the contrary: too much information might lead to confusion and a mental overload that consequently leads to the refusal to give attention to the offer (Oehler and Reisch, 2008). In addition, economists have long understood that (the gathering of) information is imperfect and costly (OECD, 2009). Should consumer policy therefore take a more paternalistic approach? This could limit choice or lead to regulatory errors - and sets aside the primary confidence on competitive markets as the instrument to empower consumers (OECD, 2009).There still exists little empirical evidence on the costs and benefits of a (regulatory) intervention based on information from behavioural economics which leads to the fact that it is still not widely used (Oehler and Reisch, 2008). The question also exists if consumers should be protected against all pitfalls that sophisticated consumers are able to see. The “hidden” costs for luggage, insurance, credit card charges, seat reservation etc. during the booking of a flight on a website are an example of this. A great paternalism in consumer policy might prevent negative effects especially for vulnerable consumers. Nevertheless, at least some topics may be best left for the competitive process by guaranteeing that competitive forces are effective (OECD, 2009). The weakest and/or badly informed consumers should be protected against serious negative effects, but a consumer policy should not prevent that consumers who are willing to invest time and energy to search for information are compensated for this search (OECD, 2009). There is the risk that a paternalistic approach to consumer policy endangers the benefits of competition. Markets are more and more interwoven in a globalised economy, so that paternalistic approaches may be justified, but not all of them may be socially (and economically) desirable (OECD, 2009). Rules for occupational licensing, for product standards and restrictions on advertising might protect consumers, but they may also restrict competition (OECD, 2009). AE The Interdependence of Competition Policy, Consumer Policy and Regulation in Introducing and Safeguarding Effective Competition in the EU Telecommunications Market 372 Amfiteatru Economic 1.2. Regulation and its link to competition and consumer policy In general, liberalisation increases choices and decreases prices for consumers (Parnes, 2006). In the EU, deregulation led to the introduction of competition in many former monopolistic markets - e.g. in energy (gas, electricity), postal services, telecommunications, air travel. In order to achieve these gains, a regulation of the incumbent is necessary. A natural monopoly with network externalities embodies the difficult task for competition authorities and regulators to shrink the market power of this company. A period of statutory protection creates challenges as an incumbent company usually acquires significant financial and technical advantages as well as political influence and expertise during this time (Kay and Thompson, 1986). In markets that are opened up, the duty of ensuring (the introduction of) an effective competition is typically shared between the competition and a sector-specific regulatory authority. Regulation - in cases of former natural monopolies -focuses primarily on pricing, non-discrimination and the granting of access (for competitors) to essential services and network elements of the incumbent. (figure no. 1) Figure no. 1: The regulated company within a triangle of competition, regulation and consumer policy Consumer protection is important also in liberalised marketsnot only the incumbent might introduce unfavourable terms and conditions, reduce the quality of service or hide certain information, but also the new entrants might play unfair in order to gain market shares. New competitors might not live up to their promises in advertisements or deliver a bad quality of service or unsafe products. Incumbents might also be tempted to lock-in customers - e.g. by termination penalties or to use tactics that are not completely coherent with common business practices (OECD, 2009). National Regulatory Authorities (NRAs) are therefore also responsible for the protection of consumers. Typically, the EU sectorspecific Directives on regulation also include provisions and rules concerning the protection of consumers - e.g. concerning personal data, privacy and rights for arbitration in the case of disputes with a service provider. Competition's Policy – a Tool to Protect Consumer's Rights and Interests AE Vol. 19 • No. 45 • May 2017 373 A study of the UK energy markets displayed that despite they supplied a homogeneous product and no fees for a transfer to a competitor were involved many consumers considered the search and switching costs higher than the benefits of staying with the incumbent supplier (Giulietti, Price and Waterson, 2005). This led to the fact that the incumbent was able to maintain a price level significantly above the ones of entrant firms without risking that a significant number of customers switch. People with experiences of switching suppliers were more prone to swap suppliers. In this respect it is also important to mention that active customers that switch to new entrants foster competition. Consumers need to use their choice in order to make deregulation beneficial (Giulietti, Price and Waterson, 2005). After the liberalisation of a market, the incumbent and/or the competitors may offer “sophisticated” pricing schemes that could be confusing and hard to compare with other offers (OECD, 2009). However, consumer protection might not always be necessary. Some competitors might see it as a competitive advantage to concentrate on plain, easily understandable and well-structured pricing plans that reduce the search costs for consumers. An example is flat rates in telecommunications which are now dominating many European markets - after a time of confusing pricing plans. Sectors like telecommunications show a high level of innovation and technological advancement which should lead to - at least partly -a successive dissolution of monopolistic bottlenecks (Knieps, 2001). For this reason the necessity of regulatory interventions needs to be evaluated regularly. 2. Methodology of research There is a vast literature about regulation, competition policy and consumer policy - usually independently of the other policy. In the last years, the common goals of and the differences between competition and consumer policy have received increased attention in the academic realm. However, regulation tends to be often neglected in this discussion. The focus of this paper is mainly on consumers and the effects the different policies and regulations exert on consumer welfare. The prices for telecommunications services are a main criterion in determining consumer (and producer welfare) - e.g. prices for mobile and fixed network communication. The prices were analysed in respect to the influences of competition and consumer policy as well as of regulation. However, prices are not the only indicator to determine if the rights and interests of consumers are protected. In the research it was essential to find out if all citizens have access to at least basic services and if their privacy and personal data are protected. It was also important to determine if policies ensure that terms and conditions are favourable to consumers and prohibit for example the lock-in of customers. The EU Directives and Regulations and the respective enforcements of them should give an answer to this question. The following considerations and findings are based on statistic data provided by EUROSTAT for the period between 2004 and 2015. Data are calculated by national statistics institutes. It should be noted that national indicators published by Eurostat according to this common methodology are not necessarily identical to the results published by national statistical institutes for national purposes. The number of states taken in account AE The Interdependence of Competition Policy, Consumer Policy and Regulation in Introducing and Safeguarding Effective Competition in the EU Telecommunications Market 374 Amfiteatru Economic varies in this period of time: from 15 member states before 2004, to 28 member states from 2013. 3. The research results The aim is to evaluate the effects the European policies exert on consumer welfare and on the protection of consumer rights and interests. Telecommunications is taken as a reference for a sector that is still regulated in several markets. The Mobile Roaming Regulation will be of particular interest as it is special in its design. Several EU Directives led to the liberalisation of the telecommunications markets. Directive 96/19/EC of 13 March 1996 was the last step in a process requiring the member states of the EU to open up their markets entirely by 1 January 1998. Competition and regulation go hand in hand in Europe. In telecommunications, the Framework Directive requires that the National Competition Authority (NCA) and the NRA provide each other the necessary information for the application of the rules of that Directive and the Specific Directives. The Framework Directive also requires that both institutions cooperate on the market analysis - where appropriate. In all EU member states the incumbents are still regulated by the national regulatory authorities and therefore the latter exert a direct influence on the consumer and producer welfare. The respective authorities are listed in (table no. 1). Table no. 1: National regulatory authorities EU country Regulatory authority for telecommunications Austria Austrian Regulatory Authority for Broadcasting and Telecommunications (RTR-GmbH) Belgium Belgian Institute for Postal services and Telecommunications Bulgaria Communications Regulation Commission Croatia Croatian Regulatory Authority for Network Industries (HAKOM) Cyprus Office of Electronic Communications & Postal Regulation (OCECPR) Czech Republic Czech Telecommunication Office (ČTÚ) Denmark Danish Business Authority Estonia Estonian Competition Authority Finland Finnish Communications Regulatory Authority (FICORA) France Autorité de Régulation des Communications Électroniques et des Postes (ARCEP) Germany Bundesnetzagentur (BNA) Greece Hellenic Telecommunications & Post Commission (EETT) Hungary National Media and Infocommunications Authority (NMIAH) Ireland Commission for Communications Regulation (ComReg) Italy Autorità per le Garanzie nelle Comunicazioni (AGCOM) Latvia Public Utilities Commission (PUC)