As one of the duties assigned to the Turkish Competition Authority ("Authority") by the Law No 4054 on the Protection of Competition is "to provide opinions regarding the decisions to be adopted on competition policy, and the relevant legislation", the Authority, on its official web-site, published its "Competition Report" ("Report") which covers assessments and suggestions regarding eleven different sectors and industries.
The Report aims to make an analysis of the competitive environment in certain sectors, to identify the behavioral, structural and legal grounds that prevent the progress of competition in these markets and to bring suggestions for policy makers to eliminate these obstacles.
The Report involves the Authority's assessment regarding electricity market, natural gas market, aviation industry, rail transport industry, maritime transport industry, road transportation industry, broadband internet connection market, digital platform management market, banking market, pharmaceuticals industry, retail of fast moving consumer goods market. Each sector is discussed under three main issues that cause a restriction on the competition: (i) competition restrictions arising from the structure of the market, (ii) competition restrictions arising from the regulations and (iii) competition restrictions arising from the behaviors of the players in the sector.
Set forth below is a brief summary of the Authority's assessment for each sector.
1) Electricity Market
The Turkish electricity market has undergone a reform process recently with the introduction of the policy opting competition policy against all the inefficiencies of vertically integrated structure of the sector. The electricity that is consumed in Turkey is mostly generated within the borders of Turkey and 68% of the installed power is controlled by the government. Although liberalization process initiated with the Law No. 4628 on Electricity Market is under rapid development, privatization is the main element for the current stage of the Turkish electricity market. Along with the privatization, unbundling of transmission and distribution, eligibility of the consumers to choose their providers and the coordination and cooperation between EPDK (Energy Market Regulatory Authority) and Turkish Competition Authority constitute the other important issues of the liberalization process. Precedents of the Turkish Competition Authority concerning the liberalization process serve to purposes of preventing an undertaking to be in dominant position after the privatization, enabling consumers to choose their providers as well as unbundling of the network activities showing natural monopoly characteristics from other market activities. On the other hand, for the sake of effectiveness of unbundling, functional unbundling should also be regulated by the secondary legislation and the unbundling practices should be subject to effective controlling mechanism. Pursuant to the Turkish Competition Authority's TEDAŞ opinion, the distribution companies are required to carry their production and retail sales operations under separate legal entities. The barriers on the consumers' opportunity of changing the provider are getting decreased in each year and it is targeted that all consumers will have become eligible consumers in the near future. On the other hand, decreasing the eligible consumer limit is not sufficient by itself and the switching costs should also be analyzed.
In the light of the abovementioned issues, the Authority briefly states that although the Turkish electricity market is matured, the current status is in an important stage for increasing the private sector investments and forming a competitive sector. Privatization will continue to remain as the main agenda topic for the liberalization of the electricity sector. Furthermore, (i) creation of a competitive market to be set as the main target for the privatization, (ii) making regulations concerning unbundling of transmission and distribution from the competitive market operations, (iii) taking necessary steps for decreasing the switching costs, (iv) studies for consumers' competition conscious and culture, (v) developing the relationship and cooperation between EPDK (Energy Market Regulatory Authority) and TCA are indicated by the Turkish Competition Authority as the key issues for increasing the competition in the Turkish electricity market.
2) Natural Gas Market
In contrast to Turkey's consumption ratio, Turkey has a very limited amount of generation of natural gas. Therefore, long term purchase agreements have been signed with different countries, especially with Russia and Iran. The main governing legislation of the natural gas market is Law No. 4646 on Natural Gas Market which aims natural gas market to be liberalized and opened to competition. The economic regulation of fares and the connection fees of transmission and distribution which shows natural monopoly characteristics are made regularly by EPDK (Energy Market Regulatory Authority) and there are obligations required for these activities. The difficulty of developing a consistent competition policy should not be disregarded due to the complex nature of the value chain of the market. In the process of liberalization of the natural gas markets, third party access to transmission, distribution and storage gain importance.
The main element of the competitive structure that is targeted during the liberalization process is the competitive pricing mechanism. Another problematic area within the liberalization process of the natural gas market is the maintenance of competition at the retail level. Various questions such as the way the distribution companies that holds exclusive customers determines the purchase-sale conditions and the method for determining the last resource supply liability and its content may also arise. Furthermore, the current position of BOTAŞ in terms of horizontal concentration and especially in terms of wholesale level is important. Issues such as whether BOTAŞ's market share should be decreased and applicability of alternative methods in this manner should also be addressed. According to the conclusion of the Turkish Competition Authority, within the process of liberalization, the effective competition policy should be formed in the areas of (i) the effectively regulation of the transmission and distribution activities showing natural monopoly characteristics, (ii) functioning a competitive pricing mechanism, (iii) decreasing the concentration level of a market who have a state monopoly background and (iv) restructuring of BOTAŞ in functional terms are.
3) Airline Transportation Industry
As a result of the steps taken for the liberalization of the civil airline transportation industry, this sector in Turkey has shown a rapid development and a significant change. There have been substantial market entries and in the light of the Competition Authority's previous decisions Turkish Airlines is in the dominant position in the market. The most important regulation in terms of the competition is the Slot Application Instruction of General Directorate of State Airports Authority which is published by the general directorate of state airports authority and the bilateral air transportation agreements between countries. Besides the positive developments regarding the industry, there are significant competition problems. In this respect, the regulations on the slot allocation and the bilateral agreements restrict the competition. Slot allocation is mainly organized in the light of the IATA criteria and accordingly with the use-it or lose-it or grandfather rights. There are some studies on developing a method alternatively to administrative allocation method and these methods resolve the inefficiency Furthermore, it is mainly accepted that the slot allocation should be done by an independent unit for the objectivity of the slot allocation transaction. With the amendment of 2010 the slots allocations are currently coordinated by General Directorate of State Airports Authority.
As for the bilateral agreements, the biggest competition problem of the agreements signed before 1970 is that these agreements cover only one airline within their scopes and obstruct other airlines to operate in the agreed routes. After 1970 the liberalization is mainly accepted in the aviation agreements. Furthermore, as per the bilateral agreements of air transportation, Turkey assigns singular or multiple carriers for scheduled transportation. Therefore, it would be prudent to convert the agreements including singular assignments into multiple for increasing the competition in the market by removing the barriers to entry regarding to certain routes. Concerning the issue of slots, their coordination by General Directorate of State Airports Authority has negatively effect the competition environment. As a result, it would be beneficial to establish an independent civil aviation mechanism with sufficient administrative and technical capacity and especially take measures regarding the slot allocation to enable independent operation in order to ease the entry to the airline transportation industry and create an efficient competitive environment.
4) Railway Transportation Industry
Railway transportation industry does not open to competition. The current legislation provides legal monopoly to Turkish State Railways. Turkey tries to pursue a policy that is in line with the regulations and technical requirements for structuring enacted by the European Union. In the railway industry, infrastructure services present the natural monopoly characteristics. In this respect, the draft Law on General Railways and draft Law on Restructuring of the Turkish State Railways separate the infrastructure and transportation and liberalize the railway transportation. If the activities of infrastructure and transportation are considered separately, infrastructure investments could be accepted as sunk costs and vehicles used in the area of transportation is said to cause significant amount of financial burden. With the reforms to be realized, the railway transportation industry is expected to be an industry with multi players, to have efficient transport system and full of new entries.
In case the conflicts between infrastructure managements and railway managements also causes competition law violations, the simultaneous supervision of the Competition Authority and General Directorate of Railway Transportation may result in waste of resources and legal uncertainty. Therefore the following issues make a contribution on railway transportation industry to reach its competitive structure after the liberalization process; (i) granting operational independence to Authority for Regulating Railway Competition, (ii) taking the necessary measures for preventing the anticompetitive effects arising from the privileges that is provided to DETAŞ while granting licenses and certificates to it, (iii) abolishing base prices for transportation activities, (iv) secondary legislation that supports the competitive structure of the market.
5) Maritime Transportation Industry
The maritime transportation industry includes passenger maritime transportation, freight shipment and port management as well as it is consisted of various different sub markets and service lines. The main developments concerning the maritime transportation are containerization, global supply chains, hub and spoke system. These developments also had significant effects on the port management activities mainly by increasing the level of competition between different ports. The main institution concerning the maritime transportation sector is the Ministry of Transportation, Maritime Affairs and Communication. The competition problems concerning the maritime transportation sector could discuss under two main segments as (i) the competition concerns arising from the structure of the market and (ii) the competition concerns arising from ineffectiveness and lack of competition power. According to the Turkish Competition Authority's precedents, it is seen that the competition law violation claims are mostly concentrated on the container port management and services of ro-ro transportation.
There are high concentration rates in container handling as well as in ro-ro transportation since the undertakings operating in these sectors are very limited. Although some investment requirements were brought after the privatization of the ports, these are not sufficient for the emergence of transshipping ports. Especially since the ports have no connection to the railroads, the maritime transportation is more dependent on land transportation. Therefore, resolving the lack of infrastructure concern is important for both the improvement of competition in port management sector and the increase of competition power of Turkish ports. Turkey is able to use a limited amount of its potential for maritime transportation and the changing structure of the logistics sector should be taken into account while determining the policies regarding the development of the maritime transportation. It has been concluded by the Turkish Competition Authority that (i) the entries should be promoted for enabling a functional competition environment by increasing the number of the undertakings operating in ro-ro transportation, (ii) policies enabling undertakings to make investments on operating modern passenger and cargo ships should be accepted, (iii) the capacity and the infrastructure for handling services should be increased and relevant requirements should be brought, (iv) policies enabling foreign undertakings that are active in port management and/or liner passenger, transportation to make investments should be accepted.
6) Road Transportation Industry
The road transportation industry can be characterized with low barriers to entry and this causes a surplus. Additionally, the seasonal differences in demand-supply balance constitute the source of the main competition concerns. The concentration ratios of the road transportation between the large cities are generally low, in other words there has been a competitive structure. On the other hand, the concentration rations of the road transportation between the small cities are high. Another significant issue concerning this market is the black economy which has been also mentioned before by the Competition Authority on various occasions. The undertakings issue tickets to consumers that do not reflect the real route and the real price. By this way the undertakings can sell cheaper tickets than their competitors and they seem to comply with the minimum price list set by the Ministry of Transportation, Maritime Affairs and Communication. This method generally constitutes a exclusionary practice in the competitive routes.
The abovementioned assessments indicate the fact that the undertakings operating in this market is under restrictive agreements due to the structural problems of the market such as disharmony between supply and demand. These competition restrictions are mainly local instead of being related to whole country. In this respect increasing the number of players which are active in whole country, by mergers or institutionalizations will be beneficial for solving this problem. Such developments also bring about a service competition instead of price competition. On the other hand, effective cooperation between the local small undertakings and national undertakings should be conducted by featuring all the positive results of the effectiveness. As a result, the black economy should be prevented and new regulations should be made for promoting undertakings to reach the sufficient scale and removing the excess capacity.
7) Broadband Internet Access Market
In Turkey, the broadband internet access market is subject to the regulations of the Information and Communication Technologies Authority. As an overview of the market, Türk Telekom is a monopoly in copper cable infrastructure and provides internet access service through its affiliate TTNET over this infrastructure, whereas Türksat similarly provides internet access service through cable TV network. There are also mobile operators providing internet access service through mobile networks. Since the construction of telecommunication infrastructures requires a considerable amount of investment, the establishment of alternative networks is deemed as rather impossible in economic terms. Generally, the broadband internet access market in Turkey is considered as a market that is claimed to have a low competition level where alternative technologies could not be used efficiently as of yet and where the customers are required to pay high amounts for a low quality service.
As mentioned above, Türk Telekom/TTNET holds a dominant position in the market with a high market share that is above the EU averages. It is considered that the problems regarding access to the broadband internet infrastructure by the alternative operators consist of Türk Telekom's acts and the lack of implementing the necessary regulations. Both the Turkish Competition Authority and the Information and Communication Technologies Authority interfere Türk Telekom's acts and in this respect, the Competition Authority has various decisions concerning the access problems in the broadband internet market. As per the Collaboration Protocol executed between the Competition Authority and the Information and Communication Technologies Authority, the improvement of alternative technologies on broadband internet access should be encouraged, the primary regulations should be efficiently implemented in the internet access market and the Competition Authority and the Information and Communication Technologies Authority should coordinate and collaborate in order to establish a competitive structure on the market.
8) Digital Platform Management Market
The problems concerning the digital platform management market could be examined under two pillars; access to content and use of equipments. In Turkey, the most important content in terms of digital platform management market concerns Turkish Super Football League Right of Broadcasting. The sale of such broadcasting rights are regulated under Act on Establishment and Duties of Turkish Football Federation No. 5894 ("TFFK"). Article 13 of TFFK enables the combined sale of the broadcasting rights. In this respect, the Turkish Football Federation issues broadcasting tender specification and as a result of the tender realized by such specification, a single operator owns the broadcasting rights for a certain tender period. The first problem concerning the regulations on broadcasting rights is the duration of the rights that are subject to tender and the automatic time extension right of the undertaking that wins the tender. Although the previous right holder can re-win the tender, the problem is that the duration of the broadcasting right is more than the duration that is deemed appropriate under European Commission's implementations. As a result of the last tender in Turkey, a single platform have been owning the broadcasting rights of the Super League for 13.5 years which makes the entry to the paid television broadcasting market highly difficult. In this regard, it is considered to be appropriate if Article 13 of TFFK is regulated in a manner that would not lead the exclusion of assessment of Turkish Football Federation's competence under Law numbered 4054.
As for the use of equipments, every platform operator uses different set-top-boxes in Turkey and if the viewers want to subscribe for a different platform, they have to have a new set-top-box. Moreover, it is technically possible to use the same set-top-box for the broadcasting of different platforms. The obligation of purchasing different set-top-boxes for watching different platforms' broadcasts causes various disadvantages both for consumers and the new platform operators that will enter the market. Following the purchase of the first box, the purchase of the second box may not be preferred by the consumers based on its cost and its physical occupation. Such situation prevents the change of providers by the end users or getting service from another provider in addition to the current provider. Therefore, the set-top-boxes, which have the characteristics of a sunk cost before the consumer due to its individual technology, may constitute an entry barrier for the potential operators. In this regard, it is considered that it is necessary to regulate the equipment's interoperability by the relevant regulator authorities.
9) Banking Market
The competition problems regarding the banking market could be summarized under two main topics as structural and legal and behavioral problems. Information asymmetry, substantial switching costs that increase the duration of the bank-customer relationship and the functioning and nature of the payment system are the primary problematic issues while analyzing the structural problems. Furthermore, in parallel with the decrease on the number of banks, the concentration ratio is very high in terms of the size of assets in the banking market. As for the legal and behavioral problems, the cooperation between banks on the card payment system is subject to exemption under Article 5 of Law No. 4054. Some of the mergers and acquisition which may cause concentration is excluded from the approval of the Turkish Competition Authority with exception brought by Article 19 of Law No. 5411 on Banking Law.
In order to increase the competition in the Turkish banking market, the barriers that restrain the function of the competitive dynamics should be abolished or their affects should be equalized. For promoting efficiency and competition in the banking market, (i) the exception clause in Article 19 of Law No. 5411 should be removed for cases of mergers and acquisitions of banks, (ii) information asymmetry between banks and consumers should be diminished, (iii) a competitive perspective should be brought for the agreements related to banking services (iv) new regulations enabling customers to switch another bank and decreasing the switching costs should be enacted. Moreover, enabling the sectoral authorities to take efficient roles and establishing cooperation between such authorities and the Competition Authority are also considered as important factors.
10) Humane Medicine Industry
The humane medicine industry consists of supplier, wholesaler and retailer. The competition concerns mainly occur in the retailer level. Due to the structural and behavioral competition problems at the retail distribution level, no price competition occurs between the pharmacies and consumer preference, and the access of the consumers to medicines is restricted. Moreover, there is a government control over the medicine consumption through regulations of price and reimbursement system. Law No. 6643 on Turkish Pharmacist Association grants authority to Turkish Pharmacists Association for making protocols with all entities which get health service from pharmacies. The structural problems are mainly due to the protocol signed between Turkish Pharmacists Association and Social Security Institution which prevents the owner of the prescription to choose the pharmacy that is preferred. Such practice causes a market sharing between the pharmacies by the official protocols.
Therefore, (i) competition between the pharmacies should be maintained and regarded by all authorities, (ii) Article 4 and 39 of the Law No. 6643 on Turkish Pharmacist Association should be interpreted without causing a competition violation. If this is not possible then the said articles should be clearly reregulated, (iii) a system should be designated to allow increasing the level of competition in the retail market within the borders of current reimbursement system and (iv) suggestions on geographic and population criteria for setting up a pharmacy which can cause a entry barrier, should be discussed under affect analysis. Moreover, in order to increase competition at retail level within the borders of the current reimbursement system, a system should be developed where the pharmacists are encouraged to offer lower priced medicines amongst the equivalent medicines and where the advantages gained by the choice of the medicines are presented to the end consumer.
11) Fast Moving Consumer Goods Retailing Sector
As a result of the structural change and increase in the concentrations within the fast moving consumer goods retail market in Turkey, it is observed that the organized retailers are gradually gaining power in their vertical and horizontal relations and through their roles in determining the commercial conditions on the supply chain through purchasing power. The use of high purchasing power to eliminate the competition in the supplier market by the fast moving consumer retailers may cause some of the suppliers to quit the market in long term and therefore, it may lead to an increase in the concentration ratios in the supply market. Furthermore, the creeping acquisitions regarding small sized acquisitions and acquisitions aiming to enter new regional or local markets have started to become more of an issue regarding their total effect on competition. The Competition Authority also determined that the organized retailers reflect their buying power disproportionately to the suppliers on certain situations. Moreover, the fast moving consumer goods retailers create their own private label goods and become competitors of the suppliers. Another important point is the location of the stores. The difficulty of finding an appropriate store may be characterized as a barrier of entry. Moreover, the purchasing power of the fast moving consumer goods retailers may be evaluated as an element that can aggravate the new entries.
The Competition Authority handles the purchasing power of the retailers market with a different approach rather than traditional market power approach and on the basis of rule of reason analysis. The Competition Authority stipulates that the turnover thresholds on notifying concentrations may be decreased only limited to the fast moving goods retail. Moreover, a "code of conduct" and an "ombudsman" system may be established. This principle is based on the fact that the parties may act in accordance with predetermined ethical and just rules without any public interference. Lastly, the Competition Authority foresees that the supplier-retailer agreements may be periodically submitted before the Competition Authority in order to observe the organized retail market.
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