Turkey: Competition Report 2012- II

Last Updated: 22 February 2013
Article by Erdem & Erdem

We continue to examine the Competition Report ("Report") prepared by the Competition Authority ("Authority") for the purposes of determining competitive conditions in certain markets, designating the behavioral, structural and legal reasons that hinder the development of competition in these markets and to submit suggestions to the decision making authorities for elimination of these restrictions.

We have previously dealt with the electric, natural gas, airway, railroad, road and maritime transportation sectors within the Report.

The evaluations of the Authority as regards to energy, transportation, broadband internet access, digital platform management, banking, pharmaceuticals and fast moving consumer goods are given herein below in summary.

Broadband Internet Access Market

Turkish broadband internet access market is thoroughly audited and regulated by the Information Technologies and Communication Authority ("ITCA"). On the other hand, Authority stated in its report that the competition level within the relevant market is rather low, alternative technologies are not yet effectively available and the consumers are forced to pay high prices for low quality services.

The competition concerns within the relevant market are listed as follows:

  • Concerns arising out of the behaviors Turkish Telekom, who is the main undertaking integrated in a vertical structure
  • Concerns arising out of the lacks in the implementation of the required regulations
  • Concerns arising out of the current administrative control over the cable TV infrastructure

In this regard, it is stated that concerns arising out of the behaviors of the Turk Telekom are being faced with limitation attempts by the intervention and decisions of the Authority and the ITCA.

Authority provided the following suggestions in light of their evaluations:

  • Promoting the development of alternative technologies for the broadband internet access
    • Development of the cable TV as an alternative to DSL by improving its infrastructure
    • Privatizing the infrastructure and operations of the cable TV
    • Providing the investors a concrete and explicit legal framework for the wide spreading of the fiber optic infrastructure and technology
  • Effective application of the regulations in the broadband internet access market
    • Preparing the necessary regulations for enabling Turk Telekom to share its infrastructure with the alternative undertakings in the copper cable access market, where it is the prevailing actor
    • Establishment of the coordination and cooperation between ITCA and the Authority

Digital Platform Management Market

Authority examined the competition concerns within the mentioned market as competition concerns arising out of access to contents and competition concerns arising out of equipment.

Access to Contents

The access to premium content consisting of broadcasting rights of football games and Hollywood movies has great significance to operators active in distribution of audio and visual contents such as digital platform operators. In the Report it is stated that the shortfall of contents with such a quality and the exclusivity provisions within the agreements relating to premium content rights increase the costs of premium contents sale.

Moreover, there are restrictive legal regulations in Turkey as regards to sale of broadcasting rights pertaining to football games. Article 13 of the Law on Establishment and Duties of the Turkish Football Federation ("LTFF") grants the competence for broadcasting and distribution of football games to the Board of Directors of the Football Federation. Authority drives our attention to the competition restrictions stipulated in the Specifications of the bid made in 2010 for 4 years by using the above referred competence.

The broadcasting rights of Turkish Super Football League have been an issue considered important by the Competition Board and several decisions have been concluded on this issue. These decisions have been mentioned within the Report and the practice in Turkey has been compared with the international practice. It is stated that it would be convenient if the TFF Board of Directors uses its competence by not excluding the evaluations to be made within the scope of Competition Law. The requirement of a new regulation, which would prevent the establishment of entry in to the market through football broadcasting rights, is emphasized.

Equipment

As it is also mentioned in the Report, the broadcasts provided through the platforms are generally coded and in order for the viewers to watch these, they need certain hardware and software. The hardware decoding the broadcast codes are defined as smart cards. The hardware where these cards are placed and the decoding programs and software are uploaded, are defined as set top boxes and the system where only the customers have access to the system is defined as conditional access system.

The Access Directive, which is the EU Regulation on this issue, has been mentioned and the practices in different countries have been included within the Report. Furthermore, the decisions of the Competition Board have been discussed and it is stated that imposition of the condition to purchase the set top boxes to consumers are damaging other undertakings rights, who are active in this field and this could also finally damage the rights of the consumers.

The evaluation as to general equipment emphasizes that in order to increase the competition in the digital platform management and to prevent current and potential competition concerns, the regulations enabling the consumers to switch or diversify their digital platform service providers should be adopted by the regulative authorities.

Banking Market

The Banking Regulation and Supervision Authority are responsible from the regulation of the banking sector within the scope of Banking Law numbered 5411. In addition, Central Bank of the Turkish Republic has the regulative role on the classification of deposits, statutory reserves and on the limits of the credit card interest. The publicly held banks are subject to the regulations of the Capital Markets Authority. Moreover, the Saving Deposits Insurance Fund has the competence to regulate the field of deposit insurance. As seen, there are several regulative authorities in the relevant market.

Notwithstanding the above, banking market can be deemed as a market which is open to competition.

Authority examined the competition concerns within the relevant market under two headings as the structural concerns and legal and behavioral concerns. In the light of these evaluations, the Authority submitted the following suggestions:

  • Abolishing the exception provided in Article 19 of the Law No. 5411 which is preventing the application of Article 7, 10 and 11 of the Competition Law to mergers and acquisitions of banks, where their total market share does not exceed %20
  • Adopting regulations, which eases switch between banks by customers and which decreases the costs of such switch
  • Providing the sectorial authorities to take effective role in protection of customers in practices such as transaction price or costs applied in agreements of deposit, credit and other banking services and that they cooperate with the Authority
  • Decreasing the information asymmetry between banks and customers, imposing banks to disclose certain information to customers enabling them to compare the banks

Pharmaceuticals Industry

The pharmaceuticals industry is subject to detailed legal regulations due to its unique nature. The most eye catching feature of the industry from the frame of competition concerns is the developed distribution network. The distribution network in the mentioned industry consists of pharmaceutical warehouses, which distribute the medicines it has purchased from pharmaceutical companies in the upper market to the sub-markets and the pharmacies in their sub-markets. Pursuant to the determinations of the Authority, the competition concerns within the pharmaceuticals distribution network concentrates on the retail level. Due to structural and behavioral competition concerns in the retail distribution networks, a price competition between pharmacies which could be reflected to the consumers cannot be established and thereby the consumer choices and their access to medicine are being limited.

Authority submitted the following suggestions in order for overcoming the competition concerns:

  • Considering the importance of the establishment of the competition between pharmacies
  • Re- regulating the legislation, in which the practices preventing the patients from freely choosing the pharmacies they take services from and restrict competition, are depending on, in an explicit way, so that they would not cause any base for competition restrictions.
  • Development of system providing the pharmacies to increase the level of competition within the current pay back system and thereby encourage them to offer to the consumers the equivalent medicine that are cheaper and reflect the advantages provided from the choice of medicine to the end consumers.
  • Evaluation of the suggestions for application of criteria for opening new pharmacies depending on geographical and population factors, which would eventually create an entry barrier to the market in the retail level, in a wide platform by applying an impact analysis.

Fast Moving Goods Retail Market

The fast moving goods ("FMG") retail market has been in a rapid transformation since the beginning of 2000s. The organized retail is increasing in FMG retailing. On the other hand, the numbers and the market shares of the conventional retailing are decreasing. It can be acknowledged that, together with the increase of their market share, the mergers and acquisitions between organized FMG retailers and rates of concentration are also increasing. The Authority by taking into consideration the structural transformation and increase of concentration determined that the organized retailers are getting stronger in their horizontal and vertical relationships and taking an advantageous position against the supplier undertakings and increased their role in determining the commercial conditions in the supply network through buyer power.

It is stated in the Report that the Authority, by investigations they hold in relation to the FGM retailing, aims to closely follow up the market, display a proactive approach to competition concerns and search for ways to resolve problems which may arise out of the buyer power by tools which would not hinder the functioning of the market. In this frame, Authority has dealt with the retail market on the basis of rule of reason analysis and initiated discussions on three methods which could be a model for Turkey:

  • Decreasing the turnover thresholds in the notification of concentration only being limited to FMG retailing market
  • Introducing Code of Practice and system of Ombudsman
  • Sending the supplier-retailer agreements periodically to the Authority

Conclusion

As it can be acknowledged when preparing the Report, Authority has deliberately chosen markets where they cannot resolve the competition concerns on their own by their sole intervention, but where there is a need for regulations in the scope of competition policy of the other administrative authorities and thereby tried to create awareness on these subjects.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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