Price squeeze measures essentially serve to eliminate problems arising from vertical integration structures. Such measures are widely adopted by various regulatory authorities across the world in order to prevent use of power of a significant market power (SMP) holder in the upstream market in an anti-competitive manner in the downstream market and are common in sectors such as the telecommunications, water, railways, postal services etc deregulated in recent years and which have downstream firms relying on the input of upstream incumbent.
In regulated industries, price squeeze measures grant regulators with certain level of control over the price in the market. In electronic communications sector, price squeeze analysis determines whether the margin between prices applied by the SMP operator in the upstream market and the downstream market spares space for competition in the downstream market and in this regard, a price squeeze measure allows indirect regulation of the price applied by the SMP in the relevant market for maintenance of efficient competition in the relevant market.
In Turkey, the legislation of the Information and Communication Technologies Authority (ICTA also referred as the Authority) grants the Authority the power to adopt price squeeze measures when required. As per Article 13 (1)(c) of the Electronic Communications Act No:5809 which governs regulation of tariffs imposed in return for providing any kind of electronic communications services; "the Authority shall be entitled to make necessary arrangements to prevent anti-competitive tariffs such as price squeezing and predatory pricing and supervise the implementation... in case an operator is designated as having SMP in the relevant market".
The relevant Act, which has been prepared via advice of the European Union (EU) representatives, carries traces of the legislation adopted by the European Commission (EC) and legislation applicable in various Member States. In fact, on the EU-wide level, "the Commission Recommendation on relevant product and service markets within the electronic communications sector susceptible to ex ante regulation in accordance with Directive 2002/21/EC" and "the Commission Recommendation on consistent non-discrimination obligations and costing methodologies to promote competition and enhance the broadband investment environment" provides certain regulatory advice in relation to ex ante price squeeze measures.
Few years ago, ICTA introduced price squeeze measures in the electronic communications market. These measures have historically been the focus of the Turkish Competition Authority (TCA) to date. As per the measures adopted by ICTA, Türk Telekom (as the SMP in the fixed call origination market) has been rested with the price squeeze obligation as of entrance of the Procedures and Principles for Determination, Prevention and Elimination of Price Squeezing into force on 01.07.2014. These principles were adopted as a result of the EU funded CFCU project "Assistance for Prevention of Anti-Competitive Behaviors in the Electronic Communications Sector". Şahin Ardıyok, the senior partner heading BASEAK's Regulation and Competition Law team, acted as the Key Legal Expert in this project and played a major role during the preparation of the Procedures and Principles.
The obligation which involved the duty to not establish any tariffs or campaigns in the wholesale and retail market that contradicts with the procedures and principles set by ICTA was warmly welcomed by various stakeholders. This is because the said obligation was regarded to introduce another layer of expert monitoring to the problematic area frequently investigated by the TCA and deemed to facilitate more efficient and rapid interventions which address issues arising in the wholesale market as well as the retail market whilst creating further benefits for the consumers.
However ICTA recently adopted a new point of view in relation to the price squeeze obligation.
In the Fixed Call Origination Market Analysis dated December 2016 (the Analysis), which has been opened to public opinion before the final decision, ICTA suggested abolition of the price squeeze obligation.
One may wonder why the Analysis proposed abolition of a widely adopted obligation?
Based on the Analysis, the following happened between 2014 and 2016 (Q3):
- fixed call origination traffic decreased by 50%
- market share of alternative operators as per subscription numbers increased by 12 points
- market share of alternative operators as per call traffic increased by 7 points
- alternative operators' tendency towards originating calls through internet via VoIP instead of through the "traditional" call origination services offered by Türk Telekom increased
The findings suggested that continuation of the price squeeze obligation imposed to Türk Telekom in relation to fixed call origination services on the wholesale level would lead to over regulation. Accordingly, since the continuation of this obligation is deemed to not serve purpose and address the source of the problem in a proportional manner, ICTA urged dropping the obligation. As a part of this discussion, ICTA submitted that cost based regulation of fixed call origination services prices will be more appropriate for resolving market failures in the market. After receiving the opinions of different stakeholders, including BASEAK, Turksat, Vodafone, Turknet, Telkoder Turk Telekom, ICTA issued a Final Analysis and concluded with its decision dated 08.05.2017 and numbered 017/DK-SRD/152 that the price squeeze obligation shall be dropped for all services apart from the voice and call origination services offered as a part of multi-play packages. ICTA separated multi-play packages based on the evaluation that services such as voice, internet and IPTV offered through multi-play packages created great benefits for consumers.
However, it must be kept in mind that abolishing the price squeeze obligation and replacing such measure with cost based pricing obligation may not meet the expectations set for attaining efficient competition in the relevant market. First of all, the decision is made based on the assumption that the VoIP method will be increasingly opted by alternative operators and traffic volume of fixed call origination will continue decreasing and that an above-the-cost pricing strategy of Türk Telekom, as the SMP, on the wholesale market will have a negligible effect on the retail market. Moreover, the dynamics of the market already render need for cost based tariff regulation in the wholesale market redundant as the competition in the retail market already necessitates cost-based pricing.
This practice may have been initially adopted for fixed telephony, where no chronic competition problems are present, and applied for fixed internet and mobile services once the effects of dropping such measures for fixed telephony were evaluated. Dropping the price squeezing measures as is (by only excluding multi-play packages) may interrupt embracing a modern outlook towards the telecommunications sector. From now on, problems arising in the relevant sector in relation to price squeeze will have to be handled only ex post pursuant to competition law, leading these problems to be only dealt and solved through deterrent measures adopted by the Turkish Competition Authority. Lack of addressing such problems in an ex ante manner is likely to give rise to regulatory lag, rendering the decision of the ICTA a rather irrational decision from a regulatory point of view.
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.