26 October 2016
Earlier this month, the GSMA – an association representing various mobile operators – published a report: ‘Resetting Competition Policy Frameworks for the Digital Ecosystem’ – see here for an Executive Summary. The GSMA proposes a more nuanced approach to competition policy in the digital economy following the EU Commission’s Digital Single Market initiatives (see previous posts here and here). The GSMA suggests that it is necessary to create a regulatory environment fit for the digital age. We summarise the four main themes below.
Market definition and market power
The study points to:
- an unprecedented uptake in new technologies:
- an increasing use of big data to gain a competitive advantage (see our opinions here); and
- a rising number of cases where price is not the critical factor for consumer decision-making.
In the light of these findings, it is suggested that competition authorities need to adapt their approach to defining product and geographic markets. Recommendations include:
- Focussing on the products and services consumers genuinely view as viable substitutes to inform market definition;
- Investigating how the quality of goods and services which are provided at no monetary cost can be used as part of a market power analysis; and
- Revising market definitions where there is substantial evidence to do so.
Adopting a total welfare standard in digital markets
The GSMA has urged competition authorities to take into account the effect of conduct on product quality, innovation and economic efficiencies (‘Total Welfare’) rather than simply pricing effects. It proposes that looking at the bigger picture could entail positive effects on investments, quality of products and services and performance in digital markets. Recommendations include:
- Adopting a total welfare standard to support productivity growth /higher living standards;
- Focussing on dynamic effects when assessing mergers and competition in digital markets. This might enable certain mergers to be cleared that could benefit society; and
- Adapting the approach to efficiencies by use of experts, identifying efficiencies in earlier transactions and utilising new analytical techniques.
Rebalancing ex ante and ex post regulation
The report notes that technologies such as cloud computing, social media, and the use of the Internet of Things are no longer entirely novel but they do continue to alter how businesses operate, and products and services are being offered in new and sometimes unpredictable ways. As entire industries are adapting to this changing digital environment there is a concern that regulating on the basis of predictions (‘ex ante’) could distort competition and deter innovation. GSMA’s study argues that applying competition law in the light of experience and facts (‘ex post’), is more flexible and can be tailored to experience of changing market conditions. Recommendations include:
- Reviewing the thresholds for ex ante regulation to ensure that the potential negative impact on investment and modernisation that may arise is analysed against any possible gains;
- Focussing ex ante regulation on enduring market power; and
- Ensuring consistent and streamlined regulation that conforms to competition law.
While noting that there is no ‘one-size-fits-all’ institutional arrangement, the report calls for competition authorities to be independent and transparent; to adopt policies which support investment and innovation; and to cooperate closely with regulators in moving towards ex post enforcement.
The GSMA is careful not to criticise the principles currently underpinning competition policy and enforcement in Europe. However, it is firm in the view that features of the competition regulatory framework must be updated to allow digital services the right environment to flourish and to ensure appropriate conditions for competition. That view is not necessarily universal, and it will be interesting to see how others react to the GSMA’s recommendations.