Working Paper on Margin Squeeze in Telecommunications Markets – University of Copenhagen

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22 September 2015

Working Paper on Margin Squeeze in Telecommunications Markets

Christian Bergqvist and John Townsend has published a Working Paper working “Enforcing Margin Squeeze Ex Post Across Converging Telecommunications Markets” in the Konkurrensverket Working Paper series in Law and Economics 2015:2
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A margin squeeze is an exclusionary abuse which occurs when a vertically integrated telecoms operator creates a disparity between upstream and downstream prices with the intention of squeezing an access competitor’s profits. The purpose of such pricing is either to increase the latter’s entry costs, delay profitability or limit their ability to remain or expand on markets. However, traditional market definitions are being challenged by (1) the technological convergence of services and (2) innovative product offerings taking advantage of this convergence. Consumers now routinely purchase a bundle of telecoms services with a single payment (known as ‘quad play’), including fixed and mobile voice calls, broadband connectivity, and premium broadcasting content. How should such unilateral conduct be assessed ex post by a competition authority under Article 102 TFEU? We suggest that convergence and innovation present both theoretical and practical difficulties for assessing “muddled margins” on telecoms markets. New and different enforcement approaches to exclusion will have to be formulated within the Article 102 framework and tested in the Courts. This may even require abstaining from applying Article 102 TFEU during material periods of convergence, and confining ex post enforcement activity to sector regulation, even when this is inferior for safeguarding effective competition. A margin squeeze is an exclusionary abuse which occurs when a vertically integrated telecoms operator creates a disparity between upstream and downstream prices with the intention of squeezing an access competitor’s profits. The purpose of such pricing is either to increase the latter’s entry costs, delay profitability or limit their ability to remain or expand on markets. However, traditional market definitions are being challenged by (1) the technological convergence of services and (2) innovative product offerings taking advantage of this convergence. Consumers now routinely purchase a bundle of telecoms services with a single payment (known as ‘quad play’), including fixed and mobile voice calls, broadband connectivity, and premium broadcasting content. How should such unilateral conduct be assessed ex post by a competition authority under Article 102 TFEU? We suggest that convergence and innovation present both theoretical and practical difficulties for assessing “muddled margins” on telecoms markets. New and different enforcement approaches to exclusion will have to be formulated within the Article 102 framework and tested in the Courts. This may even require abstaining from applying Article 102 TFEU during material periods of convergence, and confining ex post enforcement activity to sector regulation, even when this is inferior for safeguarding effective competition.