Regulatory and competition law issues of broadband developments

 

Kirchner, Christian

According to the ITU the regulation of broadband is an increasingly important issues for two main reasons. (1) Broadband provides the means to transport various signals (voice, data, video etc.) the have traditionally been subject to differing regulations. (2) The infrastructure costs and first mover advantage in the provision of broadband services have great implications for competition.

The relevant issues of sector specific regulation and competition are whether or not infrastructure access (for competitors) should be required by provisions of sector-specific regulation, by competition law (essential facilities doctrine) or not at all.

Competition in broadband markets will depend in the future on the question whether a business enterprise which has invested in new technologies of the broadband sector will be able to recover its investment and have a first mover advantage or not. Only if such first mover advantage can be expected sufficient means will be invested in new technologies.

For sector-specific regulation that means that it matters whether access for competitors is given immediately after the introduction of new technologies, whether the innovate business enterprise will be protected at least for a period necessary to recoup its investment or whether competitors should not be granted access at all (Issue of regulation of so-called new markets).

In competition law it has to be clarified whether broadband technology as such is deemed to be an essential facilities in the light that competitors are in a position to duplicate that facility. If they do so some time will elapse before they can enter the market so that the first mover will be able to strengthen its position in the market meanwhile.

The problem is insofar a legal problem as competition law has to interpreted, i.e. the scope of the essential facilities has be determined. In the realm of sector-specific regulation it is a matter of developing regulation law. But the essence of the problem is an economic one. It has to be decided, which type of competition should be preferred. There are two choices:

(1) Competition with many competitors in the market, no one enjoying market power and slow progress of technological innovation

(2) Dynamic competition which provides high incentives for technologies innovation but with different phases of competition, such in which innovators will enjoy a quasi-monopoly and phases, in which competitors have caught up and oligopolistic competition results.

Those who favour the first type of competition point to the fact that markets might be foreclosed, that competitors will not be able to catch up so that the innovator will enjoy a long-term monopoly.

Those who favour dynamic competition are not confident that new technological innovations are predictable. A fist mover advantage thus may be easily be destroyed by new technological developments. The computer industry is an excellent example of how technological changes have washed away monopolistic positions. In the fifties and sixties of last century IBM has enjoyed a sort of monopoly in the computer industry which than has been eroded by new technological developments. Similar changes have occurred in the IT sector since. Thus the argument is very convincing that in the field of broadband the innovator should enjoy at least temporary protection of his position and harvest the fruits of his investment.

For sector specific regulations that means that so-called new markets should be regulated differently as compared to 'old' markets. Access to new technologies should be granted to competitors only after two to three years.

For the interpretation of the essential facilities doctrine this means that a new technology which can be duplicated by competitors not immediately but after a while should not be defined as an essential facility.