Joint Dominance

Together with Ecorys Netherlands and Radicand Economics

On March 17, 2020, the Dutch Court overturned a decision by the Authority for Consumers and Markets (ACM) to impose access obligations on both KPN and VodafoneZiggo. The ACM claimed there was joint dominance in the Dutch telecom market. The Court did not go along and explicitly based its decision on experts witness reports written by e-Conomics for VodafoneZiggo,

These reports included a critical assessment of the economic arguments of ACM’s reasoning. More specifically, we challenged the ACM’s definition of relevant markets. In addition, we reviewed and corrected a report on business cases for operating in the retail market based on various wholesale access modalities (a report written for the ACM by WIK-Consult). Furthermore, we analysed VodafoneZiggo’s business case for voluntarily providing wholesale access to its cable network. Finally, together with Radicand Economics, we analysed of the Airtours criteria of joint dominance. Based on these analyses (and with explicit reference to them), the court overturned ACM’s decision.

The legal basis for access regulation is getting smaller

The legal basis for access regulation in the telecom sector is the finding of dominance under the SMP-framework (SMP stands for Significant Market Power). KPN has been the dominant party in the Netherlands for over two decades. However, the growth of VodafoneZiggo makes it increasingly difficult to maintain that KPN is dominant on its own. The case for joint dominance, on the other hand, is difficult to prove. This is for good reasons because joint dominance is a rare phenomenon.

Joint Dominance is a rare phenomenon

With joint dominance, competitors have the incentives and ability to forgo competition without making explicit agreements. This rarely happens and is therefore difficult to substantiate. For this to happen, the market must meet several cumulative conditions. First, companies must be symmetrical in the services they offer and the way they produce them. Second, companies cannot invest too much in product improvements. Third, there are no major innovations ahead to shake things up. Only when the market meets all these conditions  is it plausible that parties may consider refraining from competition. However, in order to sustain such collusion, the market must meet a list of yet more cumulative conditions. Specifically, one can easily detect and punish cheating, and outsiders (customers or potential competitors) cannot undermine coordination.

It rarely happens that the market meets all these conditions. Still, ACM accepted the challenge to demonstrate joint dominance under the SMP framework because it was hesitant to let go of regulation entirely,

We successfully challenged the ACM’s decision

One of the main problems with ACM’s analysis was that its theory did not match with the observation that VodafoneZiggo does not provide wholesale access while KPN does. In cases of joint dominance, the market players face a so-called prisoner’s dilemma. This means that the unilateral regulation of KPN would suffice to induce VodafoneZiggo to provide wholesale access as well. However, VodafoneZiggo does not do provide wholesale access, which indicates that the parties do not face a prisoner’s dilemma. A reason for this is that VodafoneZiggo cannot easily and without significant costs set up a wholesale service. e-Conomics substantiated this with a solid business case analysis. The judge agreed with this point and concluded that KPN and VodafoneZiggo are (thus) not symmetrical.

So, the first of the necessary conditions does not apply, and neither do the second and third (regarding market dynamics). The judge acknowledged that “KPN and VodafoneZiggo play a game of leapfrogging in which they innovate in various and distinctive ways”. In addition, the judge dismissed ACM’s analysis of the parties’ ability to detect and punish cheating. Finally, the judge acknowledged that (potential) competitors can frustrate any cooperation between KPN and VodafoneZiggo by rolling out their own networks.

All in all, the judge clinically unravelled ACM’s analysis and concluded with explicit reference to inputs provided by e-Conomics, that there is no legal basis for regulation.

Impact

Our expert witness reports convinced the court to decide that there was no joint dominance in the Dutch telecom market. As a result there is no legal basis for imposing access obligations on any of the Dutch telecom operators. Consequently, the Netherlands are the first European Member State without regulation of wholesale access to fixed networks. Since then, the market has remained competitive with voluntary access services offered by KPN and various parties (small and large) rolling out fibre based networks.