Wednesday, April 29, 2015

Vertical Effects in Competition Law and Regulatory Decisions in Pay-Television in France, the United Kingdom and the United States

Agustin Diaz Pines describes Vertical Effects in Competition Law and Regulatory Decisions in Pay-Television in France, the United Kingdom and the United States.

ABSTRACT: Vertical effects, such as input or customer foreclosure, are at the core of competition and regulatory decisions in pay-television markets. In particular, vertical effects have raised important concerns by competition authorities and regulators in France, the United Kingdom and the United States in the context of merger decisions and antitrust proceedings. Given the increasing convergence of television and telecommunication services and of bundles’ uptake, the importance of an adequate treatment of vertical effects remains crucial.

This paper addresses vertical effects in competition law and regulatory decisions in these three countries, with a focus on vertical input and customer foreclosure, exclusive dealing, countervailing buyer power and some aspects of the implementation of remedies. The empirical evidence is formed by an exhaustive analysis of antitrust, merger and regulatory decisions in these countries from 1996 to 2014.

First, I examine the different treatment of buyer power and its use as an argument to justify relaxing requirements for the authorisation of mergers in France and the United Kingdom (countervailing buyer power). A more consistent and evidence-based treatment of bargaining power could improve the overall merger review process.

Authorities in these three countries largely share the concerns about input and customer foreclosure in pay-television markets and do not underestimate the risks for competition in those markets. The approaches taken and the starting point in terms of market structures, are somewhat different. In the United States, where competition in pay-tv markets has improved in the past twenty years, the regime is transitioning from an ex-ante framework (programme access rules) to an ex-post regime with arbitration procedures and engagements from providers as a result of mergers and acquisitions. In the United Kingdom and France, in contrast, regulation is moving from ex-post enforcement only (through merger review) to, though more slowly, a set of ex-ante obligations.

Exclusive dealing is another source of competition concerns. Bidding rules for sports and movies rights have been found anti-competitive in France and the United Kingdom (e.g. holdback clauses, joint selling agreements, most-favoured nation clauses) and can, in the presence of powerful pay-television incumbents, foreclose efficient entry for many years. Therefore, a careful control of these negotiations is an important condition for promoting competition in pay-television markets. In France and the United States, some limitations have been placed on how exclusive dealing may be conducted even though high market concentration may suggest stronger action.

In view of the recent emergence of Online Video Distributors (OVD), a major opportunity may be arising for Europe. Being its broadband markets, in general terms, more competitive than in the United States, OVDs may encounter fewer barriers to become a credible alternative to traditional pay-television providers. Nevertheless, this is reliant on developments in network neutrality and, more broadly, in competition in broadband markets in the coming years.

The overall conclusion is that, while the United States has been moving away from stringent ex-ante regulation in pay-television markets, justified by an improvement in competition dynamics, France and United Kingdom have only partially succeeded in addressing these concerns – in many ways more serious that in the United States- due to a lack of a legal framework to issue ex-ante regulation.

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