Innovation and Market Definition under the EU Regulatory Framework for Electronic Communications

Abstract

This article provides a thorough analysis of market definition under the EU regulatory framework for electronic communications. Part I questions the implementation of the forward-looking approach to market definition in the context of the fast innovation process driving the electronic communications sector. Section I.A argues that demand-side substitution must address the competitive constraints imposed by the emerging services. Section I.B stresses that supply-side substitution is becoming a criterion increasingly relevant to delineate market boundaries given the convergence process in the communications industry. Section I.C points out that, in assessing supply substitution, regulators are required to take into account the likelihood of potential competitors to enter the market within a reasonable time frame. Accordingly, it is argued that potential competition must be addressed in defining the market (and not subsequently when assessing market power) whenever the financial ability and the profitability for potential competitors entering the market is established. Part II illustrates the challenges posed to market definitions by the rapid pace of innovation as the regulation of the emerging Voice over Internet Protocol (``VoIP’’) services comes under the EU policy spotlight. Section II.A argues that VoIP services put at risk the present definition of the relevant markets. In particular, regulators should carefully consider whether Voice over Broadband (``VoB’’) services are substitutable for traditional telephony. Section II.B stresses that addressing the constraints imposed by the substitutable VoIP services at the stage of the market definition is necessary to conduct a consistent market analysis and accurately apply ex ante regulation, especially given the development of bundling strategies. This article has been shortlisted for the 1st World Competition Young Writer Award.