Bridging the Gap or Intersecting Realms? Examining the Relationship between EU Competition Law and R

SYMPOSIUM

Bridging the Gap or Intersecting Realms?

Examining the Relationship between EU Competition Law and Regulation

Edited by:

Lena Hornkohl and Lewis Reed

Table of Contents

1. Editorial

Lena Hornkohl and Lewis Reed

2. Competition law and regulation: what tool and when?

Bernd Meyring and Dzhuliia Lypalo

3. Time to rethink the interaction between ex-ante-sector regulation and ex-post-competition law

Dr. Christian Bergqvist

4. The case of EU telecoms – past and future

Martin Cave

5. The Transformation of the Electricity Market Design within the Economic and Legal Context of Competition Law Analysis

Melani Dumancic

6. REMIT II: new investigatory powers for the EU agency in Ljubljana to strengthen the fight against market abuse in the European energy markets

Giuliana D’Andrea

7. Revitalising the EU Postal Market: Lessons from Telecom’s Competitive Edge

Mateusz Chołodecki

8. Moving past “Crime and Punishment” in European financial regulation: lessons from competition law on commitment decisions

Enrico Sartori

9. The Principle of ne bis in idem in the Digital Economy EU Competition Law vs. the DMA?

Bernadette Zelger and Ina Kapusta

10. A Bias Towards Enforcement: How the DMA Changes the Landscape

Jasper van den Boom & Rupprecht Podszun

11. Competition law and space regulation: Orbital markets, Martian efforts, and a planetary champion?

Fabian Ziermann

Editorial

Lena Hornkohl and Lewis Reed

What is the relationship between competition law and regulation? Do the two live in separate worlds? How do they interact? Perhaps more importantly, how should they interact? Do they refer to one another or do they live separate lives? At the turn of the twenty-first century, the distinction might have seemed more obvious. Some industries and sectors were privatised and, in the following, ‘regulated’, whereas for other markets, society (and legislatures) deemed it acceptable to leave them open to ‘free competition’ (with all the potential invisible hands, creative gales of destruction, and so on, that accompanied). For the latter, when market failures occurred, enforcers would rely on the classic European competition law toolkit to solve problems (i.e., Articles 101 and 102 TFEU, and national laws transposing European rules). For the former, market failures were sought to be mitigated through the regulatory instrument itself.

The two could be seen as polar opposites. Yet, in regulating markets, actors avow that they are ‘opening’ and ‘liberalising’ those markets as exposure to competition takes hold. Where market failures occur, competition (through regulation) has been seen as something of a panacea to reintroduce contestability and a level playing field, to the benefit ultimately – it is hoped – of the European consumer. The paradigmatic examples are telecoms and energy, where EU regulatory action started in the 1980s and 1990s respectively.

Nonetheless, one could be tempted to think of the protection of the internal market and the goals of EU competition law as upholding a thoroughly deregulatory project. However, as aforementioned, it is precisely through regulation that competition law has been injected back into markets characterised by monopolies, concentration and high barriers to entry. Energy and telecoms are two such examples, reformed and renewed through various packages. That is a trend that continues today in markets that pose new challenges, as seen by the introduction and enforcement of the Digital Markets Act. Even in those sectors that were dealt with by the EU legislature in the 2000s, reform is still on the agenda, for instance the future so-called Digital Networks Act concerning telecoms. The reality, in 2024, is that competition law and regulation exist contemporaneously, sometimes in friction, but the presence of one does not preclude the application of the other. The Court of Justice confirmed this over a decade ago, holding that in regulated markets competition law remains applicable (C-280/08 P, Deutsche Telekom).

This Symposium has sought to capture and explain some of those classic debates, while keeping an eye on the future of competition and regulation.

Contributing authors firstly set out the landscape of these debates, proffering some perspectives concerning the interaction between competition and regulation in the broader scale:

• “Competition law and regulation: what tool and when?” by Bernd Meyring and Dzhuliia Lypalo

• “ Time to rethink the interaction between ex-ante-sector regulation and ex-post-competition law ”, by Christian Bergqvist

The next group of pieces were sector-specific, focusing on some of the more ‘classic’ regulatory markets that come to mind during these discussions, like telecoms, electricity, and postal markets and the specific competition concerns faced by these markets:

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Bridging the Gap or Intersecting Realms? Examining the Relationship between EU Competition Law and Regulation

• “ The case of EU telecoms – past and future”, by Martin Cave

• “ The Transformation of the Electricity Market Design within the Economic and Legal Context of Competition Law Analysis”, by Melani Dumancic

• “REMIT II: new investigatory powers for the EU agency in Ljubljana to strengthen the fight against market abuse in the European energy markets”, by Giuliana D’Andrea

• “Revitalising the EU Postal Market: Lessons from Telecom’s Competitive Edge”, by Mateusz Chołodecki

Finally, the debates and discussions were framed through more ‘recent’ challenges, such as financial and digital markets, as well as space:

• “Moving past “Crime and Punishment” in European financial regulation: lessons from competition law on commitment decisions”, by Enrico Sartori

• “ The Principle of ne bis in idem in the Digital Economy EU Competition Law vs. the DMA?”, by Bernadette Zelger and Ina Kapusta

• “A Bias Towards Enforcement: How the DMA Changes the Landscape”, by Jasper van den Boom and Rupprecht Podszun

• “Competition law and space regulation: Orbital markets, Martian efforts, and a planetary champion?”, by Fabian Ziermann

The symposium has shown that, in conclusion, the relationship between competition law and regulation is complex and evolving. While they may have seemed like separate worlds in the past, the reality is that they coexist and interact in contemporary times. The future of competition and regulation continues to be a subject of exploration and debate, with ongoing reforms and discussions on how they should interact. The outcome of this symposium most certainly provided the editors, and hopefully the readers, with some food for thought. We extend our grateful thanks to the authors for their excellent pieces, as well as their availability and engagement with the editorial process.

In no way can the views set out in this symposium be attributed to the editors or their employers/clients.

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Bridging the Gap or Intersecting Realms? Examining the Relationship between EU Competition Law and Regulation

Competition law and regulation: what tool and when?

Bernd Meyring and Dzhuliia Lypalo

Is overregulation suffocating innovation and competitiveness in the EU? Or is regulation necessary to keep markets open and efficient to deliver for consumers? The debate is neither new nor specific to the EU. The polarisation may appeal to politicians who want to get votes by being seen to fight bureaucracy. It may also appeal to companies on either side of the debate. For some, regulation is a tool to get a slice of the cake that others have prepared through investment and risk-taking. Others will stress how they invest trusting that the fruit will be for them to collect, and regulation removes or “chills” that very incentive.

As is often the case, reality is far more nuanced. With the benefit of hindsight, advocates for regulation can point to some obvious success stories. Who would want to go back to the markets for telecom services or energy before they were broken open and regulated to inject competition where possible? Who would argue against driving down our energy bills or allowing for new services that quickly became crucial in today’s world? Few would suggest that state-run entities or unregulated monopolies would have been as effective in achieving the same outcome without regulation. Who really thinks it was right to bail out banks with taxpayers’ money in 2008, when the same institutions had reaped the rewards of high-risk ventures for years?

At the same time, there is no doubt that Europe is struggling with its competitiveness. This is emerging already now as a key attention point for the forthcoming Commission. There are more and more voices that see (over)regulation as toxic for innovation and productivity. The administrative burdens of compliance are heavy for start-ups without the resources to navigate the muddy waters of EU regulation. “They’ll all go to the US” is how some stakeholders have described the impact of the AI act on European start-ups in this area. As companies determine their strategies to comply with the DMA, it is becoming evident that some may have to modify or even terminate certain (even if marginal) services for European consumers.

The discourse on state intervention has also been changing over time. The EU’s approach has its unique features, where competition rules in the Treaties underpin an internal market that was to be created. In line with that objective, the initial enforcement was formalistic and focused on removing barriers to trade in all forms. The approach was not adverse to state intervention as such but rather to barriers to trade between Member States and distortions of competition that it created or incentivised. The late 1990s and early 2000s saw more confidence in markets. The EU used a combination of competition enforcement and regulation to break energy markets open. Many thought that markets would deal with any inefficiencies, and targeted competition law enforcement would only cover have to deal with exceptions.

The tremendous value and innovation that unregulated tech platforms began to deliver during that time seemed to confirm the benefits of this laissez-faire attitude. Leading academics blew into the same horn. Intervention to shape market structures was portrayed as an error of the past. But the pendulum now seems to be swinging back. The EU now equipped itself to intervene early to preserve pluralistic market models and to avoid “tipping” where network effects may lead to natural monopolies. Whether the large platforms deliver for consumers has not been the main focus in this debate. Rather, ensuring plurality and keeping markets open has become an objective as such.

As explained by Hancher and Larouche. Nor is competition the only objective that regulation aims to achieve. It is perfectly conceivable for regulation to strike a balance between efficiency, economic consumer welfare, and other objectives that legislation may pursue.

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Regulation can create competition

Network industries with their natural monopolies show the most evident tension between competition and regulation. Telecoms, energy, postal services, and transport have been progressively liberalised and regulated at the EU level. These infrastructures were largely built by states or through state intervention. There was often no room for free market competition before liberalisation. Replacing a state monopoly by a private, profit-maximising company was not possible without regulation. Regulation has been instrumental in removing barriers to entry, ensuring access to the infrastructure, and facilitating competition where possible.

In the energy sector, competition law was initially used to reinforce liberalisation. Antitrust actions forced unbundling through (capacity) divestiture by companies like E.On and RWE. At the same time, it was an EU directive (2009/72) that mandated separation of energy supply from transmission networks (unbundling) for operators in all Member States. The combination effectively created competition in previously monopolised markets and attracted market entry to ensure that the new opportunities would be used quickly. Crucially, competition law remains applicable where markets are regulated. The Court of Justice confirmed this in Deutsche Telekom (C-280/08 P) in 2010. Accordingly, regulation and competition law complement each other. The Commission (or sectoral regulators) can combine both tools or use the one they consider to be more efficient, . Cases like Google Shopping, Google Android, Amazon and Apple (music streaming) straddle DMA and dominance aspects, and the EC is using both tools to shape markets and the key players’ conduct. US law famously restricts the scope of antitrust law in sectors subject to regulation. The Supreme Court excluded such an application of antitrust law in the regulated telecoms sector based on a cost-benefit assessment in Trinko in 2003.

Where markets are are open and well-functioning, the need for regulation may decline . The regulation of telecoms (Directive 2018/1972) is explicitly premised upon a progressive reduction of ex ante regulation as competition in the market develops. This assertion has been in place since the first Access Directive in 2002, but the regulation is still in place and there is nothing to indicate that it would disappear any time soon.

Regulation that supplements competition

The objectives of competition law enforcement are another contentious topic. There is a tendency to broaden its scope to topics like sustainability, data privacy and many others, as controversial as that may be. This can work to a certain degree where the efficiency and innovation that competition can promote serve other ancillary purposes. Innovation competition can accelerate the development of technologies that achieve environmental benefits. Quality competition may promote choice for consumers in relation to how their data is used. However, competition authorities lack tools to make an enforcement choice where various policy objectives and the objective to promote efficiency diverge. They will not clear a merger to monopoly between tobacco producers because their monopoly rents might help reducing tobacco consumption and thereby promote health objectives.

This shows how competition law alone will often not achieve outcomes that are desired to promote broader policy objectives. For instance, competition in the market is not always sufficient to ensure appropriate data and consumer protection. Regulation can legitimately define the level playing field on which effective competition can deliver the desired results.

Such regulation may well be inspired by learnings from competition enforcement investigations. For instance, many DMA obligations are based on various EU and national cases. Contrary to the sectoral regulation, the DMA does not include any premise of reducing the ex-ante rules once the markets are “contestable and fair”. Another example is the regulation on interchange fees in the financial services industry (Regulation 2015/751). Following the EC investigation into payment

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Bridging the Gap or Intersecting Realms? Examining the Relationship between EU Competition Law and Regulation

service providers, the EU introduced caps for interchange fees. The 2015 regulation expands the outcome initially reached through antitrust enforcement. It defines uniform requirements for transactions and caps the interchange fee for all providers. It aims to impose a balance between fair compensation for payment service providers and reasonable costs for merchants and consumers, an area where unregulated competition was seen to have failed. In fact, antitrust intervention has various pitfalls including lengthy and potentially fragmented enforcement. For instance, MasterCard investigation lasted more than 10 years, while it took the co-legislators less than 2 years to adopt the regulation following the initial EC proposal.

The recently proposed Standard Essential Patents (“SEPs”) Regulation is another example. Its main objective is to address inefficient licensing of SEPs, in particular by providing sufficient transparency with regard to FRAND terms and their determination through a mandatory out-of-court procedure. Until now, at the EU level, these licensing conditions were only subject to rules developed through the case law on Art. 102 TFEU, including Huawei v ZTE (C-170/13). While the Court provided guidance on legality of a dominant firm seeking an IP injunction and whether seeking such an injunction could amount to an abuse under Art. 102 TFEU, the meaning of FRAND under EU law was – and still is – widely debated. The draft Regulation provides the first EU framework for SEPs registration and licensing. When adopted, it will also establish a procedural framework for FRAND determination through expert out-of-court procedure. The FRAND determination would have to be initiated by the SEP holder or implementer before initiating respective court proceedings in the EU (or it could be initiated by one of the parties voluntarily to resolve disputes related to FRAND terms and conditions). This would restrict the right of the SEP holder to seek an injunction before a national court for up to 9 months. At the same time, the regulation would merely facilitate negotiations and not bind the parties after the initial 9 months. Either party could also still seek a limited financial injunction during this period.

Externalities

Generally, competition fosters innovation and economic efficiency. But it does not consider externalities. Regulation may be necessary to address these negative externalities. “Race to the bottom” competition may occur where companies resort to risk-taking and cost-cutting measures that compromise quality, safety, or ethical standards in the pursuit of maintaining a competitive edge. Getting the balance right is difficult: any such regulation will prevent short-term efficiencies. It will also prevent competition through conduct that may initially benefit consumers. The legislator replaces the “invisible hand of the market” and decides which investment and conduct is to be promoted.

The Global financial crisis is a good example. It illustrates how free competition created incentives for banks to take risk in order to outperform their competitors. They had no reason to consider the potential wider implications for the economy. This ultimately threatened the stability of the entire economic system. The experience led to strengthening regulation on risks that banks are allowed to take. At the same time, regulation created a safety net for the economy to allow the preservation of critical services without having to use public funds.

The Single Supervisory Mechanism ensures oversight of all active credit institutions. It provides an orderly resolution framework for failing banks and minimises costs for the economy. This regulation applies equally to the institutions with market power and smaller players in the market, as long as they play a role for the stability of financial markets.

Conclusion

There is no “either or” relationship between competition law and regulation. These tools complement each other in numerous ways, and striking the right balance is a difficult task. As often, success or failure only become evident in

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Bridging the Gap or Intersecting Realms? Examining the Relationship between EU Competition Law and Regulation

hindsight. There are numerous examples of success, but the concern of overregulation is growing. Compliance with regulation comes at a price. The last twenty years of enforcement have put the focus on an effects-based approach. We know that some effects are easier to identify and measure than others. This may have led to a bias towards short-term price effects to the detriment of other effects that, while more difficult to establish, have a more significant impact, at least longer-term. As we have seen, there is no doubt that regulation must come in where competition can otherwise not function or deliver the desired results. But just as in competition enforcement, regulation must also factor in and weigh the effects to determine the best way – and if even necessary – to intervene. It should only be used where the (economic or other policy) benefits outweigh the unavoidable harm. Impact assessments are rightly part of the legislative process, but they are not held to the same standards as enforcement. There have been too many examples where hindsight shows how the impact assessment was predictably off the mark. Only where both enforcement and regulation are based on a robust analysis of effects will they complement each other efficiently and deliver the desired result.

Bernd Meyring is a partner and Global Head of Antitrust and Foreign Investment at Linklaters LLP. He is a professor of EU competition law and regulation at the College of Europe in Bruges.

Dzhuliia Lypalo is an associate at Linklaters LLP. She holds an LL.M. in EU law from the College of Europe.

SUGGESTED CITATION: Meyring, B. and Lypalo, D; “Competition law and regulation: what tool and when?”, EU Law Live, 22/04/2024, https://eulawlive.com/competition-corner/competition-law-and-regulation-what-tool-and-when-by-berndmeyring-and-dzhuliia-lypalo/