METHODOLOGY FOR MARKET ANALYSIS

– Market analyses and designation of undertakings with significant market

power in the Norwegian market for electronic communication services

Version 2.0

10 June 2009

www.npt.no
 Methodology for market analysis

Revision history:

Version Date Amendments

1.0 6 January 2005 Main document finished and published.

2.0 11 June 2009  Document updated in light of ESA’s revised

Recommendation on relevant markets 5 November
2008
 Updates and amended language in several paragraphs,
as well as updates of relevant links

2
 Methodology for market analysis

Contents

1 Introduction

1.1 Background
The purpose of this document is to describe methodology, method selection and criteria for
the market analyses that the Norwegian Post and Telecommunications Authority (NPT) is to
carry out in accordance with the Norwegian Act on Electronic Communications (Electronic
Communications Act)1.
The Electronic Communications Act was enacted in 2003 and entered into force on 25 July
the same year. Regulations on electronic communications networks and electronic
communications services (Ecom Regulations) were prepared together with the Electronic
Communications Act. These regulations replaced the former Telecommunications Act and
Regulations on Public Telecommunications Networks and Public Telecommunications
Services and implement five EC directives. The directives were adopted by the EU in 2002
and comprise the EU’s regulatory framework for electronic communications networks and
electronic communications services. They are incorporated in the EEA Agreement and
became applicable to Norway from 1 November 2004. The five directives are:

 Directive 2002/21/EC on a common regulatory framework for electronic

communications networks and services (Framework Directive).
 Directive 2002/19/EC on access to, and interconnection of, electronic communications
networks and associated facilities (Access Directive).
 Directive 2002/20/EC on the authorisation of electronic communications networks and
services (Authorisation Directive).
 Directive 2002/22/EC on universal service and users’ rights relating to electronic
communications networks and services (Universal Service Directive).
 Directive 2002/58/EC concerning the processing of personal data and the protection of
privacy in the electronic communications sector (Privacy and Electronic
Communications Directive).

The regulatory framework shall lay the foundation for the harmonization of regulation in the
EU/EEA, limit entry barriers and facilitate sustainable competition to the benefit of end users.

In its first Recommendation on relevant markets2 in 2004, the EFTA Surveillance Authority
(ESA) identified 18 markets that could be relevant for special sector-specific competition
regulation according to the rules. The Framework Directive stipulates that markets that are
predefined shall be analysed to determine whether they are characterised by effective
competition, or whether one or more undertakings have what is called significant market
power. In that case such undertakings shall have specific obligations imposed on them. By the

1
The Ecom Act is available [in Norwegian] at http://www.lovdata.no/all/hl-20030704-083.html
2
EFTA Surveillance Authority Recommendation of 14 July 2004 on relevant product and service markets.
Hereinafter the document will be referred to as the first or original Recommendation on relevant markets.

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 Methodology for market analysis

spring of 2007 NPT had carried out the first round of analyses of the 18 markets that ESA had
pointed out as relevant for sector-specific regulation in its first Recommendation on relevant
markets. In November 2008 ESA issued a revised Recommendation on relevant markets.3 In
the Recommendation the number of relevant markets was reduced to seven. NPT has started
work on analysing the markets according to the new Recommendation, including assessing
whether sector-specific regulation should be withdrawn also in Norway from markets
removed from the Recommendation.

The work on market analyses and imposition of obligations may be divided naturally into
three phases:
Define relevant markets by defining relevant product markets and defining geographic
markets.
Carry out market analyses of each of the relevant markets, with a view to uncovering
whether any undertakings have significant market power.
Issue decisions on specific obligations to the undertaking(s) designated as having
significant market power.
This document describes the guidelines on which NPT will base its assessments in phases 1)
and 2).

1.2 Legal framework for the market analysis

The Electronic Communications Act’s definition of significant market power is as follows, cf.
Section 3-1:
“A provider has significant market power when the provider individually or jointly with
others has economic strength in a relevant market affording the provider the power to behave
to an appreciable extent independently of competitors, customers and consumers. Significant
market power in one market may result in a provider having significant market power in a
closely related market.”
The term “significant market power” in the Electronic Communications Act is very close to
the competition law standard “dominant position” (“dominance”). It follows from Norway’s
obligations under the EEA Agreement that the designation of undertakings with significant
market power is to be carried out in accordance with the guidelines and recommendations
prepared by the ESA under the framework directive for electronic communications services:
Guidelines on market analysis and the assessment of significant market power (hereinafter
“the Guidelines”) 5
ESA’s Recommendation of 5 November 2008 on relevant markets (hereinafter “the
Recommendation”)7

3
EFTA Surveillance Authority Recommendation of 5 November 2008 on relevant product and service markets.
5
EFTA Surveillance Authority Guidelines 14 July 2004
5
EFTA Surveillance Authority Guidelines 14 July 2004
7
This also includes Explanatory Note (the EU document prepared in conjunction with the corresponding
Commission Recommendation of 17 December 2007). ESA states that the Recommendation should be
interpreted in light of the Explanatory Note of the Commission’s Recommendation.

4
 Methodology for market analysis

Links to key ESA documents are available on NPT’s website. ESA documents have the same
legal status for EEA member states as the Commission’s corresponding documents have for
EU member states.
In accordance with the Guidelines a market analysis is to provide the basis for the assessment
of relevant markets and of significant market power and the assessment is to accord with
competition law methodology. The Guidelines and the Recommendation, together with the
provisions of the Act, will therefore form the legal framework for the market analysis.
However, the Guidelines are not exhaustive and NPT will therefore elaborate on the criteria
for the market analysis on certain points. If the Guidelines and the Recommendation are
amended, NPT will update this document.
In addition to the Guidelines and the Recommendation, NPT has taken account of the so-
named EEA Supplement as the basis for the preparation of this document, which describes in
general the application of EU competition law under the EEA Agreement.8 Furthermore, NPT
has used a working document from the Independent Regulators Group (IRG)9 and referred to
corresponding guidelines for market analyses published by the regulatory authorities in
Sweden (PTS) and the United Kingdom (Ofcom).10
The European Regulators Group (ERG) and the European Commission cooperate on
harmonization of methods and guidelines for market analyses. Within the parameters of the
Electronic Communications Act, NPT will take due account of any new guidance documents
prepared at EU level. This document is not legally binding, but expresses NPT’s
understanding of the guidelines to which NPT is obliged to adhere as these are currently
framed. Should there prove to be discrepancies between this document and the Guidelines or
the Recommendation, the Guidelines or the Recommendation will take precedence.
This document does not purport to guide the Norwegian Competition Authority’s assessments
in accordance with the Competition Act. Although NPT’s assessments in accordance with this
document will be based mainly on competition law methodology, and will be closely aligned
with general competition law, the Post and Telecommunications Authority’s assessments will
be motivated by the requirement for general ex ante regulation, while the competition
authorities’ assessments are as a rule ex post in connection with actual cases. The Competition
Authority’s and the Post and Telecommunications Authority’s assessments in accordance
with the two sets of rules may therefore differ even within the same or overlapping markets.

2 Definition of relevant markets

2.1 The Recommendation on relevant markets

The Annex to the Recommendation contains a list of the relevant product markets that NPT,
in accordance with Section 3-2 of the Electronic Communications Act and Norway’s
obligations under the EEA Agreement, will be obliged to analyse.

7
This also includes Explanatory Note (the EU document prepared in conjunction with the corresponding
Commission Recommendation of 17 December 2007). ESA states that the Recommendation should be
interpreted in light of the Explanatory Note of the Commission’s Recommendation.
8
Supplement to Official Journal of the European Union No. 28, 16.07.1998
9
Independent Regulators Group: Common interpretation of the SMP concept for the new regulatory framework,
10
Post- och telestyrelsens almänna råd om bedömning av vilka företag som har inflytande på den svenska
marknaden and Oftel’s (now Ofcom’s) market review guidelines: criteria for the assessment of significant
market power, 5 August 2002

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 Methodology for market analysis

Through the market analysis, NPT is to assess the need to define diverging or new national
product markets (section 2.2) and carry out the geographic definition of the relevant product
markets (section 2.3).

The Recommendation sets out the following relevant product markets:

Market level Market definition11

1. Access to the public telephone network at a
Retail fixed location for residential and non-residential
customers (former markets 1 and 2)
2. Call origination on the public telephone network
provided at a fixed location (former market 8)
3. Call termination on individual public telephone
networks provided at a fixed location (former
market 9)
4. Wholesale (physical) network infrastructure
access (including shared or fully unbundled
Wholesale access) at a fixed location (former market 11)
5. Wholesale broadband access (former market 12)
6. Wholesale terminating segments of leased lines,
irrespective of the technology used to provide
leased or dedicated capacity (former market 13)
7. Voice call termination on individual mobile
networks (former market 16)

The following markets have been removed from the list of relevant markets:

Retail market
 Publicly available local and/or national telephone services provided at a fixed location for
residential customers (former market 3)
 Publicly available international telephone services provided at a fixed location for
residential customers (former market 4)

11
The numbering of the markets corresponds to that of the list in the new Recommendation. The translation into
Norwegian is unofficial and the English version applies in the event of any discrepancies. The ESA
Recommendation on relevant markets (the old Recommendation) is in parentheses.
14
See the Guidelines, paragraph 39, and Explanatory Memorandum, section 2.1. The practice of the Norwegian
Competition Authority is as a rule to postpone the assessment of supply-side substitution until the assessment of
potential competition during the market power assessment.
14
See the Guidelines, paragraph 39, and Explanatory Memorandum, section 2.1. The practice of the Norwegian
Competition Authority is as a rule to postpone the assessment of supply-side substitution until the assessment of
potential competition during the market power assessment.

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 Methodology for market analysis

 Publicly available local and/or national telephone services provided at a fixed location for
non-residential customers (former market 5)
 Publicly available international telephone services provided at a fixed location for non-
residential customers (former market 6).
 The minimum set of leased lines (former market 7)

Wholesale market
 Transit services in the fixed public telephone network (former market 10)
 Wholesale trunk segments of leased lines (former market 14)
 Access and call origination on public mobile telephone networks (former market 15)
 The wholesale national market for international roaming on public mobile networks
(former market 17) (1)
 Broadcasting transmission services, to deliver broadcast content to end user (former
market 18)

2.2 Criteria for defining other relevant product markets

If NPT wishes to define relevant product markets other than those defined in the
Recommendation, the decision shall follow the consultation procedure in accordance with
Section 9-3 of the Electronic Communications Act.
In defining other relevant product markets the starting point will be an assessment of the
relevant product’s substitutability on the demand side (section 2.2.1). Three criteria identified
by ESA must also be met for a market to qualify for sector-specific regulation (section 2.2.2).

2.2.1 Definition of the relevant product market

A relevant product market comprises products or services (the terms are used as
interchangeable in what follows without difference in meaning) that are adequately
substitutable for the end user. In this context purchasers in wholesale markets will also be
considered end users. The starting point for the definition of a relevant product market is an
assessment of demand-side substitutability. Substitutability may however also be present on
the supply side and may then be relevant in the definition of the relevant market.14
Substitutability exists on the demand side when in the users’ perception two or more products
in the market are mutually interchangeable or substitutable on the basis of their
characteristics, price and area of use.
Substitutability on the supply side exists when, as a response to a marginal price change,
providers of other (non-substitutable) products, can change their production or distribution in
the short term and provide substitutable products without incurring significant supplementary
costs or risk.

14
See the Guidelines, paragraph 39, and Explanatory Memorandum, section 2.1. The practice of the Norwegian
Competition Authority is as a rule to postpone the assessment of supply-side substitution until the assessment of
potential competition during the market power assessment.

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 Methodology for market analysis

An acknowledged method of analysing substitutability is known as the “hypothetical

monopolist test”, in which the aim is to find the narrowest market in which a hypothetic
monopolist can exercise market power.15 This test takes as its starting point a marginal (in
practice 5-10%) and lasting price rise in the relevant product, based on the assumed price
level in a theoretical market with perfect competition and assuming that all other prices are
unchanged. Then a hypothetical assessment of the effect of the price increase in the given
market is carried out, and the total effect of the price increase on the producer’s revenue is
assessed. The method depends on a significant amount of data that will often be difficult to
produce. Approximately similar methods may therefore also be applied.
The hypothetic assessment should be supplemented with actual information on behaviour on
the supply and demand sides to the extent that such information is available. On the demand
side, allowance should be made inter alia for the end users’ access to information, the costs of
changing and other lock-in mechanisms. On the supply side, account should be taken of the
actual potential a provider has to change production as well as any regulatory conditions that
prevent rapid market entry by competitors in the market.

2.2.2 Criteria for ex ante regulation

In accordance with the Recommendation, the following criteria shall be met for a product
market to qualify for sector-specific ex ante regulation in the electronic communications
area:16
1. There are high and non-transitory structural or regulatory entry barriers in the relevant
product market.
2. The market has characteristics such that it will not sufficiently tend towards
sustainable competition.17
3. General competition law does not sufficiently address the objectives behind sector-
specific regulation.
Both the Commission and the ESA have already assessed the criteria for the 7 markets
identified by the ESA in the Recommendation. It is consequently not necessary for NPT to
review the criteria for these markets before implementing the actual market analysis.
Review and assessment of criteria for markets departing from the predefined ones shall take
place before the market analysis. This is necessary for assessing whether the relevant market
is a market where it is relevant to use sector-specific regulation. The criteria are cumulative,
i.e. all three criteria must be met to warrant ex ante regulation. However, the imposition of
sector-specific remedies depends on the identification through the market analysis of one (or
more) operator(s) with significant market power in the market in question. The time horizon
with the use of the criteria should be approximately 1-2 years ahead in time.
The preparatory work to the Electronic Communications Act and the Guidelines indicate that
NPT should be cautious about introducing ex ante regulation in “emerging markets”, where

15
Also known as “SSNIP” (“Small but Significant Non-transitory Increase in Price”). See paragraph 41 of the
Guidelines, where the use of the method is explained in more detail.
16
See Section 6 of the Recommendation, and Sections 2.2 and 2.3 of the Explanatory Memorandum.
17
Here the Recommendation uses the term “effective competition”, which may best be translated into
Norwegian as “virksom konkurranse”. The Guidelines define this as a market in which operators with significant
market power are absent, cf. paragraph 19. Page 99 of Proposition no. 58 (2002-2003) to the Odelsting states: “If
none of the providers has significant market power then there is assumed to be sustainable competition in the
market.” NPT therefore assumes that the terms will coincide for this purpose.

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 Methodology for market analysis

significant market power may result from the leading operator having the benefit of being
quick to introduce new services or new technology, known as “first mover advantages”.18

2.3 Definition of relevant geographic markets

Once the relevant product markets are determined, definition of the geographic market is
carried out.19
As a general rule the outer geographic limits of the relevant product market will comprise the
extent of the network and the jurisdiction of the legal regulation of the market.
Whether or not a more detailed definition of the geographic market has to be carried out will
depend on an assessment of the substitutability of the relevant products and services on the
supply and demand sides, with a lasting, marginal but significant price increase as described
in section 2.2 above. The relevant geographic market is the area in which the relevant
products and services are provided on sufficiently similar or homogeneous competitive terms.
In assessing substitutability on the demand side preferences and geographic purchase patterns
should be taken into account if such information is available.
With this as the basis the markets can be defined regionally within the national frontiers,
nationally or transnationally. NPT can only define regional or national markets.20

3 Assessment of significant market power

3.1 General - assessment of significant market power

The criteria that the Guidelines set up as relevant in the assessment of whether an undertaking
has significant market power coincide with the criteria that, in accordance with EEA
competition law, are relevant in assessing whether an operator has what is known as a
“dominant position” (the term “dominance” is otherwise used in the text in its ordinary
sense). The term significant market power will therefore be close to the competition law term
dominance, even though the outcome of NPT’s assessment in accordance with the Electronic
Communications Act and assessments in accordance with general competition law will not
necessarily coincide.
The enumeration of criteria in the Guidelines is not exhaustive and, from a starting point in
general competition law, NPT has identified more possible criteria that may be relevant.21
In assessing whether an undertaking has significant market power, all the relevant criteria
must be taken into account. However, it is not possible to tell in advance what weight the
individual criteria will have in an actual assessment and the weight of different criteria will
vary between the markets. Market share, market concentration and the presence of lasting
entry barriers (market access) will however be key criteria in every assessment. A conclusion
that an operator has significant market power may be based on a combination of different

18
See page 99 of Proposition No. 58 (2002-2003) to the Odelsting, paragraph 33 of the Guidelines and
paragraph 8 of the Recommendation.
19
See paragraphs 56-61 of the Guidelines.
20
If the European Commission/ESA decides that there are transnational markets, the regulatory authorities
involved should cooperate on the market analysis of this market in accordance with detailed guidelines that the
European Commission/ESA will prepare.
21
See paragraph 79 of the Guidelines.

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 Methodology for market analysis

criteria which, each on its own, is not necessarily enough to provide significant market
power.22
If the market analysis does not provide grounds to designate providers with significant market
power, the market will not qualify, in accordance with the Act, for sector-specific ex ante
regulation. In the event that NPT’s market analysis does not find operators with significant
market power in a market, this is without prejudice to the competition authorities’
assessments in accordance with the Competition Act.
Below is a short description of the criteria that NPT considers relevant to the market analyses.
For ease of reference the criteria are described in the sequence in which they are mentioned in
the Guidelines.23 Even though all of the criteria mentioned should be assessed in each market
analysis, the individual analysis will not necessarily follow the structure in this document.

3.2 The criteria in the Guidelines

3.2.1 Market share and market concentration

The provider’s market share in the relevant market will form the starting point for the
assessment, and be an important factor. In accordance with the Guidelines market share
should be above 40% before this factor indicates significant market power. 24 In the event of
high market share (over 50%) it would be exceptional for the provider not to be considered to
have significant market power. As a rule, providers with low market share (less than 25%) are
not considered to have significant market power.
However, market share alone is not enough to decide whether the operator has significant
market power, but must be seen in context with the other criteria and relevant conditions in
the market.
In the assessment of market share it can be useful to look at shares based on different
measuring criteria, for example volume and turnover, but the choice of measuring criterion
may vary from market to market.
Developments in market share over time are of importance to the assessment. A stable high
market share over time will be a factor that indicates significant market power, while
fluctuating or sinking market share may indicate the opposite. In emerging markets, market
share will be less indicative of significant market power.
Market concentration expresses the ratio of market share between the largest providers in a
market. High market concentration may indicate that there are operators with significant
market power in the market. Different concentration indices are used to measure market
concentration. 25

3.2.2 Overall size of the undertaking

If an undertaking, or the group of which the undertaking forms part, is significantly larger
than the competitors, this may comprise a competitive advantage through, inter alia, the
benefits of economies of scale and scope (see also section 3.2.8), procurement, financial

22
See paragraph 80 of the Guidelines.
23
A similar structure is used in IRG’s Working Document as well as by PTS and OFCOM.
24
Paragraph 76 of the Guidelines
25
Examples of generally used concentration indices are HHI (Herfindahl-Hirschman Index) and concentration
ratio figures.

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 Methodology for market analysis

strength and access to capital (see also section 3.2.6), distribution and marketing. These
advantages may appear outside the relevant market being analysed, but nevertheless have
significance.

3.2.3 Entry barriers related to control of infrastructure

Undertakings that have control of infrastructure not easily duplicated can represent an entry
barrier for competitors.

3.2.4 Technological advantages or superiority

A technological or knowledge-based lead may comprise entry barriers for new operators and
competitive advantage in relation to existing competitors, because the costs of research and
development are sunk costs and it takes a certain amount of time before the results can be
exploited in the market.

3.2.5 Countervailing buying power

The presence of customers with negotiating power (known as “countervailing buying power”)
will limit a provider’s opportunity to behave independently of the market. The negotiating
power may be a result of the customer’s size or that the customer has something to offer, for
example increased market access to other markets. High transaction costs and entry barriers
will weaken market power on the demand side. The opportunities to exercise market power
on the demand side will have particular significance in markets where a provider has de facto
monopoly, for example in termination of traffic within its own network.

3.2.6 Financial resources

Access to financial resources will be essential to an undertaking’s ability to compete in a
market and differences in this access may comprise entry barriers or competitive advantage.

3.2.7 Product differentiation/bundling of products

A high degree of product diversification, or heterogeneous products, may create customer
loyalty and make it more difficult for competitors to enter the market, as opposed to if the
products are more homogeneous. Strong brands may have a similar effect.
An undertaking that is dominant in one market can exploit this position to “bundle” or link
together services and products in this market with services and products in closely related
markets, where there is a greater degree of competition. Because the competitors do not have
the same opportunity to provide the services in combination, such a practice will strengthen
the dominant undertaking’s market power in the closely related market.

3.2.8 Economies of scale and scope

Economies of scale are present when an increase in production is accompanied by falling unit
costs (average costs). This is characteristic of production based on technology with relatively
high fixed costs and low variable costs.
Economies of scope are reductions in production costs per unit through more than one service
being produced using common means of production, for example infrastructure or
administrative systems. Cost savings through utilisation of one telecommunications network
in the production of different telecommunications services to the end users is a typical
example of common production gains.

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 Methodology for market analysis

Economies of scale and scope may work both as an entry barrier to new operators and as a
competitive advantage in a market with several competitors.

3.2.9 Vertical integration

A vertically integrated undertaking is characterized by having several production levels that
are usually controlled by different undertakings. A vertically integrated undertaking, through
its position in markets for input factors (“upstream markets”) or in the retail markets
(“downstream markets”) can keep competitors out, or behave in a competition-restricting way
towards existing competitors, and in this way strengthen its market power in the relevant
market.

3.2.10 Distribution and sales network

A comprehensive distribution and sales network may work as an entry barrier for new
operators and as a competitive advantage for established operators, particularly in markets
where there are large costs associated with building up a distribution network. If an
undertaking is in a position to use exclusivity agreements or other practices that restrict new
operators’ access to distribution of their products in the market, this may be a sign that the
undertaking has significant market power.

3.2.11 Potential competition

The phrase potential competition describes the opportunity for new operators to enter the
relevant market. If potential competition is present, it will discipline price setting and reduce
the opportunity for monopoly pricing, even if the number of existing operators in the market
seen in isolation indicates that significant market power is present. This criterion must be
assessed in close context with market access and the presence of entry barriers, see section
3.2.14. Potential competition may have particular significance in innovation-driven markets.26

3.2.12 Barriers to expansion

There is no clear distinction between entry barriers and growth barriers. Many of the
conditions that restrict opportunity to enter a market may also amount to restrictions to
growth. If competitors’ opportunities to grow in a market are restricted, this will strengthen
the dominant undertaking’s influence over the market conditions in the subject market, in that
a price increase will not result in loss of market share.

3.2.13 Degree of innovation in the market

In a market with a high degree of innovation the opportunity to exploit a dominant market
position will be restricted compared to in a “mature” market with little innovation, because
through innovation new operators can provide new products or achieve cost savings that
counterbalance the dominant operator’s competitive advantage.

3.2.14 Market access – entry barriers in general

A new operator’s access to a market is decided by several factors that may be described as
entry barriers. If the entry barriers are significant, access to the market will be restricted (weak
potential competition) and the market power of established operators will be strengthened.

26
See paragraph 12 of the Guidelines.

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 Methodology for market analysis

Entry barriers may be divided broadly into three groups: structural, strategic and regulatory. 27
Several of the criteria discussed above may be characterised as structural entry barriers, inter
alia technological leads, economies of scale and large sunk costs, common production gains
and well-developed sales and distribution networks.
Strategic entry barriers exist where existing operators in the market arrange matters or
probably will arrange matters through competition-restricting pricing (for example bargain
pricing or cross-subsidising) or some other competition-restricting behaviour in order to keep
new operators out of the market.
Regulatory entry barriers exist when market access is restricted by regulatory conditions, for
example official permissions, resource restrictions or restrictions in regard to health,
environment and safety. Regulatory entry barriers will often be of an absolute nature. To the
degree the relevant market is already subject to regulation, the assessment must make
allowance for this.
In assessing significant market power a combined assessment of market access and the
presence of lasting entry barriers significant to the relevant market should be carried out.

3.3 Other relevant criteria

The list of criteria in the Guidelines is not exhaustive. There are several other criteria that in
the view of NPT may be relevant in assessing significant market power. The list below is not
exhaustive.28

3.3.1 Excessive pricing and profitability

An operator’s opportunity to price at a significantly higher level than the underlying costs
would indicate (monopoly pricing), or to increase prices without a corresponding loss of sales
revenues is an indicator of significant market power. If a dominant operator in a market has
high profitability compared to dominant operators in comparable markets, this may thus
indicate significant market power. However, allowance must be made for high profitability
being the result of factors other than monopoly pricing, for example the benefits of scale,
efficiency gains or innovation. Correspondingly low profitability is not necessarily an
argument against an operator having significant market power.

3.3.2 Utilisation of excess capacity

If dominant operators in a market have significant excess production capacity this may
comprise a strategic entry or growth barrier. In the event of an increase in demand in the
market the dominant operator can increase production without major investment and thus
prevent new operators entering or winning market share.

3.3.3 Switching costs and lock-in effects

Restrictions or costs connected to the end users changing provider increase the opportunity
for a dominant provider to behave independently of the market. Such restrictions may be of a
practical, technical or financial nature, or may arise because the end users have greater

27
The Recommendation operates with two groups of entry barriers: structural and regulatory, cf. paragraphs 9-
11.
28
These and other criteria are discussed in table 3 of Oftel’s market review and Chapter 4 of IRG’s Common
interpretation of the SMP concept.

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 Methodology for market analysis

confidence in existing and well-established operators rather than new operators and will not
take the risk of switching.

3.3.4 The end users’ access to information

For the end users to make an effective choice between the providers in a market (in switching
or initial purchase), they must have access to information that makes it possible to carry out a
comparison of the offerings in the market. Use of complicated price structures, bonus and
discount arrangements etc. restricts the opportunities for effective end user choice and may
contribute to strengthening an already dominant operator’s power in the market.

3.4 Indicators for competition

The assessment of significant market power may be supplemented with different indicators
that show the degree of competition in the relevant market. Several such indicators may be
pertinent:29
 whether over time the end users in the relevant national product market enjoy the
same choice, quality and price as end users in comparable markets in other
countries,
 the degree of price competition and the development of prices over time,
 the degree of competition on quality and differentiation of products and
 the extent to which the consumers are satisfied with the service choices, quality
and price.
If there are indications of a failure in competition, this could support an assessment that an
operator has significant market power. However, such an indication will not in itself be
sufficient to designate operators with significant market power and caution must be exercised
against placing too much weight on such indicators. Appropriate account must also be taken
of the existence of any regulation that affects the result, for example price control or
obligations regarding non-discrimination. The indicators mentioned may also be useful in the
assessment of what measures should be used most effectively to promote competition in the
relevant market.

3.5 Leverage of significant market power to closely related markets

Section 3-1 of the Electronic Communications Act reads: “Significant market power in one
market may lead to a provider having significant market power in a closely related market”.
Such leverage of significant market power may occur vertically, between a wholesale market
and a retail market, or horizontally between different product markets. The regulation, which
comes from Article 14 (3) of the Framework Directive stems from an actual decision by the
European Court of Justice (ECJ), in the case known as the Tetra Pak II Case.30 The relevant
markets must be associated in such a way that the operator can exploit its market power in
one market to achieve an advantageous position in the closely related market. In addition to
significant market power in one market, the operator must also have a significant presence in
the closely related market. It will normally only be relevant to assess leverage of significant
market power if the competition-related problems in the closely related market cannot be

29
See Chapter 3 of Oftel’s (now Ofcom’s) market review guidelines.
30
Case C-333/94 P, Tetra Pak v Commission [1996] ECR I-5951.

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 Methodology for market analysis

resolved by use of measures in the market in which the operator has significant market
power.31

3.6 Criteria in assessment of joint significant market power for multiple

providers (collective dominance)
In accordance with the definition of significant market power, multiple providers may be
considered to have significant market power jointly if they can behave jointly independently
of the market, known as collective dominance. Assessment of collective dominance is only
relevant in markets where single dominance is not found. The reason for this is that by
definition it is not possible to find collective dominance in a market where there is one
operator who alone operates independently of the market. It is not possible to meet the criteria
for single dominance (section 3.2 above) and the criteria for collective dominance at the same
time. As a result of this it will be natural to first undertake an assessment of whether there is
an undertaking with single dominance in a market. If the answer to this is negative, it may be
relevant to assess collective dominance.
The term collective dominance (joint dominance) is based on a relatively limited number of
decisions of the European Court. The Court of First Instance, in the decision on Airtours32,
which was published in accordance with the Guidelines, has provided a more detailed
amplification of the joint dominance requirement stated by the Court.
The judgement states three conditions that must all be met if two or more undertakings
together are to be considered jointly dominant:
1. The undertakings are in a position to have tacit coordination, because the market
conditions are adequately transparent, such that the undertakings may, with a
sufficient degree of accuracy and speed, arrange matters mutually in a joint strategy.
The most important criteria that must be present if this condition is to be met are
market concentration, transparent market conditions, a mature market, stagnating or
moderate demand growth and homogeneous products.
2. The tacit coordination must be capable of being maintained over time, inasmuch as
there are retaliatory mechanisms between the undertakings that make it unprofitable
for the participating undertakings to break away or deviate from the coordination.
3. The results of the coordination must not be capable of being undermined by
competitors or customers. High entry barriers will be key in the assessment of this
condition.

In addition, a general assessment of criteria must be carried out, in the same way as in the
case of a single operator’s market power. The Guidelines set up a range of criteria, of which
several should be met if more than one provider in conjunction are to be considered to have
significant market power. It is however uncertain how the above-mentioned Airtours case will
affect the content of the Guidelines. For the moment therefore, NPT has chosen not to go into
detail in regard to the content of the individual criteria. However, NPT will routinely publish
any amendments to the Guidelines.

31
See paragraphs 85-86 of the Guidelines.
32
Case T-342/99, Airtours

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 Methodology for market analysis

The Guidelines list a range of criteria as relevant to the assessment of joint dominance. Some
of these criteria are explained above in section 3.2, but the criteria’s significance will not
necessarily be the same as with single dominance:33
1. mature market
2. stagnant or moderate growth on the demand side
3. low elasticity of demand
4. homogeneous products
5. similar cost structures
6. similar market shares
7. lack of technological innovation, mature technology
8. absence of excess capacity
9. high barriers to entry
10. lack of countervailing power
11. lack of potential competition
12. various kind of informal or other links between the undertakings concerned
13. retaliatory mechanisms that prevent competition between the undertakings
14. lack or reduced scope of price competition

*****

33
See paragraph 98 of the Guidelines.

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