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Competition Law Issues

The issue of whether the internet should be regulated in order to ensure free and open competition is a contentious and highly emotive issue. However, arguably, even if the UK Government (and other jurisdictions) decide to move away from net neutrality and allow ISPs to prioritise users' access to certain content providers, all is not lost. Indeed, help may be at hand in the form of competition law.

October 2011

Telecoms regulation has always been founded upon competition principles, with pure competition law seen as the ultimate logical end point in the ongoing evolution of regulation in the sector. However in practice competition law is used relatively infrequently in telecoms cases, as the regulatory process is time-consuming, complex and often, the issues are hard to prove from an evidential point of view. However, with a move away from specifically mandating net neutrality looking more likely, it seems that competition law may be more readily utilised in order to ensure that the market remains competitive.

Background to Competition Law

The Competition Act 1998 contains the UK's main competition provisions - the Chapter I and Chapter II prohibitions. Chapter I prohibits agreements/arrangements between undertakings that prevent, restrict or distort competition in the UK, while Chapter II prohibits the abuse of a dominant position. These provisions are replicated in Articles 101 and 102 of the Treaty on the Functioning of the European Union. If the effect on competition is in relation to trade between Member States then Article 101/102 TFEU applies, while the Competition Act applies where the effect on competition is in the UK only. It should be noted that the UK courts and regulators can also apply the EU provisions directly.

Net Neutrality and Competition Law

market forecastThe main concern is that "traffic management" could be used by ISPs to unfairly discriminate between content providers and skew the market. While there have not as yet been any complaints about such behaviour in the UK, it is potentially only a matter of time before such a case is brought in front of the regulators. One of the central pillars of the competition regime is that companies do not use their position to discriminate against other parties, with the result that there is anti-competitive effect on the market as a whole. Such behaviour may be as a result of an agreement between two companies to behave in a certain way, or by a dominant company abusing its position on the market to discriminate against customers.

In terms of Chapter II/Article 102, dominant companies have a special responsibility not to behave in certain ways that would harm the market. Behaviour that has been found to be abusive includes discriminatory behaviour (treating equivalent customers differently), predatory pricing (pricing below cost in order to drive competitors out the market), excessive pricing (pricing significantly above cost price), refusal to supply (stopping competitors from accessing services or simply refusing to deal with certain customers) and margin squeeze (where a company that is present on both the upstream and downstream markets charges competitors on the downstream market such prices that mean its competitors cannot sell the products profitably).

looking at the risks

Consequently, there are a number of potential pitfalls for companies that want to utilise "traffic management" and other forms of prioritisation for the internet. There is a real risk that certain types of behaviour may restrict competition and distort the market, in breach of Article 101/102 and Chapter I/II.

Process

If a company considers that it has been the victim of anti-competitive behaviour, it may complain to competition regulators in the hope that the regulators will launch an investigation, or at least begin a market study. However, such procedures may be expensive, with an outcome unlikely for a number of years. In addition, any investigation takes place ex post, so the effects of the behaviour have already damaged the market.

It seems that the more beneficial route, particularly in terms of speed, for companies may be to launch a private action against the perpetrators of the anti-competitive behaviour, and to seek an interim injunction at the High Court bringing a halt to the discrimination until it can be heard in full at trial. In such cases, providing the parties are able to prove that the balance of evidence favours the injunction and that damages are not an adequate remedy, the infringing party will be required to stop the behaviour immediately. The added benefit of this route is that companies are able to put a stop to anti-competitive behaviour real damage is caused to the market.

Going forward

keeping a close eye

There are a number of options available to both ISPs and content providers under competition law. Regulators will keep a close eye on the market and welcome feedback from companies in relation to the effects on the market. Companies can also challenge anti-competitive behaviour in the courts, which although being more costly, leads to quicker results and certainty.

What is evident though, is that while traffic management is not necessarily an issue at present, the regulators are determined that consumer transparency should be guaranteed at all times where this occurs. Consumers should not be mislead by the appearance of companies that can, for example, "pay their way" to being prioritised at the expense of their less profitable competitors. Similarly, traffic management should not result in a lack of innovation, as do to so would harm the market in general.

All we can do is sit and watch with interest while this plays out. The European Commission is keeping a close watch on the market and has reserved its right to assess the situation under competition law. The Commission may also publish guidance in relation to net neutrality generally, so in the meantime, we should watch this space.

If you have any questions on this article please contact us.

A game of chess
Louisa Penny

Louisa Penny


"Competition law may be used to regulate the internet in order to ensure net neutrality is maintained and that the markets remain competitive."

"The main concern is that "traffic management" could be used by ISPs to unfairly discriminate between content providers and skew the market. "