For electronic communications markets a new regulatory framework was enacted and should have been transformed into national law by all member states by summer 2003. On whole, the new regulatory framework is designed as to ensure the transition to general competition law. In concrete, the directives (especially Article 14-16 of the Framework Directive) in conjunction with the European Commission´s SMP-Guidelines outline a three-stage analysis process. In this paper we will focus on the third layer (i.e. regulation) with respect to retail voice telephony markets. Furthermore we will only emphasize on price regulation as this mode of ex-ante regulation provokes by far most controversy. Regarding price regulation within European Member states, we find that essentially two different methodologies were adopted since liberalisation of communications markets: Price Caps on the one hand and ex-ante approval mechanisms based on cost orientation on the other hand. Quite contrary to the traditional findings we will produce a result after what ex-ante approval mechanisms are comparatively more suitable for addressing the specific competition problems of the current market phase. These results are reinforced when examining the incumbent’s tariff structure where we find intense use of two-part tariffs. In general (assuming sufficiently rational consumer behaviour) such multi-part tariffs have welfare-enhancing effects in case of classical monopoly regulation. But when competition is introduced these tariffs might give rise for anticompetitive behaviour (horizontal leveraging of market power) and things then become ambiguous. Although incumbents are subject to ex-ante price regulation such behavioural strategies are quite common, as ex-ante price regulation at the retail level does not imply that prices are dictated rather significant degrees of freedom concerning price setting behaviour typically remain.
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Article provided by Duncker & Humblot, Berlin in its journal Schmollers Jahrbuch.
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