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Singapore – IDA Issues Revised Competition Guidelines And Introduces New Leniency Programme For Cartels.

25 April, 2014

 
 

On 9 April 2012, the Info-communications Development Authority of Singapore (“IDA”) issued the revised Telecom Competition Code or Code of Practice for Competition in the Provision of Telecommunication Services 2012 (“Code”). First introduced in 2000, the Telecom Competition Code is “a comprehensive competition management framework that comprises of ex-ante obligations and ex-post provisions which the Licensees must abide with.The Code has undergone two rounds of review since its introduction in 2000.

 

Following the issuance of the Code, IDA has issued corresponding revisions to two sets of advisory guidelines. The advisory guidelines are the:
(a) Advisory Guidelines Governing Petitions for Reclassification and Requests for Exemption under Sub-sections 2.3 and 2.5 of the Code (“Reclassification and Exemption Guidelines”); and 
(b) Advisory Guidelines Governing Abuse of Dominant Position, Unfair Methods of Competition and Agreements Involving Licensees that Unreasonably Restrict Competition under Sections 8 and 9 of the Code (“Telecom Competition Guidelines”),
(collectively, the “Advisory Guidelines”).
By way of background, under the Code, Dominant Licensees2 must comply with special provisions governing Dominant Licensees which are set out in the Code. The Reclassification and Exemption Guidelines set out IDA’s guidance framework for re-classifying Facilities-based Licenseesand Services-based Licensees4 that use switching or routing equipment to provide services5 to the public as non-dominant (and vice versa), and assessing requests by Dominant Licensees to be exempted from certain provisions in the Code.
The Telecom Competition Guidelines set out IDA’s guidance framework for determining whether a licensee has contravened certain prohibitions in the Code, specifically the prohibitions against anti-competitive behaviour, such as abuse of dominant position and agreements involving licensees that unreasonably restrict competition, contained in Sections 8 and 9 of the Code.

 

The revisions to the Advisory Guidelines are intended to align them with the Code, and to provide guidance on how IDA will implement relevant sections of the Code. Amongst other initiatives in the revised Advisory Guidelines, IDA has introduced a new leniency programme for licensees coming forward with information on cartel activity.

 

Both sets of revised Advisory Guidelines come into effect on 25 April 2014.

 

A (non-exhaustive) summary of the changes to the Advisory Guidelines, including an overview of the new leniency programme, is set out below.

 

Reclassification And Exemption Guidelines

 

General Amendments Arising From Previous Changes To Section 8 Of The Code

 

In a previous review of the Code, Section 8 of the Code, which deals with abuses of a dominant position and unfair methods of competition, was expanded to include licensees that have not been formally classified as Dominant Licensees, but which are found to have acquired and abused their Significant Market Power6, notwithstanding that they have not been formally classified as Dominant Licensees. The Reclassification and Exemption Guidelines have been updated to take account of these changes to the Code.
Market Definition
In the revised Reclassification and Exemption Guidelines, IDA has provided additional clarification on its approach to defining the relevant market.
In this regard, IDA has amended the Reclassification and Exemption Guidelines to expressly clarify that IDA may take into account, inter alia, appropriate time frames when determining the relevant market, which may provide for considerations of situations of expected/foreseeable changes to the structure of the market in the future.

 

In addition, IDA has expressly clarified that it will recognise the existence of circumstances where a licensee may have Significant Market Power in providing a particular service and has raised the price of that service above competitive level, such that the “SSNIP test”may not yield an accurate market definition. In such circumstances, although there are substitutes that are able to constrain the licensee from further raising its prices, they should not be included in the definition of the relevant market as they would not normally be considered to be substitutes at the competitive price level, and including these inferior substitutes into the market definition could lead to the market being defined too widely (ie the so-called “cellophane fallacy”).
IDA has also clarified that, where appropriate, it may consider the concepts of bundling, chain substitutability and complements in defining the relevant market. Chain substitutability occurs where two products are not directly substitutable for each other but, a third product is substitutable for both the first and second products. In such a situation, the first and third products may be in the same product market since their pricing might be constrained by the substitutability of the second product in the “chain”. Complements are groups of products that are consumed or produced together. IDA has expressed that it may consider complements to be included in the same market when competition in the provision of one product constrains the price charged for the other.
IDA has also expressly included, in the amended Reclassification and Exemption Guidelines, that it may also consider whether the market is a one-sided market or a two-sided market to provide an integrated framework for understanding the interactive relationships between dominance, conduct and effect so as to properly assess any competition issues. Two-sided markets are markets in which a licensee provides a platform that enables two distinct but related groups of customers to obtain products or services. The two sides of the platform are linked, with interdependent prices and output and intertwined strategies.

 

Assessing Competitiveness
After IDA has defined the relevant market, it will conduct a competitiveness assessment of the relevant market(s) to determine whether the licensee in question has Significant Market power in the market(s). Along with other factors such as market share measures, IDA has clarified that, when assessing competitiveness, IDA may consider, inter alia, whether the ability of a licensee to exercise its market power in a relevant market is constrained by another related market, eg a licensee with Significant Market Power in the upstream market may find it difficult to exploit its market power due to the existence of a strong buyer in the downstream market.

 

Telecom Competition Guidelines

Guidance On Section 8 Of The Code

 

Section 8 of the Code sets out provisions in respect of the prohibition of certain types of unilateral conduct by a licensee that has Significant Market Power; specifically, abuses of a dominant position, receipt of anti-competitive preferences and unfair methods of competition.
Significantly, in the revised Telecom Competition Guidelines, IDA has expressed that in assessing whether a licensee with Significant Market Power has abused its dominant position, it would take into account whether the licensee in question may objectively justify such conduct. IDA may also consider if the licensee is able to demonstrate any benefits arising from its conduct. However, the licensee must show that it has behaved in a proportionate manner in defending its legitimate commercial interest.

 

General Amendments Arising From Changes To Section 8 Of The Code
As stated in paragraph 8 above, Section 8 of the Code was amended to include licensees that have not been formally classified as Dominant Licensees, but are found, in fact, to have Significant Market Power. The Telecom Competition Guidelines have, correspondingly, been updated to take account of this change to Section 8 of the Code.

 

Discrimination

 

Section 8.2.2.1 of the Code prohibits a licensee that has Significant Market Power in a telecommunication market from abusing its dominant position in that market by engaging in discrimination. In particular, the Code provides that IDA will find that a licensee has engaged in discrimination, and therefore has abused its dominant position, if the licensee provides its affiliate with access to infrastructure, systems, services, equipment or information that, as a practical matter, are necessary to non-affiliated licensees to provide services or telecommunication equipment, on prices, terms or conditions that are more favourable than the prices, terms and conditions on which the licensee provides those infrastructure, systems, services, equipment or information to non-affiliated licensees.

 

IDA has further clarified, in the Telecom Competition Guidelines, that in assessing whether a licensee with Significant Market Power has engaged in discrimination competition in the downstream market by providing access to these inputs to its downstream affiliate on discriminatory prices, terms and conditions, IDA will consider, inter alia, whether there is a verifiable difference in the cost of providing access, variations in the quantity or quality of service or equipment provided or variations in the duration of the service or product agreement period which will or is likely to restrict or impede other licensees’ ability to compete.

 

Price Squeezes
A licensee that has Significant Market Power in a telecommunication market must not abuse its dominant position in that market by engaging in price squeezing. IDA will find that the licensee has engaged in a price squeeze and, therefore, hasabused its dominant position, if the licensee provides a service or telecommunication equipment or facility that a down-stream licensee requires in order to provide a service or telecommunication equipment, at a price that is so high that the licensee‘s down-stream business or affiliate could not profitably sell its product if it were required to pass on to its customers the full price of the service, equipment or facility.

 

IDA has clarified in the Telecom Competition Guidelines that, in examining whether a licensee with Significant Market Power has engaged in a price squeeze, IDA may assess whether the price that the licensee charges downstream competitors for the input allows an “equally efficient” (as opposed to “reasonably efficient”) non-affiliated service provider in the downstream market to obtain a commercially reasonable profit for such activity. In IDA’s public consultation paper on the revisions to the Advisory Guidelines, IDA explains that it recognises that the licensee can, in practice, only determine its own costs and prices as a benchmark, rather than those of a hypothetical efficient or reasonably efficient downstream competitor, in determining whether or not it has breached the Code. It is therefore intended that IDA will generally consider the cost structure of the downstream business or affiliate of the licensee with Significant Market Power to be the appropriate reference point.

 

Refusal To Supply

 

In line with international best practices, IDA has explained when a refusal to supply by a licensee with Significant Market Power is problematic, ie if there is evidence of (likely) substantial harm to competition and there is no objective justification for the refusal to supply.

 

Specific Prohibited Practices / Unfair Methods Of Competition

 

Section 8.4 of the Code sets out specific prohibited practices which constitute unfair methods of competition by which a licensee with Significant Market Power seeks to obtain a competitive advantage for itself or an affiliate, including, inter alia, the provision of false or misleading information to other licensees.

 

IDA has clarified what constitutes the provision of false or misleading information. In particular, IDA will find that a person has provided false or misleading information where:

 

(a) the person making the statement or providing the information recklessly makes any statement or does not care whether the statement or information provided is true or false; and

 

(b) where the person providing the information knows or ought reasonably to have known that the statement or information is false or misleading in a material particular; or

 

(c) where a person dishonestly conceals material facts.

 

Guidance On Section 9 Of The Code

 

Pursuant to Section 9 of the Code, IDA may take enforcement action (on its own motion or pursuant to a request from a private party) against any licensee that enters into an agreement with another licensee or any non-licensed entity that has the effect of unreasonably restricting competition in the service or telecommunication equipment market in Singapore.

 

Significantly, IDA has expressed in the Telecom Competition Guidelines that agreements that have the potential to restrict competition in a market but from which the resulting efficiencies outweigh the anti-competitive effects, will not be prohibited.

 

Pricing Fixing / Output Restrictions

 

Section 9.3.2.1 of the Code provides that competing licensees must not enter into agreements to fix prices or restrict output, regardless of the levels to which the licensees agree.

 

IDA clarified in the Telecom Competition Guidelines that a licensee may contravene the Code not only if it enters into a price fixing agreement, but also if the licensees have participated in discussions relating to price-fixing / output restrictions or in the case where a licensee which is party or audience to such discussions has failed to explicitly distance itself from such discussions, agreement or arrangement.

 

IDA has also included several examples of the ways in which indirect price-fixing activities can contravene the Code. These include:
(a) agreeing on or agreeing to recover certain cost components in prices charged;

 

(b) exchanging or sharing of commercially-sensitive or strategic information between competitors, e.g. circulating lists of current and future pricing; 

 

(c) agreeing on the service or equipment or elements thereof to be charged;

 

(d) agreeing on the service or equipment or elements thereof to be included in product offerings;

 

(e) setting percentage or monetary surcharges, pricing targets, margins of profit, price increases;

 

(f) agreeing to increase prevailing prices and/or the timing thereof;

 

(g) setting minimum prices, setting maximum prices or agreeing on a price range;
(h) agreeing on the amount of or incidence of discounts, rebates or the value and character of promotional benefits and/or the timing thereof;

 

(i) regulating the distribution channels for particular service offerings or the mode and extent of product marketing; and 
(j) fixing of credit terms.

 

Market And Customer Divisions

 

Section 9.3.2.3 of the Code provides that competing licensees must not enter into agreements not to compete to provide services or telecommunication equipment to specific customers or not to compete in specific areas, regardless of the terms and conditions on which the licensees agree.

 

IDA has clarified in the Telecom Competition Guidelines that it will generally not consider arrangements that involve licensees sharing facilities because of, for example, economic efficiency considerations or to address technical constraints or a shortage of facilities, to contravene the Code.

 

Leniency Programme For Licensees Coming Forward With Information On Cartel Activity

 

Most significantly, IDA has introduced a new leniency programme under the Telecom Competition Guidelines, to encourage licensees to approach and inform IDA of cartel activities in exchange for immunity/leniency.

 

Key features of the leniency regime include the following:

 

(a) IDA may grant a licensee total immunity from financial penalties if it is the first to provide IDA with evidence of the cartel’s activity before an investigation has commenced by IDA. This is provided that IDA does not already have sufficient information to establish the existence of the alleged cartel activity. The licensee must also satisfy a number of other prescribed conditions.

 

(b) For licensees that provide information to IDA after an investigation has already commenced, they may still benefit from a reduction in the financial penalty of up to 100 per cent if they are the first to provide IDA with evidence of the cartel activities and the information is given to IDA before IDA has sufficient information to decide that the Code has been contravened. The licensee must also satisfy a number of other prescribed conditions.

 

(c) For licensees that are not the first to come forward, they may be granted a reduction in financial penalty of up to 50 per cent, at IDA’s discretion. The licensee must also satisfy a number of other prescribed conditions.

 

(d) IDA will also implement a marker system to allow licensees to secure a position in the queue. A licensee making a leniency application, if unable to immediately provide IDA with all relevant information, may apply for a marker to protect its place in the queue for a given limited period oftime while it gathers the necessary information and evidence in order to perfect the marker. IDA will provide instructions to the licensee on the process and timing by which the marker must be perfected by the prompt provision of relevant information. 

 

(e) The leniency programme only applies to penalties for a breach of Section 9 of the Code, and does not provide the licensee immunity from any penalty that may be imposed on the licensee under any other laws.
In order to be eligible for leniency, licensees must, inter alia, not have been the one to initiate the cartel or taken any steps to coerce another licensee to take part in the cartel activity.

 

End Notes:

 

1 http://www.ida.gov.sg/Policies-and-Regulations/Code-of-Practice-and-Guidelines

 

A “Dominant Licensee” means a licensee that IDA has classified as dominant under Section 2.2.1 of the Code.

 

 

A “Facilities-based Licensee” means a licensee to which IDA has granted a licence to provide Facilities-based Operations under Section 5 of the Telecommunications Act (Cap. 323) (“TA”). 

 

A “Services-based Licensee” means a licensee to which IDA has granted a licence to provide Services-based Operations under Section 5 of the TA.
In particular, any service for telecommunications (but excludes any broadcasting service), as well as services relating to the use of telecommunication systems.

 

Significant Market Power is defined in the Code as the ability to unilaterally restrict output, raise prices, reduce quality or otherwise act, to a significant extent, independently of competitive market forces.

 

In applying the “SSNIP test”, a “demand substitutability” test, IDA will consider whether a hypothetical monopoly operator controlling the entire supply of the service provided by the licensee would be constrained from profitably imposing a small but significant, non-transitory increase in price (ie SSNIP) above the competitive level (typically five to 10 per cent for a year or more) because a sufficient number of customers of the service would switch to another substitute service, thereby rendering the price increase unprofitable. Under this approach, the relevant market for a telecommunication service provided by a licensee consists of both the specific telecommunication service in question and any additional telecommunication service that buyers regard as interchangeable with, or a substitute for, the licensee’s telecommunication service.

 

Drew & Napier

 

Chong Kin Lim, Director, Drew & Napier

chongkin.lim@drewnapier.com

 

Charmian Aw, Director, Drew & Napier
charmian.aw@drewnapier.com

 

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