Regulating for Non-Price Discrimination: The Case of UK Fixed Telecoms

Abstract

Telecoms regulators have increasingly signaled concerns about the incentives and ability of vertically integrated incumbents to engage in discriminatory behavior against competitors in downstream markets. The UK Office of Communications (Ofcom) has recently accepted undertakings from British Telecom (BT), the vertically integrated provider of fixed telecoms services in the UK. These constitute one of the latest attempts to address discriminatory concerns in fixed telecoms. Their aim is to tackle this concern by functionally rather than structurally separating the divisions of BT that provide upstream services. This paper examines the incentives of vertically integrated operators with market power to discriminate using where possible empirical evidence relevant to the UK and considering possible regulatory responses to this behavior. Further, given that competition authorities assess price discrimination using a rule of reason approach rather than a per se, ban, it discusses how in a regulated industry non-price discrimination could be treated differently from price discrimination. Finally, it briefly describes the remedy adopted by Ofcom to deal with this issue.

Keywords: telecommunications, non-price discrimination, functional separation

JEL Classification: L51, L96