Market definition, market power and regulatory interaction in electronic communications markets

This CERRE Tech, Media, Telecom study analyses the changes in the regulatory framework required to take into full account the presence of Over the Top (OTT) services and platform competition.

It provides crucial insights into how to take a new, fresh approach to the regulation of electronic communications markets. A first one is that the societal benefits from OTTs’ apps and Internet Service Providers (ISPs) cannot be accounted for separately and that to provide incentives for innovation at both layers, OTTs and ISPs must both benefit from this joint surplus creation. A regulatory environment which heavily constrains the pricing and contracting of ISPs, the study argues, is not conducive to such an outcome. As the business models of OTTs are diverse and evolving, also ISPs should be allowed to experiment with new business models, including specifying new types of contracts offered to consumers and OTTs.

A second important insight is that the efficiency of pricing solutions should be analysed in light of economic theory that suggests that ISPs and OTTs are multi-sided platforms. Hence, competition authorities and regulators have to take all the interactions among the platforms’ participants into account and should not investigate one side of the market in isolation. For example, a market definition test based on the hypothetical monopolist’s price increase can still be carried out, but it must include cross-group externalities and associated feedback effects.

This study offers a fresh approach to ensure the right incentives to innovate and invest are in place for all players in the market. It is directly relevant to the net neutrality debate and the  Regulatory Framework.