As new business models emerge in key markets, antitrust enforcement and regulation across the world are becoming not only more challenging, but also a great deal more complex.
A new European Commission came into office in Brussels in November and, with it, the new Commissioner for Competition, Margrethe Vestager. In her in-tray she found a number of very ‘hot files’, including cases against Google and other digital giants.
The temperature was raised further still by the European Parliament voting through a motion calling for the break-up or unbundling of search engines from other commercial services, should antitrust enforcement prove inadequate in controlling their market power. The challenges to be faced by Commissioner Vestager were illustrated in a mission letter from the new Commission President, Jean-Claude Juncker, inviting her to take up the post.
Painting a broad economic remit for her, he said she should focus on “mobilising competition policy tools and market expertise so that they contribute to our jobs and growth agenda, including in such areas as the digital single market, energy policy, financial services, industrial policy and the fight against tax evasion”.
He added: “It will be important to keep developing an economic as well as a legal approach to the assessment of competition issues and to further develop market monitoring in support of the broader activities of the Commission”. He stressed the importance of rules in key areas, including antitrust, cartels, mergers and state aid and urged her to promote international cooperation.
Those broad ambitions for competition policy are interesting in the context of the EU – which, for many years, has been one of the world’s most activist antitrust regimes. But they are more interesting, perhaps, in that they map out a path which more and more authorities are taking across the globe, with competition policy evolving quickly, and often in highly complex ways, to address new market challenges, particularly in the digital arena.
We are seeing this in merger control, abuse of dominance, as well as cartels. More than 100 jurisdictions now apply merger control rules and we are not only seeing new regimes emerge – for instance COMESA (a common market between eastern and southern African countries) and between countries in the ASEAN region – but also seeing established regimes take new directions in policy.
The EU, for example, is considering extending its merger control reach to the acquisition of minority shareholdings, something not currently covered by its merger control rules. This initiative gained momentum after Ryanair’s proposed takeover of Aer Lingus, a case the Commission felt revealed an enforcement gap – it was able to block the full acquisition, but could not intervene at EU level over the initial acquisition of a minority stake. Some feel this reform is a clear case of overreach, and one that will result in a real burden for both companies and the competition enforcers themselves.
Regimes, of course, vary widely in both their approach to remedies and the sheer time it takes to get clearance. China’s competition authority, MOFCOM, for instance, is becoming increasingly active, particularly in tech deals, but the process of gaining clearance and agreeing remedies is notoriously drawn-out. Although MOFCOM has recently introduced measures to expedite reviews of non-problematic cases, a large portion of benign deals still get caught in a protracted review process.
By contrast, the European Commission typically reviews 250-300 deals a year. Only a small minority of these deals (1%-4%) go to in-depth – phase II – investigation. Another small proportion (3%-5%) is cleared, subject to conditions. Out of phase II cases in the 2012 to 2014 period, we have had three prohibitions (Deutsche Börse/NYSE, Ryanair/Aer Lingus and UPS/TNT) and 13 clearances subject to remedies.
Some industries insist that they are in desperate need of scale and consolidation to promote investment in new technology. European mobile operators, focused on investing in 4G, have been very vocal about the need for more consolidation and there has been a wave of deals reducing competing national operators from four to three, starting in Austria and then spreading to Germany and Ireland. Others are in the pipeline.
The Commission has reviewed each of these deals in depth and has only been willing to approve them subject to remedies which maintain competition at the retail level.
The remedies usually make it much easier for new entrants, particularly operators of virtual networks, to enter the fray by gaining access to spectrum or existing networks.
Infrastructure consolidation is also driving megadeals in the U.S., with the proposed Comcast/Time Warner Cable merger, currently under investigation by the Department of Justice and the Federal Communications Commission, a case in point. Opinions are divided about the consumer effects of the deal, not least the risks it poses to online video distribution.
Outside the M&A arena, regulators are trying to come to grips with new business models in the digital environment and whether recently acquired positions of market power require regulatory intervention. Many invoke antitrust intervention as the appropriate response; others question whether that is wise.
A number of the market players whose dominance is called into question operate on so-called ‘multi-sided platforms’, where a company may be balancing the interests of two distinct but related groups of users – for instance users and advertisers on a digital platform. That is tricky. Business strategy and competition issues in such markets may be significantly different from those that arise in the single-sided business models which have attracted antitrust enforcement over the last century. They call for new thinking. It is, perhaps, significant that Jean Tirole – the French economist whose work on regulating complex markets, particularly in sectors dominated by oligopolies as well as multi-sided platforms – was this year awarded the Nobel prize for economics. A central part of his work has been to demonstrate that competition policy needs to be subtly adjusted to meet the challenges of different markets – that a ‘one-size-fits-all’ approach simply will not suffice.
In some cases, probes are taking a great deal of time – nowhere more obviously than in the Commission’s ongoing investigation into whether Google is using its market position in search to favour its own services and separate complaints from publishers and news providers about Google’s use of content. Several years on, despite a range of market-tested remedies, there is no end in sight. The ball is now in Commissioner Vestager’s court.
The one area that is usually safer ground for antitrust enforcement is cartels. Globally, we are seeing competition authorities imposing heavier fines and tougher jail sentences. In the EU, fines grew from EUR614m in 2011 to EUR1.7bn in 2014 (most of which related to the Libor case), and we are on course to see a similarly high level this year. In the U.S., the level of fines has also risen sharply, and here, as elsewhere, new market areas are being targeted, particularly in financial services. Indeed, of the USD1.27bn of cartel fines imposed in 2014, more than USD400m relates to fixing of the Libor interbank interest rate.
The shift of anti-cartel action into areas not previously considered likely to give rise to cartel activities – in particular the manipulation of benchmarking operations – is contentious. There is a clear overlap, and the potential for clashes, between financial regulation and antitrust.
Other intrinsically complex markets are also in the spotlight, often involving huge, international investigations, as we have seen with ongoing probes into the car parts industry by the EC, the U.S., Australia, Canada and Japan. There are many such cases in the pipeline within the EU, covering products as diverse as paper envelopes, plastic pipes, optical disk drives, sugar and marine transport.
As markets and new business models emerge, antitrust regulation is inevitably becoming a more complex science, nowhere more obviously than in the digital world, as demonstrated by many of the issues above. But it does not stop there.
For Commissioner Vestager and her peers around the world, and for companies across sectors, increasing complexity and increasing antitrust intervention is the order of the day.
