European Regulators Group -- ERG Report on Guidance on the application of the three criteria test (June 2008)

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Note: This description is drawn from the ERG Report on the application of the three criteria test at pages 7-9. This Report was prepared in light of the European Commission's adoption in December 2007 of the Recommendation on relevant product and service markets within the electronic communications sector suspectible to ex ante regulation in accordance with the Framework Directive (Directive 2002/21/EC).  This Recommendation makes reference to so-called three criteria test for determining which markets are susceptible to ex ante regulation. According to Point 2 of the Recommendation, when identifying markets other than those set out in the Annex to the Recommendation, National Regulatory Authorities (“NRAs”) should ensure that the following three criteria are cumulatively met: (a) the presence of high and non-transitory barriers to entry. These may be of a structural, legal or regulatory nature; (b) a market structure which does not tend towards effective competition within the relevant time horizon. The application of this criterion involves examining the state of competition behind the barriers to entry; (c) the insufficiency of competition law alone to adequately address the market failure(s) concerned. The primary objective of this Report is to provide coherent guidance for NRAs in their application of the three criteria test.  Accordingly, the Report deals with three key matters: First, the Report makes reference to to the experience so far by NRAs in their dealings with the European Commission regarding the application of the three criteria. These experiences, gathered via the submission of a questionnaire to NRAs, are further detailed in Annex 1 of the present document. Second, the Report highlights a number of indicators that may be of relevance for the purposes of applying each of the three criteria listed in the Recommendation. Finally, the Report considers the burden of proof that might be required in the application of the three criteria, and the interaction between the three criteria and Significant Market Power for the purposes of reviewing markets that are susceptible to ex ante regulation.

By European Regulators Group. Published April 2009.

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