Italy: Competition Authority

On 29 May 2015 I reached the mid-term of my seven-year mandate. It is a good time for looking back at the work that the Italian Competition Authority has undertaken so far, and it is a good time for looking ahead at the near future. Over the past few years, the Authority has felt the need to respond to an increasingly unstable and ‘disruptive’ economic environment, engaging in a careful review of its priorities and approach. The achievements in 2015 prove the significant results attained and form a solid basis to face the challenges ahead.

Focus on cartel investigations and sanctions to increase deterrence

The first concern of the Italian Competition Authority has been to put the ‘supreme evil of antitrust’, as the US Supreme Court defined it, back at the heart of its action. Decisions addressing anticompetitive agreements increased from four in 2012 to 15 in 2014 and 14 in 2015, most of which tackled hard-core, horizontal cartels. Certain paramount cases appeal to the attention of the media and of the public, due to the amount of the fine (like the Roche/Novartis case), the novel issues faced (eg, last year’s Booking/Expedia case) or the interests at stake (a very recent cartel affecting a centralised procurement procedure for cleaning services in public schools worth €1.6 billion). However, the Authority did not neglect smaller, regional cartels, to convey the message that no infringement should escape the fine-tooth antitrust comb.

The fight against corruption and misuse of public resources is still a major policy issue and the Italian Competition Authority is determined to play a key role by tackling bid rigging. Last year the Authority fined eight cartels in key public tenders, including the cited cleaning services in public schools, the supply of goods and services in the railway sector, as well as catering services in motorway rest areas.

These enforcement efforts have been combined with a more stringent sanctioning policy. In 2015, the Authority imposed a record level of fines (€238 million) and the amount of fines in the first years of my mandate has been more than double the corresponding period before my appointment. I am confident that these factors have a strong impact on antitrust deterrence.

A high number of merger reviews

An increasing part of the Italian Competition Authority’s activity is being devoted to mergers, as several sectors of the Italian economy are being restructured in the face of the novel macroeconomic environment and the impact of new technologies. In 2015, the Authority conducted seven in-depth investigations, the highest number of merger reviews since 2002.

Merger review allows the Authority to carefully monitor the restructuring process of the overall Italian economy and to make sure that it does not hinder competition. Despite the large number of Phase II merger reviews undertaken in 2015, however, constant attention is paid to understand whether the current notification thresholds – as amended by the law in 2012 – can be improved.

As for the approach taken in merger review, the Authority is always mindful of the efficiencies that may underlie mergers operations and is available to identify remedies suitable to preserve efficiency (particularly in novel markets). However, it is ready to be strict when efficiencies are offset by consumer harm.

Not surprisingly, a number of mergers involved sectors that are directly affected by the digital revolution, which is radically changing the value chain of entire industries.

An acquisition in the publishing sector involved the two largest Italian players. The Authority claimed that the transaction had the potential to harm competition in the production and distribution of several editorial products and limit opportunities for authors. The merger was authorised in light of a package of structural and behavioural remedies, including the divestiture of publishing brands.

The Authority also imposed remedies on an acquisition in the radio sector, which would have led to the creation of a dominant firm in the market, leading to both horizontal and conglomerate anticompetitive effects because of the acquirer’s position in the neighbouring TV advertising market.

Another case concerned a merger between parties that owned television and telecommunications transmission infrastructure. The acquiring group withdrew the operation after receiving the statement of objections, which identified serious anticompetitive concerns also affecting the digital broadcasting and TV advertising markets.

Reality check after the decisions

The Authority is fully aware that its role is not limited to ensuring deterrence and fine infringements: the Authority’s decisions need also to be taken and assessed in the light of the actual improvements of competition that they foster. Therefore, competition enforcement and advocacy need to be complemented by a constant reality check, to make sure that interventions lead to more dynamic and competitive market environments. Even though a fully comprehensive ex-post assessment of all decisions would be unrealistic, the Authority has started to monitor market developments following its decisions.

A telling case is the recent developments following the decision with which the Authority had ascertained an abuse of dominant position in the provision of wholesale access to the fixed broadband telecommunications network. The incumbent had hindered the expansion of its competitors in the retail markets by supplying wholesale access to its network at discriminatory conditions and by offering non-replicable discounts to large clients. The Authority has recently opened a formal non-compliance procedure and is assessing the organisational changes that the incumbent is undertaking to improve equivalence in the access to the network. If these developments come into effect, the improved competition conditions in the market will be much more important than the amount of the fine (€104 million) issued by the Authority.

By the same token, the Italian Competition Authority is engaged in a monitoring exercise carried out by 10 European competition authorities in cooperation with the European Commission, aimed at analysing the developments of the online hotel booking sector, following the decision taken last year in this field (Booking/Expedia case). The case concerned most-favoured nation (MFN) clauses imposed by two key players and was carried out in close cooperation with the French and the Swedish Competition Authorities. In April 2015, the three authorities accepted commitments to introduce substantial changes in the MFN clauses that would release offline sales and open up competition among online travel agents. Some preliminary results seem encouraging: there has been an increase in the number of online travel agencies (including the entry of Tripadvisor in the market) and a wider service differentiation in the market. The Authority looks forward to the results of the monitoring exercise to assess the impact of its decision, which aimed at striking a balance between potential anticompetitive effects and efficiencies, preserving the operators’ ability to offer and develop innovative services.

The Italian Competition Authority regularly monitors the follow-up of its advocacy interventions, too. Every six months, a detailed analysis is undertaken to assess the outcome of the Authority’s opinions and recommendations in terms of compliance. Data are broken down by type of advocacy powers used, public administration involved (central versus local), source of the opinion (ex officio or originated by a complaint or request) and economic sector involved. This allows the Authority to carefully assess the effectiveness of its advocacy interventions and to have a better understanding of the key factors that make competition advocacy successful.

Ensure competition in markets affected by disruptive innovation

In the second half of my mandate that lies ahead, several paths that the Authority has taken need to be further explored and new challenges must be confronted. The ongoing digitalisation of the economy holds many promises to spur innovation, increase productivity and improve services. At the same time, digitalisation is highly disruptive: it is having wide-ranging impacts on work and production, raising important policy challenges including privacy, security, job, consumer policy, taxation. These issues need to be addressed, but without undermining the substantial benefits brought about by new business models and increased competition.

In this evolving scenario, antitrust authorities need to be on the frontline to advocate for increased competition. At the same time, to go beyond mere wishful thinking and to be effective, it is also important to be aware of the constraints and the sometimes truly dramatic social and economic implications that market restructuring entails. Therefore, antitrust authorities should certainly advocate to ensure that policies do not hamper innovation through restrictive regulation in favour of the incumbents: such policies might bring about some benefits in the short term, but at the expense of new and better services in the long term. However, antitrust authorities can do even better by proactively identifying the most competition-friendly solutions to manage the transition. As Joseph Schumpeter, the father of ‘creative destruction’, himself stated: ‘There is certainly no point in trying to conserve obsolescent industries indefinitely; but there is a point in trying to avoid their coming down with a crash and in attempting to turn a rout, which may become a center of cumulative depressive effects, into orderly retreat.’

As argued at a hearing before the Parliamentary Commissions in charge of the strategy for the Digital Single Market in Europe, laws and regulations for the digital economy should primarily aim at promoting the potential for innovation (dynamic competition) of the Italian economy, while ensuring a level playing field between traditional and digital operators. Antitrust enforcement is not always the best option to address issues that relate to other domains, such as privacy or intellectual property. However, competition enforcement can rely on a sound and flexible analytical framework to assess conducts and initiatives that may have an impact on the competitive process.

In several interventions the Italian Competition Authority urged for the elimination of certain obsolete regulatory burdens and the introduction of new specific regulations. For instance, regulation for the non-scheduled passenger transport sector should differentiate between professional and non-professional drivers and introduce some minimum rules only to guarantee road safety and passenger security. With regard to accommodation facilities other than hotels, the Italian Competition Authority challenged before the Administrative Court a regulation adopted by the Lazio Region in this field. The regulation establishes the obligation for accommodation service providers to stop their activity for 100 days per year, imposes a three-day minimum duration for rents and introduces specific surface requirements for opening an accommodation facility. The Italian Competition Authority argued that these provisions constitute an unjustified and anticompetitive restriction of output.

Moreover, the in-depth market analysis into the development of ultra-broadband networks in Italy published by the Authority at the end of 2014 has contributed to the definition of the government’s national strategy to ensure the deployment of ultra-broadband networks. The Authority continues to closely monitor the developments of public policy in this area and is routinely asked to provide formal opinions on the design of the tenders for the allocation of public funds in market-failure areas.

The development of ultra-broadband networks is closely related to structural changes in the media industry, and most notably the television sector. Following the digital transition, the core of competition in the media sector has shifted from control of (once) limited transmission capacity to the production and procurement of premium content. In this perspective, the Authority has recently adopted a decision against an agreement on the assignment of Serie A football TV rights: football premium rights must be assigned through transparent competitive procedures and cannot be the result of closed-door negotiations.

Private enforcement: new opportunities and increased deterrence?

Lastly, another present challenge concerns the design of the interface between public and private enforcement. Private enforcement can represent a key factor to discourage undertakings from engaging in anticompetitive practices. Therefore, the Italian Competition Authority is actively participating in the transposition process of the EU Directive on Antitrust Damages Actions.

On the one hand, it is crucial that the new regime creates a synergic environment where public and private enforcement strengthen and complement each other. On the other hand, it remains to be seen what role competition authorities may play to facilitate the quantification of harm, also based on their technical expertise in examining the effects of the infringements. Concrete and individual damages are clearly distinct from the competitive effects and their quantification falls within the competences of civil courts. However, in the pharmaceutical cases Ratiopharm/Pfizer and Roche/Novartis the Authority estimated the extra costs (or prevented savings) for the National Health System caused by the conducts. This may offer a first example of possible constructive dialogue between public and private antitrust enforcement.