Market Regulation Tools and Public Service Obligations

1. Price Regulation

The objective is to avoid excessive pricing for consumers while ensuring:

• Cost recovery and investment recoupment over a period.
• Fostering forthcoming investments.

Options include:

• Cost-Plus Pricing: Calculating Average Cost (AC) and granting a markup. Caution: May dilute incentives for efficiency gains and cost cutting.
• Price Capping: Setting an absolute pricing level as a threshold. Caution: May dilute incentives for furthering investments if the time frame is insufficient.

2. Non-Discriminatory Access

Aimed at enabling non-network carriers access to the network on fair, transparent, and non-discriminatory terms.

3. Corporate Unbundling

Guarantees the healthy functioning of competitive markets by curbing the competitive advantage of integrated players (where network owners are also service providers). This involves isolating different "branches" with market power:

• Accounting Separation: Results presented independently; cross-subsidizing is prohibited.
• Functional Separation: Internal "Chinese walls" established to prevent operational meltdown or information exchange.
• Ownership Separation: Different legal entities or separate companies with distinct structures.

Public Intervention in Markets

This involves direct action:

• Subsidizing (economic advantage to operators).
• Direct provision (or entrustment to a third party).

Regulation also applies to access to and exercise of activity.

4. Universal Service

The duty on the incumbent operator to guarantee the provision of a particular service to any citizen.

This obligation incurs costs and can be subsidized through:

• Direct financing (from public authorities, private operators, or consumers).
• Granting or reserving an otherwise free market activity to the incumbent.

5. Quasi-Market Allocation Mechanisms (ETS)

Aimed at:

• Passing on environmental costs from society to direct responsible parties.
• Acting as an incentive to continuously reduce such costs.

These use supply/demand mechanisms, such as the allocation of polluting rights and the selling of excess rights to interested companies.

6. Information Disclosure Mechanisms

Addressing asymmetry of information between sellers and buyers, or vice versa.

7. Exclusive Rights

Involves industrial or intellectual property mechanisms to ensure economic return over a period, covering innovation and implementation costs.

8. Public Service Obligations Entrusted to Third Parties

Entrusting third parties to perform public services, often on an exclusive basis.

The Altmark Case Ruling

For a State measure to be considered aid-free, specific conditions must be met:

1. An entrustment act defining the public service obligation.
2. Parameters for calculating the compensation objectively and transparently in advance.
3. A reasonable profit margin, ensuring no overcompensation.
4. The provider must be selected through a public procurement procedure, or the level of compensation must be determined based on the costs of an average undertaking in the sector concerned.

This ruling established that public service compensation for providers of Services of General Economic Interest (SGEI) represents State aid.