Approved by the 443rd Commissioners' Meeting on May 3, 2000
Amended by the 525th Commissioners' Meeting on November 29, 2001
Amended by the 545th Commissioners' Meeting on April 18, 2002
Amended by the 648th Commissioners' Meeting on April 8, 2004
Promulgated by Order Kung Yi Tzu No. 0930002754 on April 9, 2004
Title revised by the 688th Commissioners' Meeting on January 13, 2005
Promulgated by Order Kung Fa Tzu No. 0940001278 on February 24, 2005
Amendment to Point 8 promulgated by Order Kung Fa Tzu No. 0940006961 on August 26, 2005
Amended by the 895th Commissioners' Meeting on December 31, 2008
Promulgated by Order Kung Yi Tzu No. 0980000221 on January 12, 2009
Promulgated by Order Kung Yi Tzu No. 10012604171 on April 26, 2011
Amended by the 1057th Commissioners' Meeting on February 08, 2012
Promulgated by Order Kung Fu Tzu No. 1011260206 on March 09, 2012
1. Background
Traditionally, telecommunications enterprises have been regarded as being natural monopolies with network externality and also involving allocation and use of rare resources such radio frequencies, right of way, numbers, and so forth. As prevalence of services and national security are important considerations, all governments have passed legislations to protect their exclusive management rights and strict control is applied on market entry and withdrawal and pricing practices. However, with the advancement in wireless and digital communications technologies, the market position of the natural monopoly of telecommunications enterprises has gradually been challenged.
The network interconnection between several telecommunications enterprises may lead to positive production and consumption externality while, in response to the tendency of digital convergence, consumers' demand for telecommunications services has also shifted from conventional voice services to integrated digital, visual, and multimedia service. To adapt to the developments of the economic environment as well as to meet the demand for new telecommunications services made possible by progress in communications technology, the Taiwan government has made efforts in market liberalization and deregulation. One after another, mobile, satellite and fixed communications operations have been opened up to new market participants and, step by step, market competition mechanisms have been introduced in various sectors of telecommunications operations.
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After liberalization of the telecommunications market, the regulatory objectives of Taiwan government have to be adjusted. In the past, the objectives of regulation were to prevent telecommunications operators from making excessive profits and urge them to improve their management. As a consequence, the use of regulatory measures has been mainly focused on economic activities such as pricing for the services. After market liberalization and through free competition mechanisms, the powerful market force is good enough to drive telecommunications enterprises to upgrade their management, accelerate their communications technology R&D, and offer consumers cheap and diversified telecommunications services. At this point, the role of the regulator is to formulate the rules of the game, develop a fair competition environment, and promote market competition.After the aforesaid market liberalization and introduction of competition mechanisms, regulations on the competition practices of telecommunications enterprises have become more and more important. As the competition law that applies to all enterprises, the Fair Trade Law is divided into two parts: first, regulations on "restrictive competition practices" such as monopoly, merger and concerted action, and, secondly, those on "unfair competition" between enterprises to ensure unrestrained and effective operation of market functions through prevention of anti-competition behavior and maintenance of competition order. In light of the complicated market dynamics as well as to make certain that all telecommunications operators are clearly aware of the related regulations in the Fair Trade Law, the Fair Trade Commission (hereinafter referred to FTC) has therefore acted in accordance with the current legal framework, analyzed and compiled patterns of practices that may be in violation of the Fair Trade Law, referred to the experiences of developed countries in telecommunications competition regulation, and formulated this Policy Statements.
This Disposal Directions has been drawn up from the perspective of the Fair Trade Law to present and explain FTC's views and evaluation approaches toward various types of competition practices that telecommunications enterprises may adopt, so that all telecommunications operators can fully understand the regulations in the Fair Trade Law and avoid potential unlawful acts as well as help promote fair competition on the telecommunications market.
2. Terminology
The term "telecommunications enterprises" used in this Disposal Directions refers to enterprises providing the public with telecommunications services in accordance with the regulation of the Telecommunications Act, including those who provide direct telecommunications services to end-users and those who provide telecommunications services to other telecommunications businesses to resell to end-users.
3. Relations between the Fair Trade Law and the Telecommunications Act
The current Telecommunications Act includes regulations on certain types of competition between telecommunications enterprises. Compared to the Fair Trade Law, the Telecommunications Act is more like a "sector-specific regulation" and focuses more on "ex ante regulation" to reduce anti-competition behavior through regulatory measures such as rate control, network interconnection, equal access and separate accounting. The Fair Trade Law, on the other hand, is devised to play the role of "general competition law" and emphasizes more on "ex-post regulation" to deter and prevent anti-competition practices through the right of the competent authority to investigate and punish enterprises that violate the Fair Trade Law.
Based on the concept of "asymmetric regulation," Article 26-1 of the Telecommunications Act includes regulations against specific anti-competition practices by "dominant market players of Type I telecommunications enterprises to prevent abuse of market power by existing telecommunications enterprises. In principle, Article 26-1 of the Telecommunications Act is the priority law to be applied against abuse of market power by of Type I telecommunications enterprises. However, if a dominant market player complies with the description of monopolistic enterprises in Articles 5 and 5-1 of the Fair Trade Law and its conduct also meets the description of abuse of monopolistic status in Article 10 of the Fair Trade Law, FTC may also take charge of the matter and investigate in accordance with related regulations.
The Fair Trade Law is enforced to promote market competition. However, despite that issues regarding rate control, network interconnection, equal access, separate accounting or number portability may also give rise to market competition concerns, they fall under the ex-ante regulations in the Telecommunications Act which is the priority law to be applied. In addition, as for general consumer disputes over telecommunications service rates or billing, service quality, service contract terms, and so on, it is also more appropriate to apply the related regulations in the Telecommunications Act and the Consumer Protection Law.
When handling important cases, FTC will also seek the opinions of the competent authority for telecommunications so as to prevent discrepancies in law enforcement and reduce doubts derived from regulatory conflict.
4. Market Definition and Market Share Calculation
When assessing the influence of the practices of telecommunications enterprises on the competition in specific markets, it is a prerequisite to first define the "relevant market" before calculating the market share of an enterprise and analyzing and judging its actual influence on market competition.
Example 1. Do ADSL and cable modem services belong to the same product market?
Presently, besides the conventional dialup access, cable broadband (including ADSL, cable modem and leased line) and wireless broadband services that telecommunications or cable TV operators provide are the main approaches of Internet access for most home-users. Both ADSL and cable modems allow high-speed access with the Always-on function. The rate terms and calculation criteria are also similar. Therefore, ADSL and cable modem services can be regarded as belonging to the same product market. To the contrary, since the conventional dialup service is far slower than ADSL and cable modem services and does not offer the always-on function, it cannot be included in the same product market.
Example 2. Do telecommunications operators belong to the same market when they provide reception service?
Under the caller-pays system, when a subscriber calls users outside the network, the provider has to purchase "termination service" from the telecommunications service provider of the call receiver in order to put the call through. Thus, do telecommunications operators belong to the same market when providing reception service? Oftel and the Competition Committee of the UK, when reviewing cases concerning the charges for call receivers, concluded that (1) the call terminating network is susceptible to traffic jams since all calls made to people subscribing to the same telecommunications service provider had to be processed through the network designated by the said provider and there was no other substitute route; (2) the call terminating network was chosen because of the call receiver yet caller had to pay for the reception charge ¡V this is termed "call termination externality;" (3) the caller was not a subscriber to the call terminating network and, therefore, customer loss would not be a concern even if the reception charges were high; (4) call receivers usually were careless about the reception charges their provides determined. Under such circumstances, if there are no proper rate regulation and reciprocity agreement between interconnected telecommunications service providers, the call originating networks are not powerful enough to rival, and all providers of termination service make "small but significant non-transitory increases in price." Despite that all the telecommunications operators belong to the same retail service market, it is possible that each operator is deemed as operating in an independent market in cases where provision of termination service is concerned.
5. Regulations on Monopolistic Telecommunications Enterprises
According to Article 5 of the Fair Trade Law, "the term 'monopolistic enterprise' as used in this Law means any enterprise that faces no competition or has a dominant position to enable it to exclude competition in a relevant market. Two or more enterprises shall be deemed monopolistic enterprises if they do not in fact engage in price competition with each other and they as a whole have the same status as the enterprise defined in the provisions of the preceding paragraph." Article 5-1 stipulates that "an enterprise shall not be deemed a monopolistic enterprise as defined in the preceding article if none of the following circumstances exists: (1) the market share of the enterprise in a relevant market reaches one-half of the market; (2) the combined market share of two enterprises in a relevant market reaches two-thirds of the market; and (3) the combined market share of three enterprises in a relevant market reaches three-fourths of the market. Under any of the circumstances set forth in the preceding paragraph, where the market share of any individual enterprise does not reach one-tenth of the relevant market or where its total sales in the preceding fiscal year are less than one billion New Taiwan Dollars, such enterprise shall not be deemed as a monopolistic enterprise ." Article 10 stipulates that "no monopolistic enterprises shall: (1) directly or indirectly prevent any other enterprises from competing by unfair means; (2) improperly set, maintain or change the price for goods or the remuneration for services; (3) make a trading counterpart give preferential treatment without justification; or (4) otherwise abuse its market power.
Practices of monopolistic telecommunications that may be in violation of the Fair Trade Law include:
In its case review process, FTC requires telecommunications enterprises that file complaints about involvement of monopolistic telecommunications enterprises in vertical price squeeze to provide data on the reasonable average wholesale costs they need for providing retail services as well as concrete evidence. FTC shall consider the following factors when judging whether the conduct actually constitutes vertical price squeeze:
Example 3. Confirmation of anti-competition vertical price squeeze ¡V imputation test
Suppose that Company A is a vertically integrated telecommunications enterprise that also provides wholesale services (like unbundled local loop or Internet interconnection bandwidth) and retail services (voice services or broadband connection, for example,) and it is the only supplier in the wholesale market while there are many competing operators in the downstream retail market. Company A provides services to the downstream competitors and itself at the price of NT$w per unit. In addition, its retail price and retail cost are respectively p and c. Is the wholesale price set at a level capable to drive the downstream competitors with equivalent efficiency out of the market? If the wholesale price is higher than the result of subtraction of the retail cost from the retail price, in other words w>p-c, the wholesale price will make the company's downstream competitors withdraw from the market because there is no profit for them. This, then, can be regarded a practice of vertical price squeeze. On the contrary, if the wholesale price of Company A does not exceed the result of subtraction of the retail cost from the retail price, in this case w¡Øp-c, then this does not constitute any vertical price squeeze. The adoption of the efficiency of a vertically integrated market leader as the assessment standard is called ¡§Equally Efficient Operator (EEO) test. However, with cases in which the market leader possesses competitive edges or essential facilities that its downstream competitors are unable to cope with, adoption of the ¡§Reasonably Efficient Operator (REO) test may be considered and the reasonable costs of the downstream competitors are referred to as the assessment criteria in order to promote effective competition in the downstream market.
Example 4. Discriminative pricing of monthly subscription fees for residential users and non-residential subscribers Network operators in urban areas charge residential and non-residential subscribers different monthly subscription fees. Normally, the former pay less. Does this constitute price discrimination? Based on the consideration of service prevalence and the life line feature of local phone lines, the telecommunications regulator may request telecommunications enterprises to offer lower rates to residential subscribers with higher demand flexibility and non-commercial purposes and higher rates to non-residential subscribers with lower demand flexibility and commercial purposes. Such price discrimination is adopted in line with the telecommunications policy and complies with the charging method of Ramsey pricing; it should be regarded justifiable price discrimination |
Example 5. Are essential facilities only limited to physical telecommunications facilities?
The essential facilities doctrine originated in the case law of the US Antitrust Law. At present time, it has evolved into a principle with an abstract definition of multiple concepts. The term "facilities" is no longer limited to tangible conventional facilities such as railway bridges, power transmission lines or telecommunication networks but has gradually become to include intangible services. In the telecommunications market, for instance, an essential facility may be a physical facility (such as a telecommunications network, piping, channel, manhole, utility pole or tower,) space (such as a shared machine room, the telecommunications room in a building,) or it can be a service (such as billing service,) a function (such as emergency call service,) a capacity (such as submarine cable bandwidth access through a designated international route,) or information (such as the SS7 signal system or database access.) Generally speaking, the application of the essential facilities doctrine is employed in an ex post approach. FTC does not determine beforehand which telecommunications facility, service, function, capacity, or information is an essential facility. It will be determined only after a concrete case has taken place and concerned parties have provided evidences to prove, in line with the aforesaid principle, whether the concerned telecommunications facility, service, function, capacity or information constitutes an essential facility.
Example 6. Establishment of binding contracts by cell phone service providers with subscribers to compensate for cell phone price subsidies
To stimulate purchases, increase subscriptions and prevent subscribers from switching to other providers, cell phone service providers often promote sales by offering "cell phone plans" that allow consumers to buy cell phones at cheaper prices while the provider subsidizes for the price differences. However, the consumers are required to use the numbers provided by the provider for a certain period of time (the so-called "binding contract.") By doing so, cell phone service providers recover the subsidies from the monthly subscription fees and call charges consumers pay. Are such binding contracts inappropriate long-term contracts or restriction on change of trading counterparts? First of all, despite that binding contracts do bar consumers from switching to other trading counterparts, if consumers are clearly aware of the contractual terms (such as use of a number from the provider, contract duration, rate scheme, etc.,) they ought to be able to rationally judge whether they are willing to accept them. Therefore, at this point, FTC does not regard such binding contracts as inappropriate long-term contracts or restriction on change of trading counterparts. However, FTC has issued an industry warning for information transparency in cell phone transactions. Cell phone service providers are urged to disclose all necessary transaction information for consumers to make rational decisions.
6. Regulations on Telecommunications Mergers
Article 6 of the Fair Trade Law stipulates that "the term "merger" as used in this Law means a situation: (1) where an enterprise and another enterprise are merged into one; (2) where an enterprise holds or acquires the shares or capital contributions of another enterprise to an extent of more than one-third of the total voting shares or total capital of such other enterprise; (3) where an enterprise is assigned by or leases from another enterprise the whole or the major part of the business or properties of such other enterprise; (4) where an enterprise operates jointly with another enterprise on a regular basis or is entrusted by another enterprise to operate the latter's business; or (5) where an enterprise directly or indirectly controls the business operation or the appointment or discharge of personnel of another enterprise ."
In general, mergers between enterprises can boost production efficiency, lower management costs, and cut repeated investment expenses. However, they may also lead to over-concentration of market power and manipulation of capital originally meant for equipment expansion is appropriated to buy other enterprises, and thus hinder the free flow of capital or distort the allocation of capital. Mergers of small and medium enterprises normally can create stronger competitiveness and help promote competition. As far as the mergers between large enterprises, on the contrary, may reduce market competition as horizontal mergers can cause market concentration while vertical mergers may create market blockade and deny other enterprises from engaging in market competition. They can also be multi-party mergers that end up overstretching the existing market force.
Article 11 of the Fair Trade Law stipulates that "any merger that falls within any of the following circumstances shall be filed with the central competent authority in advance: (1) as a result of the merger the enterprise(s) will have one third of the market share; (2) one of the enterprises in the merger has one fourth of the market share; or (3) sales for the preceding fiscal year of one of the enterprises in the merger exceeds the threshold amount publicly announced by the central competent authority. ¡C¡vAfter telecommunications enterprises file their pre-merger notifications, FTC will evaluate the overall economic benefit and the disadvantage from competition restriction resulted from the merger. If the overall economic benefit is greater than the disadvantage from competition restriction, FTC shall not prohibit the merger.
Example 7. Key considerations in evaluation of pre-merger notifications from telecommunications enterprises
When evaluating pre-merger notifications filed by telecommunications enterprises, FTC will first undertake the aforementioned market definition procedure to ascertain the relevant product market, geographic market and market participants and then calculate the market share of each participant. Furthermore, FTC will analyze the factors that may affect the level of market competition, including the degree of market concentration, the barriers to entry, the extent of vertical integration, and whether there is strong enough counterbalancing buyer power. Lastly, FTC will weigh between the influence of the merger on the "overall economic benefit" and the "disadvantage from competition restriction." The factors taken into account in assessment of the "overall economic benefit" include the following:
(1) the influence of the merger on improvement of production efficiency, allocation efficiency and dynamic efficiency;
(2) whether the merger can help promote competition in the market in concern;
(3) whether the merger can lead to provision of more comprehensive, more diverse, and better services;
(4) whether the merger can help upgrade international competitiveness.The factors taken into account in assessment of the "disadvantage from competition restriction" include:
(1) the influence of the merger on the structure and concentration of the market in concern;
(2) whether the merger will significantly lessen competition in the market in concern;
(3) whether the merger will create barriers to entry to the market in concern;
(4) whether the merger will significantly reduce consumers' options;
(5) whether the merger will increase the likelihood of concerted action;
(6) whether the merger will increase the possibility of abuse of market power.
7. Regulations on Concerted Action of Telecommunications Enterprises
Article 7 of the Fair Trade Law stipulates that "the term "concerted action" as used in this Law means the conduct of any enterprise, by means of contract, agreement or any other form of mutual understanding, with any other competing enterprise, to jointly determine the price of goods or services, or to limit the terms of quantity, technology, products, facilities, trading counterparts, or trading territory with respect to such goods and services, etc., and thereby to restrict each other's business activities. The term "concerted action" as used in the preceding paragraph is limited to horizontal concerted action at the same production and/or marketing stage which would affect the market function of production, trade in goods, or supply and demand of services¡K"
Concerted action may affect the independence of enterprises in business activities, cause abuses of market power, and result in substantive lessening of competition. However, certain concerted action can also generate positive effects such as efficiency improvement, risk reduction, R&D enhancement, and cost lowering. Therefore, according to the Fair Trade Law, concerted action is "prohibited in principle but permissible in exceptional cases." Article 14 of the Fair Trade Law requires that enterprises shall not undertake any concerted action but with certain types of concerted action (such as unifying the specifications or models of goods, joint research and development on goods or markets, and so on) that are beneficial to the overall economy and public interest, enterprises may apply to FTC for permission.
Types of concerted action that telecommunications enterprises are likely to engage in include the following:
- Concerted pricing: Prices are the major instrument for market competition. When telecommunications enterprises and their horizontal competitors concertedly decide product prices and service charges or establish contracts, agreements or consents in any form to restrict each other from price adjustment or setting their own discount limits, it sets direct restrictions on price competition and will be regarded in violation of Article 14 of the Fair Trade Law against concerted action.
Example 8. Types of agreement regarded as concerted pricing practices
Besides concerted decision on product or service prices, the following types of agreement between telecommunications enterprises may also be regarded as concerted pricing:(1) agreement on joint price increase or decrease;(2) agreement on price calculation according to standard formulas; (3) agreement on ways, limits and numbers of discounts to be given; (4) agreement on rate charging according to announced criteria;(5) agreement on pricing in accordance with the pricing of specific enterprises;(6) agreement to notify one another of the time and range of price adjustment;(7) Imposition of restrictions on the pricing or price adjustment of each enterprise through decisions of the trade union or association.
- Production limitation and market division: The types of concerted action between enterprises are not limited to concerted decision and price maintenance. If the majority of telecommunications enterprises, out of the intention to decrease each other¡¦s competition pressure, agree that each sets a limit on its production, productivity or facilities, or concertedly divide the operating area and trading counterparts and lead to conspicuous anti-competition results, it is also in violation of Article 14 of the Fair Trade Law against concerted action.
- Concerted boycott: When the majority of the telecommunications enterprises, in order to eliminate or obstruct a third party from competing, concertedly lower the prices, refuse to supply or provide network interconnection or roaming service, or concertedly demand frequency suppliers not to do business with other horizontal competitors so as to achieve the purpose of shutting out a competitor, it is considered concerted boycott. Such conduct of market power consolidation to achieve competition restriction has significantly disadvantageous impact on market competition and is in violation of Article 14 of the Fair Trade Law. On the other hand, if the majority of telecommunications enterprises make the agreement to share facilities or rare resources but at the same time apply their consolidated market status to force the suppliers of the said facilities or rare resources to accept unreasonable trading terms or concertedly bar new participants from using or having access to the said facilities or rare resources, it is also in violation of Article 14 of the Fair Trade Law.
- Information exchange agreement: When competing telecommunications enterprises agree to disclose to each other competition-sensitive information with regard to pricing, discounts, costs, R&D, subscriber information, etc., such conduct may constitute a channel for exchange of notions and lead to concerted action in violation of Article 14 of the Fair Trade Law.
Example 9. Will network interconnection or roaming agreement be considered concerted action?
To ensure any-to-any connectivity between all telecommunications service subscribers and effective competition in the telecommunications market, the Telecommunications Act stipulates that Type I telecommunications enterprises have the obligation to provide network interconnection and, in order to do so, are required to negotiate with one another on certain issues such as sharing of interconnection cost, conveyance charges, collection of call charges and billing. Meanwhile, to overcome network coverage limits, cell phone service providers often establish roaming agreements with other providers to cooperate in provision of mobile services. Will the aforesaid network interconnection or roaming agreements be considered concerted action? As network interconnection and roaming agreements between telecommunications enterprises usually can stimulate competition and provide more convenient telecommunications services, generally speaking, they will not be considered concerted action. However, if the parties involved in such agreements intentionally set high interconnection rates, conveyance charges or roaming charge splitting rates to restrict each other from price competition on call charges or divide the operating area or clientele through roaming agreements, it can be regarded illegal concerted action.
8. Regulations against Competition Restriction or Obstruction to Fair Competition among Telecommunications Enterprises
The types of competition restriction or obstruction to fair competition among telecommunications enterprises may include the following:
- Vertical trading restriction: When telecommunications enterprises provide telecommunications services for resale purposes to downstream resale businesses (such as wholesale for resale, bandwidth resale, payphone service resale, prepaid cards or phone cards) and impose restrictions on the pricing, trading counterparts or operating areas of the downstream resale businesses, or establish exclusive transaction agreements to restrict downstream resale businesses from doing business with other telecommunications enterprises, or, when telecommunications enterprises also run cable TV or other video-audio services, apply inappropriate measures to demand upstream suppliers not to trade with other horizontal competitors, they may be in violation of Subparagraph 6 of Article 19 or Article 24 of the Fair Trade Law.
- Boycott: When a telecommunications enterprise makes the other enterprises in the upstream, downstream or relevant market to stop supplying to or purchasing from a specific enterprise, the conduct may be interpreted as boycott. FTC will assess the content of the boycott agreement, the market status of the initiator and the other participants, the actual obstruction to the supply and demand of the boycotted party, and whether there are justifiable reasons to determine if it is in violation of Subparagraph 1 of Article 19 of the Fair Trade Law.
- Discriminative treatment: "Discriminative treatment" means the practice of an enterprise to provide the same product or service at different prices or under different trading terms to different enterprises of the same competition level. Such conduct can lead to unequal competition status between enterprises of the same competition level and in turn affect the fairness of market competition. When a telecommunication enterprise provides the same services to enterprises of the same competition level at different prices, of different quality, at different discount rates or under unequal trading terms without justifiable reasons, it may be in violation of Subparagraph 2 of Article 1`9 of the Fair Trade Law.
- Anti-competition discount offers: It is a common practice in competitive markets for enterprises to generate trading opportunities with discount offers and this type of practices usually calls for no particular regulation. However, certain discount offers, such as selective discounts, loyalty discounts and deferred discounts, may create negative impact on market competition and become anti-competition practices. Such conduct may be considered as being in violation of "causing the trading counterpart(s) of its competitors to do business with itself by inducement with interest," in Subparagraph 3 of Article 19 of the Fair Trade Law:
- Selective discounts: This refers to unreasonably low price or large discount offers from an enterprise to the trading counterparts of specific competitors solely in order to entice the said trading counterparts to switch to a different provider in order to hurt the said specific competitors.
- Loyalty discounts: This refers to discount offers to subscribers under the condition that the subscribers do not switch to different providers or large discounts given to subscribers with the potential to switch to other providers to prevent loss of customers. Such discounts may result in subscribers being "locked out" by specific enterprises and thus obstruct their competitors from gaining trading opportunities.
- Deferred discounts: This refers to offers of large discounts from an enterprise to subscribers who have regularly and continuously do business with it for a certain period of time and the said discounts can be realized only by the time the agreed trading period is due. If subscribers stop doing business with the said enterprise before the agreed period is due, the subscribers will lose the right to the discount promised.
Example 10. Considerations in assessment of the justifiability of loyalty discount offers
To attract consumers to use their services on a long-term basis, telecommunications enterprises often adopt offers of volume discounts or fixed-term subscription contracts to obtain trading opportunities. Telecommunications enterprises usually will offer discounts to subscribers who agree to use a certain amount of services or to a certain call charge amount or use the services for a certain period of time. If the subscribers fail to fulfill the promised level of call amount or charges or decide on early contract termination, they will be held liable for an "exit payment" as compensation to the telecommunications enterprise. Since the exit payment mechanism can increase subscribers' switching cost and obstruct competitors from gaining trading opportunities, it may constitute offering of anti-competition discounts. When assessing the justifiability of the aforesaid loyal discounts, FTC will evaluate the following:(1) whether subscribers have been given enough options before signing the contract;(2) the duration of the contract period;(3) the costs of telecommunications enterprises for providing the services;(4) the recoverable percentage of the aforesaid costs within the contract period;(5) whether the amount of the exit payment exceeds the total discounts subscribers have received before withdrawal;(6) whether such discount offers will lead to market blockade;(7) In addition to the aforementioned considerations, the concrete content of each case, the intention, purpose, market status of the subject of conduct, the structure of the relevant market, the characteristics of the product, and the impact of the discount offers on market competition are also considered in accordance with the "rule of reason."
- Giving of gifts and prizes: It is a common commercial practice for enterprises to give gifts and prizes to create trading opportunities and there is no need to apply any restriction. However, when an enterprise offers gifts or prizes of large value and thus affect the otherwise usual perception of consumers toward its products or services, such approaches to gain trading opportunities will impose obstruction to engage in fair competition in the market. To prevent giving of gifts and prizes from becoming unfair competition, FTC has established the "Guidelines for Handling of Cases Involving Sales Promotion with Giving of Gifts and Prizes". FTC shall act in line with Subparagraph 3 of Article 19 of the Fair Trade Law and punish enterprises involved in giving of gifts and prizes in violation of related regulations.
- Tie-in sales: A tie-in sale refers to a situation in which an enterprise demands its trading counterparts to purchase two independent and separable products or services at the same time, or encourages such purchases by attaching gifts, improper discounts or free-of-charge services to the deal. The said forced tie-in sale not only deprives the trading counterpart of options but also hamper the fair competition in the relevant market. When a telecommunications enterprise forces its trading counterparts to subscribe to a number of its telecommunications services at the same time or unjustifiably uses service packages or gifts or discounts to deprive its trading counterparts of opportunities to select single transaction objects and thus leads to competition restriction or obstruction to fair competition, it is in violation of Subparagraph 6 of Article 19 of the Fair Trade Law.
9. Regulations on False or Misleading Presentations or Symbols Adopted by Telecommunications Enterprises
When a telecommunications enterprise adopts false or misleading presentations or symbols with regard to the price, quantity, quality or content of its products or services on the products or in their advertisements or shows them to the public through any other channels, it is in violation of Article 21 of the Fair Trade Law.
When a telecommunications enterprise advertises its rate changes, it is required to withhold nothing and fully disclose all related information on its website and at its business outlets as regulated by the competent authority. If a telecommunications enterprise only emphasizes the items with price decreases and fails to reveal the items with price increases when promoting sales through advertising or other approaches after rate adjustments, it constitutes false or misleading and in violation of Article 21 of the Fair Trade Law.
Example 11. Is comparative advertising in violation of the Fair Trade Law?
Advertising is an important information medium in commerce. Enterprises often convey messages about their products or services through advertising to gain trading opportunities. Meanwhile, a large number of consumers also choose the products or service they need in accordance with the advertisements they see. It is a common practice in competitive markets for enterprises to promote their products or services through advertising and this is also an indication of increase of market competition. However, untruthful or incomplete contents of advertisements may cause consumers to make wrong decisions and form unfair competition against other competitors. One type of advertising that may be in violation of the Fair Trade Law is presentation of an enterprise's product or service by comparing it with that of the competitors. When a telecommunications enterprise adopts such an approach to advertise its products or services, the content offered must be complete, objective, true and not misleading consumers, and the following situations must be avoided:
(1) comparison between new and old services or between services of different levels;
(2) comparison between the opinions of different consumers that are not typical;
(3)comparison made between results of tests that are not normally accepted as scientific and just;
(4)emphasizing on partial test results or insignificant differences that have the potential to mislead consumers;
(5) claim of overall superiority based on partial superiority;
(6) comparison between results of tests not conducted on the same basis or under the same conditions;
(7) comparison between data that lack objectivity.
10. Regulations on Other Practices with Negative Impact on Trading Order
Telecommunications rates usually significantly affect upon consumers' choice of trading counterpart. For the maintenance of market competition order and protection of consumers' interests, the failure of telecommunications enterprises to fully disclose all necessary information during the trading process is considered deceptive or obviously unfair conduct in violation of Article 24 of the Fair Trade Law.
11. This Disposal Directions only serves as a general description of the characteristics of telecommunications enterprises and examples of practices that may be considered in violation of the Fair Trade Law. In every individual case, determination will be made in accordance with available evidences.