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Liberalisation

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Competition

Liberalisation

Some essential services — energy, telecommunications, transport, water and post — are still controlled by public authorities rather than private companies in some countries. EU governments can entrust specific public service functions to a company, conferring on it duties, specific rights and financial compensation. This must comply with state aid rules. When these services are liberalised — that is, opened up to competition between several companies — the Commission will see to it that the services remain available to all, even in parts of countries where they are not profitable. Moreover, it is essential to ensure that the liberalisation process is done in a way that does not give an unfair advantage to the old company that had the monopoly before the liberalisation.

What are the advantages of liberalisation?

Consumers can choose from among different service providers and products. For example, in the railway, electricity and gas industries, network operators are now required to give competitors fair access to their networks. In these industries, monitoring fair network access by all suppliers is essential, so that:

  • consumers can choose the supplier offering the best conditions;
  • consumers benefit from lower prices and new services which are usually more efficient and consumer-friendly than before;
  • national economies become more competitive.

Can public services be delivered properly in a competitive market?

Yes, as long as regulation ensures that public services continue to be provided and that consumer interests are not harmed. The Commission always takes account of the special obligations placed on any organisation benefiting from ‘monopoly rights’. This ensures fair competition without handicapping the state-funded company, which is obliged to provide services in the public interest even where this is not profitable.

The Commission may agree to a company having a monopoly in special circumstances — for example where costly infrastructure is involved (‘natural monopolies’) or where it is important to guarantee a public service. However:

  • monopoly companies must be able to demonstrate that they treat other companies fairly;
  • natural monopolies must make their infrastructure available to all users;
  • profits from providing a public service may not be used to subsidise commercial operations, potentially undercutting competitors’ prices.

Does this benefit consumers?

Yes, but it takes time. In the two markets that were opened up to competition first (air transport and telecommunications), average prices have dropped substantially. This has not yet happened in markets that were opened up to competition later or not at all (electricity, gas, rail transport and postal services), where prices have remained unchanged or have even increased. However, this may be due to sector-specific factors — for instance, gas prices are closely related to oil prices. But overall, consumers are far more likely to pay lower prices in sectors that are more open to competition.

Legislation

The term liberalisation refers to Article 3 of the Treaty on the Functioning of the European Union (TFEU), which states that the "Union shall have exclusive competence in […] the establishing of the competition rules necessary for the functioning of the internal market".

Article 106(3) of the Treaty entrusts the Commission with a specific surveillance duty "in the case of public undertakings and undertakings to which Member States grant special or exclusive rights".

The Commission is given the power to, and must "where necessary, address appropriate directives or decisions to Member States" which enact or "maintain in force any measure contrary to the rules contained in the Treaty, in particular to those rules provided for in Article 18 and Articles 101 to 109".

However, the Commission is under no obligation to take decisions under Article 106(3) since this provision mentions that it should take such decisions only "where necessary". This leaves full discretion to the Commission to assess the need to adopt a decision.

In this regard, Article 106(2) of the Treaty introduces an exception to the application of the rules of the Treaty when the latter would obstruct the provision of "services of general economic interest". However, even where this exception applies, special rights must not go beyond what is necessary for the performance of the service.

Relevant Articles from the Treaty on the Functioning of the European Union
Relevant articles from the Treaty on European Union
Sectoral legislation
Services of General Economic Interest (SGEI)

Cases

Article 7 procedures - Telecom sector

The EU Regulatory Framework gives the European Commission powers to oversee the national regulatory measures, by way of the consultation and transparency procedures provided for under Article 7 of the Electronic Communications Framework Directive. These procedures require national regulatory authorities (NRAs) to conduct a "national" and a "Community" consultation on the regulatory measures they intend to take - comprising definition and analysis of relevant markets and the proposed imposition or removal of regulation on undertakings providing electronic communications networks or services - prior to adoption. The Commission may comment on the draft measures, and in certain cases, exercise its veto power requiring their withdrawal.


Cases based on Article 4(3) (Treaty on European Union) and Articles 106 or 258 (Treaty on the Functioning of the European Union)

"Liberalisation" decisions by the Commission are mainly based on Article 106 of the TFEU, and concern competition law aspects of liberalisation