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Friday, September 14, 2012

The Commission vs.Gazprom

Professor Alan Riley has a thoughtful article in Wall-Street Journal - - on the stakes of the recent investigation opened by the European Commisson into EU dealings of the giant Gazprom.
This investigation, like any other investigation of the European Commission, lies on real (and worrisome) antitrust issues. The opening of this case, like any other investigation, does not mean that Gazprom is guilty but that its contracts require a closer look. In the same line of arguments, I would add that Gazprom would be better off if it accepts that DG Competition does not operate with preconceptions and it provides all the necessary data to the Commission.

If Gazprom will decide to raise the veil, this strategy will go counter to its interests in EU as it may be regarded as an admission that something is rotten in its EU business and may accelerate the development of alternative sources of supply.
What is very interesting is that, in fact, the European Commission already won this case - just by starting putting questions about the "king's clothes", how true are these and what impact the behavior of the king has in the European markets.
These contracts exist from such a long time that people take them as granted, like being part of the business tradition. Their clauses came into discussion rarely and this happened rather accidentally and in moments of crisis
The success of the investigation means that, notwhitstanding its conclusions, at the outset the life  in EU will not be the same for Gazprom.

Update: The European Parliament adopted on 13 September 2012 a new legislation aimed at better coordination of the energy deals with third countries - see more details at

Smartphones, mobile networks and competition

I would add that subsidizing handsets works in a similar way with taxation - a few benefit but everybody pays. The subsidies of the mobile phone companies are eventually costs, "shared" by all the subscribers of that network - the recovery of the "hole" from an increase usage of mobile data is made over a long period of time and sometimes the recovery does not come at all. Subscribers often refrain from using network data in favour of free wireless hotspots, which are at hand in more and more places (besides, most smartphones allow to activate a setting which allows downloads and streamig only on a hotspot). 
Another issue is that there is no direct correlation between the price of a handset and its utility.  This means that a more expensive smartphone does not trigger more data usage than a lower-price smartphone.  The number of applicatons available on each smartphone has a much larger impact on the volume of data.
In the current context, the producers of handsets enjoying high brand reputation enjoy significant market power over the carriers.  On the other hand, the carriers may fight back by offering mobile devices under their own brand.  There are such devices in the offer of any major carrier.  Their role would be somehow similar to the role of the private labels in the retail trade.
On the other hand, the carriers may decide to give up the subsidies on the mobile handsets, or at least of the most expensive ones.
There is hence a major problem here: which network will give up first in this "arms race"?  High-end devices tend to be also "must'have" items, important for marketing purposes too - enhancing the image of the network as promoter of the most modern technology.
From a competition perspective, this issue deserves an in-depth analysis, based on the specific information from the market.