Ex ante margin squeeze tests in the telecommunications industry: What is a reasonably efficient operator?

• This paper studies Reasonably Efficient Operator (REO) margin squeeze tests.
• It focuses on the implementation of REO tests by National Regulatory Authorities (NRAs).
• It provides a theoretical framework to analyze the various test adjustments NRAs use to model a REO.
• It presents a benchmark of NRA’s test implementation choices.

This paper studies the implementation of Reasonably Efficient Operator margin squeeze tests by National Regulatory Authorities in European telecommunications markets. It provides a theoretical framework which shows how regulatory authorities deal with the asymmetries between entrants and incumbents by adjusting the Equally Efficient Operator margin squeeze test used in competition policy. Using this framework, this paper presents a benchmark of implementation choices by inspecting authorities' guidelines, market analyses, and decisions. Whereas some implementation choices are very similar across authorities' decisions, some others display a strong heterogeneity.