PRESS RELEASE

ANTITRUST AUTHORITY URGES LIBERALIZATION TO GET ECONOMY MOVING

Report to Government and Parliament. Strategic interventions required on infrastructure, fuel, energy, transport, local public services, pharmacies, the professions, retailing and financial services. Cut red tape and drastically reduce requirement for permits, including at the local level.

The Italian Competition Authority, at its meeting on 9 June 2008, approved a report to the Government and Parliament which examines the country's major economic sectors and points out competition-limiting factors in the various markets. The document, with a number of fact sheets on specific industry sectors, represents a technical analysis by the Authority intended as input to the legislative process.

The report indicates those areas where lack of competition and slowness in public decision-making represent a brake on the country's economic growth: infrastructure, energy, local public services, transport, retailing, fuel, the professions and financial services are the areas the Antitrust Authority considers need attention. The following are the areas addressed in the report.

INFRASTRUCTURE: PUT AN END TO VETOES

Our economy is heavily conditioned by the burdens and disadvantages deriving from the higher prices and lower quality and efficiency of services and essential resources such as electricity, gas and transport that are a direct consequence of inadequate infrastructure. The Government and Parliament must set priorities. In order to  eliminate the cross-vetoes that prevent the carrying out of infrastructure works, the central State must be made the final arbiter on choices having to do with the building of infrastructure of national interest.

ELECTRICITY: PROVIDE INCENTIVES FOR INVESTMENT IN THE GRID

The inadequacy and rigidities of the national electricity grid cause local congestion and allow cases of anomalous market dominance to continue. So in addition to the measures already stipulated by the regulator, further and more effective incentives are needed to strengthen the transmission network. It is also necessary to introduce full separation of ownership between energy distribution and the sale of electricity, given the recent - and foreseeable - aggregations of former municipal council businesses.

GAS: ENCOURAGE ENTRY OF NEW PARTIES

Legal and regulatory interventions are needed to speed up the definition of the priorities for fresh infrastructure investment in import capacity (gas pipelines and LNG regasification terminals) and the storage of gas.

In parallel, measures are needed to guarantee access by and growth of new businesses: in storage, the present industry setup and in particular the high degree of control exercised by the dominant operator significantly condition margins and opportunities for developing effective competition to the benefit of end consumers.

The system of concessions for distribution services needs to be reviewed so as to reduce the transition period for direct assignments that expire and to make rapid reassignment possible by way of a tendering procedure.

At the European level, a European gas transportation company should be formed to manage national infrastructure in the interests of the EU.

RAILWAYS: SEPARATE OWNERSHIP

Ownership must be separated so as to eliminate the multiplicity of roles and functions presently exercised by the Ferrovie dello Stato [State Railways group] which is simultaneously the operator of the service, the manager of the physical rail network and, for some aspects, the market regulator. Also needed is a clearer identification of the extent of public service requirements with a quantification of the relevant costs, leaving the market to choose the operator by way of a bidding mechanism. That would mean minimizing public subsidies on loss-making lines, making it possible elsewhere to use a proportion of revenues to develop high-speed links and to finance investment in the logistical infrastructure needed to encourage the intermodal transport of goods.

LOCAL PUBLIC SERVICES: PRIVATIZATION AND OPENING UP OF MARKETS

The expectations generated by moves to liberalize local public services have so far been disappointed. Privatisation must remain a high priority so as to root out the conflicting roles resulting from the widespread ownership links between the public sector (the Region or local council) and the companies contracted to supply services. That is the only way to ensure greater transparency and impartiality in the selection of operators and  effective undistorted competition among businesses operating in fully liberalized sectors (sale of gas and electricity to end users). An important role could be played by the banking foundations.

Where the characteristics of markets make it impossible for more than one operator to compete, transparent non-discriminatory contracting procedures must be put in place.

For local rail transport and the supply of water, electricity and gas, where the infrastructure consists of networks (and whose ownership must remain in public hands) contracts must necessarily be long-term: these are areas requiring huge investments and long periods of amortization. So the role of regulation needs to be strengthened to guarantee the quality, efficiency and cost-effectiveness of the services; such functions can be carried out by the already existing national Authorities.

RETAIL: FREE UP HOURS OF BUSINESS AND ESTABLISHMENT OF SHOPS

The national retail industry is still structurally inefficient and undersized compared with other European countries, precisely because regulation hinders the opening of large-scale retail outlets and new retail businesses in general. It is therefore necessary to remove these constraints and prevent their being reintroduced under the guise of urban planning or environmental rules. Bans on mixing wholesale and retail commerce should be lifted, as should restrictions in national and local laws on setting of prices (e.g. regulation of special sale prices or selling of goods below cost) and on the manner of carrying on the business (e.g. regulation of duty shifts and minimum and maximum opening hours).

The Authority points out that the current distribution structure means less choice and higher prices for consumers. The lack of large supermarket chains also means there are no Italian operators selling abroad who would be able to give their support to national producers. In food and agriculture, rules must be set that promote competition and thus improve the functioning and efficiency of the sector by shortening the supply chain.

FUEL: PUSH SUPERMARKET OUTLETS AND INDEPENDENT OPERATORS

Fuel distribution rules must be liberalized: the rigidities and inefficiencies of the distribution system affect the end price of fuels with consequences for the entire economy. So it is time to do away with restrictions on minimum distances, minimum surface areas and qualitative standards. It is also time to liberalize maximum opening hours and to strengthen the competitiveness of service station operations that are not part of an integrated refinery and logistics company. To this end, rule changes should be evaluated for obliging the owners of logistical infrastructure to reserve a percentage of the overall capacity of their storage facilities for third parties and inducing the companies that control refineries to sell certain quantities of product specifically to smaller operators who are unable to obtain supplies on the international market.

MEDICINES: FEWER RESTRICTIONS ON PHARMACIES, ENCOURAGEMENT OF GENERIC DRUGS

Local rules governing the distribution of pharmaceuticals need to be significantly simplified: such rules hinder the development of non-pharmacy sales channels. The regulation should be eliminated that limits ownership of a pharmacy to a pharmacist or company of pharmacists and stipulates a maximum of four licences per individual or company. It is also necessary to review the system of authorization and location of pharmacies: this is quite inadequate for a rational and satisfactory territorial distribution of the shops, a requirement which should instead be guaranteed by stipulating a minimum number of pharmacies rather than a maximum number. On the manufacturing side, initiatives are needed to encourage the adoption of generic drugs without, however, discouraging innovation.

PROFESSIONS: CARRY ON WITH MODERNIZATION

In professional services, competition-fostering measures introduced in the last parliament were often followed by the adoption of special rules having the opposite effect. The Authority's fact-finding investigation revealed a less than comforting reality in which professional codes of conduct often seem impervious to the requirements of  modernization.

Access to a profession must in principle be free. The price of services should be established by agreement between the parties. In some exceptional circumstances, the need to protect consumers may justify the setting of a maximum tariff but this must be fixed in a manner that is more transparent and is immediately clear to the consumer, specially in the case of standardized legal documents.

The setting up of school and university courses to allow student to qualify directly is recommended. The need for a further State examination depends on the circumstances. Any training period must be in proportion to the actual need for practical learning of the profession and must be available not only in a qualified professional's office but also in public and private institutions.

There should be no numerical limitations on access to certain professions such as those of notaries or doctors in the national health system.

Professional orders must concern themselves with their members' correct exercise of the profession and their professional updating. Codes of conduct must be limited to rules of an ethical nature, as a guarantee of the interests of the client and the liberty and autonomy of the professional.

BANKS: CLEARER INFORMATION FOR CUSTOMERS

There is a need to consolidate the progress made with recent regulatory changes by introducing greater simplification, transparency and comparability of information through the provision of summary information sheets and indications of overall charges. The time and cost of transferring one's business must be reduced (portability of current accounts and ability to substitute mortgages) and the means of protecting the consumer must be reinforced with the introduction of guarantees on the duration of the conditions offered and government control over unfair contract terms. Specific attention must be paid to the nature of corporate governance at the banks in order to overcome or reduce the negative effects – in matters of efficiency, transparency and competition – of ownership and organizational structures in which there may be a mixture of operational functions and strategic and control functions, conflicts of interest or, in some cases, corporate control that is to all intents and purposes immutable and absolute.

INSURANCE: STILL TOO LITTLE COMPETITION

The liberalization of the insurance sector has been unsatisfactory in terms of prices, quality of service and intensity of the competitive dynamic. Further interventions are needed to simplify the information provided to the clientele, with standardized contractual models that clearly separate the most common kind of cover from the extended coverage clauses. There must be more transparency in the economic conditions in the contract, e.g. as regards variations in future premiums according to whether or not there has been a claim during the period insured, so as to encourage insured persons to be willing to change companies, thus far a rare occurrence.

On the sales side, a system must be adopted in which an agent's remuneration comes more and more from fees paid by the client for consulting and assistance in the sale and management of insurance products rather than from commissions paid by the insurance company. This would really encourage an independent system of sales not tied to the contractual power of the insurance companies.

REDUCE RULES AND AUTHORIZATIONS

In the Authority's view, it is urgent to reduce, simplify and rationalize red tape by using unified texts of laws and codes. For each industry sector, there must be an assessment of the need for and proportionality of the existing bureaucratic procedures, eliminating wherever possible the need for prior authorization by public agencies. Such assessment should be repeated after a time in the light of changes to the economic and technological context. The proposed one-stop-shop for businesses dealing with the public administration should be put into effect.

The Antitrust Authority, acting through the Attorney General's office, should be permitted to challenge any generalized public regulation that conflicts with competition law.

Rome, 11 June 2008