JUR5640 - Electronic Communications Law and Internet Governance. © Per-Kaare Svendsen 2008
Competition Law and Communications law
Per-Kaare Svendsen
Telecommunications Law Course
Fall 2008
1. Competition Law
Ÿ Overview general competition law
Ÿ Comparison between general competition rules and sector specific SMP regulation
Ÿ How does general competition law and sector specific law operate side by side?
Ÿ Will general competition law replace sector-specific competition rules?
Ÿ Information available on European Commission website[1]
2. EU Commission task - telecommunication
Ÿ DG Competition (togheter with DG Information Society & Media)
Ÿ Ensure national regulators apply sector specific rules correctly
Ÿ Apply general competition rules of the EU treaty
o Restrictive agreements (art 81)
o Abusive behaviour (art 82)
o State measures (art. 86 & 87)
Ÿ Controls mergers between telecommunications companies
o Merger regulation
§ Co-operation
§ European Competition network
§ European Regulators Group (ERG)
3. EC Treaty : relevant rules
Ÿ Article 81 EC
o Prohibits anti-competitive agreements and concerted practice
o Collusive practice between undertakings
Ÿ Article 82 EC
o Prohibits abuse of dominant position and covers unilateral conduct
Ÿ Merger Regulation 139/2004 EEC
o Prohibits concentrations that would significantly impede competition in the common market, in particular as a result of the creation or strengthening of a dominant position
o Structural control
Ÿ Access Notice (1998): Guidelines for application of general competition rules to the telecommunications sector.
4. Article 81 EC
4.1 Legal text
Article 81
1. The following shall be prohibited as incompatible with the common market: all agreements between undertakings, decisions by associations of undertakings and concerted practices which may affect trade between Member States and which have as their object or effect the prevention, restriction or distortion of competition within the common market, and in particular those which:
(a) directly or indirectly fix purchase or selling prices or any other trading conditions;
(b) limit or control production, markets, technical development, or investment;
(c) share markets or sources of supply;
(d) apply dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage;
(e) make the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts.
2. Any agreements or decisions prohibited pursuant to this article shall be automatically void.
3. The provisions of paragraph 1 may, however, be declared inapplicable in the case of:
- any agreement or category of agreements between undertakings,
- any decision or category of decisions by associations of undertakings,
- any concerted practice or category of concerted practices,
which contributes to improving the production or distribution of goods or to promoting technical or economic progress, while allowing consumers a fair share of the resulting benefit, and which does not:
(a) impose on the undertakings concerned restrictions which are not indispensable to the attainment of these objectives;
(b) afford such undertakings the possibility of eliminating competition in respect of a substantial part of the products in question.
4.2 Application
Ÿ Article 81(1) EC:
o agreements and concerted practices -> prevent, restrict or distort competition
Ÿ Article 81(3) EC:
o Exemption if “…improving the production or distribution of goods or to promoting technical or economic progress, while allowing consumers a fair share of the resulting benefit…”
Ÿ Captures typical terms
o Cartels (core of Article 81)
o Resale Price Maintenance
o Exclusivity
o Non-compete clauses
o Exchange of information
Ÿ Horizontal vs vertical agreements
o Example: Sharing of geographical markets (between operators)
o Example: Agreements between an operator and a retail distribution chain restricting competitors distribution oportunities
Ÿ Assessment in a defined market
o Market power not a condition, yet significant impact on the assessment
Ÿ 3G site sharing and Roaming
o Agreement between T-mobile and mm02 (30 April 2003)
5. Article 82 EC
5.1 Legalt text:
Any abuse by one or more undertakings of a dominant position within the common market or in a substantial part of it shall be prohibited as incompatible with the common market in so far as it may affect trade between Member States.
Such abuse may, in particular, consist in:
(a) directly or indirectly imposing unfair purchase or selling prices or other unfair trading conditions;
(b) limiting production, markets or technical development to the prejudice of consumers;
(c) applying dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage;
(d) making the conclusion of contracts subject to acceptance by the other parties of supplementary obligations which, by their nature or according to commercial usage, have no connection with the subject of such contracts.
5.2 Application
Ÿ “Any abuse by one or more undertakings of a dominant position … shall be prohibited…
Ÿ Concept of dominance - Non-exhaustive list in litra a) to d)
o Discrimination
o Predatory or Excessive pricing
o Bundling
6. Article 82 EC (relevant cases)
Ÿ Telefonica (2007): Fined €151 million for over five years of unfair prices. See more below
Ÿ Wanadoo Interactive (2003): €10,35 million. Predatory pricing for broadband Internet Access. Wanadoo - internet arm of France Télécom. French retail broadband market. Today, the French broadband markets are among the most competitive in Europe, with lower prices and increased penetration since the Commission's decision.
Ÿ Deutche Telecom (2003): Price Squeeze for access to local networks. € 12.6 million. Appealed CFI upheld decision
Ÿ T-Mobile (2005): abuse excessive international roaming charges
6.1 Telefonica case
Ÿ Spanish incumbent telecoms operator Telefónica fine of €151 875 000 for abuse of its dominant position in the Spanish broadband market.
Ÿ Telefónica imposed unfair prices in the form of a margin squeeze between the wholesale prices it charged to competitors and the retail prices it charged to its own customers.
Ÿ Telefónica weakened its competitors, making their continued presence and growth difficult:
Ÿ competitors were forced to make losses if they wanted to match Telefónica's retail prices.
Ÿ With high wholesale costs and weakened retail competition on the broadband market, Spanish consumers pay 20% more than the EU-15 average for broadband access.
Ÿ The Spanish broadband penetration rate is 20% below EU-15 average, and its growth is nearly 30% below that of the EU-15.
Ÿ The Decision does not concern local loop unbundling, which is not a substitute to the other two wholesale products.
Ÿ ADSL is widely used in Spain (80%).
Ÿ Telefonica controlled nation-wide fixed telephone network and the entire ADSL value chain in Spain.
Ÿ Duplication of Telefónica's local access network is uneconomical so alternative network operators wishing to provide retail broadband services have no option but to purchase wholesale broadband access products from Telefónica (LLUB, regional wholesale access and national wholesale access.
Ÿ From September 2001 to December 2006, the margin between Telefónica's retail prices and the prices for wholesale broadband access at both the national and regional levels was insufficient to cover the costs that an operator as efficient as Telefónica would have to incur to provide retail broadband access.
Ÿ A competing provider of broadband that was just as efficient as Telefónica was faced with the choice of either exiting the market or incurring losses.
Ÿ Telefónica was at all times free to end this margin squeeze by lowering its wholesale prices on its own initiative. Its national wholesale prices – which in 2006 accounted for around 70% of the prices covered by this decision - were not regulated and its regional wholesale prices – around 30% of the prices in 2006 - were only subject to maximum prices set ex ante by the Spanish regulator on the basis of forecasts provided by Telefónica in 2001.
Ÿ Procedure:
o After Commission's opened formal proceedings (Feb 2006), Spanish regulator analysed the broadband markets (June 2006), which led it to significantly decrease Telefónica's regional and national wholesale prices in December 2006. This intervention put an end to the abuse identified in the Commission's decision.
Ÿ Deliberations:
o Grave abuse and long duration warrants a severe sanction.
o Very negative impact (entry barriers for competitors)
o The associated harm for customers was considerable.
6.2 Microsoft
Ÿ March 2004 decision
o European Commissions five-year investigation results in conclusion that Microsoft Corporation abused its dominant position by
§ leveraging its near monopoly in the market for PC operating systems (OS) onto the markets for work group server operating systems and for media players.
§ The Commission ordered Microsoft to
§ disclose to competitors the interfaces required for their products to be able to 'talk' with the ubiquitous Windows OS, and
§ to offer a version of its Windows OS without Windows Media Player to PC manufacturers
§ Microsoft was fined € 497 million for abusing its market power in the EU.
o Microsoft fined €280.5 million (july 2006)
Ÿ September 2007: Court of First Instance ruling
o Confirmed the Commission’s finding that Microsoft had abused its dominant position in the PC operating system market by refusing to disclose interoperability information that would enable its competitors to fully interoperate with Windows PCs and servers and by tying Windows Media Player with its dominant Windows PC operating system. Both types of conduct reduced competition in the relevant markets, thereby preventing innovation and choice. The Commission's decision established that Microsoft prevented innovative server products from being brought to the market, and that competition in the streaming media player market was distorted. Appropriate legal tests to be applied, and the evidence needed to satisfy those tests. CFI annulled the decision.
o Monitoring trustee costs to be borne by Microsoft.
o Decision focuses on the promotion of interoperability, contributing to innovation and competition in the software industry fully recognising the importance of intellectual property rights as incentives for innovation. Focus on bundling into the Windows operating system of software products excluded competitors, thereby leading to reduced consumer choice liable to reduce access to innovative products.
Ÿ See more on Commissions webpage
o http://ec.europa.eu/comm/competition/antitrust/cases/microsoft/
6.3 Oscar Bronner (Preliminary ruling)
Ÿ Case 7/97 Oscar Bronner GmbH & Co. KG v Mediaprint Zeitungs- und Zeitschriftenverlag GmbH & Co. K, Mediaprint Zeitungsvertriebsgesellschaft mbH & Co. KG and Mediaprint Anzeigengesellschaft mbH & Co. KG [1998] ECR I-7791, paragraphs 43-46.
Ÿ Refusal to grant access to newspaper distribution networks by a press undertaking with a large share of the daily newspaper market and who operates the only nationwide newspaper home-delivery scheme. It denied the publisher of a rival newspaper access to that scheme (for appropriate remuneration)
Ÿ The rival newspaper with smaller circulation is unable either alone or in cooperation with other publishers to set up and operate its own home-delivery scheme in economically reasonable conditions.
Ÿ This does not constitute an abuse of a dominant position within the meaning of Article 86 of the Treaty.
Ÿ For the existence of an abuse […] it would be necessary not only for that the refusal of the service […] to be likely to eliminate all competition in the daily newspaper market on the part of the person requesting the service …and for such refusal to be incapable of being objectively justified, …but also for the service in itself to be indispensable to carrying on that person's business, for lack of any actual or potential substitute for that home-delivery scheme.
Ÿ That is not the case where:
o first, other methods of distributing daily newspapers, such as by post and through sale in shops and at kiosks, even though they may be less advantageous for the distribution of certain newspapers, exist and are used by the publishers of those daily newspapers and,
o secondly, there are no technical, legal or even economic obstacles capable of making it impossible, or even unreasonably difficult, for any other publisher of daily newspapers to establish, alone or in cooperation with other publishers, its own nationwide home-delivery scheme and use it to distribute its own daily newspapers.
6.4 Art 82 – other relevant cases
Ÿ Commission Decisions B&I Line plc v Sealink Harbours Ltd and Stena Sealink Ltd [1992] 5 CMLR 255;
Ÿ IV/34.689 Sea Containers v Stena Sealink – Interim Measures, (Commission Decision 94/19/EC of 21 December 1993, OJ 1994 L 15, 18.01.1994, pp. 8–19);
Ÿ Port of Rødby (Commission Decision of 21 December 1993, OJ 1994 L 26.02.1994, pp 52/57;
Ÿ IV/33.544 British Midland v Aer Lingus, (Commission Decision 92/213/EEC of 26 February 1992, OJ 1992 L 9610/04/1992, pp. 34–45.
7. Merger Regulation
Ÿ Large body of cases
Ÿ Dominance and Collective dominance, cf substantial test
Ÿ Relevant markets
Ÿ Commission’s Recommendation of relevant markets and SMP Guidelines
Ÿ Merger task force may determine conditions for approval
o Proven to be a very powerful regulatory tool
Ÿ Key issues:
o Horizontal overlaps
§ If the merging parties have competing operations in the same geographical markets this often results in a combined higher market share
§ the elimination of a competitor
§ Key concern: creation of or strengthening dominant positions
o Vertical intergration concerns
§ vertical relationships between the markets for wholesale international roaming and the markets for fixed and/or mobile telecommunications in the countries where the parties to the transaction operate
7.1 Merger regulation – relevant cases
Ÿ Telia/Telenor (1999). Undertaking: LLUB access requirement and Disposal of Cable business.
Ÿ MCI/WorldCom (1999): Undertaking: Disposal of internet related business
Ÿ Telia/Sonera (2002): Undertaking: Non-discriminatory access to networks
Ÿ France Télécom/Amena (2005): France Télécom/Mid Europa Partners/One (2007)
Ÿ T-Mobile Austria / Tele.ring (2006): Austrian subsidiary of T-Mobile (part of the Deutsche Telekom group) and its direct competitor tele.ring (controlled by US Western Wireless Corporation). This is considered a 'landmark' decision. Before the merger, tele.ring had exerted competitive pressure on the two largest Austrian operators, Mobilkom and T-Mobile Austria. The Commission required tele.ring to dispose of UMTS frequencies and mobile telephony sites to competitors with lower market shares. This enabled in Hi3G to expand its UMTS network all over Austria (Press Release: IP/06/535).