Keywords
Summary

Keywords

1. Competition – Community rules – Substantive scope

(Arts 81 EC and 82 EC)

2. Competition – Dominant position – Abuse – Margin squeeze – Meaning – Criteria for assessment

(Art. 82 EC)

3. Competition – Dominant position – Abuse – Margin squeeze – Telecommunications network access services offered by the owner-operator of the only infrastructure available

(Art. 82 EC)

4. Competition – Dominant position – Abuse – Margin squeeze – Telecommunications network access services offered by the owner-operator of the only infrastructure available

(Art. 82 EC)

5. Competition – Community rules – Infringements – Committed intentionally or negligently – Meaning

(Arts 82 EC and 226 EC; Council Regulation No 17, Art. 15(2))

6. Competition – Fines – Amount – Determination – Criteria – Gravity of the infringement

(Council Regulation No 17, Art. 15(2); Commission Notice 98/C 9/03, Sections 1A and 3)

7. Competition – Dominant position – Abuse – Concept – Dominant undertaking’s knowledge of the abusive nature of its conduct – No effect

(Art. 82 EC)

Summary

1. The fact that the charges of a telecommunications undertaking in a dominant position had to be approved by the national regulatory authority for telecommunications does not absolve that undertaking from responsibility under Article 82 EC, since the restrictive effects on competition caused by those charges do not originate solely in the applicable national legal framework, because the dominant undertaking, having been able to influence the level of those charges through applications to the regulatory authority for authorisation, had sufficient scope to fix its charges at a level that would have enabled it to end or reduce those restrictive effects. In the context of the special responsibility of an undertaking in a dominant position, that undertaking is obliged to submit applications for adjustment of its charges at a time when those charges have the effect of impairing genuine undistorted competition on the common market.

That conclusion is not affected by the fact that the national regulatory authority for telecommunications checks the compatibility of its charges with Article 82 EC beforehand. Even though, like all organs of the State, that authority is obliged to respect the provisions of the Treaty, it is responsible for regulating the telecommunications sector, and is not the competition authority of the Member State concerned. However, the national regulatory authorities operate under national law which may, as regards telecommunications policy, have objectives which differ from those of Community competition policy. In any event, even on the assumption that the regulatory authority is obliged to consider whether charges proposed by a dominant undertaking are compatible with Article 82 EC, the Commission would not thereby be precluded from finding that the undertaking is responsible for an infringement; the Commission cannot be bound by a decision taken by a national body pursuant to Article 82 EC.

(see paras 107-108, 113, 120-122)

2. The abusive nature of a dominant undertaking’s pricing practices, which take the form of a margin squeeze, is connected with the unfairness of the spread between its retail price for the derived product on the downstream market and its price for the raw material which it offers to its competitors on the upstream market if the difference between those prices is negative, or insufficient to cover the specific costs of its own derived product. It follows that, in order to find that there has been such abuse, the Commission is not required to demonstrate that the retail prices are, as such, abusive.

The Commission is entitled to analyse the abusive nature of the dominant undertaking’s prices solely on the basis of that undertaking’s particular situation and therefore on the basis of its own charges and costs rather than on the basis of the situation of actual or potential competitors. Any other approach could be contrary to the general principle of legal certainty since, if the lawfulness of the pricing practices of a dominant undertaking depended on the particular situation of competing undertakings, particularly their cost structure – information which is generally not known to the dominant undertaking – the latter would not be in a position to assess the lawfulness of its own activities.

In order to assess whether there is a margin squeeze, it is necessary to consider whether the dominant undertaking, or an undertaking that is equally efficient, would have been in a position to offer the derived product otherwise than at a loss if it had first been obliged to pay the charge for the raw material.

(see paras 166-167, 188, 191-194)

3. Where a telecommunications operator is the owner of the only infrastructure available, with the result that the network access services which it offers its competitors (wholesale services) are indispensable to enabling those competitors to enter into competition with that operator on the downstream market in retail access services, a margin squeeze between the operator’s wholesale and retail charges will in principle hinder the growth of competition in the downstream markets. If the dominant operator’s retail prices are lower than its wholesale charges, or if the spread between the dominant operator’s wholesale and retail charges is insufficient to enable an equally efficient operator to cover its product-specific costs of supplying retail access services, a potential competitor who is just as efficient as the dominant operator would not be able to enter the retail access services market without suffering losses. Admittedly, the competitors of the dominant operator will normally resort to cross-subsidisation, in that they will offset the losses suffered on the retail access market with the profits made on other markets, such as the telephone calls markets. However, in view of the fact that, as the owner of the network, the dominant operator does not need to rely on wholesale services in order to be able to offer retail access services and therefore, unlike its competitors, does not have to try to offset losses suffered on the retail access market on account of the pricing practices of a dominant undertaking, the margin squeeze distorts competition not only on the retail access market but also on the telephone calls market.

As regards the calculation of the margin squeeze, the Commission is entitled to take account only of revenues from all access services and to exclude revenues from other services, including those deriving from call services.

Thus, in the first place, even though, from the point of view of the end-user, access services and call services constitute a whole, it is open to the Commission to take into account only revenues from the dominant operator’s access services, and to exclude revenues from other services, such as call services, which may be supplied via access to a network. As far as the dominant operator’s competitors are concerned, the provision of call services to end‑users via that operator’s network requires access to that network. Equality of opportunity as between the dominant operator, on the one hand, and its competitors, on the other, therefore means that prices for access services must be set at a level which places competitors on an equal footing with the dominant operator as regards the provision of call services. Equality of opportunity is secured only if the dominant operator sets its retail prices at a level which enables competitors – presumed to be just as efficient as the dominant operator – to reflect all the wholesale costs in their retail prices. However, if the dominant operator does not adhere to that principle, new entrants can only offer access services to their end-users at a loss. They would then be obliged to offset losses incurred in relation to network access by higher call charges, which would also distort competition in telecommunications markets.

In the second place, the Commission can compare the dominant operator’s charges to its competitors for network access to the weighted average of retail prices for all the various access services offered directly to its end‑users, even if the competing operators do not offer all those services. Since the abusive nature of the dominant operator’s pricing practices must be assessed on the basis of its particular situation and therefore on the basis of its charges and costs, it cannot therefore be influenced by any preferences which its competitors may have for one or other access services market.

Finally, the Commission can include in the calculation of the total price of wholesale services the discontinuance charge payable to the dominant operator by the competing recipient of wholesale access when one of that recipient’s end‑users discontinues his subscription for access services, since that discontinuance charge forms part of the total cost of the wholesale service which must be reflected in the retail prices of the dominant operator’s competitors.

(see paras 199-200, 203-204, 206, 210-211, 236-238)

4. A Commission decision finding that a telecommunications operator has abused its dominant position as a result of the margin squeeze resulting from the negative or insufficient spread between the charges for network access services provided to its competitors (wholesale services), and the charges for retail access services, is not contrary to the principles of proportionality and of legal certainty on account of the fact that it entails the double regulation of those charges. The Community legal framework for telecommunications does not affect the powers which the Commission derives directly from Article 3(1) of Regulation No 17 and, since 1 May 2004, from Article 7(1) of Regulation No 1/2003 on the implementation of the rules on competition laid down in Articles [81 EC] and [82 EC] to find infringements of Articles 81 EC and 82 EC.

Nor is such a decision contrary to the principle of the protection of legitimate expectations, even though, after considering whether a margin squeeze existed and finding the negative or insufficient spread between the wholesale and retail prices, the national regulatory authority for telecommunications took the view that other operators should be able to offer their end-users competitive prices by resorting to cross-subsidisation of access services and call services. Such a finding, from which it follows implicitly but necessarily that those pricing practices have an anti-competitive effect, since the competitors have to resort to cross-subsidisation in order to be able to remain competitive on the market in access services, is not liable to create a legitimate expectation on the part of the dominant operator that its charges were compatible with Article 82 EC.

Finally, even if the national regulatory authority for telecommunications had infringed a Community rule and even if the Commission could have initiated proceedings against that Member State for failure to fulfil obligations, such possibilities cannot affect the lawfulness of the Commission’s decision, which is not vitiated by any misuse of powers. By confining itself to finding an infringement of Article 82 EC, a provision which concerns only economic operators, not the Member States, that decision refers only to the dominant undertaking’s pricing practices and not to the decisions of the authorities of the Member State.

(see paras 263, 267-269, 271)

5. The infringements of the competition rules which are liable to be punished by a fine in accordance with the first subparagraph of Article 15(2) of Regulation No 17 are those which are committed intentionally or negligently. That condition is satisfied where the undertaking concerned cannot be unaware of the anti‑competitive nature of its conduct, whether or not it was aware that it was infringing the competition rules of the Treaty.

That is the case where a telecommunications operator has a monopoly on the market for the network access services which it offers to its competitors (wholesale services) and a virtual monopoly on the market in retail access services, the charges for which create a margin squeeze in respect of those services. That operator cannot be unaware that that margin squeeze, resulting from the negative or insufficient spread between its charges for those different services, entails serious restrictions on competition.

That conclusion is not affected by the initiation of proceedings against the Member State for failure to fulfil obligations on account of the fact that those charges had been approved by the national regulatory authority for telecommunications where the dominant operator nevertheless had scope to increase its retail prices and, therefore, to reduce the margin squeeze, since the initiation of proceedings for failure to fulfil obligations does not affect the conditions for punishing an infringement of competition rules laid down under the first subparagraph of Article 15(2) of Regulation No 17.

(see paras 295-296, 298)

6. The Commission is entitled to characterise as serious the infringement consisting in the application of a margin squeeze by a telecommunications undertaking in a dominant position. Those pricing practices strengthen the barriers to entry to the recently liberalised markets and thus jeopardise the proper functioning of the common market. The Guidelines adopted by the Commission on the method of setting fines imposed pursuant to Article 15(2) of Regulation No 17 and Article 65(5) of the ECSC Treaty (Section 1A, second paragraph) thus describe the exclusionary behaviour of dominant firms as serious infringements, or even very serious infringements if committed by undertakings holding a virtual monopoly.

Having regard to the Commission’s discretion when determining the amount of a fine, it duly takes into account as an attenuating circumstance the fact that the national regulatory authority for telecommunications intervened in setting the undertaking’s prices and that that authority has, on several occasions, considered the question of the existence of a margin squeeze resulting from the tariff practices of the undertaking, when reducing the basic amount of the fine by 10%.

(see paras 310-313)

7. An ‘abuse’ within the meaning of Article 82 EC is an objective concept. The dominant undertaking’s own knowledge of the abusive nature of its conduct is not, therefore, a prerequisite for the application of Article 82 EC.

(see para. 327)