Keywords
Summary

Keywords

1. Competition – Dominant position – Abuse – Margin squeeze – Meaning

(Art. 102 TFEU)

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

(Art. 102 TFEU)

3. Competition – Dominant position – Abuse – Whether pricing practice abusive

(Art. 102 TFEU)

4. Competition – Dominant position – Abuse – Meaning – Conduct having a restrictive effect on competition

(Art. 102 TFEU)

5. Competition – Dominant position – Abuse – Margin squeeze – Access services to fixed telephone network by ADSL – Conduct having a restrictive effect on competition

(Art. 102 TFEU)

6. Competition – Dominant position – Abuse – Margin squeeze – Economically justified pricing practice – Conditions

(Art. 102 TFEU)

7. Competition – Dominant position – Abuse – Margin squeeze – Degree of dominance in the market concerned – No effect

(Art. 102 TFEU)

8. Competition – Dominant position – Conduct on a market neighbouring the dominated market

(Art. 102 TFEU)

9. Competition – Dominant position – Abuse – Margin squeeze – Assessment with regard to existing and potential customers

(Art. 102 TFEU)

10. Competition – Dominant position – Abuse – Application of prices lower than a certain level of costs

(Art. 102 TFEU)

11. Competition – Dominant position – Abuse – Margin squeeze – Rapidly growing markets involving new technology requiring high levels of investment

(Art. 102 TFEU)

Summary

1. In the absence of any objective justification, the fact that a vertically integrated undertaking, holding a dominant position on the wholesale market in asymmetric digital subscriber line (ADSL) input services, applies a pricing practice of such a kind that the spread between the prices applied on that market and those applied in the retail market for broadband connection services to end users is not sufficient to cover the specific costs which that undertaking must incur in order to gain access to that retail market may constitute an abuse of a dominant position within the meaning of Article 102 TFEU. When assessing whether such a practice is abusive, all of the circumstances of each individual case should be taken into consideration.

(see paras 112-113, operative part)

2. An undertaking that introduces a pricing policy intended to drive from the market competitors who are perhaps as efficient as that undertaking but who, because of their smaller financial resources, are incapable of withstanding the competition waged against them abuses its dominant position. In order to assess the lawfulness of the pricing policy applied by a dominant undertaking, reference should, as a general rule, be made to pricing criteria based on the costs incurred by the dominant undertaking and on its strategy.

In particular, when assessing whether a pricing practice which causes a margin squeeze is abusive, account is, as a general rule, to be taken primarily of the prices and costs of the undertaking concerned on the retail services market.

The use of such analytical criteria can establish whether that undertaking would have been sufficiently efficient to offer its retail services to end users other than at a loss if it had first been obliged to pay its own wholesale prices for the intermediary services. If that dominant undertaking would have been unable to offer its retail services except at a loss, that would mean that competitors who might be excluded by the application of its pricing practice could not be considered to be less efficient than the dominant undertaking and, consequently, that the risk of their exclusion was due to distorted competition. Such competition would not be based solely on the respective merits of the undertakings concerned. The validity of such an approach is reinforced by the fact that it conforms to the general principle of legal certainty, since taking into account the costs and prices of the dominant undertaking enables that undertaking to assess the lawfulness of its own conduct, which is consistent with its special responsibility under Article 102 TFEU. While a dominant undertaking knows its own costs and prices, it does not as a general rule know those of its competitors

However, when it is not possible, in particular circumstances, to refer to such costs and prices, it is not inconceivable that the costs and prices of competitors on the retail services market may be relevant to the examination of the pricing practice of the dominant undertaking.

That might in particular be the case when the cost structure of the dominant undertaking is not precisely identifiable for objective reasons, or when the service supplied to competitors consists in the mere use of infrastructure the production cost of which has already been written off, so that access to such an infrastructure no longer represents a cost for the dominant undertaking economically comparable to the cost its competitors have to incur to have access to it, or again when the particular market conditions of competition dictate it, by reason, for example, of the fact that the level of the dominant undertaking’s costs is specifically attributable to the competitively advantageous situation in which its dominant position places it.

(see paras 40- 46, operative part)

3. Article 102 TFEU applies only to anti-competitive conduct engaged in by undertakings on their own initiative. If anti-competitive conduct is required of undertakings by national legislation or if the latter creates a legal framework which itself eliminates any possibility of competitive activity on their part, Article 102 TFEU does not apply. In such a situation, the restriction of competition is not attributable, as that provision requires, to the autonomous conduct of the undertakings. On the other hand, Article 102 TFEU may apply if it is found that the national legislation does not preclude undertakings from engaging in autonomous conduct which prevents, restricts or distorts competition.

In the case of a vertically integrated undertaking, holding a dominant position on the wholesale market in asymmetric digital subscriber line input services, the absence of any regulatory obligation imposed on that undertaking to supply such services to competitors has no effect on the question of whether a pricing practice which leads to a margin squeeze on competitors who are at least as efficient is abusive.

If a dominant vertically integrated undertaking has scope to adjust even its retail prices alone, the margin squeeze may on that ground alone be attributable to it. A fortiori, where that undertaking has complete autonomy in its choice of conduct on the market, Article 102 TFEU is applicable to it. The special responsibility which a dominant undertaking has not to allow its conduct to impair genuine undistorted competition in the internal market concerns specifically the conduct, by commission or omission, which that undertaking decides on its own initiative to adopt

(see paras 49-53, 59, operative part)

4. A pricing practice adopted by a dominant undertaking constitutes an abuse within the meaning of Article 102 TFEU when, given its effect of excluding competitors who are at least as efficient as itself by squeezing their margins, it is capable of making more difficult, or impossible, the entry of those competitors onto the market concerned. It follows that, in order to establish whether such a practice is abusive, that practice must have an anti-competitive effect on the market, but the effect does not necessarily have to be concrete, and it is sufficient to demonstrate that there is an anti-competitive effect which may potentially exclude competitors who are at least as efficient as the dominant undertaking.

When a dominant undertaking actually implements a pricing practice resulting in a margin squeeze on its equally efficient competitors, with the purpose of driving them from the relevant market, the fact that the desired result, namely the exclusion of those competitors, is not ultimately achieved does not alter its categorisation as abuse within the meaning of Article 102 TFEU. However, in the absence of any effect on the competitive situation of competitors, a pricing practice such as that at issue cannot be classified as exclusionary if it does not make their market penetration any more difficult.

(see paras 63-66 )

5. In order to examine whether a pricing practice of a dominant undertaking resulting in a margin squeeze on its equally efficient competitors is likely to hinder the ability of those competitors to trade on the retail market for broadband connection services to end users, it is necessary to take into consideration all the specific circumstances of the case.

In particular, the first matter to be analysed must be the functional relationship of the wholesale products to the retail products. Accordingly, when assessing the effects of the margin squeeze, the question whether the wholesale product is indispensable may be relevant. Where access to the supply of the wholesale product is indispensable for the sale of the retail product, competitors who are at least as efficient as the undertaking which dominates the wholesale market and who are unable to operate on the retail market other than at a loss or, in any event, with reduced profitability suffer a competitive disadvantage on that market which is such as to prevent or restrict their access to it or the growth of their activities on it. In such circumstances, the at least potentially anti-competitive effect of a margin squeeze is probable. However, taking into account the dominant position of the undertaking concerned in the wholesale market, the possibility cannot be ruled out that, by reason simply of the fact that the wholesale product is not indispensable for the supply of the retail product, a pricing practice which causes margin squeeze may not be able to produce any anti‑competitive effect, even potentially. Accordingly, it is necessary to be satisfied that, even where the wholesale product is not indispensable, the practice may be capable of having anti-competitive effects on the markets concerned.

Secondly, it is necessary to determine the level of margin squeeze of competitors at least as efficient as the dominant undertaking. If the margin is negative, in other words, if the wholesale price for the ADSL input services is higher than the retail price for services to end users, an effect which is at least potentially exclusionary is probable, taking into account the fact that, in such a situation, the competitors of the dominant undertaking, even if they are as efficient, or even more efficient, compared with it, would be compelled to sell at a loss. If, on the other hand, such a margin remains positive, it must then be demonstrated that the application of that pricing practice was, by reason, for example, of reduced profitability, likely to have the consequence that it would be at least more difficult for the operators concerned to trade on the market concerned.

(see paras 67-74, operative part)

6. In order to establish that a pricing practice of a dominant undertaking resulting in margin squeeze on its competitors who are at least as efficient as itself is abusive, it is necessary to demonstrate that, taking into account, in particular, the fact that the wholesale product is indispensable, that practice produces, at least potentially, an anti-competitive effect on the retail market which is not in any way economically justified.

An undertaking remains at liberty to demonstrate that its pricing practice, albeit producing an exclusionary effect, is economically justified. The assessment of the economic justification for a pricing practice established by a dominant undertaking which is capable of producing an exclusionary effect is to be made on the basis of all the circumstances of the case. In that regard, it has to be determined whether the exclusionary effect arising from such a practice, which is disadvantageous for competition, may be counterbalanced, or outweighed, by advantages in terms of efficiency which also benefit the consumer. If the exclusionary effect of that practice bears no relation to advantages for the market and consumers, or if it goes beyond what is necessary in order to attain those advantages, that practice must be regarded as an abuse.

(see paras 75-77, operative part)

7. The application of a pricing practice resulting in margin squeeze by an undertaking may constitute an abuse of a dominant position where that undertaking has such a position, and, as a general rule, the degree of dominance in the market concerned is not relevant in that regard. Article 102 TFEU does not envisage any variation in form or degree in the concept of a dominant position. If an undertaking has an economic strength such as that required by Article 102 TFEU to establish that it holds a dominant position in a particular market, its conduct must be assessed in the light of that provision. The degree of market strength is, as a general rule, significant in relation to the extent of the effects of the conduct of the undertaking concerned rather than in relation to the question of whether the abuse as such exists.

(see paras 80-82, operative part)

8. The question whether a pricing practice introduced by a vertically integrated dominant undertaking in the wholesale market for ADSL input services and resulting in the margin squeeze of competitors of that undertaking in the retail market for broadband connection services to end users is abusive does not depend on whether that undertaking is dominant in that retail market.

In that regard, Article 102 TFEU gives no explicit guidance as to what is required in relation to where on the product markets the abuse took place. Accordingly, the actual scope of the special responsibility imposed on a dominant undertaking must be considered in the light of the specific circumstances of each case which show that competition has been weakened.

It follows that certain conduct on markets other than the dominated markets and having effects either on the dominated markets or on the non‑dominated markets themselves can be categorised as abusive. While the application of Article 102 TFEU presupposes a link between the dominant position and the alleged abusive conduct, which is normally not present where conduct on a market distinct from the dominated market produces effects on that distinct market, the fact remains that in the case of distinct, but associated, markets, the application of Article 102 TFEU to conduct found on the associated, non-dominated, market and having effects on that associated market can be justified by special circumstances.

Such circumstances can arise where the conduct of a vertically integrated dominant undertaking on an upstream market consists in attempting to drive out at least equally efficient competitors in the downstream market, in particular by applying margin squeeze to them. Such conduct is likely, not least because of the close links between the markets concerned, to have the effect of weakening competition in the downstream market. Further, in such a situation, in the absence of any other economic and objective justification, such conduct can be explained only by the dominant undertaking’s intention to prevent the development of competition in the downstream market and to strengthen its position, or even to acquire a dominant position, in that market by using means other than reliance on its own merits.

(see paras 84-89, operative part)

9. The abusiveness of a pricing practice of a dominant undertaking resulting in a margin squeeze on competitors who are at least as efficient as the dominant undertaking resides in the fact that such a practice may prevent normal competition in a market neighbouring the dominated market in so far as it may have the effect of driving out that undertaking’s competitors from that market.

In that regard, whether the operators concerned are existing or new customers of the dominant undertaking can be of no relevance. Moreover, the fact that the new clients concerned are not yet active on the market concerned can also be of no relevance. The abusiveness of a pricing practice must be assessed not only with regard to the possibility that the effect of that practice may be that equally efficient operators who are already active in the relevant market may be driven from it, but also by taking into account any barriers which the practice is capable of creating in the way of operators who are potentially equally efficient and who are not yet present on the market.

(see paras 91-94 and operative part)

10. For the purposes of establishing whether a pricing practice of a dominant undertaking resulting in a margin squeeze on competitors who are at least as efficient as itself is abusive, whether the dominant undertaking is able to recoup any losses suffered as a result of applying that pricing practice has no relevance.

A margin squeeze is in itself capable, in the absence of any objective justification, of constituting an abuse within the meaning of Article 102 TFEU. That margin squeeze is the result of the spread between the prices for wholesale services and those for retail services and not of the level of those prices as such. In particular, that squeeze may be the result not only of an abnormally low price in the retail market, but also of an abnormally high price in the wholesale market. Consequently, an undertaking which engages in a pricing practice which results in a margin squeeze on its competitors does not necessarily suffer losses

In any event, even if the dominant undertaking suffers losses in order to squeeze the margins of its competitors, there can be no requirement that, in order to establish the existence of an abuse, evidence must be produced of the capacity to recoup any such losses. The possibility that competitors may be driven from the market does not depend on either the fact that the dominant undertaking suffers losses or the fact that that undertaking may be capable of recouping its losses, but depends solely on the spread between the prices applied by the dominant undertaking on the markets concerned, the result of which may be that it is not the dominant undertaking itself which suffer losses but its competitors.

Lastly, in the event that the dominant undertaking were nonetheless to apply a price on the retail market which was so low that sales would engender losses, beyond the fact that such conduct is likely to constitute an autonomous form of abuse, namely the application of predatory prices, the Court has in any event already rejected the argument that, even in such a case, proof of the possibility of recoupment of losses suffered by the application, by an undertaking in a dominant position, of prices lower than a certain level of costs constitutes a necessary precondition to establishing that such a pricing policy is abusive.

(see paras 97-103 and operative part)

11. For the purposes of establishing whether a pricing practice of a dominant undertaking resulting in a margin squeeze on competitors who are at least as efficient as itself is abusive within the meaning of Article 102 TFEU, the fact that the markets affected by the exploitation of that undertaking’s dominant position are growing rapidly and involve new technology which requires high levels of investment is not, as a general rule, of any relevance.

First, the degree to which the markets affected by the exploitation of an undertaking’s dominant position are mature is not a point on which Article 102 TFEU makes any distinction.

Second, in a rapidly growing market, the competitive advantage flowing from the possession of a dominant position in a second neighbouring market may distort the course of competition in the first market, taking into consideration the fact that in that first market the operators may be inclined to operate for some time at a loss or while accepting lower levels of profitability. It is in precisely such circumstances that the further reduction in the ability of an operator to trade profitably which results from the squeeze of his margins imposed by such a pricing practice may prevent the establishment or development on the market concerned of normal conditions of competition.

Third, taking into account the objective of the competition rules, their application cannot depend on whether the market concerned has already reached a certain level of maturity. Particularly in a rapidly growing market, Article 102 TFEU requires action as quickly as possible, to prevent the formation and consolidation in that market of a competitive structure distorted by the abusive strategy of an undertaking which has a dominant position on that market or on a closely linked neighbouring market, in other words, it requires action before the anti-competitive effects of that strategy are realised.

That is therefore all the more true of a market, such as that of supplying high speed internet access services, which is closely linked to another market, such as the local loop access market in the telecommunications sector. Not only is the latter market in no way new or emerging, but its competitive structure is also still highly influenced by the former monopolistic structure. The possibility that undertakings may exploit their dominant position in that market in such a way as to impair the development of competition in a rapidly growing neighbouring market means that no derogation from the application of Article 102 TFEU can be tolerated.

While an undertaking holding a dominant position in a market cannot rely on the investment it has made in order to penetrate a neighbouring market when attempting to drive out from that market competitors who are, currently or potentially, equally efficient, the fact remains that the conditions of competition in the dominated market and, in particular, the costs of establishment and investment of the undertaking which has a dominant position in that market, must be taken into consideration as part of the analysis of that undertaking’s costs which must be carried out in order to establish whether a margin squeeze exists.

(see paras 105-111 and operative part)