Early this month, the Stockholm City Court fined telecoms company TeliaSonera 144 million krone (€16million) for abusing its dominant position by squeezing its competitors’ margins. The Swedish Competition Authority dictated the amount after it gave a statement that it was one of the most important matters relating to abuse that they dealt with since the 1990s. The Competition Authority commenced the proceedings against the company in 2004 in the City Court for abusive action in the retail market for resale services for ADSL connections during the period from 2000-2003. The proceedings had been pending until last week since the City Court had requested a preliminary ruling from the European Court of Justice (ECJ) in 2009 on the interpretation of Article 102 TFEU (Formerly Article 82 EC).
Brief Overview of the Facts: At the end of the 1990s and the beginning of the 2000s, a growing number of Swedish end users of internet services moved from dial-up internet connections, with low transmission speeds, to various types of broadband connection with considerably higher transmission speeds. At that time the most widespread form of broadband connection was that achieved by asymmetric digital subscriber line (‘ADSL’). TeliaSonera is the Swedish fixed telephone network operator, and was the owner of the local loop to which almost all Swedish households are connected. It offered access to the local loop to other operators, in two ways. On the one hand, it offered unbundled access, in accordance with its obligations under Regulation (EC) No 2887/2000 of the European Parliament and of the Council of 18 December 2000 on unbundled access to the local loop (OJ 2000 L 336, p. 4). On the other hand, without being legally obliged to do so (hence unregulated), it offered to operators an ADSL product intended for wholesale users. At the same time, TeliaSonera offered broadband connection services directly to end-users. It was alleged by the Swedish Competition Authority that TeliaSonera was setting its wholesale/retail price spread so as to foreclose its competitors in the downstream market for end-user broadband connection.
Decision: In order to determine the nature and extent of abuse of a margin squeeze action by a dominant market player, the ECJ referred to the Deutsche Telekom v Commission case. It stated that a margin squeeze, in view of the exclusionary effect which it may create for competitors who are as efficient as the dominant undertaking, in the absence of any objective justification, is in itself capable of constituting an abuse within the meaning of Article 102 TFEU. It further stated that when such a dominant undertaking adopts abusive pricing tactics to drive efficient competitors out of the market and they cannot withstand such anticompetitive behaviour owing to their smaller financial resources, the former has abused its dominant position. Accordingly, the ECJ held that, in the present case there is such a margin squeeze since the spread between the wholesale prices for ADSL input services and the retail prices for broadband connection services to end users were either negative or insufficient to cover the specific costs of the ADSL input services which TeliaSonera has to incur in order to supply its own retail services to end users, so that that spread does not allow a competitor which is as efficient as that undertaking to compete for the supply of those services to end users.
However, the decision of the ECJ in this case has received much prominence because of its take on three very important issues. First, treatment of margin squeezing in the absence of any regulatory obligation to supply, second, its finding that margin squeezing is a separate category of infringement and merely a form of refusal to supply and third, that effect of indispensability of the input in establishing a case of abuse of dominance.
The ECJ came to a decision that a margin squeeze constitutes an abuse of dominance, contrary to article 102 TFEU even when the dominant market player does not have any obligation to supply its product to the downstream market. The reasoning accorded by the Court was that Article 102 TFEU applies if it is found that the national legislation does not preclude undertakings from engaging in autonomous conduct which prevents, restricts or distorts competition. This view was taken keeping in mind the decision in Commission and France v Ladbroke Racing, where it was held that, 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 those provisions implicitly require, to the autonomous conduct of the undertakings. Further, it was held in the Deutsche Telekom v Commission case that 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. Therefore, the Court held in the present case that, the absence of any regulatory obligation to supply the ADSL input services on the wholesale market has no effect on the question of whether the pricing practice at issue in the main proceedings is abusive. This judgment thus defined a broader scope for margin squeezing even in the absence of a regulatory duty to deal.
The ECJ further rejected the argument that a margin squeeze action is a form of refusal to supply and held that it constitutes a stand-alone abuse. The Court stated that the conditions to determine margin squeezing and refusal to supply are not the same and such an understanding drawn by TeliaSonera while interpreting the Bronner case was inaccurate. Lastly, the Court also held that inorder to establish a case of abuse of dominance it is not necessary to show that the dominant player in the upstream market provides an input that is indispensible to the downstream competitor to compete. It is simply enough, if the market player holds a dominant position and the indispensible nature of the input is immaterial to determine abuse of dominant position by way of margin squeezing.
Based on all its findings, the ECJ held that TeliaSonera has abused its dominant position by imposing abusive prices on wholesale and retail broadband services such that there was an insufficient margin between the wholesale price and the price for private customers to cover Telia Sonera’s own costs of selling broadband to private customers. The City Court adopted a similar view and stated that in several cases the company had even applied a higher price in relation to its competitors than in relation to private customers. This margin squeeze restricted the opportunity for Telia Sonera’s competitors within dial-up Internet to expand in the broadband market and delayed their entry into the market. Thus, they had to sell either at a loss or with profitability that was so low that they could not engage in active marketing in order to win new customers.
While this judgment has been well received by the Swedish Competition Authority, the Advocate General has opined that such an approach may risk reducing incentives to invest in developing infrastructure and increases the risk to increase retail prices. The judgment of the City Court can however be appealed to the Market Court, which is the highest instance for competition cases.
[This post has been authored by Vidyullatha Kishor, a student of 5th Year, B.A. LL.B. (Hons.) at the W.B. National University of Juridical Sciences]
Brief Overview of the Facts: At the end of the 1990s and the beginning of the 2000s, a growing number of Swedish end users of internet services moved from dial-up internet connections, with low transmission speeds, to various types of broadband connection with considerably higher transmission speeds. At that time the most widespread form of broadband connection was that achieved by asymmetric digital subscriber line (‘ADSL’). TeliaSonera is the Swedish fixed telephone network operator, and was the owner of the local loop to which almost all Swedish households are connected. It offered access to the local loop to other operators, in two ways. On the one hand, it offered unbundled access, in accordance with its obligations under Regulation (EC) No 2887/2000 of the European Parliament and of the Council of 18 December 2000 on unbundled access to the local loop (OJ 2000 L 336, p. 4). On the other hand, without being legally obliged to do so (hence unregulated), it offered to operators an ADSL product intended for wholesale users. At the same time, TeliaSonera offered broadband connection services directly to end-users. It was alleged by the Swedish Competition Authority that TeliaSonera was setting its wholesale/retail price spread so as to foreclose its competitors in the downstream market for end-user broadband connection.
Decision: In order to determine the nature and extent of abuse of a margin squeeze action by a dominant market player, the ECJ referred to the Deutsche Telekom v Commission case. It stated that a margin squeeze, in view of the exclusionary effect which it may create for competitors who are as efficient as the dominant undertaking, in the absence of any objective justification, is in itself capable of constituting an abuse within the meaning of Article 102 TFEU. It further stated that when such a dominant undertaking adopts abusive pricing tactics to drive efficient competitors out of the market and they cannot withstand such anticompetitive behaviour owing to their smaller financial resources, the former has abused its dominant position. Accordingly, the ECJ held that, in the present case there is such a margin squeeze since the spread between the wholesale prices for ADSL input services and the retail prices for broadband connection services to end users were either negative or insufficient to cover the specific costs of the ADSL input services which TeliaSonera has to incur in order to supply its own retail services to end users, so that that spread does not allow a competitor which is as efficient as that undertaking to compete for the supply of those services to end users.
However, the decision of the ECJ in this case has received much prominence because of its take on three very important issues. First, treatment of margin squeezing in the absence of any regulatory obligation to supply, second, its finding that margin squeezing is a separate category of infringement and merely a form of refusal to supply and third, that effect of indispensability of the input in establishing a case of abuse of dominance.
The ECJ came to a decision that a margin squeeze constitutes an abuse of dominance, contrary to article 102 TFEU even when the dominant market player does not have any obligation to supply its product to the downstream market. The reasoning accorded by the Court was that Article 102 TFEU applies if it is found that the national legislation does not preclude undertakings from engaging in autonomous conduct which prevents, restricts or distorts competition. This view was taken keeping in mind the decision in Commission and France v Ladbroke Racing, where it was held that, 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 those provisions implicitly require, to the autonomous conduct of the undertakings. Further, it was held in the Deutsche Telekom v Commission case that 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. Therefore, the Court held in the present case that, the absence of any regulatory obligation to supply the ADSL input services on the wholesale market has no effect on the question of whether the pricing practice at issue in the main proceedings is abusive. This judgment thus defined a broader scope for margin squeezing even in the absence of a regulatory duty to deal.
The ECJ further rejected the argument that a margin squeeze action is a form of refusal to supply and held that it constitutes a stand-alone abuse. The Court stated that the conditions to determine margin squeezing and refusal to supply are not the same and such an understanding drawn by TeliaSonera while interpreting the Bronner case was inaccurate. Lastly, the Court also held that inorder to establish a case of abuse of dominance it is not necessary to show that the dominant player in the upstream market provides an input that is indispensible to the downstream competitor to compete. It is simply enough, if the market player holds a dominant position and the indispensible nature of the input is immaterial to determine abuse of dominant position by way of margin squeezing.
Based on all its findings, the ECJ held that TeliaSonera has abused its dominant position by imposing abusive prices on wholesale and retail broadband services such that there was an insufficient margin between the wholesale price and the price for private customers to cover Telia Sonera’s own costs of selling broadband to private customers. The City Court adopted a similar view and stated that in several cases the company had even applied a higher price in relation to its competitors than in relation to private customers. This margin squeeze restricted the opportunity for Telia Sonera’s competitors within dial-up Internet to expand in the broadband market and delayed their entry into the market. Thus, they had to sell either at a loss or with profitability that was so low that they could not engage in active marketing in order to win new customers.
While this judgment has been well received by the Swedish Competition Authority, the Advocate General has opined that such an approach may risk reducing incentives to invest in developing infrastructure and increases the risk to increase retail prices. The judgment of the City Court can however be appealed to the Market Court, which is the highest instance for competition cases.
[This post has been authored by Vidyullatha Kishor, a student of 5th Year, B.A. LL.B. (Hons.) at the W.B. National University of Juridical Sciences]
