17 Apr 2012

(by Pinar Akman) On 29 March 2012 the General Court (GC) handed down its judgment in the case of Telefónica (). The issue at stake was the Commission’s decision in . The original decision found that Telefónica’s pricing had been exclusionary and thus abusive despite it being approved by the regulator. The GC upheld the Commission decision in its entirety and dismissed the appeal. This is in stark contrast to two famous US Supreme Court decisions which recently reached very different conclusions in similar circumstances.

This case is the last one in a line of cases that concerned the abuse of margin squeeze by former monopoly telecommunications operators under Article 102 TFEU. Previous cases on which the GC’s decision is based in parts include the TeliaSonera Sverige (Case C-52/09) and Deutsche Telekom (Case C-280/08 P) judgments of the Court of Justice. In Telefónica the approach of the EU Courts to the interface between competition and sectoral regulation has been confirmed once more: the existence of ex ante regulation does not by any means exclude ex post competition law enforcement [50]. Competition rules can be enforced against undertakings that have been subject to ex ante regulation so long as they still have the possibility of engaging in autonomous conduct and engage in such conduct that prevents, distorts or restricts competition.

The facts of the case were that Telefónica – the former state monopoly in telecommunications in Spain – had abused its dominant position on the wholesale broadband markets (national and regional) by imposing unfair prices on its competitors in the form of a margin squeeze between the prices for retail broadband access and the prices for wholesale broadband access. In other words, the competitors could not compete with Telefónica on the retail market after purchasing access from Telefónica since their margins would not allow this to be profitable.

The GC stated that, in accordance with case law, to establish whether a dominant undertaking has abused its position by its pricing practices, one must consider all the necessary circumstances and investigate whether the practice tends to remove or restrict the buyer’s freedom to choose his sources of supply, to bar competitors access to the market, to discriminate between trading parties or to strengthen the dominant position by distorting competition [66]. If the spread between the prices of the wholesale products and the prices of the retail products of a vertically integrated dominant undertaking effectively squeezes the margins of competitors, this may constitute abuse [67]. Moreover, the wholesale product does not need to be indispensable for the provision of the retail product for the margin squeeze to be abusive [76]. Finally, it is also irrelevant whether or not the undertaking placed the wholesale product voluntarily on the market without any regulatory obligation [69].

These last two holdings demonstrate the different approaches in the laws on the two sides of the Atlantic. First, in Verizon (540 US 398 (2004)) the US Supreme Court held that where there is sectoral regulation designed to deter and remedy anticompetitive harm, the additional benefit to competition provided by competition enforcement will tend to be small. The Kingdom of Spain in fact posited Verizon as a judgment for the GC to consider but the GC merely stated that the Commission had examined the relevant regulatory context and there was thus no need to rule on the relevance of Verizon [55]. Second, in Linkline (555 US 438 (2009))the Supreme Court held that so long as there is no antitrust (cf regulatory) duty to deal at the wholesale level and no predatory pricing at the retail level, there cannot be unlawful margin squeeze: the dominant undertaking is not required to price both products at levels that preserve competitors’ profit margins. In the EU, it is the spread that matters and the individual levels of the wholesale or retail price (ie whether the former is excessive or the latter is predatory) do not matter.

None of this is to suggest that the US has got it right and the EU has got it wrong, but it just demonstrates that in competition law particularly concerning unilateral conduct, almost anything goes since the two major competition law jurisdictions in the world can reach such differing conclusions in almost identical conditions. For undertakings subject to the law in different jurisdictions, this may, of course, be slightly more than just an annoying fact of life.

In the EU, this would require the requirements of a refusal to deal abuse – including indispensability – to be made and such a requirement is rejected by the GC at 74-75.