Turkey: The Turkish Competition Board Takes A De Minimis Approach To Abuse Of Dominance: No Full-Fledged Investigation Against Local Natural Gas Company For Exclusionary Practices

The Authority published the Board's reasoned decision¹ on the preliminary investigation initiated upon a complaint against Eskişehir Şehir İçi Doğalgaz Dağıtım Tic. ve Taah. A.Ş. ("ESGAZ") and KA Sigorta Aracılık Hizmetleri Ltd. Şti. ("KA Sigorta"). The complainants claimed that ESGAZ had abused its dominance by excluding competitors in the market for insurance for natural gas installation, as ESGAZ had directed engineering companies to procure insurance services from one of its group companies, namely KA Sigorta.

In its dominance assessment, the Board observed that gas distribution services are associated with natural (legal) monopolies, in light of the fact that an undertaking assigned by the Energy Market Regulatory Authority ("EMRA") will have the exclusive license for gas distribution in a particular city, in accordance with the provisions of the Law No. 4646 on the Natural Gas Markets. Accordingly, the Board held that ESGAZ was dominant in the market for natural gas distribution in Eskişehir. As the allegations against ESGAZ concerned the market for insurance services for internal installation processes, rather than the distribution services in which ESGAZ was found to be dominant, the Board subsequently focused its evaluation on whether ESGAZ had abused its dominant position in the relevant market or any related markets within the scope of Article 6(d) of the Law No. 4054.

In this regard, the Board analyzed the evidence that consisted of (i) various correspondence collected during the dawn raids, and (ii) information received from the complainants (including competitors and engineering companies). The Board initially observed that ESGAZ's practices, which allegedly involved forcing engineering companies to procure insurance from KA Sigorta, might have gone beyond mere marketing activities. More particularly, given the critical position and role of ESGAZ in the approval process regarding the project drawings, the Board considered that ESGAZ's communications might have resulted in the exclusion of other insurance agents from the market, and therefore, might have fallen within the scope of Article 6 of the Law No. 4054.

The Board determined that the insurance policies of KA Sigorta were low in value and ratio among all other policies of rival insurance companies, which led to significantly low market shares for KA Sigorta in the overall insurance market. The Board subsequently focused its attention on the information submitted by ESGAZ during the investigation, which concerned the revisions made to ESGAZ's software (called "Suges") used in the application process for project drawings, which had also enabled engineering companies to directly purchase insurance from KA Sigorta. ESGAZ explained that they had made revisions to the software to allow the engineering companies to easily assess their insurance options and to freely choose whether or not to acquire the insurance policy through the software in question. Furthermore, ESGAZ also expressed its willingness to provide the engineering companies with a letter emphasizing that they could obtain their insurance services from alternative suppliers. The Board eventually assessed the revisions introduced into the Suges system as a positive initiative to ameliorate and amend the negative effects of ESGAZ's earlier actions.

All in all, although ESGAZ's practices were found to have the potential and/or impact of excluding KA Sigorta's competitors from the relevant market, the Board ultimately rejected the complaints, based upon the following findings:

(i) The decision of the 13th Chamber of Council of State, numbered E. 2010/4818 and dated May 30, 2014, in which the 13th Chamber held that, when violations are found to be negligible or the impact of the violation had been ruled out during the pre-investigation period, a full-fledged investigation is not necessary.

(ii) The limited size of the relevant market and the relatively small market position of the insurance companies insuring the natural gas installation sector in the overall insurance market.

(iii) The limited potential anti-competitive effects of ESGAZ's practices in the relevant market.

(iv) The steps taken by ESGAZ with regards to its software in order to eliminate any potential anti-competitive effects of its practices.

While the Board ultimately did not initiate a full-fledged investigation against ESGAZ, it did decide to issue an opinion letter to ESGAZ, ordering the company to avoid any practices that could restrict competition, and directing ESGAZ to send a letter to engineering companies stressing their freedom to choose any insurance company. The Board also decided to send a letter to the EMRA, as the potential violation of ESGAZ's practices had arisen due to the regulation that grants gas distributors the power and authority to approve project drawings. The Board's letter requested the EMRA to inspect and evaluate the involvement of distribution companies in the activities of insurance agencies belonging to the same economic unit.

This article was first published in Legal Insights Quarterly by ELIG Gürkaynak Attorneys-at-Law in December 2019. A link to the full Legal Insight Quarterly may be found here

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