On 29 March 2012, the General Court handed down judgments
dismissing two appeals against the European Commission's 4 July
2007 decision to fine Telefónica €152m for an
illegal margin squeeze following a complaint in 2003 by France
Télécom's Spanish subsidiary. These
judgments can be found here and here (the latter not available in
Two recent judgments of the European Court of Justice (ECJ) have already addressed margin squeeze issues under the prohibition of the abuse of a dominant position at Article 102 of the Treaty on the Functioning of the European Union. The General Court's new judgments on Telefónica's practices underline the serious approach of the European courts to the impact on competitors of the pricing policies of companies with a dominant market share. See here and here for our Law-Nows on the earlier ECJ judgments.
The Telefónica group operates the only national fixed
telephone network in Spain. Before liberalisation of the
state telecommunications monopoly in 1998, Telefónica was
state-owned and enjoyed a legal monopoly in the retail provision of
fixed-line telecommunications services.
A "margin squeeze" occurs when an undertaking enjoying a dominant market position charges its competitors an unfair price for an input which is required for the competitors' business. The Commission found that Telefónica was dominant on three relevant markets (one retail and two wholesale) and that, between 2001 and 2006, it had abused its dominance by setting prices for wholesale broadband access which did not allow competitors sufficient margin to enable them to compete with Telefónica in providing broadband access to end users at the retail level.
The appeals against the 2007 decision were brought separately by Telefónica itself and by the Kingdom of Spain.
The main legal messages from the Telefónica judgments
The General Court rejected all points in both appeals.
Although they contain no novel or surprising points of law, these
judgments are significant in that they reaffirm the main principles
of Deutsche Telekom and TeliaSonera, the recent ECJ margin squeeze
The Telefónica judgments contain many detailed points on procedure, market definition and cost calculations which will be highly relevant in future cases in this sector. The following list summarises just the key legal aspects:
- Margin squeeze is a self-standing category of abuse of dominance. It is about the unfairness of the spread between wholesale and retail prices and does not depend on either price individually being excessive or predatory.
- There is also no need for the enforcer to prove, according to criteria specified in other leading cases concerning refusals to supply, that a margin squeeze is analogous to a refusal to supply the relevant input.
- There is no absolute need, for instance, to demonstrate that the desired input is indispensable for the aggrieved competitor's retail business. In this, the General Court followed TeliaSonera.
- The Commission's methodology in assessing the economics of margin squeeze was upheld in detail and on various counts. For instance, the Commission had been correct to state that Telefónica's own costs should be the benchmark, i.e. would Telefónica itself have been sufficiently efficient to break even at the retail level even if it had been obliged to pay its own wholesale input prices? This is the "as efficient competitor test" stated in Deutsche Telekom.
- It was irrelevant that Telefónica's activity was governed by the telecoms regulatory regime, since Telefónica was not precluded by that regime from engaging in autonomous conduct which restricted competition. In other words, Telefónica retained enough commercial leeway to prevent the margin squeeze. Again, this principle reaffirms Deutsche Telekom.
Combined with the two earlier cases, the General Court's
judgments in this case demonstrate the significance of margin
squeeze as a category of abuse which is likely to prove a high
priority for the European Commission and other competition law
enforcers in the future.
Telefónica has the option of launching a further appeal to the ECJ within two months and has stated its intention to do so.
This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq
Law-Now information is for general purposes and guidance only. The information and opinions expressed in all Law-Now articles are not necessarily comprehensive and do not purport to give professional or legal advice. All Law-Now information relates to circumstances prevailing at the date of its original publication and may not have been updated to reflect subsequent developments.
The original publication date for this article was 02/04/2012.