According to Advocate-General Jan Mazák, Deutsche Telekom (DT) was guilty of abuse of dominant position on the German telecommunications market from 1998 to May 2003 by practicing a ‘margin squeeze’ policy. The advocate-general gave his opinion, on 22 April, on the operator’s appeal against a Court of First Instance ruling (1).
There is a risk of margin squeeze when two companies (A and B) compete on a retail market and B depends on A on an intermediary market. There is margin squeeze when operator A’s retail prices are lower than the sum of the wholesale prices for the intermediary resource plus operator B’s costs.
This is the court’s first case concerning abuse of dominant position brought about by a margin squeeze. What is at issue here is the practice of charging competitors prices for access to the analogue or digital network – ‘intermediary services’ – higher than the retail prices charged to DT’s own end-users. This price-setting based on a margin squeeze obliged its competitors to charge their subscribers higher prices than those DT charged to its own users. Some 15 DT competitors took action that led to a European Commission ruling, on 23 May 2003, against the German telecoms leader for abuse of dominant position and a fine of €12.6 million. The German firm requested the Court of First Instance (now the EU General Court) to set aside the Commission’s decision or reduce the fine, but the court rejected DT’s pleas and upheld the fine. DT then brought an action before the Court of Justice, but limited its case to points of law.
APPEAL LIKELY TO BE DISMISSED
The advocate-general, who proposes a solution to the court, defends the position of the Commission, the Court of First Instance and Vodafone, a party to the proceedings. He proposes that the court should dismiss the appeal and maintain the fine against DT. Mazák finds that all of DT’s arguments, which are basically identical to those presented to the Court of First Instance, are inadmissible.
First he notes that while respecting the price ceiling imposed by the regulatory authority (RegTP), Deutsche Telekom had sufficient discretion, from the start of 1998 to the end of 2001, and from 2002 to May 2003, to eliminate or reduce the margin squeeze. Despite what the operator claimed, it was not bound by price approval by RegTP, even if the regulator denied the existence of anti-competitive effects. RegTP applies telecommunications law and is not the guarantor of competition rules, argues the advocate-general. Only the Commission is competent to judge whether competition law has been infringed. As a dominant undertaking, DT should have spontaneously checked whether its practices were anti-competitive. Case law is sufficiently clear to prompt it to evaluate and lower its prices for its own users in order to eliminate the distortion.
The advocate-general also rejects DT’s argument that the Court of First Instance did not state the reasons for which it concluded that the appellant had acted intentionally because it was aware of the factual elements relevant for the assessment of its case, which it denies. He also rejects the claim that the court failed to give reasons in its assessment of the margin squeeze justifying the finding of abuse. He maintains that neither the Commission nor the Court of First Instance had to demonstrate the real effects of abusive practices, but in conformity with the court’s case law, they simply had to highlight the potential dangers of such practices. Since DT controlled the only gateway to the German market for competitors, they were totally dependent on its practices and the margin squeeze between prices for intermediary services and the dominant operator’s retail prices de facto hampered the development of competition. A potential competitor as efficient as DT would inevitably incur losses on the market of retail services to end-users. The low market shares held by DT’s competitors attest to such barriers. The advocate-general also finds that the Commission rightfully based its analysis of the abusive nature of the price-setting practices solely on DT’s prices and costs, without taking into account the specific position of competitors. What must be assessed is the infringement caused by the dominant operator, which had to be reckoned with at the time of the facts because there was no other infrastructure apart from Deutsche Telekom’s fixed networks that could have enabled its competitors to enter the retail market on a viable footing.
The only settled case relating to a margin squeeze is that of IPS (Industrie des poudres sphériques) v Commission (T-5/97), but it differs in that it concerned the Commission’s rejection of a complaint for abuse of dominant position by one of the applicant’s competitors, particularly through a margin squeeze based on an anti-dumping procedure. Another case is pending (TeliaSonera Sverige C 52/09), but it involves a different regulatory context and different stakes.