Paul Stone of Charles Russell takes investigates how competition law is being applied by the European Commission to the telecoms and media sector.
"It is clear that for fast-moving markets, such as telecoms and media, the Commission is keen to reach a speedy conclusion to its investigations – and commitments decisions represent a pragmatic way of achieving this."
The telecoms and media sector continues to be subject to a high degree of regulation, much of which is intended to make the sector more competitive and lead to lower prices, higher quality and greater choice for consumers.
As the sector becomes more competitive, the traditional argument is that there should be less regulation and an increasing role for competition law. There is some evidence to suggest that this is becoming the case.
Against this background, this article looks at how competition law is being applied in the sector by the European Commission and whether there are any lessons that can be learned for the future.
The sector continues to see an increasing level of concentration, particularly on the telecoms side, where providers are looking at the best way of achieving efficiencies and costs savings, given the need to invest continually to improve their networks and services. This means that the European Commission has remained busy reviewing mergers in the sector.
In September 2013, the European Commission cleared Vodafone’s acquisition of Kabel Deutschland, the German cable operator. The Commission concluded that the activities of the merging parties were mainly complementary, on the basis that Kabel Deutschland primarily offers cable TV and fixed-line telephony services, whereas Vodafone’s core business consists of mobile telephony services.
An interesting element of the case was that the Commission considered a possible market for multiple play bundles combining fixed-voice telephony, fixed-line internet access, mobile telephony and television. In the end, the Commission was unconcerned, as Kabel Deutschland did not currently offer triple and quadruple play bundles and other operators were already well established in this area. In fact, the Commission considered that the possibility for the merged entity to offer more attractive triple or quadruple play bundles could have a pro-competitive dimension. It will be interesting to see how the Commission approaches multiple play bundles in future cases where there is more overlap between the parties’ offerings.
In April 2013 the European Commission reviewed Liberty Global’s acquisition of UK cable operator Virgin Media. It cleared the merger on the basis that the parties operated cable networks in different member states and because of their limited market position in the wholesale of TV channels in the UK and Ireland.
In 2012, the European Commission investigated a non-compete provision agreed between Telefónica and Portugal Telecom in the context of Telefónica’s acquisition of Portugal Telecom’s stake in the Brazilian mobile operator Vivo. The Commission ultimately fined Telefónica and Portugal Telecom €79 million on the basis that the provision represented an agreement not to compete with each other in their respective home markets of Spain and Portugal.
At the end of 2012 the European Commission cleared Hutchison 3G’s acquisition of Austrian mobile phone operator Orange subject to a number of conditions.
The Commission was concerned that the loss of one out of only four mobile network operators in Austria could have led to less competition and higher prices, to the detriment of end consumers. To address these concerns, Hutchison submitted a package of remedies designed to facilitate the entry of a new operator into the Austrian market, including the divestment of radio spectrum to the new entrant. Hutchison also committed to providing wholesale access to its network for up to 30 per cent of its capacity to up to 16 mobile virtual network operators (MVNOs) in the coming 10 years.
In clearing the merger the Commission also took account of an imminent auction of spectrum in Austria, as part of which spectrum would be reserved for a new entrant.
This case provides an interesting illustration of the way in which a merger decision can have a significant impact on the structure of the market as a whole, and not just on the businesses of the merging parties.
Most of the other activity by the European Commission has been in relation to abuse of dominance cases.
Most recently, the Commission confirmed that it had carried out dawn raids at the premises of a number of telecommunications companies active in the provision of internet connectivity services in several member states as part of an abuse of dominance investigation. It appears that the Commission may be investigating whether the relevant telecommunications companies are limiting content providers’ access to their networks, in order to slow down or block data heavy services. It will be interesting to see how this investigation develops.
The Commission has also been investigating the use of standard essential patents in the mobile sector.
In December 2012 the Commission sent a statement of objections to Samsung alleging that Samsung’s seeking of injunctions against Apple on the basis of its mobile phone standard-essential patents amounts to an abuse of a dominant position, given Apple’s willingness to negotiate a licence on fair, reasonable and non-discriminatory (so-called FRAND) terms. A similar statement of objections was sent to Motorola Mobility in May 2013.
Joaquín Almunia, vice president of the European Commission and the European Commissioner for Competition, has indicated that Samsung has sent the Commission a set of proposed commitments seeking to address the Commission’s concerns. The Commission is expected to market-test the proposed commitments with other market participants and, if the commitments are accepted, the Commission hopes that they will provide greater clarity about the Commission’s views on the use of injunctions in relation to standard essential patents.
It will be interesting to see if Motorola Mobility follows Samsung’s lead and proposes commitments of its own.
The Google case
On the media side, the highest-profile case has been the Commission’s investigation of Google’s online search activities.
The Commission has been investigating a number of issues that have been raised by complainants. These include whether Google has been giving favourable treatment within its web search results to links to Google’s own specialised web search services (eg, for restaurants or hotels), as compared to links to competing specialised web search services.
Other issues are whether Google has been using third-party content without consent and whether it has been imposing restrictions on publishers preventing them from displaying search advertisements from Google’s competitors on their websites.
Google offered a first set of commitments to the Commission in April 2013. However, the feedback received from the Commission’s market-testing was very negative. The Commission therefore asked Google to improve its proposals significantly and Google has now submitted revised commitment proposals. The Commission has indicated that it considers the revised proposals to represent a significant improvement and, if market testing is positive, it hopes to be able to issue a decision accepting commitments from Google in spring 2014. If the revised commitments are not considered acceptable, the Commission will issue a statement of objections.
The other significant investigation on the media side has been the e-books matter.
In this case the European Commission was concerned that Apple and a number of publishers had engaged in a common strategy to limit retail price competition for e-books. To address the Commission’s concerns, the companies offered to terminate ongoing agency agreements and to exclude certain clauses in their agency agreements during the next five years. Following market-testing, the Commission formally accepted the proposed commitments.
Lessons for the future?
In the area of mergers, the European Commission appears to have accepted the logic of consolidation in the sector, particularly given the need to achieve costs savings and efficiencies when investing in network improvements. However, it has also sought to ensure that sufficient players remain to ensure competition and choice for consumers and has not been afraid to use merger remedies to achieve wider structural changes to markets.
Outside the area of mergers, most of the Commission’s cases have concerned potential abuses of dominance. It is striking that nearly all of these cases have been concluded by the Commission accepting commitments from the relevant parties. As commitments decisions do not include a finding as to whether there has been an infringement of competition law, some commentators have raised concerns that too many commitments decisions risk creating uncertainty as to what falls the right or wrong side of the line. However, it is clear that for fast-moving markets, such as telecoms and media, the Commission is keen to reach a speedy conclusion to its investigations – and commitments decisions represent a pragmatic way of achieving this. It looks likely, therefore, that we will see more of these decisions in the future.