REMEDIES IN COORDINATED BEHAVIOUR CASES IN
TELECOMMUNICATIONS MARKET:
TYPES AND THEIR EFFECTIVENESS
Master’s Thesis
LL.M International Business Law
Tilburg Law School
Tilburg Law and Economics Center (TILEC)
Anastasia Kryuchkova
ANR: 280455
Thesis Supervisor: Prof. Pierre Larouche
June 2014
Table of Contents
Page
Introduction
2
Chapter 1. Tacit collusion and coordinated behaviour
4
Chapter 2. EU enforcement practice - Airtours conditions
7
Chapter 3. Remedies under ECMR
12
Chapter 4. Coordinated behaviour cases in telecommunications market
20
Before Airtours
22
After Airtours
25
Conclusion
31
Bibliography
33
1
Introduction
It is usually thought that the main problems of the competition law are cartels and monopolies.
Trying to reach the ideal competition market, competition authorities all over the world chase the
firms willing to gain maximized profits through either acquiring full control over the market or
coordinating its common behaviour through agreements.
However, there is another existing problem – oligopolies. This is a situation when there is
more than one player on the market; but their number is not enough to constitute an ideal
competition. Oligopolies are not illegal per se, because they could successfully exist and operate
without causing any harm to the customer welfare. Unfortunately, this does not happen very often
in the reality.
In the oligopolistic market, the firms might choose one of the two behavioural directions: to
not cooperate and simply coexist without bringing any innovation and progress, while just caring
about getting a minimum profit; or coordinate their behaviour in an implicit way, therefore still
coexisting, but being able to increase their profits. The second situation is often referred to as “tacit
collusion”.
In tacitly colluding markets firms would coordinate and resemble each other’s commercial
policies, without entering in an actual agreement. Therefore, their behaviour does not fall under
the prohibition of anti-competitive agreements. In the European Union (EU) there is an
understanding in theory and practice that such firms might be enjoying a “collective dominant
position”.
Coordinated behaviour is not a characteristic of any oligopolistic market – there are certain
conditions to be fulfilled. Still, even knowing these conditions, tacit collusion is often hard to
chase. The problem stands in the number and list of these conditions, the effectiveness of current
prosecution procedures and remedies applied. In over twenty years, the European Commission
(Commission) has developed an approach where tacit collusion will only be chased ex ante,
leaving ex post prosecution of the abuse of collective dominance through Article 102 of the Treaty
on the functioning of the EU 1(TFEU) open. This way the preferred mechanism will be applying
EU Merger control regulation (ECMR)2 in order to prevent the appearance or facilitation of
coordinated behaviour. Even though the General Court expressed the position that Article 102
TFEU could be applied to tacit collusion,3 there have not yet been any decision by the Commission
1
Treaty on the Functioning of the European Union (TFEU) as amended by the Treaty of Lisbon (2007)
Council regulation (EC) No. 139/2004 of 20 January on the Control of concentrations between Undertakings, (2004)
OJ L24/1.
3
Piau v. Commission , (Case T-193/02), 6/01/2005, [2005] ECR II-209
2
2
in this regard. The problem might be laying in the field of proof: to define the existing coordinated
behaviour in the absence of real agreement one has to use economic analysis of the market and
present additional evidence of existing tacit collusion, which could be quite arguable. In its
Guidance on enforcement priorities in applying Article 82 of the EC Treaty to abusive
exclusionary conduct (Guidance paper)4 the Commission has stated that it only applies to single
dominance cases, therefore leaving collective dominance out of its scope: “Article 82 applies to
undertakings which hold a dominant position on one or more relevant markets. Such a position
may be held by one undertaking (single dominance) or by two or more undertakings (collective
dominance). This document only relates to abuses committed by an undertaking holding a single
dominant position”.5
The current situation regarding tacit collusion in EU may be seen as following: Commission
de facto only addresses the problem of coordinated behaviour when examining proposed
concentrations under ECMR, therefore leaving the question of correction of existing tacit collusion
open. This approach does not always find support,6 but this is a reality we are coping with.
The European Commission, as well as EU member states competition authorities (CA) fight
coordinated behaviour through preventive measures, by analysing the risk of tacit collusion
facilitation through mergers and either banning them or applying remedies to the companies in
question. In this research paper, I would like to study the types of remedies and effectiveness of
their application in coordinated behaviour cases. To narrow down the research, only
telecommunications market will be analysed, studying both Commission and national CA
decisions.
Telecommunications market is often seen as the one giving a lot of opportunities in facilitating
oligopolies, and, going further, tacit collusion. Given the limited number of firms operating on
each of member state’s market and the nature of the business itself (for example, high barriers to
entry), together with the recent changes of regulation,7 this area is an interesting one to analyse.
Guidance on the Commission’s enforcement priorities in applying Article 82 of the EC Treaty to abusive
exclusionary conduct by dominant undertakings, December 2008, OJ C 45, 2009
5
ibid, note 241, para. 4
6
See, for example: N. Petit, D. Henry, “Why the EU Merger Regulation should not enjoy a monopoly over tacit
collusion. A close look at five common misconceptions” (2010)
7
2009 Telecoms package; European Commission - MEMO/09/568 18/12/2009; Digital Agenda for Europe 2020,
based on the Digital Priorities, available at http://ec.europa.eu/digital-agenda/en/news/digital-do-list-new-digitalpriorities-2013-2014
4
3
Chapter 1. Tacit collusion and coordinated behaviour
Firms could collude in two different ways – explicitly, thus constituting cartels, and tacitly,
avoiding the severe consequences of anticompetitive cartel behaviour and enjoying extra profits.
Oligopolists might want to coordinate their prices or another variable without entering into any
arrangement – be it contract, joint venture, trade association etc. The effect on the market will be
the same as in explicit collusion, but formally, there will be none.
The problem of tacit collusion was in the scope of research of lawyers and economists for
many decades. Already in the late 20s, economist E.H. Chamberlin has described the classic model
of tacit collusion. There, oligopolists compete for market share in a transparent market. Every time
a player exercises a price cut he expects his rivals to do the same. It leads to the decision to not cut
prices at all, because it would not make any sense. On the contrary, rivals would try to follow each
other’s pricing policy through so called “tit for tat” interactions, thus steadily increasing prices. To
make every player cooperate and prevent deviation from the common behaviour, there must be a
possibility for punishment from other oligopolists.8
Back in 1960s, the economists of Harvard school trying to find the conditions triggering tacit
collusion came to the analysis of market structure itself. According to them, there is a strong link
between the number of players on the market and the supra-competitive pricing. Therefore,
oligopolistic markets create conditions for tacit collusion as they are, just because of the small
number of firms operating. This enables the transparency and “unreasonable” degree of market
power for each of the players.9 The findings of Harvard school researchers were later criticised by
Chicago school experts, bringing the efficiency of oligopolists’ conduct to the first place.10
The scholars of game theory entered in the new stage of studies over tacit collusion. They
have proven that in an oligopolistic market, where firms meet regularly and infinitely, they would
prefer to collude rather than compete.11 The oligopolists could tacitly communicate by sending
each other various signals, and, the more they interact, the more united they become – the longterm profits would supersede the possible short-term profits from competing with each other.
Whilst conducting further research on factors facilitating the origination of tacit collusion,
game theory scholars have come to the four cumulative conditions to be fulfilled. Firstly, there
must be a common understanding amongst oligopolists on the level the price should be raised
(condition 1, C1). Secondly, a credible threat of retaliation should exist in order to depress any
willingness to deviate from the common behaviour (C2). Then, there should be an ability for
E. H. Chamberlin, “Duopoly: value where sellers are few” (1929), 44 Quarterly journal of economics.
C. Kaysen, D.F. Turner, “Antitrust policy” (1959), Harvard University press, Cambridge
10
N. Petit, “Oligopoly problem in EU competition law” (2012), available at http://ssrn.com/abstract=1999829
11
J.W. Friedman, “A non-cooperative equilibrium for supergames” (1971), 38 Review of economic studies
8
9
4
oligopolists to monitor each other’s behaviour to notice any cheating (C3). Finally, the colluding
players must have an ability to put barriers to entry for other firms (C4).12
Based on the game theory, economic analysts have also determined other key factors (besides
the aforementioned ones), which could facilitate or block the sustainability of tacit collusion.
However, these are not the necessary ones to establish a situation of coordinated behaviour, they
could only have an effect on it. These include product homogeneity, market concentration, rate of
innovation, frequency of interaction, low level of uncertainty and others.13 Based on their presence
and intensity, these market features could be ascribed as “plus-factors” or “minus-factors”. Nonhomogeneous products compete not as strong as similar ones – this factor decreases the gains from
cooperation. Besides, market players can deviate by increasing the quality of product. As opposed,
the agreement on price or quantity is easier to reach while talking about homogeneous products.
Market interaction is important as it facilitates fast responses to deviation and, subsequently,
punishments. A high degree of uncertainty serves as an incentive for oligopolists to cooperate less,
trying to reach one-time goals by deviating, thus making tacit collusion unsustainable. Where the
market variables are certain, detecting cheating is easier and punishing strategies are more
effective.
To make market more transparent, firms would implement various facilitating practices,
mainly some forms of exchange of information: they could publicly announce the prices, exchange
information within professional associations etc. Such practices are developed to make tacit
collusion easier: with their help, the benefits of deviation could be decreased, and the possibility
of detection will be increased. That, consequently, reduces the costs of punishment. In a reality,
that means that to facilitate collusion, firms need to do some work, as it would not arise by itself,
just because of the certain market structure.
As for today, the conditions, which increase the likelihood of tacit collusion, include, among
others: transparent prices, frequent interaction, entry barriers, absence of countervailing buyer
power, low number of competitors and symmetry of market shares.14 However, even the presence
of those conditions does not necessarily mean that oligopolists will definitely coordinate their
behaviour. The market players should solve at least two problems. First, they need to find a way
to agree on the terms of the collusion – if no real agreement is to take place, this might be quite
difficult. Secondly, even after there is a tacit agreement to “fix and abide”, there is still an existing
possibility that one (or more) of the oligopolists will have an incentive to deviate.15 If a firm cuts
N. Petit, “Oligopoly problem in EU competition law” (2012), available at http://ssrn.com/abstract=1999829
S. Ardiyok, “Comparative analysis of collective dominance” (2006), 3 Journal of Yeditepe University – Faculty of
Law
14
Ivaldi et al, “The economics of tacit collusion. Report for DG Comp” (2003), European Commission.
15
George Stigler, “A theory of oligopoly” (1964), 72 Journal of political economy
12
13
5
its prices slightly, while they still remain above marginal costs, it will gain additional profit – and
this is a strong motivation in many cases. A need for detection and punishment mechanism arises
from there – all these portraying C2 and C3 conditions.
With the presence of various research on factors facilitating tacit collusion, such as market
characteristics, empirical analysis and behavioural economics analysis, there is still no overall,
“one-size-fits-all” theory as in what is necessary for coordinated behaviour to appear and exist.
Critics of tacit collusion theory often question whether it is a problem itself. Representatives of
Chicago school16 state, for example, that there is always a possibility for one player to cut prices
and gain extra profit, and no fear of punishment would stop him from doing so – the overall profit
would still be worth it. Besides, other players might not apply any punishment at all, after
estimating price war costs.
The critics also mention that the market model on which theory is based is very far from the
reality, it is too idealistic and does not take into consideration such factors, as different cost levels,
various range of goods that firms have to offer, different market shares, buyer characteristics etc.
It is however could be argued that these aspects do not diminish tacit collusion completely, but
could act as “plus” or “minus” factors.
Finally, the critique also exists in that the theory does not explain the differences of intensity
of tacit collusion in different markets. Firms may even collude in price levels, but still compete on
the product quality level, loyalty programs and advertising, thus decreasing the effectiveness of
coordinated behaviour.
It is clear, that product features, market differences, behavioural deviations and other factors
make it impossible to develop one theory of tacit collusion that would fit any situation. Therefore,
while examining the possible or already existing coordinated behaviour, it is important to count in
four conditions for the appearance of tacit collusion, while still paying close attention to “plus
factors” and “minus factors” which could affect it. Every situation is unique and arises from a
handful of factors, and so should be remedies applied by competition authorities for each tacit
collusion case. When talking about ex ante prosecution, there is no universal solution to the
problem of tacit collusion prevention. However, before addressing the question of tacit collusion
remedies, the question of investigation and prosecution shall be answered.
The European Commission together with the Court of First Instance and General Court have
established an approach for examining tacit collusion cases. This approach was a result of the
developments in both case law and respective legislation.
16
For example, Bork, “The Antitrust Paradox” (Free Press, 1993)
6
Chapter 2. EU enforcement practice - Airtours conditions
Although the economic studies on tacit collusion are very various and often thorough, it does
not mean that all of them should and would be applied in practice. Moreover, enforcement policies
sometimes could vary considerably from the scholars’ theories.
As was mentioned before, nowadays in its enforcement against coordinated behaviour
European Commission prefers the ex ante approach, therefore most often investigating the
probability of tacit collusion when assessing proposed merger cases under ECMR. However, it has
not always been this way. In the 1990s, it was not always clear from the Commission’s decisions
whether the collective dominance and tacit collusion are different stand-alone theories or whether
one is a part of the other. For example, it was addressing the problem of creating collective
dominant position in both merger and Article 102 cases, without mentioning the tacit collusion or
coordinated behaviour issues.
By the end of the 1990s, it was clarified that the concept of collective dominance includes
tacit collusion. In France v. Commission 17 the Court has indicated that a collective dominance
position is possible between firms “because of correlative factors which exist between them”. This
was not yet the clear definition, but already a step. Further, in Gencor Ltd. v. Commission, the
General Court has explicitly described the tacit collusion situation by stating that: “there is no
reason whatsoever in legal or economic terms to exclude from the notion of economic links the
relationship of interdependence existing between the parties to a tight oligopoly within which, in
a market with the appropriate characteristics, in particular in terms of market concentration,
transparency and product homogeneity, those parties are in a position to anticipate one another's
behaviour and are therefore strongly encouraged to align their conduct in the market, in particular
in such a way as to maximise their joint profits by restricting production with a view to increasing
prices”.18
The key decision, which changed the approach of both European Commission and national
CA’s regarding tacit collusion, was Airtours.19 There the court has directly addressed the question
of tacit collusion and clarified the conditions required to prove collective dominance.20 In this case,
the Commission was revising the proposed takeover of First Choice by Airtours, both being in the
top of four biggest UK package holidays companies. As was found by the Commission, the market
presented a vertically integrated structure, where these firms were integrated with airlines
upstream and retail distribution downstream. The merger would have led to the reduction of
République française et Société commerciale des potasses et de l'azote (SCPA) et entreprise minière et chimique
(EMC) v. Commission, CJEU, Case C-68/94, , ECR [1998] I-1375
18
Gencor Ltd. v. Commission, GC, T-102/96, 25 March 1999, ECR [1999] II-753, §276
19
Airtours/First Choice, (Case No IV/M.1524); GC, T-342/99, Airtours plc. v.Commission, 6 June 2002, ECR [2002]
II-2585
20
N. Petit, “Oligopoly problem in EU competition law” (2012), available at http://ssrn.com/abstract=1999829
17
7
production costs, and would have had no major impact on the sustainability of their connections
with partners, as, for example, they were using same travel agency chains. On the contrary, there
was no countervailing buyer power from the smaller sized firms, as they needed to use big firms’
distribution channels.
As for the level of demand, the Commission has established that there were homogeneous
goods at place, as package holidays are normally chosen based on the price and the demand was
not very price-sensitive. It has also found that the demand volatility could have an impact on
collusion, making firms increase its capacity during selling season and cut it during the low
season.21 Besides, according to the decision, four biggest travel companies, including the ones
willing to merge, were significantly symmetrical and transparent in both planning and selling
periods. Therefore, subject to the specific functioning of that market (planning and further selling
seasons), the firms were able to collude on price levels during the planning season and further
enjoy their maximized profits during selling period with no need to then coordinate their
behaviour. The Commission also found that the market was sustainable to outside pressures and
there existed an actual barrier to entry through control on two main factors of distribution – access
to airlines and travel agencies. By acquiring First Choice, Airtours would not have reached the
market share to the level necessary for single dominance; however, the collective share of the then
three biggest firms would have raised and constituted 83%.
The merger was prohibited by the Commission based on the high possibility of the creation
of the collective dominance position. The decision states: “It is sufficient that the merger makes it
rational for the oligopolists, in adapting themselves to market conditions, to act, individually, in
ways which will substantially reduce competition between them, and as a result of which they may
act, to an appreciable extent, independently of competitors, customers and consumers”.22
Addressing the question of the absence of mechanism for detecting deviations and low-cost
punishments, it has noticed, that there are certain features of market structure and operation, which
facilitate anti-competitive outcomes and in particular collective dominance. However, not all of
them should be present in the case – and it did not count the retaliation mechanism as a necessary
one for the collective dominance in the present case.23
In some authors’ opinion, the Commission has presented an unusual definition of collective
dominance in this case. It has presumed that this situation would exist post merger, and was finding
the justification for that in the current market conditions. Thus, it was moving in a deductive, not
inductive way– where it would have analysed the market. This approach was not common for the
Airtours/ First choice, (Case IV/M.1524), OJ, 2000, L-93/1-33, §§ 93-97
ibid, para. 54
23
ibid, para. 55
21
22
8
Commission and it has faced criticism onwards. For example, in the opinion of M. Filippelli, “this
description of collective dominance is quite anomalous, especially if compared to the previous
case law on this point, and even the methodological approach is different”.24 The author mentions
that it was uncommon for the authority to hold that differences between products and volatility of
the demand were not enough to serve as a deterrent to the collusion. This was meaning de facto a
departure from the game theory and its core conditions. It was also argued that the Commission
has put too big emphasis on the incentive of individual firms to avoid competition – that way, there
was a notion of parallel conduct coming from an individual decision, rather than collective one
(which is a detriment for tacit collusion and collective dominance).25
The outcome of the decision was not only the wide discussion, but also its appeal by Airtours
in the Court of first instance (CFI).26 Its main grounds were the market definition, the inference of
collective dominance and the evidence about the likelihood of post-merger coordination. The
clarification of collective dominance definition is of the biggest interest for us.
The court has defined three main conditions necessary to support the inference of post-merger
coordination.
Firstly, as tacit collusion needs reciprocal observation, transparency of the market plays an
important role in facilitating and retaining collusion. The Court stated: “Each member of the
dominant oligopoly must have the ability to know how the other members are behaving in order
to monitor whether or not they are adopting the common policy. As the Commission specifically
acknowledges, it is not enough for each member of the dominant oligopoly to be aware that
interdependent market conduct is profitable for all of them, but each member must also have a
means of knowing whether they are maintaining it. There must, therefore, be sufficient market
transparency for all members of the dominant oligopoly to be aware, sufficiently, precisely and
quickly, of the way in which the other members’ market conduct is evolving”.27 The main idea of
this statement is the importance of transparency on the market for both creating and further
maintaining of the collusion.
The second condition defined by CFI was sustainability of the tacit collusion over time. The
firms should have “an incentive not to depart from the common policy on the market”, so to say,
they should all benefit from such parallel behaviour. CFI also underlines the importance of the
retaliation mechanism, which is able to stop individual firm from deviation: “In this instance, the
parties concur that, for a situation of collective dominance to be viable, there must be adequate
deterrents to ensure that there is a long-term incentive in not departing from the common policy,
M. Filippelli, “Collective Dominance in Competition Law” (2008), IMT Institute for Advanced Studies, Lucca, 88
J. Langer, “The Airtours judgement: a welcome lecture on oligopolies, economics and joint dominance” (2003)
26
Airtours plc v. Commission, (case T-342/99, 6 June 2002), ECR 2002, II-2585
27
ibid, para. 62
24
25
9
which means that each member of the dominant oligopoly must be aware that highly competitive
action on its part designed to increase its market share would provoke identical action by the others,
so that it would derive no benefit from its initiative”.28
Finally, it is important for the tacit collusion to be resistant to external factors: “the
Commission must also establish that the foreseeable reaction of current and future competitors, as
well as of consumers, would not jeopardise the results expected from the common policy”.29
While analysing the aforementioned conditions, it is safe to say that CFI has summarised the
previous case law as well as economic doctrine. The Airtours conditions align with those of the
game theory (C1-C4): common understanding (C1) and ability to monitor (C3) could be found in
the transparency condition; a threat of retaliation (C2) was fully carried over to the internal stability
condition; lastly, the ability to put barriers to entry (C4) could be found in the external
sustainability condition.
The Court has also analysed the Commission’s decision in its most contradictive points. It has
ruled that demand volatility, which Commission saw as an incentive to collude, was actually a
detrimental for firms to compete by enhancing the volume of their production during the selling
season (§88-89). As to the existing vertical integration, the Court stated that this was not crucial
for establishing tacit collusion, because it was, on the contrary, the source of possible efficiency
gains (§105-106).
The Court has argued the previous statement that the market was transparent enough to
establish collusion. In its opinion, such factors as the complexity of market functioning, the
demand volatility and different composition of holiday packages (product heterogeneity) were
acting as an obstacle to the firms to be able to control their rival’s behaviour.
In the analysis of the importance of retaliation mechanism, the Court has recognised its role,
however stating that the incentive to maintain collusion is of the bigger importance here. In the
CFI’s opinion, the Commission “must not necessarily prove that there is a specific retaliation
mechanism involving a degree of severity, but it must none the less establish that deterrents exist,
which are such that it is not worth the while of any member of the dominant oligopoly to depart
from the common course of conduct to the detriment of the other oligopolists”.30
As the Court has established, the Commission has underestimated the countervailing buyer
power of smaller firms and overestimated the high barriers to entry. As a result, it was stated that
the external sustainability of the possible collusion was not present in the case.
28
ibid
ibid
30
ibid, para. 195
29
10
Lacking all three conditions of tacit collusion, the Court has decided to overrule the
Commission’s decision. It has also increased the standard of proof in such cases: “where the
Commission takes the view that a merger should be prohibited because it will create a situation of
collective dominance, it is incumbent upon it to produce convincing evidence thereof”. 31
The importance of the Airtours judgement could hardly be overestimated. The minimal
conditions required to establish collective dominance (together with tacit collusion) were indicated
for the first time. These conditions are based on the economic theory of tacit collusion, which
excludes any notion of unilateral effects to it – which puts a border between unilateral effects and
coordinated effects cases. Moreover, this decision served as a starting point to the following reform
of European merger control system.
The impact of Airtours could be found in the Guidelines on the assessment of horizontal
mergers,32 as well as Guidelines on the assessment of non-horizontal mergers.33 Both these
documents define various situations when the merger could significantly impede the competition.
One of these situations is the creation of the collective dominance position or the coordinated
effects on the market. The merger in question could change the competition on the relevant market
if the firms are more likely to coordinate their behaviour or the existing coordination becomes
“easier, more stable or more effective for firms”. 34
In assessing the probability of coordinated effects, the Commission will examine the
following: whether the firms could reach the terms of coordination; monitor each other’s
deviations; have deterrent mechanisms to prevent such deviations and be sustainable to any
outsider influence. These conditions are consistent with those presented by the academics of game
theory and later applied in Airtours case. After assessing the possibility of appearance or
intensification of coordinated behaviour on the market, the Commission will take the required
action.
Because of the reform, the Commission has gone away from the checklist system to the more
economic approach in analysing proposed mergers, which includes detecting one or more
coordinated effects scenarios and further testing according to the theory of harm. According to
such approach, the market features will be examined – including four cumulative conditions
enabling tacit collusion.
31
ibid, para. 63
Guidelines on the assessment of horizontal mergers under the Council Regulation on the control of concentrations
between undertakings (2004/C 31/03) (“Horizontal merger guidelines”), Official Journal of European Union, C 31/5
33
Guidelines on the assessment of non-horizontal mergers under the Council Regulation on the control of
concentrations between undertakings (2008/C 265/07) (“Vertical merger guidelines”), Official Journal of European
Union, C 265/6
34
Horizontal merger guidelines, 22 (b).
32
11
Chapter 3. Remedies under ECMR
In the EU all mergers having Community dimension should be notified to the Commission in
prior. The determining fact for the Community dimension is the turnover of the parties to the
merger. Generally, if the transaction does not fall under certain threshold, it should be examined
by the national competition authority.
Once notified to the Commission, the proposed merger will be investigated during phase I
with the possible outcome of: unconditional clearance, conditional clearance with remedies
application or prohibition. The authority could choose to proceed to phase II investigation in order
to study the case more in depth. The options for the outcome of the second phase of the
investigation are generally the same as for the phase I.35
In about 5% of all merger cases in history of the European Commission, the deal was
authorised upon the offer of sufficient commitments by the parties. As to the coordinated effects
cases, the question of remedies has not been specifically addressed by the Commission in any of
its documents.
Both Horizontal guidelines36 and Remedies Notice37 do not clarify the way remedies should
be in coherence with the theory of harm. It is especially important as the Commission might
proceed to phase II investigation if it deems the proposed remedies insufficient – however, there
is no clear guidance for the firms on what kind of remedies would suffice.
The general approach of the Commission when accepting or rejecting the proposed remedies
is their proportionality to the competition problem and ability to entirely eliminate it.38 It is
possible to propose commitments in both phase I and phase II stages. The role of commitments
seems to be important – due to their existence, there are so little cases where the merger was
prohibited.39
When assessing the proposed remedies, the Commission would like them to completely
address existing concerns in respect of the transaction, as well as they must be effectively
implemented within a short period of time.40 Whilst the commitments introduced during phase I
must rule out serious doubts regarding concentration’s competitive effects, those proposed in
R. Whish, D. Bailey, “Competition law” (2012), 829
Guidelines on the assessment of horizontal mergers under the Council Regulation on the control of concentrations
between undertakings, OJ C 31, 5.2.2004
37
Commission Notice on remedies acceptable under the Council Regulation 139/2004 and under Commission
Regulation 802/2004 (Remedies Notice), OJ C 267, 22.10.2008
38
ECMR, Recital 30
39
C. Koenig et al, EC competition and telecommunications law (2009), 331
40
Remedies Notice, para. 9
35
36
12
phase II should be more precise and address certain competitive concerns already raised by the
Commission. In both phases, the authority would appraise the remedies using legal and market
analysis and stakeholders (such as customers, suppliers and competitors) would be given a chance
to speak up as well. This way the Commission is getting the “genuine market perspective”.41
Each case is analysed individually, taking into account all relevant facts and circumstances.
The Remedies Notice states in paragraph 12, that “in assessing whether the proposed commitments
are sufficiently workable and lasting to ensure that the commitments will likely eliminate the
competition concerns identified, the Commission will consider all relevant factors relating to the
proposed remedy itself, including, inter alia, the type, scale and scope of the remedy proposed,
judged by the reference to the structure and particular characteristics of the market in which the
competition concerns arise, including the position of the parties and other players on the market”.
Talking about the types of remedies, the Commission distinguishes two major forms of them
– structural remedies and behaviour-related remedies. In the structural commitments, the special
role is given to divestitures, as they are “the best way to eliminate competition concerns resulting
from horizontal overlaps, and may also be the best means of resolving problems resulting from
vertical or conglomerate concerns”.42 However, there exists a slightly different academic approach
in generating the types of remedies.
Based on the analysis of all coordinated effects cases under European merger control
regulation (both Regulations 4064/89 and 139/2004) where remedies have been applied, three
types of them could be distinguished.43
First type of remedies include those aiming to create or restore “competitive forces” outside
of the oligopoly (type 1 remedies). These could for example include actions such as establishing
new entrant / facilitating such entrance or strengthening of a current competitor. For this purpose,
the parties could execute a divestiture of the company or its assets or make quasi-structural
commitments – to transfer technology, to supply on non-exclusive terms etc.44
Type 2 remedies include those addressing the existing structural links within the oligopoly.
This type of remedies will try to separate the existing firms from one another by cutting any
existing connections between them. Such links could most often be found in existing joint
ventures, cross-shareholdings, commercial links or membership in the professional associations.
41
ibid, para. 80
ibid, para. 17
43
N. Petit, “Remedies for coordinated effects under the European Union Merger regulation” (2010), Competition Law
International, 6(2)
44
ibid
42
13
Thirdly, the remedies, which the Commission could apply (type 3), include those aiming to
abolish behaviour easing tacit collusion – so called “facilitating practices”. These could include
conduct making the market more transparent – for example, publishing of prices through trade
associations. This was the case in Nestle/Perrier, where the firms made information about their
sales volumes available to the association members.
As could be seen from this classification, it follows the general path of the Commission’s
typology when distinguishing structural and behavioural remedies. In the academic classification
the emphasis is put on the structural remedies, where two main types are present – affecting the
market structure from outside and from inside, same as the Commission’s typology lays the stress
on divestitures, which is one of the structural remedies.
The divestitures as a type of commitments is believed to be one of the most popular and
preferred by the Commission. The divestiture would be the sale of the part of the business, a branch
or a subsidiary, to a competitor. The reason behind the preference is that this type of remedy does
not require monitoring after it was applied, as opposed to some behavioural remedies. 45 The
divested unit must be able to act competitively, therefore it should include not only assets, but also
personnel and customers. For example, in WorldCom/MCI, the initial commitment to divest some
tangible assets was refused by the Commission, which stated that only the full divestiture including
staff and customer base would suffice.46
The Commission underlined the importance of the competitiveness of the divested unit in
Telia/Telenor, where the parties’ Norwegian and Swedish cable television businesses were sold.
It stated that not only the units should be sold as a whole, including contracts, licenses and
personnel, but also “each divestiture will be made to a viable existing or prospective competitor,
unconnected to and independent of Telia and Telenor, and possessing the financial resources and
proven expertise enabling them to develop the divested business into an active competitive force
on the market. Each divestiture will be subject to the Commission’s express approval”.47
However, in coordinated effects cases type 1 remedies including divestiture are not the most
popular ones. According to the study conducted by Nicolas Petit, in phase I investigations type 2
remedies were prevailing over type 1. However, in phase II proceedings type 1 remedies were used
more often. This allows making a conclusion, that in cases “involving serious competition
P. Papandropoulos, A. Tajana, “The merger remedies study – in divestiture we trust?” (2006), European competition
law review, 445
46
WorldCom/MCI (II), (Case IV/M.1069), paras 145-163
47
Telia/Telenor, (Case COMP/M.1439), para. 383.
45
14
concerns”, the Commission regards type 1 remedies as a safer measure,48 whereas the possibility
in applying type 2 remedies is not abolished either.
Moreover, according to the DG Competition’s ex-post assessment of merger remedies, which
were applied in cases between 1996 and 2000 (“The Remedies Study”),49 divestiture does not
guarantee the effective competition on the market after its adoption. This type of remedies was
only effective in 56 percent of the cases where it has been applied; it was partially effective in 25
percent of the cases.50 The effectiveness was measured based on the divested unit being able to
effectively compete in three to five years following the divestiture. In collective dominance cases
the picture did not differ: the divestiture remedy in one of the two cases “clearly failed”. 51
The study presented a number of issues relating to the application of divestiture remedies. In
many cases, the commitment turned out to be insufficient or it was inadequate, for example, when
the assets necessary for the successful functioning of the divested unit were not included or the
scope of the divested business being identified wrongly. As a result, the divested entity was often
not viable – this was especially the case in “mix and match” carve-out of assets (as opposed to the
divestiture of stand-alone businesses).52
Another problem relating to the divestiture lays in the figure of the purchaser. In 11 cases, the
choice of an insufficient purchaser led to the lack of effectiveness of the proposed remedy. For
example, small companies are often incapable of competing efficiently after acquiring a new
business. Besides, the divesting party could have narrowed down the list of potential buyers too
much or provided them with insufficient information about the entity to be sold. 53
According to the study, there have been cases where the assets due to divest were not
preserved in a proper way, which lead to the degradation of their value and viability. The parties
were, for instance, retaining the key know-how or adopting pricing promotions prior to the
divestiture of the business and using other jeopardizing practices in the process. The Commission
saw the reason, amongst others, in the “interest for the parties…to limit the future competition by
the purchaser in cases where they retained a business in the same relevant market”.54
N. Petit, “Remedies for coordinated effects under the European Union Merger regulation” (2010), Competition Law
International, 6(2)
49
Merger remedies study, DG Competition, October 2005
(http://ec.europa.eu/competition/mergers/legislation/remedies_study.pdf)
50
ibid, page 134
51
ibid, page 39
52
ibid, page 73
53
ibid, page 69
54
ibid, page 70
48
15
Other type 1 commitments include access remedies, which could be quite effective when
implemented in telecommunications market. As stated by the Commission, such remedies foster
competition by “granting of access to key infrastructure, networks, key technology, including
patents, know-how or other intellectual property rights, and essential inputs”.55 They can address
one of the conditions for coordinated behaviour - an ability to put barriers to entry for other firms
(C4). By granting access to its assets, being network in telecommunications, the barriers for new
entrants are lowered, as well as the party is prevented from retaining its position on the market
pre-merger.56
This type of remedies was first applied in wireless network markets in Vodafone
AirTouch/Mannesman, where the competitors were enabled to make use of Vodafone’s panEuropean network.57 Another way to grant access was shown in B Sky B/Kirch Pay TV case in the
pay-tv market, where Kirch committed to offer to all third parties its technical services “enabling
the interested third parties’ digitally transmitted services…,where supported by Kirch’s technical
platform, to be received by viewers authorised by means of digital decoders administered by
Kirch”.58 However, another remedy in that case – to enter into “simulcrypt” agreements with all
interested digital access providers – did not work at all, as no such agreements were concluded
due to the absence of competent licensing authority in Germany.59
The access remedies must be working on a non-discrimination basis – so that any interested
party may gain access to the facility (such commitments were given in Telia/Telenor,60
Telia/Sonera61 and other cases). When the access is connected with intellectual property rights,
the Commission requires “the introduction of a compulsory conditional access license and an
arbitration procedure for settling disputes concerning conditions, in particular the level of license
fees, may indeed go some way to ensuring that third parties are not subject to discrimination where
licensing is concerned”. 62
Alongside with necessary licensing, there could be cases when stand-alone access to the
network would not suffice, as the parties are using different interface in such systems. When the
interoperability is required, the Commission would approve the proposed remedy including such
condition, as it did in MSG Media Service: “The introduction of a common interface appears from
a competition point of view to be a solution to the problem of conditional access that would have
55
Remedies Notice, para. 62
C. Koenig et al, EC competition and telecommunications law (2009), 335
57
Vodafone AirTouch/Mannesman, (Case IV/M.1430), para. 58
58
B Sky B/Kirch Pay TV, (Case COMP/JV.37), Annex I, para. 1
59
C. Koenig et al, EC competition and telecommunications law (2009), 335
60
Telia/Telenor, (Case COMP/M.1439), para. 381
61
Telia/Sonera, (Case COMP/M/2803), para. 138-142
62
Deutsche Telecom/BetaResearch, (Case IV/M.1027), para. 64
56
16
a positive effect on the development of free and unfettered competition”.63 In this particular case,
however, MSG has later stated that the common interface was not secure enough which has
resulted in a commitment being “merely a declaration of intent”.
To sum up, even though the various type 1 remedies, especially divestitures, seem to be the
preferred ones by the Commission, they do not always guarantee the successful elimination of
anti-competitive concerns in certain cases. Their effectiveness is often jeopardized by the market
conditions or the incentive of the committing party to avoid the creation of a new strong
competitor.
There could be other obstacles when applying type 1 remedies. Some academics believe that
the implementation of remedies of this type might lead to adverse economic effects. First, in
remedies aiming to create a new player on the market (such as divestiture or giving access to
network) they could result in cooperation of the parties concerned, thus giving rise to collusion or
enhancing it.64 When negotiating over a prospective divestiture or when granting access to the
facility, undertakings get a chance to exchange information. 65 In case it is in both notifying party
and third party’s interest to avoid creating a competitive situation, they might end up in
coordinating their behaviour post Commission’s clearance or a buyer might replace one of the
merged entities in a duopoly.66
Secondly, the type 1 remedies (especially divestiture) could enhance symmetry on the already
collusive market.67 Whilst reducing the merging parties’ market share, it simultaneously increases
the share of the buyer – this leads to the more symmetric shares overall and remaining position of
coordinated behaviour. This was the reason why the Commission rejected the proposed
commitments in Alcan/Pechiney, where the divestiture of a capacity would have created “two
players with symmetrical market positions”.68
Could different types of remedies be applied cumulatively? As for the application of type 1
and 2 remedies together, it remains a rare case. In most proceedings, the Commission would
choose either one type or another, each of them addressing a certain anti-competitive concern.
Opposite to that, type 3 remedies would always serve as an ancillary, being applied together with
type 1 or type 2 remedies. In coordinated effects cases type 3 remedies are almost never used as a
basis commitment. The reason probably lays in the Commission’s ability to address facilitating
63
MSG Media Service, (Case IV/M.469), para. 94
P. Papandropoulos, A. Tajana, “The merger remedies study – in divestiture we trust?” (2006), European competition
law review, 449
65
M. Motta, M. Polo and H. Vasconcelos, “Merger remedies in the EU: an overview” (2003), Merger remedies in
American and European Union competition law, 106
66
This was mentioned by the Commission in its Merger Remedies Study, page 103
67
M. Motta, M. Polo and H. Vasconcelos, “Merger remedies in the EU: an overview” (2003), Merger remedies in
American and European Union competition law, 106
68
Commission press release, IP/00/258, http://europa.eu/rapid/press-release_IP-00-258_en.htm
64
17
practices through Articles 101 and 102 TFEU. 69 In addition, as previously mentioned, type 3
remedies require ex post control, and consequently additional working capacities from the
Commission. It states in Remedies Notice, that “commitments relating to the future behaviour of
the merged entity may be acceptable only exceptionally in very specific circumstances. (…) those
types of remedies can only exceptionally be accepted if their workability is fully ensured by
effective implementation and monitoring in line with the considerations set out in paragraphs 1314, 66, 69, and if they do not risk leading to distorting effects on competition”.70
It might be concluded that in merger control cases, anti-competitive concerns could be better
solved through first two types of commitments, affecting the structure of the market, although this
statement is sometimes argued by academics. They state that behavioural remedies are not always
hard to implement, and often they are easy to monitor afterwards (for example, when there are
already sufficient authority in place). 71 Moreover, this type of remedies seem appropriate in nonhorizontal mergers, as the concerns mostly arise not in regard to the market structure, but in the
field of possible foreclosure – which could be avoided by applying behavioural commitments.
Approval of the proposed remedy by the Commission is not the final stage of the merger
control procedure. The implementation of the commitment could be done in three different ways,
as Remedies notice and respective practice proposes. Firstly, the Commission may require the
merging parties to implement the remedies before the final decision is made. 72 The second option
is for the obligations to be conditional for the proposed merger. In RCA/MAV Cargo, the authority
stated: “The two remaining commitments have to be fulfilled prior to the closing of the MAV
Cargo transaction”. 73 The last way is to implement remedies following clearance – this is the most
common situation.74
During the implementation, the parties have certain duties, such as preservation of the viability
of assets which are about to be divested or appointing a special manager to keep these assets aside
from the ones that firms are going to retain. The Commission has the right to approve the purchaser
of the divested unit and appoint monitoring trustees to observe the compliance of the merging
firms with the given conditions. In case the parties were not successful in a search for the buyer, a
divestiture trustee will have a duty to find one. The Remedies notice points out the importance of
divestiture trustees, saying that they “will be given an irrevocable and exclusive mandate to dispose
N. Petit, “Remedies for coordinated effects under the European Union Merger regulation” (2010), Competition Law
International, 6(2)
70
Remedies Notice, para. 17
71
P. Rey, “Economic analysis and the choice of remedies” (2003), Merger Remedies in American and European
Union Competition Law
72
Remedies Notice, para. 5
73
RCA-MAV Cargo, (Case COMP/M.5096), para. 112
74
Remedies Notice, para. 5
69
18
of the business, under the supervision of the Commission, within a specific deadline at no
minimum price to a suitable purchaser. The commitments shall allow the divestiture trustee to
include in the sale and purchase agreement such terms and conditions as it considers appropriate
for an expedient sale, in particular customary representations, warranties and indemnities”.75
Under the ECMR, the enforcement of remedial commitments is guaranteed with certain
instruments. In case the parties fail to implement the approved remedies, the merger would not be
authorised. If the concentration was already implemented, “it should be treated in the same way as
a non-notified concentration implemented without authorization”.76 Moreover, the Commission
has the authority to dissolve the already conducted merger in order to restore the initial situation
on the market and impose fines on the breaching parties. 77
The Commission may face difficulties when enforcing type 2 remedies, as they often depend
on the third parties. In cases when the firm has to withdraw from the joint venture it sometimes
needs to get the approval of the contracting party first. When such remedies are not in favour of
the players on the market and they are not interested in retaining a competitive situation, certain
obstacles could be met. This problem was described in the Commission’s Remedies study, where
it pointed out that third parties could “prevent or impede the implementation of remedies that affect
them” through extended negotiations or unreasonable requests, initiated litigation etc.78
To sum up, the following could be stated regarding the remedies in coordinated effects cases.
In general, the Commission has three types of remedies at its disposal: creating or restoring
“outside” competitive forces after the merger; those severing structural links between competitors,
which could facilitate coordination; and purely behavioural remedies aiming to cease the conduct
facilitating tacit collusion. Of all these opportunities, the competition authority tends to choose
between first and second type, leaving type 3 commitments as a substitute to the first two.
However, their effectiveness is not always guaranteed: this is confirmed by the merger study
carried out by the Commission. The problems may lie in the wrong choice of the commitments,
their scope issues and enforcement procedures.
75
ibid, para. 121
ECMR, Recital 31
77
ECMR, Article 14
78
Remedies Study, paras. 46-47
76
19
Chapter 4. Coordinated behaviour cases in telecommunications market
Telecommunications market is one of the most fast-growing and developing areas, which is
characterised by constant innovation and is nowadays very consumer-oriented. However,
historically, it was first a national states’ monopolised sector. With the input of the Commission,
the liberalisation reform started in the 90s and it is still ongoing, aiming at granting access to the
equipment, breaking up monopolies and ensuring consumer rights protection. One of the main
goals of the liberalization process was boosting competition on the market and consequently
lowering prices for end-users. First addressed at voice communications only, the regulation has
widened to the broadband access in the early 2000s.
The 2002 reform79 has covered all types of electronic communication: fixed-line voice
telephony, mobile and broadband communications and cable and satellite television. The national
regulatory authorities (NRA) were given obligations to promote competition in the sector. These
included: ensuring maximum benefits for users in choice, price and quality; introducing general
authorization procedure for network operators; encouraging efficient use of spectrum;80
establishing of trans-European networks and interoperability of pan-European services;81 internal
cooperation of the authorities; ensuring the access to universal services82 and protection of
personal data and privacy. 83 Besides, the overall transparency in both NRA activity and interoperators relations is to be guaranteed.
One of the most important rights given to Member states in terms of promoting competition
was an ability to impose the sharing of facilities or property on an undertaking operating an
electronic communications network. In cases when the access to networks is limited due to
environmental, health or public safety reasons or reproducing of infrastructure is not possible, the
firm could be obliged to give access to its infrastructure. In the mobile industry, where Mobile
virtual network operators (MVNO) already existed in some countries (for example, Virgin Mobile
UK in the United Kingdom), this new regulation served as a booster for the growth in their number,
and the growth of the number of competitors on the market accordingly.
79
Directive 2002/21/EC of the European Parliament and of the Council of 7 March 2002 on a common regulatory
framework for electronic communications networks and services (Framework Directive)
80
Directive 2002/20/EC of the European Parliament and of the Council of 7 March 2002 on the authorisation of
electronic communications networks and services (Authorisation Directive).
81
Directive 2002/19/EC of the European Parliament and of the Council of 7 March 2002 on access to, and
interconnection of, electronic communications networks and associated facilities (Access Directive)
82
Directive 2002/22/EC of the European Parliament and of the Council of 7 March 2002 on universal service and
users' rights relating to electronic communications networks and services (Universal Service Directive)
83
Directive 2002/58/EC of the European Parliament and of the Council of 12 July 2002 concerning the processing of
personal data and the protection of privacy in the electronic communications sector (Directive on privacy and
electronic communications)
20
The Regulatory framework package was amended in 2009 by Better regulation directive
2009/140/EC84 and Citizens’ Rights Directive 2009/136/EC,85 granting more rights to the end
users and ensuring better transparency and interoperability on the market. The Single market for
telecommunication services was supported by regulated rates on mobile calls and data transfer, as
well as the recent positive vote of European Parliament on the ban of roaming costs within
European Union.86
Overall, telecommunications area is nowadays regulated by both sector-specific regulatory
authorities and competition authorities. Some see that sometimes competition regulators intervene
in the sector more than they are required to, and “the Commission behaves more like an industrial
regulator than a mere antitrust authority”.87 This sometimes raises concerns of the market players
and academics, arguing that “competition law has been stretched beyond its reasonable limits and
the institutional and legitimacy settings of antitrust do not justify its quasi-regulatory role”.88 The
reasons for such exceeding of the authority might be seen in the recent behaviour of the players in
the sector.
Starting the 2000s, the consolidation trend of the industry has taken place. Once the prices
were capped and the infrastructure monopoly was limited, the parties started seeking ways to
compensate “the losses”. One of such ways is to merge and therefore cut production costs when
often become able to offer a wider range of services.89 The role of the national competition
authorities and the Commission is to control this process and not let the monopolization or creation
of dominance position happen on relevant markets. Alongside with these two problems, the tacit
collusion is also under the control of the Commission when assessing proposed mergers.
84
Directive 2009/140/EC of the European Parliament and of the Council of 25 November 2009 amending Directives
2002/21/EC on a common regulatory framework for electronic communications networks and services, 2002/19/EC
on access to, and interconnection of, electronic communications networks and associated facilities, and 2002/20/EC
on the authorisation of electronic communications networks and services, Official Journal L 337 of 18.12.2009
85
Directive 2009/136/EC of the European Parliament and of the Council of 25 November 2009 amending Directive
2002/22/EC on universal service and users’ rights relating to electronic communications networks and services,
Directive 2002/58/EC concerning the processing of personal data and the protection of privacy in the electronic
communications sector and Regulation (EC) No 2006/2004 on cooperation between national authorities responsible
for the enforcement of consumer protection laws
86
“MEP heard loud and clear on telecoms laws”, April 3 2014,
http://www.eubusiness.com/Members/BEUC/telecoms-laws/
87
A. De Streel, The Relationship between Competition Law and Sector Specific Regulation: The Case of Electronic
Communications (September 16, 2008). Reflets & Perpectives de la vie économique, XLVII, 2008/1, 55-72
88
ibid
89
ibid
21
Since the adoption of the first EU merger control regulation in 1989,90 the Commission has
reviewed 286 merger notifications in telecommunications sector with Community dimension. 91
These include wired, wireless, satellite and other telecommunications activities. 127 of these cases
were examined after the new merger control regulation (ECMR) came in force in 2004, followed
by the Horizontal guidelines and Vertical guidelines, where the problem of coordinated behaviour
was thoroughly addressed. Of all these cases, 6 were cleared with the proposed commitments, and
only in 2 of them the Commission has mentioned the problem of tacit collusion.
It seems reasonable to study cases both before and after 2004, in regard to the commitments
proposed, as well as see how the Commission and national regulatory authorities were examining
Airtours conditions relating to the coordinated conduct in proposed merger cases.
Before Airtours
There were two cases reviewed by the Commission before 2004, where the concerned were
raised regarding tacit collusion, although this terminology was not explicitly used there. In
Vodafone/AirTouch the authority has examined the proposed merger between two major wireless
telecommunications providers. 92 Back in 1999, Vodafone was operating itself and through
subsidiaries and associated companies in UK and 13 more countries worldwide, including EU
states - France, Germany, Greece, the Netherlands and Sweden. AirTouch was mainly active in
the United States, although it had ownership interests in cellular operators in 12 other countries,
including European ones. The relevant markets in the investigation were defined as ones for mobile
telecommunication services, with the geographical markets being national.
The merger in question would have resulted in companies having market overlaps in two
European countries: Germany and Sweden. No concerns arose in regard to the Swedish area,
however German market turned out to be more problematic. Both parties were carrying interest
and were able to exercise decisive influence over two of four Germany’s biggest mobile services
providers – AirTouch had 34.8% in Mannesman Mobilfunk and Vodafone had 17,2% in E-Plus.
According to the Commission’s study, newly combined entity would have decisive influence and
joint control over two of the main three players (the fourth provider carrying a market share less
than 5%), whose combined share is 50-60% of the market. Regarding the possible coordination of
their behaviour, the authority stated, that “by creating a structural link between two of the three
main market operators in Germany would create a duopolistic market situation, accounting for
90
Council Regulation (EEC) No 4064/89 of 21 December 1989 on the control of concentrations between undertakings,
OJ L 257/90 P 13
91
Data from the advanced case search available at http://ec.europa.eu/competition/index_en.html (last accessed
30.05.2014)
92
Vodafone/AirTouch, (Case No IV/M.1430)
22
almost 100% of the market”.93 It has added that the market was characterized by “considerable
barriers to entry” and in which “information is readily available to customers and competitors who
wish to make pricing comparisons”. We can see the Commission already pointing out the
possibility of duopoly and mentioning two of tacit collusion conditions – barriers to entry and
transparency. It has therefore ruled that there is a possibility of the future anticompetitive parallel
behaviour.
The Commission has cleared the transaction with the commitments proposed by the parties.
To remove the competition concerns, the structural (type 1) remedy was offered by Vodafone: it
has undertaken to divest its interest in German provider E-Plus. According to the decision, “the
divestment would have the effect of removing any competition concerns which might otherwise
have resulted from the overlap on the German market between the activities of E-Plus and D2”.94
The Commission found the remedies “sufficient” and declared the notified transaction compatible
with the common market and with the EEA Agreement.
The year after the Vodafone/AirTouch, another proposed merger came under the
Commission’s examination. France Telecom, one of the biggest mobile and fixed line operators
in France was intending to merge with Orange plc, a UK mobile telecommunication operator.95
Both parties, apart from being active in their home countries, also had interests in various joint
ventures and thus were represented in other European countries, such as Belgium, The
Netherlands, Spain and others. After examining the proposed concentration, The Commission
found out that there were several product markets relevant to the case: mobile telecommunication
services, the provision of pan-European services to internationally mobile customers and mobile
handsets and mobile telephony network equipment. The concerns arose in one of these markets,
namely the Belgian market for mobile telecommunication services, where both parties were
present.
According to the Commission, the proposed merger would have resulted in France telecom
having joint control over two of three Belgian mobile operators – Mobistar SA and KPN Orange
Belgium SA. This will subsequently reduce the number of firms from three to two. The authority
has pointed out the available barriers to entry on the market due to the limited amount of available
spectrum frequencies for new licensees. Besides, the historical perspective of the Belgian mobile
telecommunication market was important. Before Orange (jointly with KPN) started operating,
there were two players present – Mobistar and Proximus. They were keeping high tariffs at the
93
ibid, para. 28
ibid, para. 35
95
France Télécom/Orange, (Case No COMP/M. 2016)
94
23
similar level. According to the decision, “as Proximus and Mobistar were the only players on the
Belgian market for mobile telecommunication and as they had a similar and transparent pricing,
Proximus and Mobistar were in a position to exercise joint dominance and will not have any
incentive to deviate from the collusive prices”.96 Therefore there existed a tacit collusion on the
market. The newcomer, Orange, has broken that tendency and the prices has dropped down
significantly, which was “an indicator of increased degree of competition”.
Knowing that prehistory of existing price coordination, the elimination of Orange who broke
“the duopolistic behaviour of both Proximus and Mobistar”, would have raised serious doubts of
the Commission as to compatibility of the proposed merger with the common market. The
concerns raised by the concentration were removed by the offered commitments. The parties has
undertaken to divest Orange’s 50% stake in KPN Orange Belgium in order to eliminate the
competitive overlap in Belgian market. Such divestiture meant that three players would remain on
the market and the existing level of competition would be kept. To ensure that the remedies
procedure goes in accordance with the decision and no confidential information is passed from
Orange to France Telecom, a independent Trustee was appointed to “monitor the viability and
saleability of the divestment” and “represent France Telecom in all bodies of KPN Orange
Belgium”.97
The proposed structural (type 1) remedy has eliminated all Commission’s concerns regarding
the possible coordinated behaviour on the Belgian mobile telecommunications market postmerger.
Whilst the aforementioned cases were portraying the possibility of horizontal collusion, in
NC/Canal+/CDPQ/BankAmerica the Commission has found the opportunity for the parties to
coordinate their behaviour in vertical relations.98 The firms notified the proposed concentration in
the form of joint venture on the French market of cable television services. The Commission has
found no concerns regarding that market. However, it was found that the parties to agreement hold
controlling interests in Spanish pay-tv market operators: BankAmerica together with CDPQ
control Cableuropa, whereas Cable+ holds interest in Sogecable. At the same time, Cableuropa
was a buyer of pay-tv rights from Sogecable.
In its decision, the authority has ruled out the possibility of horizontal coordination of the
parties on the Spanish market, because “Cableuropa is a new entrant in the pay-tv market and it
needs to get as many subscribers as possible in the start-up phase, thus rendering a horizontal
coordination with Sogecable on prices, quite unlikely”. 99 As opposed to that, it was found that
96
ibid, para. 26
ibid, para. 47
98
NC/Canal+/CDPQ/BankAmerica, (Case No IV/M.1327)
99
ibid, para. 32
97
24
“there are strong indicators that the notified operation could have led to the coordination of the
competitive behaviour of Sogecable and Cableuropa in the Spanish market, in their vertical
relation, i.e. with regard to access to the content rights needed to operate in the pay-tv market”.
Besides, the Commission had concerns that it would lead to the “discrimination policy vis-a-vis
other market players”. 100 All these concerns were addressed in the proposed remedies.
Canal+ has undertaken that any future negotiations between Sogecable and Spanish cable
operators with respect to the content over which the party has distribution rights, will be conducted
“in a fair and non-discriminatory manner consistent with applicable European Union and Spanish
competition laws”. 101 This was an example of behavioral (type 3) commitment, which has removed
any competition concerns of the Commission in the given case and led to the clearance of the
merger. The reason that standing alone type 3 remedy was sufficient to the Commission may be
found in the nature of the concentration and the effect it was able to bring, which was vertical, not
horizontal.
After Airtours
As previously said, the Airtours decision has indicated a milestone in the Commission’s and
national competition authorities’ approach to the examining the existence of tacit collusion. It was
later applied not only in respect to merger cases, but also in prosecuting collective dominance on
the market with no regard to possible concentration, as it happened in Ireland. The conditions set
up by the Court were used by Irish Commission for Communications Regulation (ComReg) in its
analysis of the telecommunication market and were further approved by the Irish competition
authority. The remedies proposed by ComReg in respect to the market for access and call
origination on mobile telephone networks were later notified to the Commission and found no
objection therein. 102
After the new EU communications framework directive103 came into force in 2003, the Irish
communications authority conducted an examination of the telecommunications market. Its
particular interest was lying in the wholesale market for access and call origination on public
mobile telephone networks, as defined by the Commission Recommendation dated 11 February
2003 (market 15 in the document).104 According to this Recommendation, the presence of the
certain market on the list was giving national authorities a possibility to apply ex ante regulation.
100
ibid, para. 38
ibid, para. 40
102
Registered notification for the case IE/2004/0121
103
Directive 2002/21/EC (Framework directive)
104
Commission Recommendation of 11 February 2003 on relevant product and service markets within the electronic
communications sector susceptible to ex ante regulation in accordance with Directive 2002/21/EC of the European
Parliament and of the Council on a common regulatory framework for electronic communication networks and
services, OJ L 114/45
101
25
It was noted that such regulation would be warranted in the absence of effective competition on
the market.
ComReg has analysed the aforementioned market in accordance with the obligation set up in
Article 16 of the Framework directive. In its study, the Irish authority has referred to both European
legislation, among others, the Framework directive and SMP Guidelines, 105 as well as case law,
such as CFI decision in Airtours.106 In the view of ComReg, two of the four Irish mobile network
operators, Vodafone and O2, were enjoying a collective dominant position and coordinating their
behaviour.
The finding was based on the following analysis. While examining the market structure,
ComReg was answering the question whether it was “such that O2 and Vodafone, in becoming
aware of a range of common economic interests, could consider it possible, economically rational,
and hence preferable, to adopt on a lasting basis a common policy on the market aimed at selling
at above competitive prices, without having to enter into an agreement or resort to a concerted
practice and without any actual or potential competitors, let alone customers or consumers, being
able to react effectively”.107 In its review, the authority has examined the following market
structure elements: (a) the degree of market concentration; (b) the incentive to coordinate; (c) the
ability to coordinate; (d) the ability to detect cheating; (e) enforceability of compliance; (d) and
actual and/or potential market constraints. As could be seen, the (c)-(d) elements portray the classic
tacit collusion conditions, implemented from Airtours.
After the assessment, ComReg has concluded that the market is characterized by the high
degree of concentration, having only four players, two of which (Vodafone and O2) have a
combine share of 94% of subscribers. It has also stated that it is unlikely that in the nearest future
the two other firms will be able to influence the competition situation significantly. The incentives
of the firms to collude were found to be stable due to the oligopolistic situation on the market and
relatively symmetric (40% and 54%) market shares of two undertakings. The competitors
“frequently interact with one another through their common participation in various practices
common to a networked industry”. 108 The demand on the relevant market was “expected to remain
at current levels or grow”, therefore enhancing the incentives to collude. Altogether, ComReg has
decided that there were sufficient incentives for firms to coordinate their behaviour.
105
Commission guidelines on market analysis and the assessment of significant market power under the Community
regulatory framework for electronic communications networks and services (2002/C 165/03), OJ C 165/6
106
See document: “Response to Consultation and Notification to European Commission. Market analysis – wholesale
mobile access and call origination” by Commission for Communications Regulation, Ireland, dated December 9, 2004.
http://www.comreg.ie/_fileupload/publications/ComReg04118.pdf
107
ibid, para. 4.26
108
ibid, para. 4.47
26
The analysis of the market has shown that it has sufficient level of transparency to enable
Vodafone and O2 to collude, in terms of both price and denying access of independent entities to
upstream elements.
The ability of customers to exercise countervailing buyer power was found to be insufficient
due to the absence of independent service providers on the wholesale level.
After studying the data on the growth of the subscriber number in years 2001-2004, ComReg
has concluded that it was similar for Vodafone and O2. Therefore, it believed that “due to
transparency in the retail market, it would be readily identifiable as it would lead to a reduction in
demand at the firm not deviating and be associated with an increase in demand with the firm
deviating”. 109 This has supported the view on the ability of firms to detect cheating of the rival. It
also was the view of ComReg that the absence of deviation in prices over these years was due to
the existence of the retaliation mechanism – for example, by “lowering retail prices or by offering
wholesale airtime on terms that enable independent service providers to offer lower retail
prices”.110
While discussing the actual and potential market constraints, the authority has addressed
fringe competitors’ activity and the emergence of potential competitors. The existing competitor
Meteor has not made a major impact on the rivals’ prices and, according to the view of ComReg,
would be unable to exert sufficient competitive pressure in the wholesale market over the expected
lifetime of the market review.111 The potential competitors in the form of MVNO were unlikely to
appear as Irish providers “seem unlikely to conclude [wholesale access] deals”.112
All these structural characteristics of the wholesale market led to the conclusion that there was
a high possibility for the firms to collude. Besides, there was a behavioural evidence that tacit
collusion between Vodafone and O2 already existed – in terms of price levels, profitability
measures and denial of access to wholesale airtime. With regard to the finding of two firms holding
a position of joint dominance, ComReg also concluded that they were having significant market
power jointly with each other.
As a draft measures, the Irish communication authority proposed to impose several obligations
on Vodafone and O2.113 These included both structural and behavioural remedies: obligation to
provide network access following a reasonable request by an access seeker; non-discrimination
obligation; obligation of price control to be implemented by way of cost orientation; Obligation to
109
ibid, para. 4.82
ibid, para. 4.93
111
Access and call origination on public mobile telephone networks in Ireland, (Case IE/2004/0121)
112
ibid, para. II.2
113
Response to Consultation and Notification to European Commission. Market analysis – wholesale mobile access
and call origination, Article 6.
110
27
prepare separated accounts; Obligation to implement appropriate cost accounting systems. The last
three obligations referred to the founding of the ComReg of existence of supracompetitive pricing
on the market, and were to be implemented only in the case of first two being unsuccessful.
After the analysis and proposed measures were notified to the Commission, the latter has
issued its comments on the document, which were not, however, in any major opposition to the
ComReg’s findings. Interestingly, the decision was later appealed to the Electronic
Communications Appeal Panel (ECAP) by Vodafone, O2 and Meteor. Following the appeal, the
telecommunications authority agreed to annul its decision. The reasoning behind it is still arguable,
as some believe that ComReg’s initial decision was “inconsistent with the facts in several
respects”,114 such as symmetry if Vodafone and O2’s market shares, their excessive charges, and
competitiveness of the remaining players on the market. However, this does not change the fact
that Irish communications authority has conducted the full analysis of the possibility and existence
of tacit collusion on the relevant market in accordance with the EU legislation and case law.
The new approach for the assessment of coordinated behaviour was implied in the
Commission’s merger cases practice as well. In Telefonica UK/Vodafone UK/Everything
Everywhere, the authority has examined the possibility of the tacit collusion post proposed creation
of a joint venture between the parties on mobile wallet market.115 The question posed was whether
the firms had an incentive to engage in a collective foreclosure strategy against rival mobile wallet
operators. After an analysis, the Commission ruled out the emergence of such strategy “based on
tacit and on-going coordination between the Notifying Parties” as it is “unlikely that all of the
conditions laid down in the Airtours judgment would be met in the case of commercial
foreclosure”. 116 The reasons for this finding were as follows: the coordination in question was hard
to implement; once established, it might not be internally stable, because the threat of punishment
did not outweigh possible gains from deviation; the rival third party providers had a possibility to
deploy counterstrategies as well; the barriers to entry on the market were not high. Given all these
arguments, the Commission concluded the low chance of the parties engaging in a coordinated
foreclosure strategy.
Another case where the Commission has applied the new approach in assessment of
coordinated behaviour was Syniverse/BSG.117 The proposed merger would have decreased the
number of players on the GSM roaming data clearing services market from three to two. However,
the authority, despite its common practice, did not find any grounds to the possible emergence of
114
P. Massey, M. McDowell, Joint Dominance and Tacit Collusion: An Analysis of the Irish Vodafone/O2 Case and
the Implications for Competition and Regulatory Policy, (2008) UCD Centre for economic research, WP08/05
115
Telefónica UK/Vodafone UK/ Everything Everywhere/ JV, (Case No COMP/M.6314)
116
ibid, para. 441
117
Syniverse/BSG, (Case No COMP/M. 4662)
28
duopoly. The reasoning behind this decision was that the rival company, Mach, was an
acknowledged market leader 118 and strong competitor. After the proposed merger, it would remain
the leader with overall market share of 50-60% against Syniverse/BSG combined share of 30-40%.
The Commission has assessed the four conditions necessary to analyse the possibility of
coordination on the market and found out that it “does not seem likely that the proposed merger
would lead to coordinated effects”.119 It is hard to establish a common understanding on the market
as it has a dynamic structure and bidding nature. Due to the low transparency, it will be hard to
detect deviation, as well as apply a credible retaliation mechanism. The collusion was also unlikely
because of the strong possibility of outsiders jeopardizing the results of coordination. The new
players are likely to enter the market, as well as the market itself is characterized as innovative and
therefore unstable for the purpose of collusion. 120 As a result, the Commission has cleared the
concentration with no additional commitments.
As previously mentioned, there were two cases after the implementation of the new system of
assessment of tacit collusion where the authority has agreed with the proposed commitments.
These were Hutchison/Orange and T-Mobile Austria/tele.ring, both affecting the Austrian
telecommunications market.
In Hutchison/Orange, the Commission studied the likeliness of the parties coordinating their
behaviour post-merger.121 It named the conditions to be checked and “found that some
characteristics of the Austrian mobile telecommunications market may be conducive to
coordination and some past parallel behaviour of the Austrian MNOs could point to coordination”. However, despite this finding, the authority has decided that “the indications did not
meet the requisite standard of proof the Commission has to meet according to the case law, namely
a significant impediment to effective competition leading to coordinated effects”. 122
Nevertheless, lacking the thorough examination of Airtours conditions, the proposed remedies
were still assumed sufficient as they “aim to facilitate market entry and thus also address possible
coordinated effects”.123 The parties offered to provide wholesale assess to Hutchison’s network
for up to 16 MVNOs in the coming 10 years. Together with that, the acquisition would not be
finished before Hutchison enters in such agreement with one MVNO. Besides, the party has
committed to divest a certain radio spectrum together with additional rights to a new entrant on
the Austrian market.124 After assessment of the remedies, the Commission has decided that “the
118
ibid, para. 38
ibid, para. 106
120
ibid, para. 109
121
Hutchison 3g Austria / Orange Austria, (Case No M.6497)
122
ibid, para. 448
123
ibid, para. 449
124
ibid, para. 526
119
29
Final Commitments are appropriate to eliminate the non-coordinated effects identified and,
moreover, the possible coordinated effects”.125 As a result, the concentration was cleared subject
to fulfillment of the structural remedies offered by the parties.
The competition concerns were raised by the Commission in T-Mobile Austria/tele.ring.126
According to the case, Austrian mobile operator T-Mobile had an intention to acquire tele.ring,
which would have led to the removal of so called “maverick” on the market. The market analysis
has shown that “not only that tele.ring has played an active role on the market in the last three
years but also that it has been the only company to play such an active role, in terms of increased
market share”.127 Besides, it was indicated that “tele.ring exerts the strongest competitive pressure
on Mobilkom and T-Mobile in particular”128 and “plays a crucial role in restricting their freedom
on pricing”.129 Therefore, the elimination of such a player would result in the reduction of capacity
and “the merger would have a considerable impact on competition”.130
In the assessment of possible coordinated effects, the Commission came to the conclusion that
such possibility could not be ruled out. It has pointed out to the proposed merger leading to the
shares of the competitors becoming more symmetric, as well as removing of a maverick making
the price coordination easier. However, the full analysis was not conducted because “the
commitments proposed by the notifying party rule out the possibility that the transaction will lead
to coordinated effects on the Austrian end-customer market for mobile telephony services”. 131
The parties to the merger proposed to sell a part of tele.ring’s UMTS frequencies and mobile
communication sites on the basis of framework agreement, which was further concluded with
mobile operator H3G.132 Therefore, such commitments constituted an example of type 1
(divestiture) remedies. According to the decision, they were “capable of eliminating the risk that
the merger in its original form would significantly impede effective competition”,133 and resulted
in the clearance of the concentration.
125
ibid, para. 538
T-Mobile Austria/tele.ring, (Case No COMP/M.3916)
127
ibid, para. 43
128
ibid, para. 51
129
ibid, para. 72
130
ibid, para. 100
131
ibid, para. 129
132
ibid, para. 130
133
ibid, para. 154
126
30
Conclusion
The problem of tacit collusion has been addressed by academics, legislators and enforcement
authorities for many decades. In a search for factors facilitating coordinated behaviour of firms on
the market, many theories and approaches were presented. In the EU, the CFI was the first to define
the conditions necessary to establish and maintain tacit collusion, whose findings were later
implemented in the legislation. These conditions, sometimes named “Airtours” conditions, refer
to both market structure and behaviour of the players there. According to CFI, the firms are most
likely to coordinate their conduct if they are able to reach the consensus on their agreement, further
monitor and punish any deviations of the rival and have enough power to sustain the outsiders’
influence.
In the telecommunications sector, the problem of tacit collusion exists as well as in other
economic areas. It was examined by the European Commission mostly while assessing proposed
merger cases, but also while studying the notification of national regulation authority. According
to the research conducted in this master thesis paper, it could be said that the number of tacit
collusion cases as opposed to overall number of merger cases The Commission examines in
telecommunications market, is relatively small. However, once the possibility of the coordinated
behaviour is found, the decision would always accept remedies addressing, among others, this
issue.
Based on the data analysed, the most common type of commitment was structural, with the
prevalence of divestiture (type 1) over other alternatives, such as granting access to the network
(type 1), being the second most popular. The Commission has also approved the implementation
of behavioural remedies, namely obligation of non-discrimination, where it was a complementary
in one case and the main undertaking in another case. As previously notices, the possibility of
behavioural remedies to be the primary commitment was almost fully ruled out by Remedies
Notice, however the decision in question was issued by the Commission before the aforementioned
document came into force. Besides, this was the only case of possible vertical coordination, so this
might also be the reason why type 3 remedy was found more sufficient.
None of the represented cases has shown an example of the Commission applying type 2
remedies – those aiming to severe structural links between competitors. The reasoning behind it
possibly lays in the absence of any such connections in given cases or, where they presumably
existed (see France Telecom/Orange), the authority found it more effective to implement type 1
commitments, also addressing the structure of the market.
31
It is not unusual to apply multiple remedies – it happened in Hutchison/Orange and in Irish
market analysis. In both cases, the authorities were dealing with not only possible future
coordination, but also existing one (in Ireland) or past (in Austria). This might explain the desire
to use more than one type of commitment, as these cases could be called more “complicated”.
Interestingly, in France Telecom/Orange, where the Commission was also dealing with the signs
of past coordination, divestiture alone turned out to be enough. Therefore, it is not possible to
establish the strong correlation between “complexity” of the case and the number of remedies
applied.
In analysis of the most often applied remedies – divestiture and access to network – it could
be concluded that they are used due to the features of the telecommunications market. Its main
facility is network, which is restricted due to the technical characteristics (radio spectrum).
Therefore, once in possession of such asset, the firm could try to exercise anti-competitive
behaviour, be it unilateral or joint. In order to overcome such situation, the number of players
should be increased. This could be accomplished by either selling them such facility or granting
access to it. Even though such remedies could not guarantee the absence of the collusion (and this
could also be seen in the results of the Commission’s remedies study), they would at least ensure
that there would be enough firms to prevent possible market concentration, and subsequently,
coordination.
Regarding overall implementation practice of the European Commission in respect to
coordinated behaviour, it could be said that it might be further developed. Once the problem would
be addressed not only while examining merger cases, but also when finding of concerted practices
facilitating any or all of the tacit collusion conditions, the situation on the market will improve.
For example, when all but one conditions already exist, the parties might want to facilitate the last
one, as it happened in the Netherlands134 when the firms decided to discuss the prices, which has
enabled future price parallelism. Such practices should be tackled more often, using economic
approach and trying to avoid formalism. After such enforcement trend is established, there will be
hope that the market players will be coordinating their behaviour less and the problem of tacit
collusion will be addressed not only through preventive measures, but also against existing forms.
134
CJEU, T-Mobile Netherlands BV and Others v Raad van bestuur van de Nederlandse Mededingingsautoriteit,
(Case C-8/08)
32
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