25
State Regulation and EU Competition Law
CONTENTS
1 Introduction
2 Anti-competitive state regulation
(i) A general obligation
(ii) A specific obligation
3 Services of general interest
(i) The definition of undertakings
(ii) The application of Article 106(2)
(iii)Financing SGEIs
(iv) A Union approach to services of
general economic interest?
4 Positive integration: the liberalisation
Directives
(i) Postal service liberalisation: creating
markets
(ii) Monitoring the changing market with
competition law
(iii)Managing competitive markets
5 Evaluation
6 Further Reading
1 Introduction
In this chapter we consider the application of EU competition law to markets regulated by
Member States. Enforcement of competition law in this field was slow to emerge. The reason
for the belated, and so far relatively cautious, intervention is threefold. First, there was change
in the EU’s economic policy at the time of the Single European Act, favouring greater liberalisation of the economy. State intervention changed from a field where the EU did not venture,
to being inherently suspect.1 Secondly, regulating sovereign states is more politically sensitive
than regulating private firms; thus the Commission and courts had to move with more caution.
Thirdly, there is a tension between the EU’s aims of competition and liberalisation on the one
hand, and the duties that Member States owe to their citizens, in particular the duty to ensure
1 A.
Gardner, ‘The Velvet Revolution: Article 90 and the Triumph of the Free Market in Europe’s Regulated Sectors’
[1995] ECLR 78, 79.
1
2 European Union Law
the availability of certain services (e.g. water, telecommunications, energy, postal services,
healthcare and other social services), on the other. The Member States’ concern is that competition may undermine the provision of these services.
Initially, it fell to individuals to challenge anti-competitive state regulation, which led to the
ECJ becoming involved in determining how far markets should be liberalised (a process which
may be labelled ‘negative integration’). While this approach may result in some markets being
opened, liberalisation of economic sectors is necessarily random and guided by private interests.
Subsequently, the European Union gradually began to take legislative steps to liberalise major
industries formerly under state control or ownership, in particular the network industries (e.g.
telecommunications, transport, energy, and postal services), as part of the EU’s single market
programme which sees network industries as a catalyst to generate increased competitiveness
in the EU economy as a whole (‘positive integration’). To reflect these developments, the chapter
is organised in the following manner:
(i) Section 2 is a review of how the ECJ has interpreted two key treaty provisions: Articles 4(3)
TEU and 106(1) TFEU. The Court has used these rules to put pressure on Member States to open
markets, although some question their continuing value.
(ii) Section 3 examines the tension between opening markets on the one hand, and the provision
of public services on the other. We begin by examining two methods by which the Court
has attempted to take into consideration Member States’ claims that the need to ensure the
provision of certain public services justifies the non-application of competition law: first, the
Court has found that the providers of certain social security benefits were not ‘undertakings’,
and so competition law did not apply to their actions even if they stifled competition; secondly,
the Court has interpreted Article 106(2) TFEU (which allows for the non-application of the
Treaty rules as a whole when a Member State entrusts an undertaking with the performance
of a service of general interest) in a generous way to protect the provision of certain public
services. We then study successive amendments to the Treaties to explain how the Union has
become increasingly sensitive to the demands of Member States, even though the emphasis
remains, increasingly, on efficient provision of services.
(iii) Section 4 reviews measures of ‘positive integration’; that is, EU secondary legislation that
liberalises markets on the one hand and creates EU-wide public service obligations on
the other. We use the liberalisation of the postal sector as an example to illustrate this
process.
(iv) Section 5 closes by evaluating the legal developments discussed in this chapter from two
perspectives: first, by considering what the economic impact has been (are markets more
competitive as a result of EU law?); and, secondly, from a policy perspective, by considering
the Union’s strategy in extending the reach and legitimacy of EU law.
2 Anti-competitive state regulation
(i) A general obligation
Member States have a general obligation to cooperate with the European Union to facilitate
the objectives of the Treaties.
3 State Regulation and EU Competition Law
Article 4(3) TEU
3. Pursuant to the principle of sincere cooperation, the Union and the Member States shall, in full mutual
respect, assist each other in carrying out tasks which flow from the Treaties.
The Member States shall take any appropriate measure, general or particular, to ensure fulfilment of
the obligations arising out of the Treaties or resulting from the acts of the institutions of the Union.
The Member States shall facilitate the achievement of the Union’s tasks and refrain from any
measure which could jeopardise the attainment of the Union’s objectives.
In an adventurous spate of decisions from the late 1970s to the mid-1980s the Court of Justice
held that, on the basis of Article 4(3) TEU, Member States could not maintain in force legislation that allowed an undertaking to infringe EU competition law because such legislation
deprived competition law of its effet utile.2 For example, in van Vlaamse the Union of Belgian
Travel Agents had set up a code of conduct prohibiting discounts, clearly a price-fixing agreement contrary to Article 101 TFEU. The code was then incorporated in a Royal Decree and
became compulsory. One travel agent infringed the code and was challenged by the Flemish
Travel Agents Association; in his defence he claimed that the code was contrary to EU law.
In a reference from the Belgian court, the ECJ held that the Belgian law reinforced the private
agreement (in effect sanctioning a cartel) and as such the law was inconsistent with Article
4(3) TEU, read in conjunction with Article 101 TFEU.3 The Court consolidated this approach
in Van Eycke, which codifies the basis upon which state regulation will fall foul of EU competition law: a state measure would be incompatible with Article 4(3) TEU read together with
Articles 101 or 102 TFEU if it ‘were to require or favour the adoption of agreements, decisions
or concerted practices contrary to [Article 101 TFEU], or to reinforce their effects, or to deprive
its own legislation of its official character by delegating to private traders responsibility for
taking decisions affecting the economic sphere.’4 In each of the circumstances identified in this
passage, the Court seeks a causal link between a state measure and conduct by private undertakings that infringes Article 101 TFEU. Without an infringement of competition law by the
undertakings (whether entered into before a state measure that reinforces its effects, or after
a state measure delegates the creation of a restrictive agreement to the undertakings), Article
4(3) TEU on its own does not apply.5
The ruling in Meng can serve to explain the significance of this limitation: an insurance agent
was prosecuted by state officials for violation of a German regulation preventing insurance
agents from passing on to their customers commissions or other financial advantages. The court
2 In
EU law, effet utile finds no easy English translation. It refers to the effectiveness of a rule of law. In this context
it indicates that if states could legislate to legitimise anti-competitive behaviour the effectiveness of Articles
101 and 102 would be lost as undertakings could merely lobby governments to shield their anti-competitive
agreements with legislation preventing the application of EU competition law. The approach was first canvassed in
Case 13/77 G.B.-INNO-B.M. v Association des Détaillants en Tabac (ATAB) [1977] ECR 2115.
3 Case 311/85 Vereniging van Vlaamse Reisbureaus v. ASBL Sociale Dienst van de Plaatselijke en Gewestelijke
Overheidsdiensten [1987] ECR 3801.
4 Case 267/86 Pascal Van Eycke v. ASPA NV [1988] ECR 4769, para. 16.
5 However, some case law had suggested that Article 10 might apply without anti-competitive behaviour by private
undertakings, notably Leclerc v. SARL Au Blé Vert [1985] ECR 1.
4 European Union Law
found no evidence of a previous agreement by the insurance undertakings to restrict the commissions paid to clients, nor of state law compelling insurers to enter into such agreements, nor
of a delegation by the state. As a result the state law, whilst restricting price competition, was
not in breach of Articles 4(3) TEU and 101 TFEU.6 However, the effect of the German legislation
in Meng is identical to the effect of the law in van Vlaamse: in both cases the law causes a misallocation of economic resources by removing price competition. Not only that, but if the reason
for the Court’s approach in van Vlaamse is to maintain the effectiveness of competition law,
then that consideration should apply also in the Meng case and allow the Court to declare state
law incompatible with competition law if it has anti-competitive effects.7 It fell to AG Tesauro
to explain why the state action doctrine did not apply absent an agreement by the undertakings.
Case C-2/91 Wolf W. Meng [1993] ECR I-5751, Opinion of Advocate General Tesauro
25. . . . I do not consider it permissible to criticize the possible and indirect anti-competitive effect of
State measures when that effect has no link with the conduct of undertakings or in fact with Article
[101 TFEU], that is to say when it does not in any way cloak, directly or indirectly, conduct . . . on the
part of the undertakings.
Otherwise, the alleged illegality of the State measure would have to be based solely on the combined
provisions of [Article 3(1)(b) TFEU] and [Article 4(3) TEU]: the first of course no longer being seen as
an objective to be attained under the conditions laid down in the Treaty but rather as a fundamental
and independent principle to which the competition provisions are merely ancillary. Moreover, that
interpretation, although on a systematic reading of the Treaty, appearing somewhat improbable, would
of course raise the not inconsiderable problem of the effect of such a principle on the legal position of
individuals: it should not be forgotten that in this case it is an individual who has claimed before the
national court a subjective legal position accorded to him, in his view, by Community law and denied
him by national law. However, it seems to me that there can be no question of attributing direct effect
to Article [3(1)(b) TFEU], even when read in conjunction with Article [4(3) TEU].
. . .
27. . . . Moreover, a solution based solely on the anti-competitive effect of national legislation displays
numerous disadvantages, insofar as the Court may be called upon to examine every national measure
affecting the business activity of the undertakings, and most importantly, because of the legal
uncertainty that would arise regarding the type of State measures that are incompatible with the
competition rules. Even if the review of measures of that kind were merely marginal and limited to the
appropriateness of the measure, examining the extent to which the means adopted were consonant
with the aims pursued in the public interest, the fact remains that the very possibility of verifying
whether the choice made by the legislator is justified by reasons relating to the public interest, and
above all the question whether or not such an interest takes precedence over the anti-competitive
effect of the legislation in question, might lead to arbitrary solutions in the absence of any yardstick for
the appraisal of legality.
6
7
Case C-2/91 Criminal proceedings against Wolf W. Meng [1993] ECR I-5751.
R. Joliet, ‘National Anti-competitive Legislation and Community Law’ in (1998) Fordham Corporate Law Institute
16 (B. Hawk (ed.) 1989). Some argued that Meng should be read as part of a general pattern of the Court’s
jurisprudence at that time, viz a retreat from the doctrine of effet utile and the adoption of a formalist approach:
N. Reich, ‘The “November Revolution” of the European Court of Justice: Keck, Meng and Audi Revisited’ (1994)
31 CMLRev 459, 465.
5 State Regulation and EU Competition Law
28. Admittedly, a solution based exclusively on the existence of a link between the State legislation and the
anti-competitive conduct on the part of individuals may appear unsatisfactory, since it is quite possible
that in certain cases an agreement between undertakings may prove to be of only formal significance.
This situation might arise in cases where a State measure has affected competition in the market in
a manner substantially in harmony with the wishes expressed by the economic agents concerned.
However, it must be borne in mind, first, that the influence of private individuals in the process of
drafting legal provisions is an established fact in modern legal systems; and, secondly, that in practice
it is not easy to determine whether the state measure concerned actually reflects courses of action
advocated by private individuals, which may well coincide with the public interest pursued by the
legislature.
. . .
30. In any event, it does not seem to me that the approach so far taken by the Court is such as to afford
immunity for measures whose sole aim is to evade the competition rules. I would point out that the
cases in which it seems necessary to have recourse to Articles [4(3) TEU, 3(1)(b) and 101 TFEU] in order
to declare unlawful national legislation having the same effects as an agreement prohibited by Art
101 are purely residual. Most ‘anti-competitive’ economic measures in fact affect the Community rules
on the common market in the areas covered by Article [34 TFEU] or Article [56 TFEU] . . . The application
of [Article 34 TFEU] or [Article 56 TFEU] does not call for an artificial interpretation: they are provisions
addressed to the member states, which must be strictly interpreted and facilitate review of the State
measure in question on the basis of clear and precise criteria.
While the Advocate General on the one hand warns of the ‘floodgates’ risk of applying Article
4(3) TEU to every legislative act that has anti-competitive effects, he notes that other Treaty
provisions might apply to regulate anti-competitive state action. In a more recent case, concerning a Belgian law banning advertising by dentists, the Advocate General noted that this
law does not contravene Article 4(3) TEU read together with the competition articles, but that
the law restricted persons’ freedom of establishment and the freedom to provide services, contrary to Articles 49 and 56 TFEU.8 However, if we take this finding further, it appears that the
necessity for applying Article 4(3) TEU to anti-competitive state action today vanishes. After
all, the rules on free movement as they have developed since the 1980s most likely catch all of
the restrictive practices that fall under the cases discussed above.9
A second reason for jettisoning this case law is that it is not clear how a Member State found
to have infringed this provision might justify its action – after all, there may be valid reason
for restricting competition.10 The case law has developed two strands of defences. In the 1990s
the ECJ suggested that a state may avoid the application of competition law if procedures are in
place to show that the state is not merely ratifying anti-competitive agreements but is regulating
  8
Case C-446/05 Doulamis [2008] ECR I-1377.
See, for example, the expansive reading of the free movement of services provision discussed at pp. 808–13. For
the most compelling argument to make this provision redundant, see D. Gerard, ‘EU Competition Policy After
Lisbon: Time to Review the “State Action Doctrine”?’ (2010) 1(5) Journal of European Competition Law and
Practice 202.
10 K. Bacon, ‘State Regulation of the Market and EC Competition Rules: Articles 85 and 86 Compared’ [1997]
ECLR 283, 288.
  9
6 European Union Law
the economy in cooperation with relevant stakeholders and is thus acting in the public interest.11 For example, in Reiff the Court found that members of the German tariff board that fixed
road haulage tariffs under the supervision of the ministry were not representatives of interested
undertakings. Accordingly, the state was found not to have infringed Article 4(3) TEU because it
had not delegated its legislative powers to private undertakings (the third limb of the Van Eycke
test). There were two procedural safeguards to ensure that the state had not merely relinquished
the regulation of the economy to private interests. First, members of the tariff board were experts nominated by members of the industry, but they were not bound by instructions from the
undertakings. Secondly, the minister had the final say on the composition of the board and the
discretion to set its own tariffs if it was felt the board’s decisions went against the public interest.12 Contrast this with the facts in Commission v. Italy.13 Italy appealed against a Commission
declaration that an Italian law which empowered the National Council of Customs Agents to
adopt a decision to fix compulsory tariffs for all customs agents infringed Italy’s obligations
under Articles 4(3) TEU and 101 TFEU. In contrast to the composition of the tariff Board in Reiff,
here the Council members ‘are the representatives of professional customs agents and nothing in
the national legislation concerned prevents the [Council] from acting in the exclusive interest of
the profession’.14 Nor was there any rule obliging or encouraging the Council to take the public
interest into consideration when fixing tariffs. Harm Schepel suggests that, through this case
law, the Court has canvassed a ‘procedural public interest test’.15 A French commentator noted
a paradox in this approach: on the one hand, the basis for condemning the state is precisely its
regulation of the market. However, the Reiff approach suggests that the state’s involvement in
securing that private actors work for the public interest is the reason for not applying competition law!16
A second line of defence was developed more recently in the Wouters judgment (which we
considered in Chapter 23) where it was held that EU competition law would not apply when it
would conflict with the protection of a legitimate interest.17 Here the Court is willing to apply
a substantive public interest test. It may be argued that the most apt manner for taking the
public interest into account is to join up the procedural and the substantive public interest test,
so that the measure restrictive of competition has both input and output legitimacy; however,
as can be seen from the discussion in Chapter 20, this is also the model that is applicable when
applying the free movement rules.18
11
See I. Van Bael and J.-F. Bellis, Competition Law of the European Community (4th edn, The Hague, Kluwer Law
International, 2004) 988–90.
12
Case C-185/91 Reiff [1993] ECR I-5801, paras. 17–22. Similar safeguards found in Case C-96/94 Centro Servizi
Spediporto Srl v. Spedizione Marittima del Golfo Srl [1995] ECR I-2883 and Case C-35/99 Criminal proceedings
against Manuele Arduino [2002] ECR I-1529; Joined Cases C-94/04 and C-202/04 Cipolla and Others v. Fazari
and Others [2006] ECR I-11421.
13
Case C-35/96 Commission v. Italy [1998] ECR I-3851.
14
Case C-35/96 Commission v. Italy [1998] ECR I-3851, para. 41.
15
Harm Schepel, ‘Delegation of Regulatory Powers to Private Parties under EC Competition Law: Towards a
Procedural Public Interest Test’ (2002) 39 Common Market Law Review 31. However, more recently the author is
more circumspect: see W. Sauter and H. Schepel, State and Market in European Union Law (Cambridge University
Press, 2009) 104–19.
16 Leroy, ‘L’intérêt général comme régulateur des marchés’ (2001) 37 Revue Trimestrielle de Droit Européen 49.
17 Case C-309/99 J. C. J. Wouters and Others v. Algemene Raad van de Nederlandse Orde van Advocaten [2002] ECR
I-1577. The same considerations would apply if the internal market rules were applied, as in Cipolla.
18 See pp. 922–5 for procedural considerations.
7 State Regulation and EU Competition Law
One further argument for abandoning this case law is the absence of enforcement: the
Commission has only issued one reasoned opinion on this basis (Commission v. Italy, discussed above). However, more systematic challenges to anti-competitive state action might
have resulted from the Court’s ruling in Consorzio Industrie Fiammiferi v. Autorità Garante
della Concorrenza e del Mercato.19 Here, the Italian Competition Authority acted on a complaint from a German match manufacturer who considered that Italian legislation regulating
a consortium of Italian match manufacturers had anti-competitive effects which hindered the
exports of matches into Italy. The Court of Justice seized on this eagerly and affirmed the Italian Competition Authority’s duty to declare unlawful and disapply state law that facilitated
or obliged private parties to enter into anti-competitive agreements contrary to Article 4(3)
TEU read together with Article 101 TFEU. This adds an additional layer of enforcement and,
according to the Italian Competition Authority, while ‘the duties to disapply a law occur only
exceptionally, the Court’s judgment will have a more general effect, favouring the introduction
of regulations that are more concerned about safeguarding the general interest and less focussed on protectionist requests’.20 To further strengthen the enforcement of competition law,
the Court, in Fiammiferi, also held that liability in damages may be available against undertakings which act on the encouragement of state legislation, thereby furthering the Commission’s
policy of promoting private enforcement of EU competition law.21 The effect of this judgment
is that national competition authorities may be encouraged to review anti-competitive state
regulation more systematically.22 However, a recent survey by the Commission indicates that
this provision has not been used extensively.
Commission Staff Working Document SWD (2014) 230, Ten Years of Antitrust
Enforcement under Regulation 1/2003 (SWD (2014)) paragraph 78
Many NCAs attentively follow government action and play a vital role as advisors to governments and
legislators, advocating pro-competitive approaches and promoting a culture of competition in their
jurisdictions. Such competition advocacy is an integral part of their remit. It is often used to promote
competition friendly solutions in regulatory contexts and/or to warn against state action that could
entail competition issues. Many NCAs have express powers to issue opinions or similar advocacy
instruments and use them regularly. Some are specifically equipped with powers to take action against
measures taken by local or regional state authorities, where they raise competition problems. Moreover,
in a limited number of envisaged decisions, NCAs have envisaged setting aside a state measure, held to
be contrary to the EU competition rules, on the basis of the [Consorzio Industrie Fiammiferi] judgment.
For example, in a recent decision against Poste Italiane, the Italian NCA decided to set aside national
rules on VAT benefiting the incumbent and concluded that Poste Italiane engaged in an abuse of
19
Case C-198/01 Consorzio Industrie Fiammiferi (CIF) v. Autorità Garante della Concorrenza e del Mercato [2003]
ECR I-8055.
20
Relazione sull’attività svolta nel 2003 (30 April 2004), available at www.agcm.it.
21
With the significant limitation that if state law requires anti-competitive conduct then the undertakings are
immune from liability until the time when the disapplication of state law becomes ‘definitive’. However, the
Court did not establish how the criteria of definitiveness should be interpreted.
22
P. Nebbia, Case Note on Fiammiferi (2004) 41 CMLRev 839.
8 European Union Law
dominance. The Greek NCA imposed a decision on the Port of Piraeus finding that it had breached
Article 101 TFEU in conjunction with Article 106 TFEU for unjustified and exclusionary treatment
which favoured one port user to the detriment of others. In a decision against Riga International
Airport, the Latvian NCA obliged the airport to discontinue the application of provisions establishing
a discriminatory discount system for services provided to airlines.
The paucity of enforcement, combined with the availability of substitute enforcement techniques using the internal market rules, suggest that this doctrine is ripe for reconsideration.
(ii) A specific obligation
Imposing an obligation on Member States on the basis of Article 4(3) TEU was potentially a
comprehensive way of regulating anti-competitive state regulation of the economy. However,
as we saw, the scope of this doctrine is quite limited. Instead, the application of EU competition
law to anti-competitive state regulation has been carried out under Article 106 TFEU, whose
remit is narrower than Article 4(3) TEU, but its effects considerably more significant.
Article 106 TFEU
1. In the case of public undertakings and undertakings to which Member States grant special or exclusive
rights, Member States shall neither enact nor maintain in force any measure contrary to the rules
contained in this Treaty, in particular to those rules provided for in Article 18 and Articles 101 to 109.
2. Undertakings entrusted with the operation of services of general economic interest or having the
character of a revenue-producing monopoly shall be subject to the rules contained in this Treaty, in
particular to the rules on competition, in so far as the application of such rules does not obstruct the
performance, in law or in fact, of the particular tasks assigned to them. The development of trade must
not be affected to such an extent as would be contrary to the interests of the Community.
3. The Commission shall ensure the application of the provisions of this Article and shall, where necessary,
address appropriate directives or decisions to Member States.
This is an extraordinarily ambiguous provision and, before exploring how it has been applied,
we outline its constituent elements and compare it with Article 4(3) TEU:
• First, note how the duty on Member States in paragraph 1 is to respect the entirety of their
obligations under the TFEU by not enacting or maintaining in force any measure contrary to
them. The specific reference to competition law obligations is not exhaustive; in fact, in many
instances the state legislation under scrutiny is also challenged on grounds that it contravenes
the free movement rules.23 In this respect, the obligation in Article 106(1) is similar to that in
Article 4(3) TEU, which we saw above: the state will only infringe EU law if its acts are contrary to Article 106(1) read together with another Treaty obligation.
• Secondly, the difference between Articles 4(3) TEU and 106 TFEU is that while Article 4(3) is
potentially of general application, Article 106 obligations only apply vis-à-vis three types of
23
See e.g. Case C-157/94 Commission v. Netherlands [1997] ECR 5699.
9 State Regulation and EU Competition Law
undertakings: public undertakings (firms where the state exercises a dominant influence, e.g.
by owning a majority of the shares),24 undertakings to which the state has granted exclusive
rights (undertakings that have a legal monopoly over the provision of a particular service,
e.g. an exclusive franchise to provide ambulance services in a city); and undertakings to
which the state has granted special rights (that is, rights to operate on a particular economic
sector which the state confers on a limited number of undertakings, e.g. a concession to
two airlines giving them rights to offer passenger services between two airports).25 All these
privileges share one feature: they restrict competition in the market to one or a small number
of players.
• Thirdly, Article 106 does not state that granting special or exclusive rights, or creating public
undertakings is unlawful; it is neutral as to their existence.26 However, the Court has continued
to challenge this limitation, as we show below.
• Fourthly, Article 106(2) TFEU provides states with the possibility of derogating from the obligations set out in paragraph (1) when the state is regulating the behaviour of certain undertakings. This is a more precise defence than that found in the case law on Article 4(3).
• Fifthly, unlike Article 4(3) TEU, the Commission has, on the basis of Article 106(3) TFEU, the
power to issue decisions against Member States (rather than just issue a reasoned opinion) and
also legislative powers to ensure states comply with Article 106(1).
Article 106(1) remained virtually dormant until private litigation brought this provision to
the Court of Justice, whose judgments revealed the possibilities of using EU law to liberalise
economic sectors that Member States had shielded from competition. The timing of these cases
was opportune in that after the Single European Act, the Union was taking the first tentative
steps towards the liberalisation of state-owned industries and the Court’s case law gave the
Union much needed support in designing its programme of liberalisation. In a quartet of decisions in 1991 the Court cast the scope of application of Article 106(1) very widely, and the last
judgment of the series illustrates the Court’s policy.27 It involved a challenge to a Belgian law
where a public undertaking, the Régie des télégraphes et des téléphones (RTT) was responsible
for the establishment and the operation of the public telephone network (where it had a legal
monopoly) and also enjoyed the exclusive power to grant type-approval to telephone equipment manufactured by other firms who wished to sell this equipment in Belgium and must
have it approved to ensure it could be connected to the network. A dispute arose when GBInno-BM (GB) sold non-approved telephones at prices far lower than those charged by RTT
for its telephones. Relying on Belgian law, RTT sought an order demanding that GB should
only sell its phones if it informed customers that the telephones had not been approved by RTT
(a notice which would have significantly dented GB’s profits). In its defence, GB argued that
24
See Article 2 of Directive 2006/111/EC on the transparency of financial relations between Member States and
public undertakings as well as on financial transparency within certain undertakings OJ 2006, L 318/17.
25
The Court has not yet articulated a clear distinction between special and exclusive rights. Three entities
authorised to collect waste in Copenhagen were held to have exclusive rights, when it would have been more
natural to say their rights were ‘special’ (Case C-209/98 Entreprenørforeningens Affalds/Miljøsektion (FFAD) v.
Københavns Kommune [2000] ECR I-3743, para. 37).
26
Case 155/73 Giuseppe Sacchi [1974] ECR 409, para. 14, interpreting Article 106(1) as permitting the grant of
special or exclusive rights.
27
The three other cases are C-41/90 Klaus Höfner and Fritz Elser v. Macrotron GmbH [1991] ECR I-1979; Case
C-260/89 Elliniki Radiophonia Tiléorassi AE and Others v. Dimotiki Etairia Pliroforissis ERT [1991] ECR I-5941;
Case C-179/90 Merci convenzionali porto di Genova SpA v. Siderurgica Gabrielli SpA [1991] ECR 5889.
10 European Union Law
Belgian law’s type-approval procedure was illegal and that RTT’s action, if successful, would
favour the sale of RTT’s own, self-certified, equipment. The Belgian court referred questions to
the ECJ about the compatibility of Belgian law both with Article 34 and Article 102, read in
conjunction with Article 106 TFEU.
Case 18/88 Régie des télégraphes et des téléphones v. GB-Inno-BM SA [1991] ECR
5941
17. The Court has consistently held that an undertaking vested with a legal monopoly may be regarded
as occupying a dominant position within the meaning of [Article 102 TFEU] and that the territory of a
Member State to which that monopoly extends may constitute a substantial part of the common market.
18. The Court has also held that an abuse within the meaning of [Article 102] is committed where, without
any objective necessity, an undertaking holding a dominant position on a particular market reserves to
itself an ancillary activity which might be carried out by another undertaking as part of its activities
on a neighbouring but separate market, with the possibility of eliminating all competition from such
undertaking.
19. Therefore the fact that an undertaking holding a monopoly in the market for the establishment
and operation of the network, without any objective necessity, reserves to itself a neighbouring but
separate market, in this case the market for the importation, marketing, connection, commissioning and
maintenance of equipment for connection to the said network, thereby eliminating all competition from
other undertakings, constitutes an infringement of [Article 102] of the Treaty.
20. However, [Article 102] applies only to anti-competitive conduct engaged in by undertakings on
their own initiative, not to measures adopted by States. As regards measures adopted by States, it is
[Article 106(1)] that applies. Under that provision, Member States must not, by laws, regulations or
administrative measures, put public undertakings and undertakings to which they grant special or
exclusive rights in a position which the said undertakings could not themselves attain by their own
conduct without infringing [Article 102].
21. Accordingly, where the extension of the dominant position of a public undertaking or undertaking to
which the State has granted special or exclusive rights results from a State measure, such a measure
constitutes an infringement of [Article 106] in conjunction with [Article 102].
[. . .]
23. According to the RTT, there could be a finding of an infringement of [Article 106(1)] only if the Member
State had favoured an abuse that the RTT itself had in fact committed, for example by applying the
provisions on type-approval in a discriminatory manner. It emphasizes, however, that the order for
reference does not state that any abuse has actually taken place, and that the mere possibility of
discriminatory application of those provisions by reason of the fact that the RTT is designated as the
authority for granting approval and is competing with the undertakings that apply for approval cannot
in itself amount to an abuse within the meaning of [Article 102].
24. That argument cannot be accepted. It is sufficient to point out in this regard that it is the extension of
the monopoly in the establishment and operation of the telephone network to the market in telephone
equipment, without any objective justification, which is prohibited as such by [Article 102], or by
[Article 106(1)] in conjunction with [Article 102], where that extension results from a measure adopted
by a State. As competition may not be eliminated in that manner, it may not be distorted either.
25. A system of undistorted competition, as laid down in the Treaty, can be guaranteed only if equality
of opportunity is secured as between the various economic operators. To entrust an undertaking
11 State Regulation and EU Competition Law
which markets terminal equipment with the task of drawing up the specifications for such equipment,
monitoring their application and granting type-approval in respect thereof is tantamount to conferring
upon it the power to determine at will which terminal equipment may be connected to the public
network, and thereby placing that undertaking at an obvious advantage over its competitors.
26. In those circumstances, the maintenance of effective competition and the guaranteeing of transparency
require that the drawing up of technical specifications, the monitoring of their application, and the
granting of type-approval must be carried out by a body which is independent of public or private
undertakings offering competing goods or services in the telecommunications sector.
27. Moreover, the provisions of the national regulations at issue in the main action may influence the
imports of telephone equipment from other Member States, and hence may affect trade between
Member States within the meaning of [Article 102] of the Treaty.
28. Accordingly, it must first be stated, in reply to the national court’s questions, that [Articles 3(1)(b),
106 and 102 TFEU] preclude a Member State from granting to the undertaking which operates the
public telecommunications network the power to lay down standards for telephone equipment and to
check that economic operators meet those standards when it is itself competing with those operators
on the market for that equipment.
The practical consequences of a judgment of this nature is that the national court is bound
to set aside national law which is incompatible with EU law, thereby facilitating market access by GB-INNO and other undertakings wishing to provide telephonic equipment. Markets
previously closed by the protection afforded to the public undertaking are now opened up to
competition. The judgment does not call into question the public ownership of RTT, but it cuts
down the amount of activities that the public undertaking can carry out – in this context RTT
is free to run the telephone network, but cannot also control the approval activity for equipment. Thus, while the Treaty does not compel privatisation of state monopolies, it controls
their scope.
The most significant contribution of this case law is that the Court took a more aggressive
stance under Article 106 than it did under Article 4(3) TEU, where an anti-competitive agreement caused or legitimised by national law is necessary for the state to be found in breach of
EU law. As Kelyn Bacon put it, the Court has ‘apparently been willing to apply Article [102]
where there is no effective abuse by undertakings of a dominant position, but where a State
measure produces the same effects as the abuse’.28 Clearly, such a wide-ranging doctrine needs
some limiting principles.29
A helpful assessment of the circumstances when a breach of Article 106(1) may be found
was canvassed by Advocate General Jacobs, who identified three scenarios.30 The first is when
the state grants exclusive rights in too many markets, whereby the holder is induced to abuse
the dominant position by exploiting the exclusive rights in one market to strengthen his dominance in other markets; RTT falls within this category. Here, there is no need to show the abuse
28
K. Bacon, ‘State Regulation of the Market and EC Competition Rules’ [1997] ECLR 283.
For an early discussion see D. Edward and M. Hoskins, ‘Article 90 [now Art 106], Deregulation and EC Law’
(1995) 32 CMLRev 157.
30 Case C-67/96 Albany International BV v. Stichting Bedrijfspensioenfonds Textielindustrie [1999] ECR I-5751,
Opinion of AG Jacobs, paras 388–439.
29
12 European Union Law
of dominance by the undertaking, but merely the potential for an abuse caused by state law.
The second category instead covers the grant of an exclusive right in one market only. Here
the grant cannot be challenged ex ante, rather only if there is a systemic failure by the state to
create conditions whereby supply of the relevant service can meet demand.31 Accordingly, the
Court adopts a significantly more severe assessment when the state grants exclusive rights in
more than one market and a more lax standard when there is the grant of an exclusive right in
one relevant market. This is an appropriate way of balancing the EU competition goal with the
state’s public policies: if there is a market where the state decides, in the public interest, that
competition shall be excluded, the state cannot also exclude competition from related markets
and expand the reach of that monopoly without good reason. However, even when the grant is
only of a monopoly in the market where the public interest demands the grant of an exclusive
right, the state has an obligation (under EU law) to deliver the service efficiently.32 The third
scenario is where the Court goes straight to Article 106(2) without explaining the grounds on
which there is an infringement. This might simply be done for convenience in that if there is a
justification there is no need to show an infringement. Or perhaps the Court takes the view that
if a statutory monopoly granted to provide services of general economic interest goes beyond
that which may be justified under Article 106(2) then a fortiori there is an infringement of
Article 106(1).33 However, many are unconvinced by this classification and take the view that
the Court may challenge the existence of exclusive rights, contradicting its oft-repeated view
that the creation of dominance by state action is not in itself a breach of EU law.34
The ongoing Greek Lignites saga serves to illustrate the debate on the scope of application, as
well as the instrumental use of this provision. The Greeks had apparently liberalised their electricity market but, as of 2008, only 7 per cent of electricity was imported, and at the wholesale
level DEI, the former state monopolist, retained a market share of 85 per cent. The Commission
observed that Greece had given DEI the exclusive right to explore and exploit lignite fields in
Greece. Lignite is the cheapest energy source available. In view of the Commission the grant of
this right allowed DEI to remain dominant in the wholesale electricity market and made market
access by competitors more difficult, and this was in breach of Articles 106(1) and 102. On appeal, the General Court disagreed with this broad interpretation and faulted the Commission for
failing to explain how the grant of this right either led or could lead to DEI abusing its dominant
position in the wholesale electricity markets.35 But the ECJ read this provision more broadly.
Case C-553/12P Commission v. Dimosia Epicheirisi Ilektrismou AE (DEI), Judgment of
17 July 2014
43. It is clear from the Court’s case-law that a system of undistorted competition, such as that provided
for by the Treaty, can be guaranteed only if equality of opportunity is secured as between the various
economic operators.
31
A good example of this is the judgment in Höfner (n. 27 above) where the question was whether the monopoly
given to the employment agency was such that the agency was failing to meet demand.
32
For a different view see AG Tesauro in Case C-320/91 Corbeau [1993] ECR 2533, para. 16.
33
W. Sauter and H. Schepel, State and Market in European Union Law (Cambridge University Press, 2009) 161.
34
E.g. R. Whish, Competition Law (6th edn, Oxford University Press, 2008) 228.
35
Case T-169/08 DEI v. Commission [2012] ECR II-448.
13 State Regulation and EU Competition Law
44. It follows that if inequality of opportunity between economic operators, and thus distorted competition,
is the result of a State measure, such a measure constitutes an infringement of Article [106(1) TFEU]
read together with [Article 102 TFEU].
45. The Court has moreover had occasion to state in that regard that, although the mere fact that
a Member State has created a dominant position by the grant of exclusive rights is not as such
incompatible with Article [102 TFEU], the Treaty none the less requires the Member States not to adopt
or maintain in force any measure which might deprive that provision of its effectiveness.
46. It follows from the matters addressed in paragraphs 41 to 45 above that, as the Advocate General
states in point 55 of his Opinion, infringement of Article [106(1) TFEU] in conjunction with Article
[102 TFEU] may be established irrespective of whether any abuse actually exists. All that is necessary
is for the Commission to identify a potential or actual anti-competitive consequence liable to result
from the State measure at issue. Such an infringement may thus be established where the State
measures at issue affect the structure of the market by creating unequal conditions of competition
between companies, by allowing the public undertaking or the undertaking which was granted special
or exclusive rights to maintain (for example by hindering new entrants to the market), strengthen or
extend its dominant position over another market, thereby restricting competition, without it being
necessary to prove the existence of actual abuse.
47. In those circumstances, it follows that, contrary to the General Court’s analysis . . . it is sufficient to
show that that potential or actual anti-competitive consequence is liable to result from the State
measure at issue; it is not necessary to identify an abuse other than that which results from the
situation brought about by the State measure at issue. It also follows that the General Court erred in
law in holding that the Commission, by finding that DEI, a former monopolistic undertaking, continued
to maintain a dominant position on the wholesale electricity market by virtue of the advantage
conferred upon it by its privileged access to lignite and that that situation created inequality of
opportunity on that market between the applicant and other undertakings, had neither identified nor
established to a sufficient legal standard the abuse to which, within the meaning of Article [102 TFEU],
the State measure in question had led or could have led DEI.
This reading is remarkable for two reasons: first, the state is liable so long as an anti-competitive effect is foreseen. So here the theory of harm that allows the Commission to act is that by
denying access to the raw materials the state creates an entry barrier. Secondly, because of the
way anti-competitive effects are defined: the creation of unequal opportunities to compete. On
the facts it was clear what this meant (no new entrant could obtain the cheapest raw material
to generate electricity) but it is open to wider interpretations. Moreover, the ECJ’s reading supports the Commission’s strategy in using this provision.
Commission Staff Working Document SWD (2014) 230, Ten Years of Antitrust
Enforcement under Regulation 1/2003 (SWD (2014)) paragraph 77
Article 106 TFEU can be an effective instrument for safeguarding competition in newly liberalised
markets, especially where these markets are closely linked to markets reserved by the State for public or
privileged incumbents. Although the completion of the liberalisation process reduces the temptations
of Member States to provide privileges that may induce anticompetitive behaviour, the Commission
remains vigilant about any State measures that may restrict competition without justification.
14 European Union Law
In other words, Article 106 is a strategic tool that the Commission may use to accelerate market liberalisation when Member States drag their feet and protect incumbents.36 It is of course
plausible to run the same argument that we discussed above with respect to the obligation
under Article 4(3) TEU: that the free movement rules probably suffice to tackle these kinds of
state measures.37 However, using competition law has a distinct procedural advantage because
it authorises the Commission (and National Competition Authorities) to challenge state action
more quickly.38
3 Services of general interest
There are ‘good’ and ‘bad’ reasons for state regulation of the economy. For a number of economic sectors, the ‘bad’ reason, which seems to underpin much state regulation, is the desire to
protect national industries from competition for political reasons, whether to protect employment or safeguard an industry deemed to be of national importance. It is such protectionism
that the European Union has sought to eliminate. On the other hand, one ‘good’ reason for
state regulation is that certain goods or services should be distributed fairly among all citizens
rather than allocated by the market system. As noted by some, in certain cases the Court may
apply the obligations in Article 106(1) more lightly when considering these services,39 but
there are two formal routes that are deployed to allow states to regulate these markets without the duty to open them to competition: by declaring that the services are not provided by
‘undertakings’, thereby excluding the application of the competition rules, and by applying
Article 106(2), which sets out a derogation from the application of EU law obligations.
(i) The definition of undertakings
The Courts have excluded two types of activities from the scope of EU competition law by
declaring that those who provide these services are not ‘undertakings’ and thereby not subject
to competition law: (1) those where the Member State exercises sovereign powers; and (2)
those where the activity in question is governed by the principle of solidarity. In crafting these
exclusions, the Courts have devised principles that qualify the functional approach to defining
an undertaking, which we saw in Chapter 22. The functional approach asks whether the activity in question could be carried out by a private enterprise, i.e. whether there is a market for
the provision of the service in question that undertakings may wish to tap into. The difficulty
of this approach is that virtually all services might be provided by the market, as the British
reforms of public services amply demonstrate.
The first qualification to the effects-based approach is where the Court focuses on the public
interest of a particular activity and notes that the task is part of the ‘essential function of the
State’ and the powers granted to the operator are typically those of a public authority. Within
36
For a policy-oriented reading of the case law, see also L. Hancher, ‘Community, State and Market’ in P. Craig and
G. de Búrca (eds.), The Evolution of EU Law (Oxford University Press, 1998) 721, 731–5.
37 See G. Davies, ‘Article 86 EC, the EC’s Economic Approach to Competition Law and the General Interest’ (2009)
5(2) European Competition Journal 549, 557.
38 If the Commission wishes to challenge the Member State for infringement of the free movement rules it must use
the cumbersome infringement procedure, discussed in Chapter 8.
39 See Hancher, n. 36 above.
15 State Regulation and EU Competition Law
this remit come operators that are entrusted by the state to control and supervise the airspace
of a country, or anti-pollution surveillance authorities that protect the state’s waters, or public undertakings that collect data from companies when these have a statutory obligation to
supply this data.40 While these operators may be private firms, they ‘are the instruments of a
policy in the (general) public interest and enjoy prerogatives of the public authority, that is to
say bodies that exercise an activity typical of a public authority’.41 As a result those economic
activities are excluded from the application of EU competition law.42 Note, however, that the
question whether a person is acting as an undertaking relates to each distinct activity. Therefore it may be that a person who is in charge of supervising air safety and also manufactures
aircraft may be deemed to be acting as an undertaking with regard to aircraft manufacture
even if his activities in the field of air safety are outside the scope of competition law.43
The second qualification is more significant but less well defined and mostly applies to state
regulation of social security insurance schemes. Schemes made compulsory by national law are
being challenged by persons wishing to buy insurance elsewhere and who wish to stop making
compulsory contributions to the national scheme. In INAIL, the managing partner of a company challenged a claim for unpaid national insurance contributions by arguing that the state’s
compulsory insurance scheme for accidents at work and occupational disease (whose operation
is entrusted to INAIL, a public-service providing body which is subject to supervision by the
Ministry of Employment and Social Security) was contrary to competition law and he was entitled to secure insurance elsewhere. The argument was premised on INAIL being an undertaking to which the state had granted an exclusive right to operate on the market for occupational
insurance. Had his challenge been successful, he and other employers would have been able to
opt out of the state scheme and seek better insurance contracts elsewhere. However, the Court
held that INAIL was not an undertaking when implementing this scheme because the national
scheme operated according to the principle of solidarity. As a result, the challenge failed.
Case C-218/00 Cisal di Battistello Venanzio & C. Sas v. Istituto nazionale per
l’assicurazione contro gli infortuni sul lavoro (INAIL) [2002] ECR I-691
31. According to settled case-law, Community law does not affect the power of the Member States to
organise their social security systems.
32. In particular, the covering of risks of accidents at work and occupational diseases has for a long time
been part of the social protection which Member States afford to all or part of their population.
40
For illustrations of these three examples, see: Case C-343/95 Diego Calì & Figli [1997] ECR I‑1547; Case
C‑364/92 SAT Fluggesellschaft v. Eurocontrol [1994] ECR I‑43; Case C-138/11 Compass-Datenbank GmbH v.
Republik Österreich (Judgment of 12 July 2012).
41
Case C-343/95 Diego Calì & Figli Srl v. Servizi ecologici porto di Genova SpA (SEPG) [1997] ECR I-1547 (AG
Cosmas, para. 41).
42
According to AG Tesauro (in C-364/92 SAT Fluggesellschaft v. Eurocontrol [1994] ECR I-43), it is also arguable
that these kinds of activities are natural monopolies where competition is deemed undesirable for the effective
performance of the activity in question.
43
In Case C-113/07 P SELEX Sistemi Integrati SpA v. Commission [2009] ECR I‑2207, the ECJ was asked to
consider how far certain ancillary services offered by Eurocontrol (e.g. preparing standards) could be held
separable from its core task of airspace management and maintaining the safety of air navigation (activities
which are not of an economic nature by virtue of the exercise of public powers). It held that the ancillary
activities were inseparable from the core task, so Eurocontrol could not be considered an undertaking for those
services.
16 European Union Law
. . .
34. The statutory scheme providing insurance against accidents at work and occupational diseases in
question in the main proceedings, in so far as it provides for compulsory social protection for all nonsalaried workers in the non-agricultural professions who carry out an activity classified as a risk activity
by the law, pursues a social objective.
35. Such a scheme is intended to provide all the persons protected with cover against the risks of accidents
at work and occupational diseases, irrespective of any fault which may have been committed by the
victim, or by the employer, and therefore without any need for civil liability to be incurred by the
person drawing benefits in respect of the risk activity.
36. Furthermore, the social aim of that insurance scheme is highlighted by the fact that benefits are paid
even when the contributions due have not been paid, which obviously contributes to the protection of all
insured workers against the economic consequences of accidents at work or occupational diseases. Even
after the 1997 reform, which abolished that automatic cover for self-employed workers, benefits may
still be paid in the event of regularisation, even after contributions have not been paid in good time.
37. However, as is clear from the case-law of the Court, the social aim of an insurance scheme is not in
itself sufficient to preclude the activity in question from being classified as an economic activity. In
that regard, two other aspects deserve attention.
38. In the first place, a number of elements tend to demonstrate that the insurance scheme in question in
the main proceedings applies the principle of solidarity.
39. The insurance scheme is financed by contributions the rate of which is not systematically proportionate
to the risk insured. For example, it is clear from the case-file that the rate may not exceed a maximum
ceiling, even where the activity carried out entails a high risk, the balance of financing being born by all
the undertakings in the same category as regards the risk run. Furthermore, contributions are calculated
not only on the basis of the risk linked to the activity of the undertaking concerned but also according
to the insured persons’ earnings.
40. Second, the amount of benefits paid is not necessarily proportionate to the insured persons’ earnings,
since, for the calculation of pensions, only salaries situated between a minimum and a maximum
corresponding to the average nationwide salary, decreased or increased by 30%, may be taken into
consideration.
41. In those circumstances . . . the payment of high contributions may give rise only to the grant of capped
benefits, where the salary in question exceeds the maximum laid down by decree and, inversely,
relatively low contributions, calculated on the basis of the statutory minimum wage, afford entitlement
to benefits calculated according to earnings higher than that threshold, corresponding to the average
salary decreased by 30%.
42. The absence of any direct link between the contributions paid and the benefits granted thus entails
solidarity between better paid workers and those who, given their low earnings, would be deprived of
proper social cover if such a link existed.
43. In the second place, it is clear from the case-file that the activity of the INAIL, entrusted by law with
management of the scheme in question, is subject to supervision by the State and that the amount
of benefits and of contributions is, in the last resort, fixed by the State. The amount of benefits is
laid down by law and they may be paid regardless of the contributions paid and the financial results
of the investments made by the INAIL. Second, the amount of contributions, upon which the INAIL
deliberates, must be approved by ministerial decree, the competent minister having the power to reject
the scales proposed and to invite the INAIL to submit to him a new proposal taking account of certain
information.
17 State Regulation and EU Competition Law
44. In summary, it is clear from the foregoing that the amount of benefits and the amount of contributions,
which are two essential elements of the scheme managed by the INAIL, are subject to supervision by
the State and that the compulsory affiliation which characterises such an insurance scheme is essential
for the financial balance of the scheme and for application of the principle of solidarity, which means
that benefits paid to insured persons are not strictly proportionate to the contributions paid by them.
45. In conclusion, it may be stated that in participating in this way in the management of one of
the traditional branches of social security, in this case insurance against accidents at work and
occupational diseases, the INAIL fulfils an exclusively social function. It follows that its activity is not an
economic activity for the purposes of competition law and that this body does not therefore constitute
an undertaking within the meaning of Articles [101 and 102] of the Treaty.
The Court’s analysis is based on two considerations: first it will look at whether there is a
sufficiently high degree of solidarity, and then it will consider whether the restriction of competition (i.e. the compulsory nature of contributions) is necessary to guarantee the solidarity
inherent in the scheme. It is not clear why the Court did not just declare that social security
operators are undertakings subject to competition law, but that the restriction of competition may be justified under Article 106(2) – after all, the provision of social security benefits
premised upon notions of solidarity seems to be a quintessential service of general economic
interest.
Moreover, the solidarity test is not carried out with much precision. The Court seems to
measure the degree of solidarity in the scheme and declares the operator of the scheme not to
be an undertaking only when a certain level of solidarity is achieved. For instance, in Albany
International, a compulsory sectoral pension fund which constituted an element of the Dutch
system of social protection and which embodied certain solidarity principles (e.g. the fund
accepted all workers without a prior medical examination, the accrual of pension rights even
for those rendered unable to work through incapacity, the absence of equivalence between
the contributions paid and the pension rights), was deemed to be an undertaking because the
amount of benefits paid depended on the financial results achieved by the fund in the light of
its investments. It thus operated like an insurance undertaking. Moreover, the fund was not
compulsory as certain (limited) opt-outs were available, suggesting that there was not complete solidarity among the workers in the sector. The manifestations of solidarity were deemed
‘not sufficient’ even though the Court acknowledged that the solidarity within the scheme
rendered the fund less competitive compared to other insurance companies.44 Furthermore,
even if the fund operates on the basis of ‘a high degree of solidarity’ it remains an undertaking
if it was selected by the beneficiaries ‘on the basis of financial and economic considerations,
from among other undertakings with which it is in competition on the market in the provident
services which it offers’.45
The Court has extended the solidarity approach to exclude certain commercial decisions
made by bodies carrying out public service tasks. In FENIN, the bodies managing the Spanish health system were accused of abusing their monopsony power by delaying payment to
44
Case C-67/96 Albany International BV v. Stichting Bedrijfspensioenfonds Textielindustrie [1999] ECR I-5751,
paras. 73–87.
45 Case C-437/09 AG2R Prévoyance v. Beaudout Père et Fils SARL [2011] ECR I-973.
18 European Union Law
suppliers of medical goods and equipment.46 In AOK Budesverband, sickness funds were accused of colluding to fix the amount of money they would pay to insured patients when the
latter purchased medicines.47 In both cases the bodies in question were not acting as an undertaking in the delivery of its core task (respectively, providing health care and managing
sickness funds), but the question arose whether commercial activities that they did engage in
could be challenged under EU competition law. The Courts held that in purchasing medical
equipment to perform their public service missions, and in fixing the prices, the defendants
were not behaving as undertakings, thus excluding them from the scope of application of
competition law. In FENIN, the court excluded the application of competition law because the
medical equipment was not purchased to operate an economic activity, but to offer a public
service based upon national solidarity, thus not subject to EU competition law.48 In reaching
the same conclusion, the ECJ in AOK Bundesverband adopted a clearer criterion, concluding
that the fixing of payment amounts was ‘integrally connected’ with the funds’ public service
activity.49 Read jointly, these decisions are a significant widening of the solidarity doctrine
in that the Court extends the latter beyond the provision of the service, to the commercial
transactions that are connected with the provision of such services. In so doing, the Court is
unconcerned with the degree to which competition is distorted and is willing to tolerate even
price-fixing agreements. This seems undesirable. The purchasing power of state-wide providers of health care is considerable; accordingly, the potential anti-competitive effects of the
exercise of this power cannot be underestimated.50
(ii) The application of Article 106(2) TFEU
A more explicit route to avoiding the application of competition law in order to safeguard the
provision of services of general interest (SGEI(s)) is the derogation in Article 106(2). States and
undertakings may justify the non-application of EU law obligations when the following three
criteria are met: first, undertakings have been entrusted by the state with the operation of a
SGEI; secondly, the application of competition law would obstruct the performance of undertakings entrusted with the operation of SGEI;51 and, thirdly, the restriction of competition is
not contrary to the interests of the Union. This final proviso has yet to receive detailed scrutiny
by the Court although it clearly demands more than proof that the state measures affect trade
between Member States. On the other hand, it cannot be read so widely as to render the derogation redundant, thus some negative effects on trade may be tolerated.52 As Article 106(2) is
46
Case T-319/99 Federación Nacional de Empresas de Instrumentación Científica, Médica, Técnica y Dental (FENIN)
v. Commission [2003] ECR II-357.
47 Joined Cases C-264/01, C-306/01, C-354/01 and C-355/01 AOK Bundesverband and Others v. IchthyolGesellschaft Cordes, Hermani & Co [2004] ECR I-2493.
48 Case T-319/99 Federación Nacional de Empresas de Instrumentación Científica, Médica, Técnica y Dental (FENIN) v.
Commission [2003] ECR II-357, paras. 36–40; on appeal, Case C-205/03 P FENIN v. Commission [2006] ECR I-6295.
49 Joined Cases C-264/01, C-306/01, C-354/01 and C-355/01 AOK Bundesverband and Others v. IchthyolGesellschaft Cordes, Hermani & Co [2004] ECR I-2493, para. 63.
50
The position in EU law is in contrast with that in Germany and the UK. See, respectively, J. Winterstein, ‘Nailing
the Jellyfish: Social Security and Competition Law’ [1999] European Competition Law Review 324, 333 and
Bettercare Group Ltd v. Director General of Fair Trading [2002] CAT 7.
51
Article 106(2) also applies to revenue-producing monopolies.
52
In Case C-157/94 Commission v. Netherlands [1997] ECR I-5699 (paras. 66–71), the Court rebuked the Commission
for failure to show what adverse effects resulted, noting that trade between Member States was increasing.
19 State Regulation and EU Competition Law
a derogation from the state’s Treaty obligations in their entirety, it is strictly constructed.53 Our
focus here is on the first and second criteria.
The first requirement is that an undertaking must be ‘entrusted’ by the state54 with the
provision of a SGEI. Typical services of general economic interest include providing energy,
telecommunications, or transport networks.55 The determination of what constitutes a SGEI is
a matter over which states have considerable latitude,56 as has been explained by the General
Court in BUPA. At stake were the Irish government’s arrangements in the health sector. Private
medical insurance (PMI) was originally only offered by the Voluntary Health Insurance Board.
In opening this market to competition, the Irish legislation also designed a risk equalisation
scheme. The scheme meant that new entrants who insured healthier and younger patients
would have to pay a levy to the Health Insurance Authority who would redistribute this money
to those insurers whose clients were at higher risk. The upshot was that a new entrant like
BUPA would be compensating the former monopoly provider. Ireland notified this scheme to
the Commission as it considered it might be seen as constituting state aid. The Commission,
however, said that the scheme was not state aid because it was designed to compensate PMI
insurers for providing services of general interest.57 BUPA appealed against this decision, giving the General Court an opportunity to define the concept of SGEI.
Case T-289/03 British United Provident Association Ltd (BUPA) v. Commission [2008]
ECR II-81
172. . . . [E]ven though the Member State has a wide discretion when determining what it regards as an SGEI,
that does not mean that it is not required, when it relies on the existence of and the need to protect
an SGEI mission, to ensure that that mission satisfies certain minimum criteria common to every SGEI
mission within the meaning of the [TFEU], as explained in the case-law, and to demonstrate that
those criteria are indeed satisfied in the particular case. These are, notably, the presence of an act of
the public authority entrusting the operators in question with an SGEI mission and the universal and
compulsory nature of that mission. Conversely, the lack of proof by the Member State that those criteria
are satisfied, or failure on its part to observe them, may constitute a manifest error of assessment, in
which case the Commission is required to make a finding to that effect, failing which the Commission
itself makes a manifest error. Furthermore, it follows from the case-law on [Article 106(2) TFEU] that
the Member State must indicate the reasons why it considers that the service in question, because of
its specific nature, deserves to be characterised as an SGEI and to be distinguished from other economic
activities. In the absence of such reasons, even a marginal review by the Community institutions on the
basis of both the first Altmark condition and [Article 106(2) TFEU] with respect to the existence of a
manifest error by the Member State in the context of its discretion would not be possible.
. . .
53
Case C-157/94 Commission v. Netherlands [1997] ECR I-5699, para. 37.
Case C-203/96 Chemische Afvalstoffen Dusseldorp BV and Others v. Minister van Volkshuisvesting, Ruimtelijke
Ordening en Milieubeheer [1998] ECR I-4075 (AG Jacobs, para. 103).
55 Communication from the Commission — Services of general interest in Europe, OJ 2001, C 17/4, Annex II.
56 Though it is a Community concept: Case 10/71 Ministère Public du Luxembourg v. Muller [1971] ECR 723, paras.
14–15.
57 State Aid N 46/2003 – Ireland, 13 May 2003; applying the principles in Case C-280/00 Altmark Trans GmbH v.
Nahverkehrsgesellschaft Altmark GmbH [2003] ECR I-7747. This is discussed below.
54
20 European Union Law
179. On the other hand, the recognition of an SGEI mission does not necessarily presume that the operator
entrusted with that mission will be given an exclusive or special right to carry it out. It follows from
a reading of paragraph 1 together with paragraph 2 of [Article 106 TFEU] that a distinction must be
drawn between a special or exclusive right conferred on an operator and the SGEI mission which, where
appropriate, is attached to that right. The grant of a special or exclusive right to an operator is merely
the instrument, possibly justified, which allows that operator to perform an SGEI mission.
. . .
186. As regards the universal nature of the PMI services, it must be noted at the outset that, contrary to
the theory put forward by the applicants, it does not follow from Community law that, in order to be
capable of being characterised as an SGEI, the service in question must constitute a universal service
in the strict sense, such as the public social security scheme. In effect, the concept of universal service,
within the meaning of Community law, does not mean that the service in question must respond to
a need common to the whole population or be supplied throughout a territory . . . [A]lthough those
characteristics correspond to the classical type of SGEI, and the one most widely encountered in
Member States, that does not preclude the existence of other, equally lawful, types of SGEIs which the
Member States may validly choose to create in the exercise of their discretion.
187. Accordingly, the fact that the SGEI obligations in question have only a limited territorial or material
application or that the services concerned are enjoyed by only a relatively limited group of users
does not necessarily call in question the universal nature of an SGEI mission within the meaning of
Community law. It follows that the applicants’ restrictive understanding of the universal nature of an
SGEI, based on certain Commission reports or documents, the content of which, moreover, is not legally
binding, is not compatible with the scope of the discretion which Member States have when defining
an SGEI mission. Consequently, that argument must be rejected as unfounded.
. . .
189. Contrary to the applicants’ opinion, however, the binding nature of the SGEI mission does not
presuppose that the public authorities impose on the operator concerned an obligation to provide a
service having a clearly predetermined content . . . In effect, the compulsory nature of the SGEI mission
does not preclude a certain latitude being left to the operator on the market, including in relation
to the content and pricing of the services which it proposes to provide. In those circumstances, a
minimum of freedom of action on the part of operators and, accordingly, of competition on the quality
and content of the services in question is ensured, which is apt to limit, in the community interest, the
scope of the restriction of competition which generally results from the attribution of an SGEI mission,
without any effect on the objectives of that mission.
190. It follows that, in the absence of an exclusive or special right, it is sufficient, in order to conclude that
a service is compulsory, that the operator entrusted with a particular mission is under an obligation
to provide that service to any user requesting it. In other words, the compulsory nature of the service
and, accordingly, the existence of an SGEI mission are established if the service-provider is obliged to
contract, on consistent conditions, without being able to reject the other contracting party. That element
makes it possible to distinguish a service forming part of an SGEI mission from any other service provided
on the market and, accordingly, from any other activity carried out in complete freedom.
While the Court gives considerable latitude to Member States in determining what a SGEI is,
it also suggests that there is an emerging set of Union-wide criteria.58 In this judgment, these
58
See further M. Ross, ‘Healthy Approach to Services of General Economic Interest? The BUPA Judgment of the
Court of First Instance’ (2009) 34 European Law Review 127.
21 State Regulation and EU Competition Law
include the compulsory nature of the service, by which it is meant that the operator must afford it to all those that are eligible. Moreover, the State has an obligation to indicate why the
service in question merits to be labelled of general interest and so escape from its Treaty obligations. According to some, this means that the state must show that there is a market failure:
that is, absent state regulation the service would not be carried out.59
The second criteria is that, if a provider of a service of general economic interest infringes
EU law, it must show that a derogation from its EU law obligations is necessary to ensure
that the service can be provided. Reading Article 106(2) literally, the defendant should have
to show that without the derogation there would be no provision of the SGEI (because competition would ‘obstruct’ the performance of the service). However, the court has taken a
more lenient stance.60 Since the types of services in question are unlikely to be provided by
the private sector because they are unprofitable,61 the state may have to offer some financial
advantage to the undertaking obliged to provide the SGEI, the effect of which is to restrict
competition. Consider, for instance, the arrangements for the provision of ambulance services
in Germany, which is organised at regional level. In brief, the Rheinland-Pfalz Lander wished
to ensure the operation of an emergency ambulance service in its territory. However, this
service is not profitable, so the operators were also given an exclusive right over the provision of another profitable service: non-emergency transport. Ambulanz Glockner wished to
offer non-emergency transport in competition with the medical aid organisations, and sought
to annul the grant of exclusive rights to its competitors. The Court agreed that the national
law could be incompatible with Article 106(1), like in the RTT case, in that the law which
had conferred a special or exclusive right on medical aid organisations for the provision of
emergency services has the effect of ‘reserving to those medical aid organisations an ancillary transport activity which could be carried on by independent operators’, viz. the market
for non-emergency transport. The Court then went on to consider the application of Article
106(2).
Case C-475/99 Ambulanz Glöckner v. Landkreis Südwestpfalz [2001] ECR I-8089
52. [The defendant and others argued that] some measure of protection of the public ambulance service
against competition from independent operators is necessary, even on the non-emergency transport
market.
53. They argue that emergency transport services, which must be provided 24 hours a day throughout
the territory, require costly investments in equipment and qualified personnel. It is necessary to avoid
a situation in which those costs cannot be offset, at least partially, by revenue from non-emergency
transport. Not only does the very presence of independent operators in this market have the effect
of reducing revenue from the public ambulance service, but it is also to be expected that those
operators, seeking profits, will prefer to concentrate their services in densely populated areas or on
short distances, so that, besides emergency transport, the medical aid organisations would be left only
59
W. Sauter, ‘Services of General Economic Interest and Universal Service in EU Law’ (2008) 33 European Law
Review 167.
60
The early case law adopted a stricter approach: see NAVEWA-ANSEAU OJ 1982, L 167/39, para. 48.
61
Case C-203/96 Chemische Afvalstoffen Dusseldorp BV and Others v. Minister van Volkshuisvesting, Ruimtelijke
Ordening en Milieubeheer [1998] ECR I-4075 (per AG Jacobs, para. 39).
22 European Union Law
54.
55.
56.
57.
58.
61.
62.
64.
with non-emergency transport in remote areas. The Austrian Government also points out that, since
the public ambulance service is financed ultimately either through taxes or through health insurance
contributions there is a serious risk that the inevitable losses of the public ambulance service will be
socialised, whilst its potential profits will go to the independent operators.
They also contend that it is likewise in the general interest for prices not to vary according to the
areas served.
With regard to those arguments, the medical aid organisations are incontestably entrusted with a task
of general economic interest, consisting in the obligation to provide a permanent standby service of
transporting sick or injured persons in emergencies throughout the territory concerned, at uniform
rates and on similar quality conditions, without regard to the particular situations or to the degree of
economic profitability of each individual operation.
However, [Article 106(2) TFEU], read in conjunction with paragraph (1) of that provision, allows
Member States to confer, on undertakings to which they entrust the operation of services of general
economic interest, exclusive rights which may hinder the application of the rules of the Treaty on
competition in so far as restrictions on competition, or even the exclusion of all competition, by other
economic operators are necessary to ensure the performance of the particular tasks assigned to the
undertakings holding the exclusive rights.
The question to be determined, therefore, is whether the restriction of competition is necessary
to enable the holder of an exclusive right to perform its task of general interest in economically
acceptable conditions. The Court has held that the starting point in making that determination must be
the premiss that the obligation, on the part of the undertaking entrusted with such a task, to perform
its services in conditions of economic equilibrium presupposes that it will be possible to offset less
profitable sectors against the profitable sectors and hence justifies a restriction of competition from
individual undertakings in economically profitable sectors.
In the case before the national court . . . it appears that the system put in place by the [State Law]
is such as to enable the medical aid organisations to perform their task in economically acceptable
conditions. In particular, the evidence placed before the Court shows that the revenue from nonemergency transport helps to cover the costs of providing the emergency transport service.
. . .
. . . the extension of the medical aid organisations’ exclusive rights to the non-emergency transport
sector does indeed enable them to discharge their general-interest task of providing emergency
transport in conditions of economic equilibrium. The possibility which would be open to private
operators to concentrate, in the non-emergency sector, on more profitable journeys could affect the
degree of economic viability of the service provided by the medical aid organisations and, consequently,
jeopardise the quality and reliability of that service.
However, as the Advocate General explains in point 188 of his Opinion, it is only if it were established
that the medical aid organisations entrusted with the operation of the public ambulance service were
manifestly unable to satisfy demand for emergency ambulance services and for patient transport at all
times that the justification for extending their exclusive rights, based on the task of general interest,
could not be accepted.
. . .
It is for national court to determine whether the medical aid organisations which occupy a dominant
position on the markets in question are in fact able to satisfy demand and to fulfil not only their
statutory obligation to provide the public emergency ambulance services in all situations and 24 hours
a day but also to offer efficient patient transport services.
23 State Regulation and EU Competition Law
65. Consequently, [the relevant law] is justified under [Article 106(2)] of the Treaty provided that it does
not bar the grant of an authorisation to independent operators where it is established that the medical
aid organisations entrusted with the operation of the public ambulance service are manifestly unable to
satisfy demand in the area of emergency transport and patient transport services.
The facts illustrate a common means by which public services are financed: the state imposes
a public service obligation in one market (which is usually unprofitable), but also grants those
undertakings an exclusive right in a related, profitable sector which does not constitute a SGEI
so that the losses in one are offset by the gains in the other. The upshot is that competition
is eliminated in both the market for the public service and that of the profitable sector. As
the Lander noted in this case, without this arrangement, the provision of the public service
would lead to greater taxation (because the alternative means of financing the public service
is through direct cash injections from the state), while the present system allows for private
sector involvement in the provision of public services and, so the ideology goes, private sector
provision is more efficient and hence less costly than public sector, tax-funded, supply.
The judgment confirms that in order to prove that the non-application of competition law is
necessary for the provision of the SGEI, there is no need to show that there is no other way to
perform the task, only that the way the market is organised allows the provider of the SGEI to
operate under economically acceptable conditions.62 This standard leaves Member States free
to determine the most appropriate way of financing a service of general economic interest.63
But the Court inserts a new condition: if it is found that the undertaking is manifestly unable
to satisfy demand on the reserved markets, then the derogation cannot be granted. Thus, the
national public policy derogation in Article 106(2) is qualified by an EU law obligation to ensure that the markets where competition is eliminated so as to guarantee a service of general
interest operate efficiently.64
(iii) Financing SGEIs
Above we saw two mechanisms by which Member States may finance the provision of SGEIs:
in Glöckner the SGEI provider was given a monopoly in a related profitable market so that it
could cover the costs of the unprofitable SGEI, while in BUPA a fund was created whereby
competitors of the SGEI provider were obliged to make contributions that would go to the SGEI
provider. As soon as a state opts for the use of public funds there is a risk that such funding
contravenes the rules on state aid and requires notification. At first, it might be considered that
62
Case 157/94 Commission v. Netherlands [1997] ECR I-5699, paras. 56–8.
P. J. Slot, ‘Note on the Energy Cases and Franzen’ (1998) 35 CMLRev 1183, 1200. But in some cases the Court
deploys a tougher proportionality standard demanding proof that there is no less restrictive manner of preserving
the service of general economic interest: for example, Case C-203/96 Chemische Afvalstoffen Dusseldorp BV and
Others v. Minister van Volkshuisvesting, Ruimtelijke Ordening en Milieubeheer [1998] ECR 4075, para. 67. The
test set out in the main text has the advantage of being preferred by states and others who participated in an EUwide consultation (see Report on the Public Consultation on the Green Paper on Services of General Interest
SEC(2004) 362, 15 March 2004).
64 Disagreeing with this contention, and voicing more autonomy for Member States, see F. De Cecco, State Aid and
the European Economic Constitution (Oxford: Hart, 2013) 159.
63
24 European Union Law
if the funding falls within Article 107(1) TFEU then this entails notification and an exemption
by utilising Article 106(2) TFEU. However, the ECJ insisted for a solution that might avoid
notification, which it codified in the Altmark judgment. Here the district of Stendal (Germany)
granted Altmark Trans a licence to operate bus services together with a subsidy so it could
run this service. The question arose whether in this situation any state support would constitute state aid. The Court held that in certain circumstances state funding would not constitute
state aid.
Case C-280/00 Altmark Trans GmbH and Regierungspräsidium Magdeburg
v. Nahverkehrsgesellschaft Altmark GmbH, and Oberbundesanwalt beim
Bundesverwaltungsgericht [2003] ECR I-7747
87. [. . .] where a State measure must be regarded as compensation for the services provided by the recipient
undertakings in order to discharge public service obligations, so that those undertakings do not enjoy
a real financial advantage and the measure thus does not have the effect of putting them in a more
favourable competitive position than the undertakings competing with them, such a measure is not
caught by Article [107(1)] of the Treaty.
88. However, for such compensation to escape classification as State aid in a particular case, a number of
conditions must be satisfied.
89. First, the recipient undertaking must actually have public service obligations to discharge, and the
obligations must be clearly defined. In the main proceedings, the national court will therefore have to
examine whether the public service obligations which were imposed on Altmark Trans are clear from
the national legislation and/or the licences at issue in the main proceedings.
90. Second, the parameters on the basis of which the compensation is calculated must be established in
advance in an objective and transparent manner, to avoid it conferring an economic advantage which
may favour the recipient undertaking over competing undertakings.
91. Payment by a Member State of compensation for the loss incurred by an undertaking without the
parameters of such compensation having been established beforehand, where it turns out after
the event that the operation of certain services in connection with the discharge of public service
obligations was not economically viable, therefore constitutes a financial measure which falls within
the concept of State aid within the meaning of Article [107(1)] of the Treaty.
92. Third, the compensation cannot exceed what is necessary to cover all or part of the costs incurred in
the discharge of public service obligations, taking into account the relevant receipts and a reasonable
profit for discharging those obligations. Compliance with such a condition is essential to ensure that
the recipient undertaking is not given any advantage which distorts or threatens to distort competition
by strengthening that undertaking’s competitive position.
93. Fourth, where the undertaking which is to discharge public service obligations, in a specific case, is not
chosen pursuant to a public procurement procedure which would allow for the selection of the tenderer
capable of providing those services at the least cost to the community, the level of compensation
needed must be determined on the basis of an analysis of the costs which a typical undertaking, well
run and adequately provided with means of transport so as to be able to meet the necessary public
service requirements, would have incurred in discharging those obligations, taking into account the
relevant receipts and a reasonable profit for discharging the obligations.
94 . . . a State measure which does not comply with one or more of those conditions must be regarded as
State aid within the meaning of that provision.
25 State Regulation and EU Competition Law
The impact of this ruling is that if a Member State finances an SGEI in a manner that fulfils
these criteria, then this public financing will be considered as compensation for the public
service obligation, and not state aid. Therefore, it falls outside the state aid rules, and does
not need justification under Article 106(2). The Court’s intention must have been to minimise
regulatory burdens. However, it is reported that the Commission has applied these criteria very
strictly, so that hardly any state assistance has satisfied the test and most had to be reviewed
under Article 106(2).65 There are two readings of this result. One is that the approach devised
by the ECJ is too cumbersome for Member States to comply with. The other is that Member
States tend to overcompensate providers of SGEIs. At any rate, the political pressure on the
Commission to ensure that Member States are able to keep up the provision of SGEIs has been
significant, which explains the measures it has taken to cater for cases where the state does
not fulfil the Altmark conditions.66
First, a special de minimis Regulation is applicable for financing SGEIs. The de minimis
threshold here (€500,000 over three fiscal years) is much higher than that of the general
state aid de minimis threshold.67 The rationale for raising the threshold is that most often the
funds are to provide for the development of local projects so the territorial scope is limited;
moreover, most of the funds will compensate the beneficiary for discharging a public service
obligation, which mitigates the impact on competition.68
Second, if the aid amounts are higher, the state may rely on a Decision on the application of
Article 106(2). For most SGEIs this sets a threshold of €15 million for most services, but higher
amounts are allowed for financing (inter alia) hospitals and other social services, so as to protect vulnerable citizens.69 The Decision also reformulates the criteria in Altmark to ensure that
there is no overcompensation. It is then legitimate to ask why a decision is issued if it restates
the principles in the judgment. There seem to be two reasons: first, it does not require that the
fourth Altmark condition is satisfied (that is, identifying the most economical provider). This
might be because the provider is a public undertaking that has historically provided the service
in question and it would be uneconomical (or politically risky) to put the service to tender. Secondly, because the Decision is less cumbersome: if you fail the Altmark test you would have
to notify the state aid, while under the Decision, no notification is required and the state must
monitor if there is any overcompensation. If there has been overcompensation then repayment
is required but this can occur ex post.70 This makes life much easier for Member States than the
ex ante approach in Altmark or the traditional notification procedure for state aid.71
65
M. Klasse, ‘Services of General Economic Interest’ in M. Heidenhain (ed.), European State Aid Law Handbook
(Oxford/Munich, C. H. Beck/Hart/Nomos, 2010). Instead the General Court in BUPA (extracted above) was more
flexible.
66
These measures should be read together with the Communication from the Commission on the application of
the European Union State aid rules to compensation granted for the provision of services of general economic
interest, OJ 2012, C 8/4.
67
Which is set at €200,000. See p. 1070.
68
Recitals 3 and 4, Commission Regulation on the application of Articles 107 and 108 of the Treaty on the
Functioning of the European Union to de minimis aid granted to undertakings providing services of general
economic interest, OJ 2012, L 114/8.
69 Article 2, Commission Decision on the application of Article 106(2) of the Treaty on the Functioning of the
European Union to State aid in the form of public service compensation granted to certain undertakings entrusted
with the operation of services of general economic interest, OJ 2012, L 7/3.
70 Ibid. Article 6.
71 On the usual notification procedures, see pp. 1071–4.
26 European Union Law
Thirdly, if the Decision is inapplicable then there is a general framework for state aids that
may be applied. At this stage, the state must notify the measure but this communication codifies what the Commission sees as vital for success. Of particular significance are several conditions which regulate the choice of the state with market-based criteria. For example, the state
must show that there is a market failure which requires the imposition of SGEI obligations,
and that the public must be consulted; it must use public procurement procedures to assign the
delivery to the cheapest provider; and it must ensure that there are incentives for the efficient
provision of the services in question.72
This regulatory framework to allow Member States to finance SGEIs seeks to achieve a delicate balance: on the one hand, to ensure that these services continue to be delivered and that
the regulatory burden is not unduly cumbersome (which explains why the Regulation and the
Decision secure exemption from the notification procedures); and, on the other hand, there is
an attempt to discipline Member States: requesting the selection of the best providers and ensuring that there is quality delivery at least cost. This runs counter to the traditions of certain
Member States that provide excessive funding with little accountability.73 In times of austerity,
states may find these conditions more palatable, however.
(iv) A Union approach to SGEIs?
What we have seen in the discussion so far is an increasing control by EU law of the way states
may regulate and finance SGEIs. In particular, the EU insists on the selection of efficient providers, and on monitoring of the performance of all SGEI providers to ascertain that they meet
the needs of users.74 Two further developments are worth noting. The first is a novel provision,
added by the Treaty of Amsterdam, and expanded by the Lisbon Treaty.75
Article 14 TFEU
Without prejudice to Article 4 of the Treaty on European Union or to Articles 93, 106 and 107 of
this Treaty, and given the place occupied by services of general economic interest in the shared
values of the Union as well as their role in promoting social and territorial cohesion, the Union
and the Member States, each within their respective powers and within the scope of application
of the Treaties, shall take care that such services operate on the basis of principles and conditions,
particularly economic and financial conditions, which enable them to fulfil their missions. The
European Parliament and the Council, acting by means of regulations in accordance with the ordinary
legislative procedure, shall establish these principles and set these conditions without prejudice to
the competence of Member States, in compliance with the Treaties, to provide, to commission and to
fund such services.
72
Communication from the Commission — European Union framework for State aid in the form of public service
compensation, OJ 2012, C 8/15.
73
E. Szyszczak, ‘Modernising State Aid and the Financing of SGEI’ (2012) 3(4) Journal of European Competition
Law & Practice 332.
74
European Commission, Report to the Laeken European Council – Services of General Interest COM(2001)
598 final, paras. 41–7.
75
See also Article 36 of the Charter of Fundamental Rights of the European Union, OJ 2000, C 364/1.
27 State Regulation and EU Competition Law
The Lisbon Treaty amended this Article in two ways. First, it did so by underscoring the importance of ensuring that providers of these services are afforded ‘economic and financial
conditions’ to carry out their tasks. Secondly, the final sentence gives the Union legislative
competence; and by providing that secondary legislation is to be by way of regulations, this
may undermine the state’s autonomy to design services of general interest. Running contrary
to this, however, is Protocol 26 on services of general interest, which was introduced by the
Lisbon Treaty. It contains two declarations. Article 1, regarding services of general economic
interest (e.g. provision of electricity, telecommunications, water), notes ‘the essential role and
the wide discretion of national, regional and local authorities in providing, commissioning and
organising services of general economic interest as closely as possible to the needs of the users;
the diversity between various services of general economic interest and the differences in the
needs and preferences of users that may result from different geographical, social or cultural
situations; a high level of quality, safety and affordability, equal treatment and the promotion
of universal access and of user rights.’ Article 2 regarding non-economic services of general
interest (e.g. police, social security benefits), declares that the Treaty does not affect the ‘competence of Member States to provide, commission and organise’ such services.
These amendments pit the Commission’s liberalisation drive, which it believes is compatible
with the delivery of public services, against a policy premised upon the reduction in the scope
of competition law to ensure the Union and Member States fulfil their duties to the citizens.
A clash between these two visions on how to deliver public services is likely as the Commission’s communication reflecting on the Treaty amendments suggests that it is satisfied with
the present rules and its plans are merely to inform parties what the rules are, to ensure that
the liberalisation of utilities continues, and to monitor the effects of liberalisation.76 Member
States and the European Parliament are likely to want a stronger commitment to services of
general interest.77
Until the Union chooses to legislate, the focus of analysis will remain on the first sentence
of Article 14 and its possible impact. The key point to note is that this Article imposes an
obligation upon both states and the Union to ensure that SGEIs fulfil their functions. The
Commission’s view is that SGEIs are ‘an essential element of the European model of society’.
Much is made of the value they play in a social sense (by enhancing the quality of life of the
European citizen) and in an economic sense (the efficiency and quality of these services is
seen as a key to increasing competitiveness by attracting investment in less developed regions
of the Union).78 Cynics have argued that the insertion of this article was at the insistence of
certain states that, concerned about the Union’s expansive liberalisation of economic sectors,
sought to protect national public services. In this view, the text is a political compromise of
no consequence.79 Others, like AG Maduro, have suggested that the first sentence of Article
14 merely provides a point of reference for interpreting Article 106(2).80 Others take the view
76
EC Commission, Services of general interest, including social services of general interest: a new European
commitment COM(2007) 725 final.
77 See generally M. G. Ross, ‘Promoting Solidarity: From Public Services to a European Model of Competition?’
(2007) 44 CMLRev 1057; N. Boeger, ‘Solidarity and EC Competition Law’ (2007) 32 European Law Review 319.
78 EC Commission, Green Paper on Services of General Interest COM(2003) 270 final, para. 2.
79 A. Duff (ed.), The Treaty of Amsterdam (London, Federal Trust, 1997), 84.
80 Case T-319/99 Federación Nacional de Empresas de Instrumentación Científica, Médica, Técnica y Dental (FENIN)
v. Commission [2003] ECR II-357.
28 European Union Law
that this provision merely clarifies that state intervention is allowed when there is a market
failure and that this intervention ensures the smooth functioning of the market.81 In a different light, Malcolm Ross argues that Article 14 has elevated the importance of these services
and is potentially an ‘upgraded endorsement of social objectives’ within the European Union.
Moreover, he suggests that a (EU) concept of SGEI can galvanise the sense of European citizenship.82 This would indicate less of an emphasis on the ‘market rationality’ of a state’s choice
and a greater focus on the importance of the values that services of general interest protect.83
The second development to note is that the Union has begun to harmonise the provision
of services of general economic interest by identifying certain ‘universal service obligations’.
These universal services are deemed essential, and that must be ‘made available at a specified
quality to all consumers and users throughout the territory of a Member State, independent
of geographical location, and . . . at an affordable price’84 thereby imposing on states obligations to provide a common range of SGEIs. We consider an example of these in the discussion
of postal service liberalisation. One strand of criticism against this development is that, while
many Member States have a constitutional culture of ‘public services’, the notion of universal
service begins from the assumption that most services will be provided by competitive markets,
and only market failures require regulation; moreover, it is argued that the notion of universal
service does not take into account dynamic considerations such as providing incentives to
invest or identifying the needs of the next generation of users. By relegating it as a measure of
consumer protection, one loses the focus on the long-term needs of users.85
4 Positive integration: the liberalisation of network industries
The case law discussed above is in large part the result of businesses seeking to participate in
markets sealed off by anti-competitive state measures. By challenging restrictions on market
access in fields as varied as telecommunications, postal services, harbour facilities, ambulance
services, broadcasting and social security benefits, they forced the ECJ to apply the Treaty’s
pro-market provisions to liberalise a wide range of economic sectors. But such episodic and
indirect pressures to facilitate market access cannot create the best conditions for competition
in an economic sector, nor will they lead to a harmonised approach across the EU: positive integration measures were required. In the past three decades, the Commission has worked hard to
press for EU legislation to open markets in network industries (e.g. energy, telecommunications
and postal services) because these industries form the backbone of a number of other economic
activities and creating more efficient European networks would improve the competitiveness of
Europe’s industry more generally.86 Initially the Commission met national reluctance to agree
81
H.-P. Schwintowski, ‘The Common Good, Public Subsistence and the Functions of Public Undertakings in the
European Internal Market’ (2003) 4 European Business Organization Law Review 353, 371–2.
82
M. G. Ross, ‘Article 16 EC and Services of General Interest: From Derogation to Obligation?’ (2000) 25 European
Law Review 22 and see the references to citizenship in the White Paper on Services of General Interest
COM(2004) 734 final.
83 Sometimes this argument is also linked to subsidiarity: see Report on the Public Consultation on the Green Paper
on Services of General Interest SEC(2004) 362.
84 European Commission, Green Paper on Services of General Interest COM(2003) 270 final, para. 50.
85 M. Finger and D. Finon, ‘From “Service Public” to Universal Service: The Case of the European Union’ in M. Finger
and R. W. Künneke, International Handbook of Network Industries (Cheltenham, Edward Elgar, 2011) 64–5.
86 A single market for the 21st century Europe COM(2007) 724 final.
29 State Regulation and EU Competition Law
to such legislation by using its powers of legislation under Article 106(3) TFEU (which allows
the Commission to issue directives, eschewing the traditional law-making channel of Article
114 TFEU).87 The Commission’s legislative initiatives were a challenge to Member States who,
fearful of uncontrolled, Commission-led initiatives,88 were persuaded to negotiate liberalisation
within the procedures in Article 114, which left them political space to advance liberalisation
while allowing them some scope to safeguard national interests. The drawback, at least from
the Commission’s perspective, is that while in some economic sectors (notably telecommunications) liberalisation has been successful, political foot-dragging has meant that in other sectors
(notably postal services and energy), the degree of market opening has been less pronounced.
Occasionally, the Commission has threatened to revert to using Article 106(3) to liberalise certain economic sectors when Member States try to stall the legislative process.89
The liberalisation of the postal sector is a representative case study of the Union’s approach.
We present this in three phases: first, we consider the factors influencing the policy developments and consider how the sector was opened to competition in a gradual manner; secondly, we explore how competition law enforcement was used to supplement the liberalisation
Directives; and, finally, we turn to the final stage of liberalisation of this sector – full market
opening – and evaluate the results of this process. These three phases may also be found in the
liberalisation of other sectors.
(i) Postal service liberalisation: creating competitive markets gradually
The Commission’s interest in liberalising the postal sector began in the late 1980s as private
parcel firms that had begun to operate in the United States and the United Kingdom began to
lobby for access to the European markets, where national legislation prohibited access by couriers.90 The courier companies allied themselves with Directorate-General Competition, which
played a determinative role in the Green Paper on Postal Services,91 and initiated action challenging state laws that reserved value-added services to one undertaking.92 A further factor
stimulating liberalisation was the development of e-communications, which made traditional
postal services increasingly unprofitable: the sector needed to adjust to this challenge and it
was felt that market forces would provide appropriate stimuli.93 This gave all Member States
87
See C. Scott, ‘Changing Patterns of European Community Utilities Law and Policy: An Institutional Hypothesis’ in
J. Shaw and G. More, New Legal Dynamics of European Union (Oxford University Press, 1995) 208–10.
88
Especially as the Court confirmed the Commission’s powers: Case C-202/88 France v. Commission [1991] ECR
I-1223 .
89
E.g. in the run up to the amendment of the gas and electricity Directives, the Commission threatened the use of
Article 106(3) (Press Release IP(01)872 of 20 June 2001).
90
J. I. Campbell Jr. ‘Couriers and the European Postal Monopolies: Policy Challenges of a Newly Emerging Industry’
in R. H. Pedlar and M. P. C. M. Van Schendelen (eds.), Lobbying in the European Union (Dartmouth, Aldershot,
1994).
91
Green Paper on the Development of the Single Market for Postal Services COM(91) 476, 11 June 1992.
92
Dutch PTT, OJ 1990, L 10/47, challenging a law excluding access for express delivery services (Joined Cases
48 and 60/90 Netherlands and Koninklijke PTT Nederland NV and PTT Post BV v. Commission [1992] ECR
565, overruling the Commission on procedural grounds, but agreeing that the Commission was empowered
under Article 106(3) to decide that national law was incompatible with Article 106(1)); Spanish International
Express Courier Services, OJ 1990, L 233/19, challenging a law prohibiting competition for letters below 2kg and
prohibiting private couriers from market access.
93 M. A. Crew, and P. Kleindorfer, ‘Liberalization in the Postal and Delivery Sector’ in M. Finger and R. W. Künneke
(eds.), International Handbook of Network Industries (Cheltenham, Edward Elgar, 2011) 329.
30 European Union Law
a reason to support the Commission’s proposals. In response, national postal service providers
(who were, in most Member States, public undertakings) argued in favour of their privileged
position by indicating that competition law would dent the provision of a high quality, universal postal service that benefited all citizens and which was very costly, in particular when one
needed to serve remote areas. These positions set the tone for the liberalisation narrative: how
far can one inject competition without compromising the provision of an efficient universal
postal service?
The facts of the controversial Corbeau judgment show the main methods that the European
Union used to address this question. Mr Corbeau wished to operate a rapid delivery service,
but this infringed the Belgian postal monopoly that granted the Régie des Postes the exclusive
right to operate all postal services. In answering the Belgian court’s question on the application
of Article 106, the ECJ held that this kind of legislation would be contrary to Article 106 when
the postal service markets granted to the monopoly undertaking were excessive and unnecessary to guarantee the provision of the service of general economic interest. The gist of the
Court’s analysis is that postal services comprise a variety of markets, some of which should be
operated by the state in order to guarantee that every citizen can use the post, but that other
value-added services that are used by businesses (for example same-day delivery) should be
operated by many competitors so as to give consumers increased choice. The Court acknowledged that the operator subject to public service obligations could be granted the exclusive
right to operate in other, profitable, markets to offset the losses arising from the supply of the
service of general economic interest.
Case C-320/91 Corbeau [1993] ECR I-2533
The starting point . . . must be the premise that the obligation on the part of the undertaking
entrusted with that task to perform its services in conditions of economic equilibrium presupposes
that it will be possible to offset less profitable sectors against the profitable sectors and hence
justifies a restriction of competition from individual undertakings where economically profitable
sectors are concerned.
Indeed, to authorise individual undertakings to compete with the holder of the exclusive rights
in the sectors of their choice corresponding to those rights would make it possible for them to
concentrate on the economically profitable operations and to offer more advantageous tariffs
than those adopted by the holders of the exclusive rights since, unlike the latter, they are not
bound for economic reasons to offset losses in the unprofitable sectors against profits in the
more profitable sectors.94
The upshot is that while value-added services can be offered across the European Union,
Corbeau guarantees that some economic sectors can be reserved to the national postal operator
to finance the operation of the services of general economic interest.95 The facts of Corbeau
94
95
Case C-320/91 Corbeau [1993] ECR I-2533.
For a critique see D. Geradin and C. Humpe, ‘The Liberalization of Postal Services in the European Union: An
analysis of Directive 97/67’ in D. Geradin (ed.), The Liberalization of Postal Services in the European Union (The
Hague, Kluwer Law International, 2002) 96–9.
31 State Regulation and EU Competition Law
also indicate that certain postal services should be available universally, and that any EU law
initiative should not only increase competition but safeguard, across the European Union, the
provision of a common set of universal services. The spirit of the Court’s approach was followed in the First Postal Directive in 1997: first, it identified a list of universal services and
provided that Member States had an obligation to ensure that these were provided. This list
is set out below. Secondly, the first and the second postal Directives identified the ‘reserved
sector’ which Member States could protect from competition, so that the profits made in that
sector could finance the provision of universal services.
Directive 97/67/EC on common rules for the development of the internal market of
Community postal services and the improvement of quality of service, OJ 1998, L 15/14
(as amended by Directive 2002/39/EC with regard to the further opening to competition
of Community postal services, OJ 2002, L 176/21 and by Directive 2008/6/EC with
regard to the full accomplishment of the internal market of Community postal services,
OJ 2008, L 52/3)
Article 3
1. Member States shall ensure that users enjoy the right to a universal service involving the permanent
provision of a postal service of specified quality at all points in their territory at affordable prices for
all users.
2. To this end, Member States shall take steps to ensure that the density of the points of contact and of
the access points takes account of the needs of users.
3. Member States shall take steps to ensure that the universal service is guaranteed not less than five
working days a week, save in circumstances or geographical conditions deemed exceptional, and that
it includes as a minimum:
- one clearance,
-one delivery to the home or premises of every natural or legal person or, by way of derogation,
under conditions at the discretion of the national regulatory authority, one delivery to appropriate
installations.
Any exception or derogation granted by a national regulatory authority in accordance with this
paragraph must be communicated to the Commission and to all national regulatory authorities.
4. Each Member State shall adopt the measures necessary to ensure that the universal service includes
the following minimum facilities:
- the clearance, sorting, transport and distribution of postal items up to two kilograms,
- the clearance, sorting, transport and distribution of postal packages up to 10 kilograms,
- services for registered items and insured items.
5. The national regulatory authorities may increase the weight limit of universal service coverage for
postal parcels to any weight not exceeding 20 kilograms and may lay down special arrangements for
the door-to-door delivery of such parcels.
Notwithstanding the weight limit of universal service coverage for postal parcels established by a
given Member State, Member States shall ensure that postal parcels received from other Member States
and weighing up to 20 kilograms are delivered within their territory.
6. The minimum and maximum dimensions for the postal items in question shall be those as laid down in
the relevant provisions adopted by the Universal Postal Union.
32 European Union Law
Article 4
1. Each Member State shall ensure that the provision of the universal service is guaranteed and shall
notify the Commission of the steps it has taken to fulfil this obligation. The Committee referred to in
Article 21 shall be informed of the measures established by Member States to ensure the provision of
the universal service.
2. Member States may designate one or more undertakings as universal service providers in order that the
whole of the national territory can be covered. Member States may designate different undertakings to
provide different elements of universal service and/or to cover different parts of the national territory. When
they do so, they shall determine in accordance with Community law the obligations and rights assigned
to them and shall publish these obligations and rights. In particular, Member States shall take measures
to ensure that the conditions under which universal services are entrusted are based on the principles of
transparency, non-discrimination and proportionality, thereby guaranteeing the continuity of the universal
service provision, by taking into account the important role it plays in social and territorial cohesion.
Member States shall notify the Commission of the identity of the universal service provider(s) they
designate. The designation of a universal service provider shall be subject to a periodic review and be
examined against the conditions and principles set out in this Article. However, Member States shall
ensure that the duration of this designation provides a sufficient period for return on investments.
The impact of Article 3 is to ‘Europeanise’ universal services, by obliging Member States to
harmonise the entitlements for all citizens across the European Union. However, this list of
universal services reflects the state of the market in 1997, and may need updating: it forces the
universal service provider to invest heavily in infrastructure that supports a business model
(several post offices across the country, and the collection and distribution of letters) that is in
the wane, and results in poor investments being made. Article 4 is significant in that it anticipates competition even in the provision of universal service provision.
As suggested above, the First and Second Postal Directives of 1997 and 2002 identified a
‘reserved sector’ that the universal service providers may be granted so that the profits from
it can offset the losses incurred in the provision of the universal service.96 There was some
debate as to whether this method of financing universal services is the most effective,97 and
there were also debates over the size of the reserved sector necessary to guarantee the continued provision of universal services. The debates centred upon a trade-off between allowing
greater entry in the market, which would yield efficiencies, and the cost of allowing too much
competition so that the universal services cannot be financed.98 In the context of the Union,
the size of the reserved sector was not merely based upon this trade-off, but also a political
compromise whereby those states unwilling to expose national postal services to the full effects of competition are able to have more time to adjust their markets.
96
Article 7, First and Second Postal Services Directive.
For a dissenting voice, see M. Griffiths, ‘Failing to Install Effective Competition in Postal Services – the Limited
Impact of EC Law’ [2000] ECLR 399, 400.
98 See M. A. Crew and P. R. Kleindorfer, ‘Efficient Entry, and Universal Service Obligation in Postal Service’ (1988)
14 Journal of Regulatory Economics 103 (in favour of a reserved sector) and Geradin and Humpe, n. 95 above,
97–101 (against). An alternative way of financing the universal services is through the creation of a fund
where postal service undertakings which do not offer universal services contribute to a fund to compensate the
undertaking(s) operating the universal services. For an unsuccessful implementation of a compensation fund, see
Case C-340/99 TNT Traco v. Poste Italiane [2001] ECR I-4109.
97
33 State Regulation and EU Competition Law
The European Union was conscious of the political delicacy of reform and the Second Postal
Directive merely set out a ‘timetable for a gradual and controlled opening of the letters market
to competition which allows all universal service providers sufficient time to put in place the
further measures of modernisation and restructuring required to ensure their long-term viability under the new market conditions’.99 Market opening occurred by gradually shrinking
the size of the reserved sector. The First Directive (in 1997) only liberalised 3 per cent of the
market (although the market for value-added services had already been rendered competitive
by Directorate-General Competition’s actions)100 and the Second Directive (in 2002) opens up
to competition a slice of the letter market, which comprises 16 per cent of postal revenues.101
Accordingly, states were successful in protecting national postal providers, a politically important sector given the high level of employment.102
(ii)Monitoring the changing market with competition law
Transition to the partial level of liberalisation provided by the first two Directives required
Commission supervision under Article 106(3) TFEU when certain states protected the national operator. For instance, France allowed the national post office, La Poste to also participate in the market for mail preparation (i.e. sorting and packaging letters before delivery)
where other firms also competed and gave La Poste the right to control access to its network,
thereby creating a risk that it would favour its mail preparation arm at the expense of competitors.103 Italy attempted to extend the monopoly to a non-reserved sector in breach of
Article 106(1).104 At the same time, the providers of the universal services had undergone
considerable transformation: in some states they were privatised, and in many instances
began to respond to the entry of new service providers by competing against them, either
by protecting their own markets, or by expanding in other postal markets beyond those reserved to them. The result was that the Commission and, increasingly, National Competition
Authorities, were obliged to enforce competition law in response against the exclusionary
tactics of incumbents.105
In applying Article 102 TFEU to firms that have a guaranteed monopoly by virtue of
their control over a reserved sector, the scope of the abuse doctrine expanded, in particular because the Commission was concerned about the use of profits made in the reserved
sector being used to finance anti-competitive practices in the non-reserved sector.106 A
  99Recital
14, Second Postal Directive. 100 ‘Europe’s Last Post’, The Economist, 13 May 2000.
17, Second Postal Directive.
102 Report on the Application of the Postal Directive COM(2002) 632 final (25 November 2002), estimating that
1.2 million persons are employed by universal service providers. The number of persons employed in the postal
sector was 1.6 million in 2006 (Report on the Application of the Postal Directive COM(2008) 884 (final)).
103 La Poste, OJ 2002, L 120/19. 104 Hybrid Mail, OJ 2001, L 63/59.
105 For a summary of recent actions taken by National Competition Authorities, see: WIK-Consult, Main
Developments in the Postal Sector (2010–2013) pp. 67–77 and R. Eccles, ‘Postal Services: Survey of Competition
Law Development’ (2014) 5(3) Journal of European Competition Law & Practice 177. The vast majority of the
cases concern exclusionary abuses.
106 J.-F. Pons and T. Lüder, ‘La politique européenne de la concurrence dans les services postaux hors monopole’
(2001) Competition Policy Newsletter No. 3. The 2002 amendment of the Directive responds to this by also
prohibiting the cross-subsidisation of universal services outside the reserved sector out of services in the reserved
sector unless this is necessary to guarantee the universal service obligations (Article 12). For a review of the
anti-competitive risks, see R. R. Geddes, Competing with the Government: Anticompetitive Behavior and Public
Enterprises (Hoover Institution Press, 2004) chs. 1 and 4, available at www-hoover.stanford.edu/publications/
books/compgov.html.
101 Recital
34 European Union Law
dramatic example of the Commission’s powers under Article 102 TFEU in the context
of liberalised sectors is the Deutsche Post I decision.107 The Commission responded to a
complaint from UPS (one of the private parcel firms that had pressed for market opening
since the 1980s) that Deutsche Post was using revenue from its reserved sector to finance
a predatory pricing campaign in the market for business parcel services and was also offering fidelity rebates to major customers who agreed to use it for the majority of their
mail order needs. These two strategies raised entry barriers to potential competitors in
a non-reserved market and threatened the liberalisation of the market. Upon a finding
that these two abuses did exist, the Commission ordered a structural separation whereby
Deutsche Post undertook to create a separate legal entity to provide the parcel service,
thereby preventing any future cross-subsidisation between the profits from the reserved
sector and other markets.
Given the Commission’s concern over the use of funds from the reserved sector to finance
exclusionary behaviour in competitive markets, it appears surprising that the Commission had
approved a joint venture between Deutsche Post and DHL.108 UPS, relying on earlier case law,
opposed the joint venture, suggesting that the funds obtained in the reserved sector could only
be used to finance the universal services and not be used to expand into other markets, but the
General Court affirmed the Commission’s clearance:
Case T-175/99 UPS Europe v. Commission [2002] ECR II-1915
60. The mere fact that Deutsche Post possessed funds enabling it to effect the acquisition at issue does not
justify presuming the existence of abusive conduct in the reserved market.
61. In the absence of any evidence to show that the funds used by Deutsche Post for the acquisition in
question derived from abusive practices on its part in the reserved letter market, the mere fact that
it used those funds to acquire joint control of an undertaking active in a neighbouring market open
to competition does not in itself, even if the source of those funds was the reserved market, raise any
problem from the standpoint of the competition rules and cannot therefore constitute an infringement
of Article 82 EC or give rise to an obligation on the Commission to examine the source of those funds in
the light of that article.
. . .
64. As regards the applicant’s second contention, to the effect that the future relationship between
Deutsche Post and DHL would necessarily involve cross-subsidisation of DHL’s business in the parcels
market, it need merely be observed that it is clear from the undertaking given by Deutsche Post to the
Commission, in response to the requirement to that effect imposed by the decision of 26 June 1998,
that Deutsche Post is prohibited from engaging in any such cross-subsidisation, with the result that,
for the purposes of this case, that question is academic. Consequently, if, in the future, the applicant
were able to prove such cross-subsidisation on the part of Deutsche Post, it would be entitled to apply
to the Commission or, by virtue of the direct effect of Article 82 EC, to the competent national court for
appropriate penalties to be imposed.
107
Deutsche Post, OJ 2001, L 125/27. The general principles were set out in the Notice from the Commission on the
application of the competition rules to the postal sector and on the assessment of certain state measures relating
to postal services, OJ 1998, C 39/2, part 3.
108
Case IV/M.1168 — DHL/Deutsche Post (1999).
35 State Regulation and EU Competition Law
The fine legal distinction between the abusive use of funds to practise predation and the nonabusive use of such funds to acquire a business is not entirely convincing, for two reasons:
first, it suggests that the German authorities had given Deutsche Post too large a reserved
sector because it made profits well beyond those needed to subsidise its universal service obligations; secondly, by affording Deutsche Post the chance to diversify by entering the parcel
market, this risks strengthening its position. Many former postal monopolies, faced with increased competition, have embarked on a process of mergers and acquisition to diversify their
businesses.109 Lenient treatment of this process of consolidation facilitates the adjustment of
the industry and perhaps serves to justify the elimination of a reserved sector as the providers
of the universal services will have a sufficiently diversified portfolio to make the universal
service obligations sustainable without the need for monopoly profits.
(iii)Managing competitive markets
The Third Postal Services Directive was enacted on 20 February 2008, and it provides for the
removal of all special and exclusive rights by 31 December 2010 for most Member States and
by 2012 for the others (mostly those who joined the European Union in 2004),110 rendering
the market fully open to competition.111 In justifying this radical provision, the Commission
noted, first, that the current system gives the incumbent monopolies a reserved area, which
overcompensates them for carrying out universal services obligations. This has two adverse
effects: incumbents have no incentive to rationalise their business or develop new products,
and entry is discouraged. Secondly, the Commission argued that today’s postal operators are
complex, multi-product firms offering a range of services, and 87.5 per cent of all mail originates from business.112 Accordingly, entry of more competitors is required to satisfy demand
and to overcome the remaining inefficiencies in the marketplace. The Commission maintains
that competitive pressure will lead universal service providers to adapt by becoming more efficient, diversifying their activities, and reducing costs. In addition, the efficient provision of
universal services can be ensured by empowering National Regulatory Authorities to monitor the performance of operators, to grant new entrants access to the incumbent’s delivery
network in high cost areas (so injecting competition in the provision of universal services),
to use licences imposing certain obligations, price caps to protect consumers from excessive
charges, and possibly removing the obligations to set uniform tariffs so that prices are based
on cost. If competition and regulation are insufficient to ensure that the provider of universal
services has the resources to deliver, then the state may select ‘a set of alternative options to
the reserved area . . . to provide for compensation (state aid, sector fees or compensation fund)
109
Report from the Commission to the European Parliament and Council on the Application of the Postal Directive
COM(2002) 632 final, page 27.
110
Articles 2 and 3, Directive 2008/6/EC of 20 February 2008 amending Directive 97/67/EC with regard to the full
accomplishment of the internal market of Community postal services, OJ 2008, L 52/3.
111
See also: Proposal for a Directive of the European Parliament and Council amending Directive 97/67/
EC concerning the full accomplishment of the internal market of Community postal services COM(2006)
594 final and Common Position adopted by the Council on 8 November 2007 with a view to the adoption of a
Directive of the European Parliament and of the Council amending Directive 97/67/EC with regard to the full
accomplishment of the internal market of Community postal services, 8 November 2007 (available at http://
register.consilium.europa.eu/pdf/en/07/st13/st13593-re06.en07.pdf).
112 European Commission, Prospective study on the impact on universal service of the full accomplishment of the
postal internal market in 2009 COM(2006) 596 final, pp. 3–4.
36 European Union Law
or to find alternative ways to provide the service (public tendering, imposing universal service
obligations on other operators).’113
It should be borne in mind that opening the market to full competition does not mean that
there is no need for regulation. National Regulatory Authorities will continue to play a role in
regulating cross-border postal services, the quality of universal service provision, and some
prices of universal services. Nor does full market opening imply that all markets are going
to be competitive. It has been suggested that in the domestic letter market (which includes
delivery of advertising and periodicals), the incumbent still dominates most markets: in five
Member States new entrants have managed to secure market shares higher than 10 per cent.114
Conversely, the market for parcel services is more competitive, not least because the growth of
e-commerce has stimulated this sector. Having said that, the Commission is presently monitoring the functioning of parcel delivery services for business to consumer shipments (B2C) and
has urged operators to improve their services on the one hand and asked National Regulatory
Authorities to monitor this segment – it remains to be seen whether self-regulation suffices or
whether there will be more regulation.115
Two brief comments can be offered at this early stage. First, it is questionable whether opening the letter market will cause new entry. In Sweden and the United Kingdom, where the market is already liberalised, the incumbent has retained over 90 per cent of the letter market,116
so removing the reserved area need not inject those competitive pressures that are said to be
necessary to create incentives to invest and reduce costs. Secondly, the view that universal
services can be provided through competitive markets and subjected to public regulation and
consumer redress seems to leave little scope for developing an alternative approach to universal
services that the draftsman of the Lisbon Treaty envisaged. Instead, more attention has been
paid to improving the competitiveness of the postal sector, to achieve the goals of the Lisbon
competitiveness agenda.117 The tension between the European Union’s role in strengthening the
economy on the one hand and ensuring its citizens’ access to universal services remains.
5 Evaluation
Two major themes underpin the legal developments in this chapter. The first is an economic
theme whereby targeting anti-competitive state action is said to be necessary to achieve the
economic ambitions of the EU Treaties and where the Commission is portrayed as fighting a
battle with protectionist Member States that wish to safeguard national industries. Jacques
113 European
Commission, Prospective study on the impact on universal service of the full accomplishment of
the postal internal market in 2009 COM(2006) 596 final, p. 9. For detail see Article 7, Directive 2008/6/EC of
20 February 2008 amending Directive 97/67/EC with regard to the full accomplishment of the internal market of
Community postal services, OJ 2008, L 52/3.
114 WIK-Consult, Main Developments in the Postal Sector (2010–2013) pp. 182–8 (available at: http://ec.europa.eu/
internal_market/post/doc/studies/20130821_wik_md2013-final-report_en.pdf). The market for correspondence
is more difficult to enter given that the infrastructure is in the hands of the incumbent, but some new entrants
have devised their own collection systems.
115 Commission, A roadmap for completing the single market for parcel delivery: Build trust in delivery services and
encourage online sales COM(2013) 886 final.
116 WIK-Consult The Evolution of the Regulatory Model for Postal Services (2005), available at: http://ec.europa.eu/
internal_market/post/doc/studies/2005-wik-final_en.pdf.
117 ‘Commission welcomes the adoption of the EU Postal Directive. Market Opening brings clear benefits for postal
users’, Press Release IP/08/163 (2008).
37 State Regulation and EU Competition Law
Pelkmans suggests that there are some fundamental weaknesses with the European Union’s
liberalisation project.118 First, the deregulation of industries was not part of the Single
European Act or of the 1992 project for completing the internal market. This meant that the
European Union took an ad hoc approach to liberalisation. This left the door open to lobbying that slowed down liberalisation. Secondly, national governments and civil servants
working in the European Union had ambivalent views about liberalisation, which slowed
down the rate of reform. In these conditions, it is unlikely that the benefits of liberalisation
would materialise. Thus, even in a sector like telecommunications, where liberalisation has
gone furthest, it is legitimate to question how far the lower costs and availability of mobile
phones is down to competition law, as technological development is likely to have made a
comparable contribution to improving consumer welfare.119
This pessimistic view is confirmed by the Commission’s last available report on the operation
of the postal services Directive in 2008: ‘the development of competition with its benefits for
businesses and consumers – although emerging – remains slower than expected.’120 Research
since then has noted more positive results obtain as a result of the growth in e-commerce
which stimulates demand for better parcel services, leading to increased investments.121 In
other sectors, where the Commission has invested more resources in deregulation, results are
similarly discouraging.
Communication from the Commission on the Telecommunications Single Market COM
(2013) 634 final, pp. 3–4
But despite all the progress made so far, the sector continues to face a range of obstacles, barriers and
challenges which together mean that the full benefit of the single market is far from realised. A recent
study showed that, if the internal market for electronic communications were completed, the EU’s gross
domestic product (GDP) could grow by up to 110 billion euros a year.
Overall, the telecoms sector still bears the legacy of former, national monopolies, largely operating
on national lines. Some large telecommunications companies are present in several Member States; but
none is present in all. For the most part mobile operators have merely a national footprint; for many fixed
operators it is even more localised. Those who do operate in several Member States must work under
separate rules, according to the sometimes diverging requirements and remedies of different regulators,
and needing distinct authorisations in each Member State. In addition, often operators active across
several Member States do not behave as truly European operators, and appear content to run their
activities separately in each Member State. The market includes over one thousand fixed operators, and
several hundred mobile operators, which, despite often belonging in larger groups, operate on a national
basis. At the same time the sector is increasingly global in nature and depends on scale to be profitable.
118
Jacques Pelkmans, ‘Making EU Network Markets Competitive’ (2001) 17(3) Oxford Review of Economic Policy
432, 453.
119
See J. Pelkmans, European Integration: Methods and Economic Analysis (Harlow, Financial Times/Prentice Hall,
2006) ch. 8.
120 Report on the Application of the Postal Directive COM(2008) 884 final, p. 7.
121 WIK-Consult, Main Developments in the Postal Sector (2010–2013) pp. 240–1 (reporting on parcel services
market) (available at: http://ec.europa.eu/internal_market/post/doc/studies/20130821_wik_md2013-final-report_
en.pdf). Cf. P. B. Schuster, ‘One for All and All for One: Privatization and Universal Service Provision in the
Postal Sector’ (2013) 45 Applied Economics 3667, noting reduced investment in universal services.
38 European Union Law
The lack of a single market also shows itself distinctly in pricing. For example the cost of calling
another EU country, or of using a mobile device in another EU country, is often much higher than
domestic rates, owing to voice and data roaming charges and ‘international’ (intra-EU) call rates. Such
charges are seen as unfair by many citizens, and also constitute a practical impediment to exercising
single market freedoms.
While from an economic perspective the picture looks gloomy, from a policy perspective the
Union’s achievements can be assessed in a more positive light: the Commission seized upon
the case law of the ECJ, and the pioneering liberalisation of UK industry in the 1980s, to create a momentum for Union legislative action in the period after the Single European Act, even
when the legal tools to achieve market opening were not perfect. Further, as Mark Thatcher
notes, the impact of the Postal Services Directive was a varied range of incentives and threats
for postal operators. First, in some Member States (e.g. in France and Italy) the Commission
acted as the instigator for reform; secondly, in others (e.g. Germany) the Commission’s efforts
actually slowed down liberalisation: Germany was ready to open markets sooner but the Social
Democratic-Green Government that came into power in 1998 used the Commission’s slower
timetable as an excuse to delay liberalisation to protect Deutsche Post, allowing it to remain a
state-protected monopoly for an additional five years. Finally, the EU’s liberalisation initiative
‘provided justifications and increased incentives for new strategies based on more efficient
working practices, reducing labour costs and international expansion’.122 Diverse as these
three impacts are, they converge in establishing new market conditions.
In addition, the European Union also seized upon Member States’ concerns about public
services to ‘Europeanise’ services of general economic interest, renaming these ‘universal services’. The upshot was that the European Union was able to press for greater liberalisation
while at the same time guaranteeing the social protection for all citizens through the creation
of universal service obligations. This was a masterful approach, for it assuaged states fearful of
a European Union fully predicated upon economic liberalism, introducing other non-economic
values held in high esteem by several states. Accordingly, while Pelkmans is right to state
that progress has been painfully slow, if one considers the limited Treaty resources and the
political controversies the Union has had to surmount, the strategy deployed by the European
Union for creating the current framework for liberalising markets whilst preserving services of
general interest can be viewed in a more positive light: enhancing the legitimacy of EU action
by bringing Europe closer to its citizens through the creation of an EU-wide conception of the
general interest. As Chahira Boutayeb has noted, the reference to the general interest serves
both as a ‘condition of legality’ for the Union’s actions, but also as a source of its legitimacy as
it shows to the citizen how its legislative activity serves to benefit them directly.123
With this wide lens, Article 14 TFEU is part of a broader pattern of the EU’s evolution from
a purely economic community concerned with the management of a borderless economy and
into a Union which aspires to a European model of society premised upon a wider conception
122 M.
Thatcher, Internationalisation and Economic Institutions – Comparing European Perspectives (Oxford
University Press, 2007) 246–7.
123 C. Boutayeb, ‘Une récherche sur la place et les functions de l’intérêt general en droit communautaire’ (2003)
Revue Trimestrelle de Droit Européen 587, 607–8.
39 State Regulation and EU Competition Law
of the citizen’s interests: ‘a highly competitive social market economy’.124 This is in large part
the result of national interests in preserving public services being recast as interests to be addressed at transnational level.125 Whether the European Union will transform these interests
into market failures to be addressed by more competition,126 or whether the European Union
will respect non-market concerns and afford greater state intervention,127 will serve as a litmus
test for the success of the Treaty of Lisbon.
FURTHER READING
J. L. Buendia Sierra, Exclusive Rights and State Monopolies under EC Law: Article 86 (formerly
Article 90) of the EC Treaty (Oxford University Press, 1999)
N. Fiedziuk, ‘Putting Services of General Economic Interest up for Tender: Reflections on Applicable
EU Rules’ (2013) 50(1) Common Market Law Review 87
L. Flynn and C. Rizza, ‘Postal Services and Competition Law: A Review and Analysis of the EC
Case-Law’ (2001) 24 World Competition 475
D. Geradin (ed.), The Liberalisation of State Monopolies in the European Union and Beyond (The
Hague/Boston, Kluwer Law International, 2000)
D. Gerard, ‘EU Competition Policy After Lisbon: Time to Review the “State Action Doctrine”?’ (2010)
1(5) Journal of European Competition Law & Practice 202.
A. Héritier, ‘Market Integration and Social Cohesion: The Politics of Public Services in European
Regulation’ (2001) 8 Journal of European Public Policy 825
J. Holmes, ‘Fixing the Limits of EC Competition Law: State Action and the Accommodation of the
Public Services’ [2004] 57 Current Legal Problems 149
C. Jaag, ‘Postal-Sector Policy: From Monopoly to Regulated Competition and Beyond’ Utilities Policy
(2014) (advance on-line publication: http://dx.doi.org/10.1016/j.jup.2014.03.002)
T. Prosser, The Limits of Competition Law: Markets and Public Services (Oxford University Press,
2005)
M. G. Ross, ‘Article 16 EC and Services of General Interest: From Derogation to Obligation?’ (2000)
25 European Law Review 22
W. Sauter and H. Schepel, State and Market in European Union Law – The Public and Private
Spheres of the Internal Market before the EU Courts (Cambridge University Press, 2009)
H. Schweitzer, ‘Services of General Economic Interest: European Law’s Impact on the Role of Markets
and of Member States’ in Cremona (ed.), Market Integration and Public Services in the European
Union (Oxford University Press, 2011)
E. Szyszczak, The Regulation of the State in Competitive Markets in the EU (Oxford, Hart Publishing,
2007)
E. Szyszczak, J. Davies, M. Andenas and T. Bekkedal (eds.), Developments in Services of General
Interest (The Hague, T. M. C. Asser Press, 2011)
J. Winterstein, ‘Nailing the Jellyfish: Social Security and Competition Law’ (1999) European
Competition Law Review 324
124 Article
3(3) TEU (emphasis added).
Héritier, ‘Market Integration and Social Cohesion: The Politics of Public Services in European Regulation’
(2001) 8 JEPP 825.
126 M. Thatcher ‘Supra-National Neo-Liberalisation: The EU’s Regulatory Model of Economic Markets’ in V. A.
Schmidt and M. Thatcher (eds.), Resilient Liberalism in Europe’s Political Economy (Oxford University Press,
2013).
127 F. De Cecco, State Aid and the European Economic Constitution (Oxford: Hart Publishing, 2013) 165.
125 A.