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On 8 May 2012, the European Commission (the “Commission”) opened another chapter in its fight against abuses by dominant undertakings in the telecoms sector when announcing it had issued a statement of objections (“SO”) to Slovak Telekom (“ST”) and its parent company Deutsche Telekom AG (“DT”).  The SO relates to alleged anticompetitive behaviour on several wholesale broadband markets in Slovakia.

In particular, the Commission has taken the view that:

• ST may have refused to supply crucial unbundled access to its local loops and wholesale services to competitors by:
  - imposing unreasonable and burdensome technical and commercial terms; and
  - using delaying tactics and obstructing negotiations over these terms, and
• may have imposed a margin squeeze on alternative operators by setting its wholesale prices at a level that made it impossible for other operators to profitably enter and operate in the retail broadband market.

In our March 2011 Competition Newsletter, we highlighted the European Court of Justice’s (the “ECJ”) clarification in its TeliaSonera judgment of the principles on margin squeeze established in Deutsche Telekom, and its affirmation that a refusal to supply and a margin squeeze constitute distinct breaches of Article 102 of the Treaty on the Functioning of the European Union.  Of particular relevance to the telecoms sector was the ECJ’s affirmation that a margin squeeze may still constitute an abuse of dominance, even where the dominant undertaking is under no express regulatory or legal duty to supply a downstream competitor and, further, that there is no requirement to establish that the wholesale product is “indispensible”.  This approach was recently confirmed by the EU General Court in its Telefónica judgment.  

The SO also indicates that DT may be held liable for the conduct of ST, due to the nature and degree of its links with ST (in which it owns a majority 51 per cent stake).  It is generally accepted that where a parent holds a majority shareholding there is a presumption that the subsidiary is not independent.  Therefore, the Commission could decide to hold DT jointly and severally liable for payment of any fine imposed on ST.  In such circumstances, it would fall to DT to seek to rebut this presumption by proving that ST acted autonomously on the relevant markets.  The Commission does not appear to consider that DT itself participated in any of the suspected infringements (which would obviously impact on the calculation of the level of any fine).

The dissemination of an SO does not prejudge the outcome of an investigation and is merely a formal step in the Commission’s antitrust investigation.  It remains to be seen whether the Commission considers that ST’s conduct is compatible with EU competition rules.  In any case, this development highlights the onus on undertakings and their parent/subsidiaries to put in place competition law compliance procedures irrespective of the presence of ex ante regulation.

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Your EU, Competition & Antitrust Contacts:

John Kettle
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t: +44 203 178 3368
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e: jkettle@mhc.ie

Tony Burke
Partner, Co-Head of Competition
t: +353 1 614 5073
e: tburke@mhc.ie

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Partner
t: +353 1 614 2411
e: ncollins@mhc.ie

Robert McDonagh
Partner
t: +353 1 614 5077
e: rmcdonagh@mhc.ie

The content of this article is provided for information purposes only and does not constitute legal or other advice. Mason Hayes & Curran (www.mhc.ie) is a leading business law firm with offices in Dublin, London and New York. © Copyright Mason Hayes & Curran 2012. All rights reserved.