Background
Dominance
Contractual Issues
Further Developments
In June 1999 Meridian Communications Ltd and its subsidiary Cellular 3 (collectively referred to as 'Meridian') instituted proceedings against Eircell, the former mobile subsidiary of the incumbent telecommunications operator, eircom. On April 5 2001, after a 95-day hearing (one of the longest-running cases in commercial litigation), Justice O'Higgins handed down a 158-page judgment (Meridian Communications v Eircell Limited). He found for Meridian on a number of contractual issues but rejected Meridian's contention that there had been a breach of competition law by Eircell. He also ruled that Eircell did not hold a dominant position in the market place.
Meridian operated the Imagine mobile phone service, which had about 20,000 mobile phone customers in the state. From 1997 Meridian operated a volume discount agreement (VDA) with Eircell, which enabled it to rent mobile phone time in bulk from Eircell at a considerable discount (up to 40%), thereby allowing it to offer cheaper call rates than Eircell or its leading competitor, Esat Digifone. Following the renewal of the VDA contract with Eircell in November 1998, Meridian began to expand its operations significantly.
Eircell considered that Meridian was using the VDA to undercut Eircell's prices and in April 1999 a 'process letter' was sent out to customers of Meridian who wished to transfer from Eircell to Meridian. Meridian applied for an interlocutory injunction to require Eircell to continue to supply airtime at a discount after expiry of the VDA. In August 1999 the High Court refused to grant this interlocutory order. The plaintiffs' Supreme Court appeal against that refusal was adjourned in October 1999 after Eircell undertook to continue operating the contract pending the outcome of the main proceedings. In April 2000 O'Higgins, in an interim judgment, found that:
- Meridian was not entitled to enforce a renewal of the VDA;
- Eircell was not stopped from renewing the agreement; and
- Meridian did not require a telecommunications licence to engage in its business.
The judgment considered in this update relates to the issue of Eircell's dominance in the relevant market and the contractual issues arising out of Eircell's dealings with Meridian.
One of the first issues considered by O'Higgins was the definition of the relevant market and whether the analogue and digital mobile telephony markets formed part of the same product market. O'Higgins proceeded on the basis that the relevant market was that for mobile telephony services within the state. The definition of the relevant market was not analyzed in greater detail, as the parties considered that the conclusions in the case would be the same regardless of whether the market was defined as the mobile telephony market or whether the analogue and digital mobile telephony markets were two separate markets.
O'Higgins then proceeded to consider whether Eircell was dominant in the Irish mobile telephony market. Despite Eircell's high market share of approximately 60%, the low number of competitors in the market and the high barriers to entry to the market, he found that Eircell was not in a dominant position. This finding was based on the following factors, among others:
- The significance of Eircell's high market share was greatly diminished in light of the fact that, within the relatively short period in which Esat Digifone had been on the market (ie, since March 1997), Eircell had lost approximately 40% of its market share;
- The significance of the low number of competitors was diminished by (i) the fact that Esat Digifone was a strong company, well placed to exploit any laxity on the part of Eircell; (ii) a consideration of the regulatory regime; (iii) the imminent award of the 3G licences (which could mean the advent of four more entrants to the market); and the successful entry of Meteor to the market;
- The significance of high barriers to entry to the market was vastly reduced by the fact that barriers to expansion were very low; and
- Many competing products were available and switching operators was easy.
In light of the above, O'Higgins found that Eircell's capacity to act to an appreciable extent independently of its competitors was greatly reduced. In terms of pricing, the judge found that evidence of high prices was unsatisfactory and unreliable. He felt that, on the contrary, the evidence tended to suggest that there had been a fall in prices. In any event, he pointed out that high prices do not in themselves prove a lack of competition. All claims made by the plaintiffs based upon an abuse of dominance argument therefore failed.
The judgment also dealt with allegations that Eircell had committed a number of breaches of contract and tort. O'Higgins found that the suspension of transfers of air time from Eircell to Meridian for a short period in June 1999 constituted a breach of the VDA which required transfers to be effected as soon as possible - and was not justified. There was also a failure to process the transfer requests as soon as possible where a process letter had been sent out. O'Higgins also held that, while the delays caused by Eircell's sending of the process letter to Meridian customers were unnecessary and avoidable, the information contained in them was completely accurate and was not an inducement to breach a contract. Further, the sending of the letter was not a breach of confidence, did not amount to an injurious falsehood and did not constitute a breach of contract. In addition, O'Higgins held that the transfer requests by Meridian were not treated unfavourably in comparison with other corporate customers.
O'Higgins also found that Eircell's failure to supply transfer books, as required by Meridian, led to the latter's inability to expand. The retention and slow distribution of books of transfer forms was held to be "obstructive, obdurate and arrogant". Eircell's behaviour was clearly designed to frustrate the VDA, constituting a breach of an implied term, thereby curtailing the plaintiffs' expansion plans.
The plaintiffs also claimed that, due to the volume of bills to be processed, it was inefficient for them to receive their bills in printed, rather than electronic, form and that this inhibited their ability to bill their own customers. The question examined by the court was whether it was an implied term of the VDA that the plaintiffs would receive their billing in electronic form. O'Higgins answered this question in the negative: no implied term could be incorporated into the contract for electronic billing. As Eircell did not have a general policy of sending bills in electronic format to other customers, no discrimination had occurred.
Following the High Court ruling, it was reported that the Competition Directorate of the European Commission wrote to Eircell on June 20 2001, informing Eircell that it had decided to re-open its inquiry into the termination of the VDA contract with Meridian. According to newspaper reports, the European Commission told Eircell that it understood that Meridian had agreed to withdraw its complaint to the European Commission. Despite this, the commission said it would continue its investigation on an ex officio basis. It sought correspondence between the companies and a copy of the agreement from Eircell, in addition to associated documentation and market information. While the commission is not empowered to oblige Eircell to re-enter the contract, it can impose a fine on Eircell if it finds that it has abused a dominant position contrary to Article 82 of the EC Treaty.
For further information on this topic please contact David Sanfey at A & L Goodbody by telephone (+353 1 649 2000) or by fax (+353 1 649 2649) or by email ([email protected]). The A & L Goodbody website can be accessed at www.algoodbody.ie.