The EU competition rules apply in full to the conduct of dominant companies in regulated industries – lessons from the Judgment of the European Court of Justice in the Deutsche Telekom case

Introduction

Across the EU, a number of sectors (telecoms, electricity, gas, rail, post) are subject to ex ante regulation and the question has arisen as to how these regulatory frameworks interact with European and national competition rules.

In that regard, the European Court of Justice's judgment of 14 October 2010 in Case C-280/08 P Deutsche Telekom case, in which it upheld a 2003 decision by the European Commission fining the German incumbent telecoms operator, Deutsche Telekom, EUR 12.6 million for abusing its dominant position in the market for local access to its fixed telephony network contrary to Article 102 TFEU (formerly Article 82 EC), has provided some guidance on this issue.

The ECJ considered that even in circumstances where the conduct of a national regulatory authority may be regarded as having encouraged a dominant company to act in an abusive manner, this cannot serve to absolve a company from responsibility under Article 102 TFEU. Moreover, the ECJ held that decisions of national regulatory authorities cannot in any way affect the power of the Commission to find infringements of the EU competition rules.

Factual background

The background to this case is that while since 1998, DT was obliged to provide competitors with local access to its network, the retail and wholesale prices DT was entitled to charge for such access were subject to a strict regulatory scheme. Wholesale prices were fixed by the-then German telecoms regulator, RegTP, and retail prices were subject to a price cap.  

In a decision adopted on 21 May 2003, the Commission concluded that DT had abused a dominant position because there was an insufficient margin between the price which it charged its competitors for the provision of wholesale access to subscriber lines and the tariff for retail access.  

In particular, the difference between retail and wholesale prices was insufficient to cover the product-specific costs to DT of providing its own retail services on the downstream market. Interestingly, the Commission did not allege that the wholesale prices were excessive, but that DT’s retail prices were too low i.e. DT could have reduced the margin squeeze by increasing its charges to end-customers.

On 10 April 2008, the General Court of the European Union (formerly Court of First Instance) upheld the Commission’s decision in full (Case T-271/03).

The ECJ’s judgment

The ECJ rejected DT’s appeal, on the basis that even though wholesale prices for local loop access services were set by the RegTP, the margin squeeze was a practice attributable to DT, since the latter had sufficient scope to adjust the retail prices charged to its end-users, notwithstanding the fact that those prices were subject to some regulation.

The ECJ considered that while “it was not inconceivable that the national regulatory authorities infringed EU law in this instance, and the Commission could indeed therefore have chosen to bring an action for failure to fulfil obligations against the Federal Republic of Germany” (paragraph 47), it is only where anticompetitive conduct is required of companies by national legislation, or if Member States create a legal framework which itself eliminates any possibility of competitive activity on the part of companies, that the EU competition rules do not apply (paragraph 80). However, where a national law or practice merely encourages or makes it easier for a dominant company to engage in autonomous anti-competitive conduct, this cannot absolve that company from responsibility under the EU competition rules (paragraph 81).

The ECJ therefore concluded that “the mere fact that [DT] was encouraged by the intervention of a national regulatory authority such as RegTP to maintain the pricing practices which led to the margin squeeze of competitors who are at least as efficient as [DT] cannot, as such, in any way absolve [DT] from responsibility under Article [102 TFEU]” (paragraph 84) as DT retained the ability to adjust its retail prices for end-user access services (paragraph 85).  

The ECJ also rejected DT’s claim that the EU competition rules cannot apply to the conduct of dominant companies which is already regulated by national authorities. The ECJ noted that the EU competition rules “supplement in that regard, by an ex post review, the legislative framework adopted by the Union legislature for ex ante regulation of the telecommunications markets” and that the ex ante regulation “did not in any way deny [DT] the possibility of adjusting its retail prices for end-user access services or, therefore, of engaging in autonomous conduct” (paragraph 92).

Finally, and in any event, the ECJ held that when making use of the powers afforded to it under the EU competition rules, the Commission cannot be bound by a decision taken by a national regulatory (paragraph 90).  

Implications of the judgment for companies in regulated industries

The judgment of the ECJ confirms that even in circumstances where the conduct of a national regulatory authority may be regarded as having encouraged a dominant company to act in an abusive manner, this cannot serve to absolve a company from responsibility under Article 102 TFEU. Provided that national law affords a dominant company a margin of discretion, that company must use that margin in a way so as to avoid engaging in abusive conduct.  

The ECJ’s finding can be contrasted with the position adopted by certain Member States whose national laws exclude the application of national competition rules to the conduct of dominant companies when such conduct is already governed by national regulatory frameworks. For example, section 111 of the German Energy Industry Act (“Energiewirtschaftsgesetz”) provides that section 19 of the German Act against Restraints of Competition (“Gesetz gegen Wettbewerbsbeschränkungen”), the German equivalent of Article 102 TFEU, cannot be applied to conduct which is already regulated by the German Energy Industry Act.  

It is interesting to note that such provisions have not prevented national competition authorities from engaging in advocacy activities relating to competition issues in regulated sectors. For example, in December 2009, the Federal Competition Office (“Bundeskartellamt”) published its final report on the sector inquiry it undertook into the gas transmission sector, even though under German law, the Federal Network Agency (“Bundesnetzagentur”) is exclusively competent to regulate issues relating to network access and capacity allocation.  

There are therefore two important implications of the judgment for companies in regulated sectors.  

First, dominant companies in such sectors cannot assume that their conduct will escape the application of Article 102 TFEU, even where that conduct has not been opposed by national regulatory authorities and even where national law excludes the application of national law equivalents of Article 102 TFEU.

Second, companies seeking to obtain access to regulated assets/networks may be able to obtain access rights under EU competition law over and above those foreseen by national regulatory frameworks.