In its judgment of 17 February 201113 the Court of Justice answered several questions referred for a preliminary ruling which all treated the circumstances where an abuse of dominance through margin-squeeze could be found.
The facts of the case can be summarised as follows: TeliaSonera is the incumbent fixed telephone network operator in Sweden. In particular, TeliaSonera owns the local loop. As the owner of the local loop, TeliaSonera, besides offering broadband connection services directly to end users, offered access to the local loop to other operators in two ways. On the one hand, it offered unbundled access to the local loop (as required by Regulation 2887/2000), on the other hand, without being legally obliged to do so, it offered to operators an ADSL product intended for wholesale users.
Konkurrensverket, the Swedisch Competition Authority, was of the opinion that TeliaSonera abused its dominant position between April 2000 and January 2003 to the extent that it applied a pricing policy under which the spread between the sale price of the wholesale ADSL product and the sale price of ADSL services for the end users was not sufficient to cover the costs TeliaSonera incurred in order to distribute those services to the end-user concerned. For that reason, the Konkurrensverket brought an action before the Stockholm District Court, which in turn referred several questions to the Court of Justice for a preliminary ruling.
After a general introduction in which the established case-law regarding the concepts of dominance and abuse were repeated, the Court of Justice turned to the matter of the abuse of dominance through a margin-squeeze. The Court held that there would be a margin-squeeze in the present case if the spread between the wholesale prices for ADSL input services and the retail prices for broadband connection services to end users were either negative or insufficient to cover the specific costs TeliaSonera had to incur in order to supply its own retail services to the end users. In that case, the spread does not allow an efficient competitor to compete for the supply of those services to end users. The Court further clarified that as the unfairness of the pricing strategy is linked to the very existence of the margin-squeeze, it is not necessary to demonstrate that the wholesale prices or the retail prices are in themselves abusive by their excessive or predatory nature. With this background the Court then addressed the several questions posed.
Firstly, the Court began by explaining that as a general rule, in order to assess the lawfulness of a pricing policy, reference should be made to pricing criteria based on the costs of the dominant undertaking itself. In the event of a margin-squeeze, this information would allow one to determine whether the dominant undertaking could provide the services to end users otherwise than at a loss if it were to pay its own wholesale prices first. If in that case the dominant undertaking were to sell at a loss, the competitors excluded by application of the pricing practice could not be considered as less efficient than the dominant undertaking, and consequently, their exclusion would be due to distorted competition. However, the Court also lists three circumstances where account can be taken of the costs and prices of competitors in order to examine the pricing practice of a dominant undertaking: (i) where the cost structure of the dominant undertaking is not precisely identifiable for objective reasons, (ii) where the service supplied to competitors consists of the mere use of an infrastructure, which is written off and thus represents no cost for the dominant undertaking when compared with the cost of competitors for their having access to it, and (iii) if the level of costs of the dominant undertaking is specifically attributable to the competitively advantageous position of the dominant undertaking precisely due to its dominant position.
Secondly, concerning the absence of any regulatory obligation to supply, the Court decided that this factor is irrelevant for the assessment whether the pricing practice is abusive. The argument of TeliaSonera, that is, in absence of any regulatory obligation to supply, an undertaking is free to set its prices and the prices can only be considered abusive it they would amount to a refusal to supply according to the criteria set out in Bronner14 was discarded by the Court as this reasoning would unduly reduce the effectiveness of Article 102 TFEU.
Thirdly, concerning the need to establish an anticompetitive effect and whether the product offered must be indispensable, the Court held that it had already decided in Deutsche Telekom15 that a pricing practice which leads to a margin-squeeze of its equally efficient competitors can only constitute an abuse if an anti-competitive effect is demonstrated. Furthermore, the Court already said that the anti-competitive effects must relate to the possible barriers which such a pricing practice may create for equally efficient competitors (i.e., making it impossible or more difficult to enter the market). However, the Court stresses that the effect does not necessarily have to be concrete, but that it suffices to demonstrate that there is an anti-competitive effect which may potentially exclude competitors who are at least as efficient as the dominant undertaking. In the examination of the potential anti-competitive effect of the margin squeeze, the indispensability of the wholesale product is, according to the Court, a relevant factor. Indeed, if the wholesale product is indispensable for the sale of the retail product, as efficient competitors who can only operate on the retail market at loss or at reduced profitability, due to the price charged for the wholesale product, suffer in any case a competitive disadvantage on that market and thus the at least potentially anti-competitive effect of the margin squeeze is probable Lastly, the Court stated that the above does not exclude the possibility for an undertaking to demonstrate that, albeit producing an exclusionary effect, its pricing practice is economically justified and produces efficiencies that benefit the customers.
In the remainder of the judgment, the Court held that the degree of market dominance (“super dominant” instead of dominant) is significant in relation to the extent of the effects of the conduct rather than in relation to the question whether the abuse as such exists. The Court concluded that the degree of dominance is thus not relevant in determining whether the margin squeeze constitutes an abuse. The Court also decided that although Article 102 TFEU presupposes a link between the dominant position and the alleged abusive conduct, Article 102 TFEU can in special circumstances be applied to conduct having effect on a distinct, but associated, non-dominated market. It was therefore concluded that it is not necessary that the dominant undertaking on the wholesale market is also dominant in the retail market in order to find that the margin-squeeze is abusive. Lastly, the Court also held that the possibility to recoup the loss incurred due to the margin-squeeze— the fact that the wholesale product is supplied to a new customer and that the markets concerned are growing rapidly and involve new technology—is not relevant for determining whether the pricing practice is abusive or not.