On 5 April 2013, the Italian Competition Authority (ICA) opened an investigation pursuant to Article 101 of the Treaty on the Functioning of the European Union (TFEU) into the wholesale telecoms maintenance market over alleged price fixing amongst six telecoms maintenance companies. Article 101 TFEU prohibits agreements or concerted practices between businesses which have as their object or effect the prevention, restriction or distortion of competition within the internal market.
The ICA Investigation
The ICA is focusing on alleged price coordination in relation to ancillary services (such as for repair, maintenance and line activations) in the wholesale fixed telecom lines market. The context of this investigation is the newly liberalised market created in Italy by legislative reforms passed in February 2012, which introduced the unbundling of technical ancillary services for wholesale access to the fixed telecoms network.
The investigation was prompted by a complaint lodged by Wind, a major telecoms operator, which claimed that six companies (Alpitel, Ceit Impianti, Sielte, Sirti, Site and Valtellina) may have coordinated on prices and economic terms offered to it. Moreover, Wind drew the attention of the ICA to the fact that the companies’ rates for such services were “highly uniform” in comparison to prices offered by three new entrants on the liberalised market.
Prior to the implementation of the legal reforms, technical ancillary services relating to wholesale access to the fixed telecoms network had been part of a unique package offered by the incumbent, Telecom Italia, to Other Licensed Operators (OLO) seeking to obtain wholesale access to the Italian fixed telecoms network. As part of this arrangement, Telecom Italia selected providers for such services and negotiated prices on behalf of the OLO. Based on the new rules, the OLO may now address and directly choose their own providers of telecoms maintenance services. The effect of these reforms has been to create new markets for repair and line activation services.
Wind claimed that none of the six major suppliers of telecoms maintenance services had given an objective justification in relation to the prices quoted for the provision of the services in question. In particular, Wind pointed out that it did not receive any response when it queried the extra costs allegedly arising from the technical specifications of its requirements. The suppliers’ justifications were based solely on the absence of an agreement as to the wholesale access conditions between Wind and Telekom Italia. The suppliers claimed that such an agreement was essential to correctly define the level of service required.
The initiative taken by the ICA is merely a preliminary step in a process which may result in objections being raised by the ICA at a later stage if sufficient evidence of anticompetitive conduct is found. In the case of such findings, the ICA shall address a Statement of Objections to the parties approximately two months before the deadline fixed for the end of the investigation, which is the 27 March 2014.
According to the ICA’s preliminary view, it may draw a clear-cut distinction between the major suppliers, which had previously operated on the market as contractual parties of Telekom Italia, and the new entrants, namely Aurora Telecomunicazioni, ADS and Imet. In fact, while the established suppliers’ prices and economic terms appeared homogeneous, those of the new entrants were very different in terms of rates. This was despite the fact that the offers of each party were based on the same technical conditions. In this respect, in the ICA’s view, the small market size “may have favoured the maintenance of an agreement between the alleged conspirators; facilitating communication, coordination and monitoring of prices and each other's behaviour”. Moreover, the alleged restriction may have been worsened by the fact that the established suppliers had enjoyed a competitive advantage, due to their particular reliability in performing the services required.
The ICA noted that, although the reasons given by the established suppliers for the extra costs were very different in each case, the uniformity of rates is unlikely to be objectively justifiable. However, the ICA will have to show that the offer of homogeneous prices and economic terms cannot be explained having regard to the specific market conditions and cost structures of the parties involved in the investigation.
Both the OLO and end consumers might benefit from the liberalisation of maintenance services that took place in early 2012. In particular, considering that the OLO are only able to compete on the “last mile” of the network, the possibility of obtaining maintenance services by independent operators might result in cost savings and a reduction of final prices charged for telecoms services. In this respect, the ICA’s move is aimed at addressing any conduct that has arisen due to the established suppliers profiting from the new unbundled regime. Such conduct might have caused economic damage not only to Wind but also the OLO.
It should be stressed that the opening of the proceedings is only a preliminary step and does not imply any objections or findings of anticompetitive conduct. The ICA will have to prove that uniformity of rates cannot be justified other than as a result of illicit coordination between the parties involved in the investigation. Meanwhile, the companies being investigated will be relying on the absence of an agreement between Wind and Telecom. These companies are claiming that such agreements are essential to their ability to tailor their offer to the needs of Wind. The absence of such an agreement, they argue, prevented them from making an accurate assessment of Wind’s needs and subsequently a competitive offer based on an accurate feasibility analysis.