On 7 November 2013, the Court of Justice handed down its judgment in UPC Nederland BV v. Gemeente Hilversum (C-518/11). The case concerned a reference for a preliminary ruling brought before the Court of Justice by the Amsterdam Court of Appeal ("ACA"). The questions regarded whether under EU law a municipality could intervene in a telecommunications operator’s freedom to fix tariffs by relying on a tariff clause from a previous sale agreement.
Before 1996, the municipality of Hilversum ("Municipality") had entrusted the cable television network activities on its territory to its own cable operator. In 1996 it sold its operator to UPC's predecessor due to the liberalization of the EU telecommunications sector through the 'New Regulatory Framework' ("NRF"). The Municipality reserved to itself powers with regard to the pricing of the basic cable package offered through a tariff clause in the purchase agreement, which allowed for only limited annual adjustments. In 2005, UPC initiated legal proceedings about this tariff clause, claiming that it was incompatible with EU law. On appeal, the ACA asked the Court of Justice several preliminary questions, most notably: (i) whether the Municipality still had the power under the NRF to intervene in the fixing of tariffs in order to protect the public interest, and (ii) whether the duty of sincere cooperation precluded the Municipality from applying the clause.
As regards the first question, the Court of Justice pointed out that the NRF established National Regulatory Authorities ("NRAs") responsible for regulatory intervention. In the Netherlands, this task was given to the (former) Independent Post and Telecommunications Authority. Since the Municipality is not a NRA, the Court of Justice concluded that it does not have the power to intervene directly in retails tariffs in respect of services falling under the NRF. On the second question, the Court of Justice ruled that the duty of sincere cooperation indeed precluded the Municipality from relying on the tariff clause. The Court of Justice argued that in accordance with this duty, the Municipality should have ensured that the regime established by the NRF was effective and should have avoided taking any measures contrary to it. By insisting on the continuous application of the tariff clause and thus restricting UPC's ability to set tariffs, the Municipality contributed to an infringement of the NRF rules.
The Court of Justice ruling demonstrates how EU law can preclude a public authority from invoking a private undertaking's contractual obligation to guarantee a particular public interest. It could potentially have far-reaching implications for both public authorities and private operators: the former may have to find new ways of guaranteeing their public interests when dealing with private parties, whereas the latter are possibly no longer bound by certain contractual obligations towards public authorities. Although this ruling specifically concerns the telecommunications market, its implications could potentially also be felt in other markets that have been subject to the combination of privatization and sector regulation at the EU level.