Refusing to deal outright

Refusing to deal outright

EU flag.jpg

In April, the Court of Justice of the European Union dismissed a competition appeal brought by Deutsche Telekom’s Slovak Telekom. Competition lawyer and consultant Michaela Lodlová, was involved in the case during the Commission investigation. Here, she explains why the CJEU decision will incentivise leading companies to refuse to deal outright

The case started in 2009, with Slovak Telecom accused by the European Commission (EC) of a constructive refusal to deal (supplying a regulated input but with unreasonable terms) and margin squeeze for wholesale physical access to metallic fixed network infrastructure (local loops) in Slovakia between 2005 and 2010.

The subsequent appeal brought in front of the Court of Justice of the European Union (CJEU) was dismissed in April this year by a judgment that will have far-reaching implications, as it provides an incentive for all dominant firms to refuse to deal outright.

Bronner case law

Slovak Telecom argued unsuccessfully that the indispensability criteria of the Bronner case law should apply not only to an outright refusal to deal, but also to other types of refusal to deal – such as a constructive refusal to deal. According to the case law, where an input is not indispensable, the dominant undertaking cannot be found to be abusing its market power and forced to provide access.

For an outright refusal to deal, the threshold is set very high when it comes to determining whether something is indispensable, and therefore competition authorities are unlikely to succeed in their intervention.

Accordingly, Slovak Telecom’s arguments that the company’s fixed network in the country had limited coverage, and that there were already significant infrastructure competitors present, were intended to prove that the network could not be considered indispensable – it was not essential for competitors to compete on the retail broadband market and no terms of supply of local loops set by Slovak Telecom would enable the company to eliminate competition on the market. Equally, fixed broadband came quite late in Slovakia and mobile broadband rolled out by mobile operators represented a viable alternative.

However, the CJEU disagreed that the EC was required to establish that the Bronner criteria were satisfied with respect to Slovak Telecom’s constructive refusal to supply, and in particular that access to its local loops was indispensable for its competitors to compete on the downstream market.

Meeting the criteria

This means that in a situation where a company voluntarily provides access or supplies services to its competitors or is forced to provide these under a regulation – as Slovak Telecom was under the EU telecommunications regulatory framework – the competent authority is under no obligation to show that the Bronner criteria are met. In other words, these circumstances could only give rise to a constructive refusal to deal, which means that the relevant competition authorities only need to show potential anticompetitive effects, which can be very vague in practice.

As soon as the competition authority can show that the terms of supply can reasonably be considered unfair, using a relatively low threshold, it can easily be ‘game over’ for the company.

This, therefore, sets a precedent where companies subject to any legal or regulatory framework under which there is an obligation to provide access can easily be punished, whilst those that do not want (and are not obliged) to provide access to their competitors are provided with a theoretical ‘safe harbour’. This is a situation which would seem to encourage, rather than discourage, anticompetitive behaviour.

Wider impact

The Slovak Telecoms judgment also has impact reaching beyond the telecoms sector. The debate on digital platform regulation is growing due to this decision, as it provides a clear direction for use of competition law tools – and

its limits.

We should not be surprised if the future regulation of digital platforms borrows from the well-established telecoms regulation toolkit to which the judgment directly refers.

Michaela Lodlová was involved in the Slovak Telekom case at the phase of the Commission investigation between 2009 and 2013 on the side of Slovak Telekom’s defence but for the purposes of this article relied only on publicly available information.

Gift this article