Chillin'Competition

Relaxing whilst doing Competition Law is not an Oxymoron

Oligopolistic collective dominance: the BCA’s Telefonica decision

with 13 comments

Some weeks ago, the Basque Competition Authority (“BCA”) issued a decision which has gone largely unnoticed outside of Spain, but which is definitely worth commenting here. To my knowledge, this decision is the first ever to sanction an abuse of a purely oligopolistic collectively dominant position.

In essence, the decision concludes that Telefónica de España SAU (“TSAU”, a subsidiary of Telefónica SA) abused of its dominant position in retail fixed telephone market, and, more interestingly, that Telefónica Móviles (“TME”, another subsidiary of Telefónica SA) also abused of the collective dominant position it held together with Vodafone and Orange in the Spanish retail mobile telephone market.

The BCA considers that TME, Vodafone and Orange constituted a “tight oligopoly”, and pursuant to a thorough examination of market conditions at the moment where the investigated infringements took place, it concludes that the Airtours conditions for a finding of collective dominance are fulfilled. The BCA further refers to the existence of empiric evidence of parallelism of prices and other commercial conditions adopted by the members of the oligopoly. Moreover, citing the CFI’s Judgment in TACA, the decision rebuts the contention that a certain degree of internal competition (allegedly illustrated by the high degree of portability) is incompatible with a finding of collective dominance.

With regards to the abusive conduct, and also in a nutshell, the BCA asserts that both TSAU and TME charged discriminatory tariffs to calls destined to users of the Euskaltel mobile network. The decision concludes that such conduct breached Article 2 of the Spanish Competition Act, and imposes TESAU and TME fines of nearly 3 and 1 million euros respectively.

A few brief comments:

Firstly, it’s interesting to remark that the Comisión Nacional de la Competencia had attempted to affirm its jurisdiction to deal with this case, but the organism in charge of addressing jurisdictional disputes between the CNC and regional authorities ruled in favor of the Basque Authority in light of the strictly local effects of the conduct under analysis. My guess is that had the CNC investigated the case, its outcome would have certainly been quite different.

Secondly, collective dominance is one of the favorite topics of Nicolas and myself, but also of Javier Berasategi, the author of the Telefónica decision, see here (his first work on the subject while a student in Bruges) and here (English version of a recent and extensive report on tacit collusion in the daily distribution of consumer goods which relies heavily on Nicolas’ work). It seems as if this or a similar decision had been under gestation for quite some time.

Finally, independently of whether one believes or not on the necessity of having several regional competition authorities in one Member State, it seems fair to acknowledge that in the past few years, under the Presidency of Berasategi, the Basque Competition Authority has brought forward very interesting cases on which it has adopted brave and innovative but always technically sound decisions.

Only a few days after the Telefónica decision was issued, Berasategi stepped down from the Presidency of the Basque Authority to start a new project in private practice. Congratulations for the good work, and the best of luck in his new venture!

(Image possibly subject to copyrights: source here)

Written by Alfonso Lamadrid

25 March 2010 at 6:23 pm

13 Responses

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    • Thanks a lot Paolo, can you enlighten us, because your impressive document is 326 pages long, and I trust our readers will not have time to delve into it.

      Nicolas Petit

      26 March 2010 at 4:32 pm

  1. The article starts at page 261 and it is about a similar case run a few years ago by the Italian NGA.

    Regards,

    Paolo

    Paolo

    26 March 2010 at 6:40 pm

  2. Thanks Paolo for the comment and the link.

    I am only aware of one case investigated by the Autorita Garante with regards to this issue, and I believe that’s the case you’re referring to (alleged refusal to deal in the wholesale market for access to mobile networks). (Decision No. 17131 OF August 3, 2007, A357 Tele2 v. Tim/Vodafone/Wind. Bolletino No. 29, 2007)

    If that’s the case, the decision to open the investigation indeed alleged that Vodafone, TIM and Wind were holding a pure oligopolistic collectively dominant position.

    However, in its final decision (after accepting individual commitments on the part of Vodafone), the Italian NCA said that the burden of proof for a finding of collective dominance had not been satisfied (amongst other reasons due to assymetries in cost structures and market shares).

    Please correct me if I’m wrong, but I believe that the case stopped here and that, consequently, an abuse of a collective dominant position was never sanctioned.

    Btw, I had downloaded your article but haven’t had the time to read it. It looks quite intesting!

    Alfonso Lamadrid

    26 March 2010 at 7:10 pm

    • This is because Vodafone gave commitments to settle and close the proceeding.

      Click to access rel_07.pdf

      “During the proceeding, the Authority made the commitment proposed by Vodafone
      under Article 14-ter paragraph 1 of the 1990 Competition Act obligatory and closed the
      investigation into the company without finding an infringement. Vodafone committed
      itself to open its network to virtual operators, signing contracts with BT Italia and Poste
      Italiane Spa. In particular, BT Italia would be able to compete in offering integrated FM/
      M-M services, especially to business customers. The contract also provided for BT
      Italia to offer these service entirely independently of Vodafone and establish its own
      commercial conditions of supply and prices for final customers.”

      It may be argued that this is not an infringement decision, but in terms of substantive assessement I struggle to find the difference.
      Paolo

      Paolo

      30 March 2010 at 12:38 pm

      • As you say, since the Italian case is not an infringement decision, it doesn’t contradict what I wrote in the post in the sense that the Telefonica decision could be the first to ever sanction an individual abuse of an oligopolistic collectively dominant position.

        Moreover, I also see a great difference in terms of substantive assessment. Notably, given that after Vodafone’s commitments-to which I also referred in my previous comment- the AGC concluded that the structure of the market could not lead to a finding of collective dominance, then the competitive concerns arising from Vodafone’s behavior cannot be seen as related to oligopolistic interaction, but rather as stemming from Vodafone’s individual market power.

        Alfonso Lamadrid

        30 March 2010 at 4:50 pm

  3. Alfonso,

    Under the Italian system, the acceptance of commitments by the AGCM leads to a finding of non-infringement (it is the key trade-off of this stick-and-carrot system). So your argument that in substantive terms it differs a lot is a bit circular in particular given that in this case the commitments were offer at the very last stage of the proceeding. Also, you just have to look at the type of commitments offered (i.e. access to Poste), at the SO that triggered them and at the reps to those commitments to realise that your are wrong in arguing that “the competitive concerns arising from Vodafone’s behavior cannot be seen as related to oligopolistic interaction, but rather as stemming from Vodafone’s individual market power.”
    Anyway, I concede that it is easier for me to be aware of these nuances since I was an insider – good stuff.

    Regards,

    Paolo

    Paolo

    31 March 2010 at 11:06 am

  4. A good candidate for worst competition law development 2010? In my humble opinion, the CA should have sought for a cartel infringement, not the gruesome construction of ‘abuse of collective dominance’. I think the development of addressing parallel behaviour under Article 102 or national equivalents without asking oneself whether the coordination is possible without resource to concertation, is a sorrowful development.

    As an example of the “abuse” of the “abuse of CD” construction, you can look at the Dutch NCA, which uses the national equivalent of Art. 102 in order to address parallel behaviour without a check for cartel infringement. “Abuse of CD” thus thoroughly erodes the freedom of oligopolistic undertakings, and they can be found to act contrary to the competition rules even when their parallel behaviour can be explained from an individual perspective.

    Sebastian

    11 April 2010 at 8:14 pm

  5. Ther Basque authority sees collective dominance (CD) as some kind of magic tool for market regulation. They did the same when they held, in a sector study, that the leading supermarket chains had CD. The quality of the analysis is, needless to say, very poor…

    Fred

    21 April 2010 at 9:40 am

  6. […] the part of consumers regarding competition law’s ability to face the oligopoly problem (see here for a controversial exception). A chap you might know has written a bit on this […]

  7. […] As reported on this blog, Telefónica was also recently sanctioned for having abused the collective dominant position that it enjoyed together with Vodafone and Orange  in the retail mobile telephone market. I am wondering whether the CNC will be attempting to bring this new case on the basis of a finding  of collective dominance on the wholesale market (seems unlikely, but remember the Irish case where ComReg decared O2 and Vodafone collectively dominant in the whosale market; that decision recently commented and criticized in the August 2010 issue of European Competition Journal), or will rather act the “Magill way”,  holding that each operator is dominant with regards to its respective  network.   […]

  8. Can you please provide tell me where I can find an English version of the case?
    Thanks!

    sakshi

    24 November 2014 at 1:13 pm

    • Hi Sakshi, I’m not sure there is one, but I’d suggest you to drop a line to its author at jb@berasategi.es. A great guy and a great lawyer.

      Alfonso Lamadrid

      26 November 2014 at 11:12 am


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