Chillin'Competition

In the field of merger control, it is all about mobile phone operators these days. The hearing on the Three/O2 UK merger took place last week. It is yet another chapter in the wave of ‘four to three’ mergers in the industry. It remains to be seen what the Commission will decide. As much as Brexit (sigh), a declaration of incompatibility cannot be ruled out.

One of the most interesting aspects of the case has to do with the involvement of sector-specific regulators. These authorities – and in particular Ofcom – oppose the transaction, and they do not seem to mince their words (or reports). This is natural and unsurprising. Telecoms regulation is all about promoting competition and making sure that the market remains fragmented. Because the regulatory regime was conceived to undermine the position of the incumbent operator, an increase in market concentration looks like a failure.

A couple of days ago, the Austrian telecoms authority released a report examining, ex post, the effects of the merger between Hutchison and Orange in the country (we should definitely have more of the studies). You will not be surprised to learn that the Austrian regulator sides with Ofcom, and strongly suggests that the merger should never have been cleared. If you are not surprised, I am even less so. I remember presenting at a conference where the head of the Austrian authority did not leave any doubts about his (negative, if you ask) views on the transaction.

Above all, the attempts of regulatory authorities to influence the decision of the Commission reflect the limits of sector-specific regulation. Sectoral regulators wish they could do more about the wave of consolidation in the industry.

I have just mentioned the limits of sector-specific regulation, but Three/O2 UK made me think about the limits of merger control as well. Merger control is very valuable, but is also a very imperfect instrument, in particular in a heavily regulated sector. I would emphasise the following features of the system:

• In practice, efficiencies play no meaningful role in the analysis of transactions: Three/O2 UK is one of these cases in which one can neatly identify potential negative effects (in the form of higher prices) and potential positive effects (such as increased investments and better network coverage). As in other cases, I am afraid that efficiency gains will be of marginal relevance in the analysis. The outcome of the case will depend on the perceived negative effects on competition and on the remedies offered by the parties.
  The principle that efficiency claims can be put forward to outweigh any negative effects is more rhetoric than reality (there is an interesting forthcoming article by Nicholas Levy and two of his colleagues where this point is discussed). My understanding is that the situation is not fundamentally different in the US, and it is similar to what we see in the context of Articles 102 and 101(3) TFEU (Alfonso has written quite a bit about the latter, see here and here).
  Is the limited role of efficiencies in merger control – and EU competition law at large – a problem? In my view, it is not much of a problem provided that the negative effects of concentrations and practices are assessed carefully and rigorously. What matters is that all stakeholders acknowledge the inescapable reality: it is incredibly difficult to advance efficiency claims in competition law proceedings. More importantly, one should not be cynical about this fundamental question. I hear people say – some with a straight face – that it does not really matter whether we prohibit a practice by object or by effect. After all, the argument goes, one can always advance efficiencies. We know better than that.
• Market definition is an imperfect instrument to understand industries: The background to Three/O2 UK is not a mystery. Things are changing in the UK, in particular for the incumbent telecoms operator. After the acquisition of EE, BT has finally emerged as a credible integrated provider that can (properly) offer broadband Internet, mobile phone services and content. It is natural that other players react by trying to gain scale and compensate for the advantages enjoyed by the new BT. The problem is that ‘bigness’ and ‘integrated operator’ do not fit well in the analysis. The CMA could not block the BT/EE merger out of a vague concern with ‘bigness’ and ‘incumbency’, or simply because the incumbent was gaining an ‘edge’ over its rivals. By the same token, the Commission is right to rely upon market definition. On the other hand, I cannot avoid the impression that some aspects of the big picture are being missed – this is probably inevitable, and the alternative definitely unscientific.
• Fighting the inevitable: I can think of many reasons why mobile operators are merging. Some of these reasons have to do with the regulatory choices made by authorities and legislators – there are no free lunches, and the obsession with net neutrality certainly does not come for free. The impression I have from the wave of ‘four to three’ mergers is that the process of consolidation in the industry is inevitable. It would seem that a market structure with four integrated providers is not sustainable in the long run. What is the role of merger control in such a context? Does it make sense to fight the inevitable? Or is it wiser to force firms to compete so long as rivalry is viable? I have not made up my mind on this one.

The European Court of Justice rendered this morning its Judgments in the cement case, concerning the Commission’s decisions requesting information to companies with a view to finding enough evidence to establish an infringement. See Cases C-247/14 P HeidelbergCement/Comission, C-248/14 P Schwenk Zement/Comission, C-267/14 P Buzzi Unicem/Comission and C-268/14 P Italmobiliare/Commission.

The Judgments have annulled the General Court’s previous rulings as well as the Commission decisions. In that sense, they are a blow to the Commission, but not one as far reaching as the Commission feared one would have thought.

When the Commisison won in first instance, it issued this press release noting that “these judgments are important because they confirm the scope of the Commission’s powers to investigate suspected antitrust infringements” and that “the Court confirmed that it is for the Commission to decide what information it considers necessary to request from companies when investigating potential anticompetitive practices”.

Today, after having lost, the Commission’s spokesman has stated that “the implications of the judgments are likely to be confined to the present  case, as the ECJ pronounced itself only on the issue of reasoning”. In my view, this is only partly true.

Let me explain why:

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Few people read Judgments nowadays and much less cartel Judgments, in spite of these being the large majority of competition-related output on the part of EU Courts.

It is not difficult to keep track of developments in, let’s say 102, because precedents are scarce and manageable (i.e. one can easily identify any deviations in e.g. the law on refusal to deal, as there are only a handful of well-commented cases on it). But the exercise becomes practically impossible when it comes to cartels, as there are many more (lengthy and sometimes tedious) Judgments, concerning very fact-specific situations and because developments may come in various fronts (ranging from evidential issues, to parent-subsidiary relations, fining, leniency, settlements, etc).

Accordingly, in the course of the past few years in order to identify relevant developments in cartel law many people have relied on one main source of info: the yearly presentations on cartel case-law delivered by Fernando Castillo de la Torre (Commission’s Legal Service) at Les Mardis de la Concurrence a the Université Libre de Bruxelles (also repeated later internally at the Commission). I actually know of various cases where lawyers pleading before EU Courts had the slides in front of them…

The amount of work and knowledge that Fernando puts into reading and making sense out of the case law for no other reason than openly sharing the information is admirable, and perplexing if one considers that he left the Legal Service’s competition team already a few years ago.  And what borders with the paranormal is that he’s also got it all in his head and could recite by memory a large chunk of the content of the presentations, including case number and paragraph (I have actually seen that happening in Court).

The problem with those presentations was that, until now, they only were available in the gray market; one needed to know somebody who knew somebody who had registered for the talk and had received the materials.

In order to address this market failure, we have asked Fernando whether we could make available the presentations from the past few years, and he didn’t hesitate to accept.

Here they are:

Castillo Cartels 2009

Castillo Cartels 2010- 2011

Castillo Cartels 2012

Castillo Cartels 2013

Castillo Cartels 2014

Castillo Cartels 2015

Castillo Cartels 2016

Next Friday (11 March) the XIX edition of the “Curso de Derecho de la Competencia” that Luis Ortiz Blanco and I direct in Madrid will come to a close with a seminar on competition advocacy, compliance and self-assessments.

The line-up of speakers, this time mainly public officials and in-house lawyers, is  once again unbeatable, thanks to the work of Juan Andrés García Alonso.

Speakers include:
Cecilio Madero (Deputy Director General, DG Comp) Antonio Maudes Gutiérrez (CNMC), María Sobrino Ruiz (CNMC), Mark Rollinger (General Counsel, Peugeot), Paolo Palmigiano (General Counsel EMA, Sumitomo Electric Industries), Jorge Viera (Herbert Smith), Carlos Pascual (KPMG) Steve Leroy (Vice President Legal, AB InBev), Juan José Gisbert-Gutiérrez (Michelin) and Juan Andrés García Alonso (Grupo
PSA).

More information is available here: IEB 2016 – Seminar IV – Advocacy, compliance and self assessments

I am back in London after a mini-tour in Spain (Madrid and Valencia), where I gave a presentation on Copyright, Competition, and the Digital Single Market, which can be found here. The presentation focuses on the online/geo-blocking aspects of the Cross-Border Pay TV case (in line with the broad theme of the two events). It reflects the views I have been expressing on the blog in the last couple of years, which means that there is little point in going over them again.

I will just mention that theCross-Border Pay TV case is intriguing for an academic. My impression is that, like other recent decisions, the case hints at a new balance between competition law and intellectual property. This is a theme that I have discussed abundantly with my LLM students this term and is also one of the topics of a book on which I am working.

And I should also point out that – shame on me – it was my first time in Valencia. I enjoyed the city, but more so the genuine certified 100% Paella Valenciana at Casa Roberto after the conference!

The German Competition Authority announced this morning that it has opened an abuse of dominance investigation on Facebook “on suspicion of having abused its market power by infringing data protection rules”.

According to its Press Release, the theory of harm is that Facebook may have exploited its arguable dominant position in “the market for social networks” by adopting terms of service on the use of user data “in violation of data protection provisions”.

In order for users to access the social network, users must accept Facebook’s terms of service. To me, this sounds perfectly normal, but the press release underlines that “there is considerable doubt as to the admissibility of this procedure, in particular under applicable national data protection law”. But the authority’s preliminary reasoning seems to be that users would not accept those terms of service should the company enjoy a lesser degree of market power.

The President of the Bundeskartellamt has stated that “Dominant companies are subject to special obligations. These include the use of adequate terms of service as far as these are relevant to the market (….) it is essential to also examine under the aspect of abuse of market power whether the consumers are sufficiently informed about the type and extent of data collected.”

This is a first, and it is a relevant one. A few comments off the top of my head:

-Wasn’t this clear already? This development fits, as you know, within a trend to try to squeeze privacy considerations into the realm of competition law. This is something that we have discussed abundantly (see e.g. here or here) and that I, for one, think has been appropriately settled by both the ECJ (Asnef Equifax, para 63 “any possible issues relating to the sensitivity of personal data are not, as such, a matter for competition law, they may be resolved on the basis of the relevant provisions governing data protection”) and the Commission decisions in Google/DoubleClick or Facebook/Whatsapp (para. 164: “privacy-related concerns flowing from the increased concentration of data within the control of Facebook as a result of the Transaction do not fall within the scope of the EU competition law rules but within the scope of the EU data protection rules.”)

-The ever growing responsibility of the dominant firm. It also is part of another tendency, that of extending the “special responsibility” of the dominant firm in order to comply with the law, and not just with competition law, with literally any legal provision. We have discussed this in the past too, in relation to the ECJ’s Judgment in Astra Zeneca (see here) as well as with the “scraping” allegations levied against Google (see here).

-Isn’t the imposition of “unfair trading conditions” expressly mentioned in Article 102. a)?  It is. And it is also widely acknowledged that privacy can be one parameter of competition. So, admittedly, and theoretically, the Bundeskartellamt could build an exploitative case alleging that Facebook sets infra-competitive privacy terms and conditions. However, this does not seem to the reasoning underlying the investigation. Perhaps this has to do with the difficulties in determining which is the “competitive” level of privacy. If it is difficult to determine when a price is ‘excessive’, imagine when it comes to this question. This line of analysis does not sound to be a particularly promising one (without having spent a fortune in expert analysis I suspect that plenty of services with much less market power than Facebook have much lower privacy standards….). Possibly in the light of these difficulties the authority is prepared to take a shortcut, automatically equating an alleged “violation of data protection provisions” by a dominant company with an abuse of dominance.

-Omniscient and omnipotent competition authorities. So essentially, this investigation sends the message that competition authorities can now police any breach of the law by dominant companies. Competition authorities should therefore be not only experts in competition, but in any other branch of the law?  Good luck with that. This may give the Commission equally absurd ideas; it could, for instance, now challenge tax advantages alleging that those were only received because of the economic pre-eminence of some companies….

-If the conduct already breaches other rules, why bother with competition law? Competition authorities have scarce resources. If it is already a given that a conduct breaches other provisions (this seems to be the premise to the investigation), then why bother doing through the hurdles of a 102 case?

 –The challenges of establishing dominance in the face of unhelpful precedents. Leaving wider issues aside, and moving on to dominance, the case seems to be premised on the arguable dominance of Facebook. But, in the light, among others, of the General Court’s Judgment in Case T-79/12 and of the Commission’s decision in Facebook/Whatsapp, the German authority seems poised to have a tough time. Those precedents make it clear that dominance in these markets may be very hard to establish, particularly since social networks are very dynamic, services are provided for free, the role of network effects is mitigated, there are no economic or technical barriers for users to switch, etc. (for my comment on Case T-79/12, see here). [It would also be interesting to see the assessment of the competitive constraints posed by others in these markets (e.g. Google was considered to exert strong pressures in MSFT/Skype despite its 0-5% market share -decision, paras 124 et seq, and para 70 of the Judgment.- )].

-On the connection (or lack thereof) between dominance and the abuse. The Press Release does actually say –or suggest- something which is arguably sensible (albeit contrary to Continental Can and Astra Zeneca) when explaining that it needs to check whether there is “a connection between such an infringement and market dominance”.

 –Wrongly paternalistic competition law? When commenting on the debate on digital platforms (the video of my intervention at the European Parliament is now available here) and on the antitrust/privacy interface, I have always said that in the face of privacy-related concerns what public authorities should do is make sure consumers are in a position to make informed choices. Competition law is there to preserve choices, and here consumers have it. Facebook is not an unavoidable trading partner and consumers are not locked in to it; if consumers don’t think it’s worth giving data in exchange for the service, they won’t join. There may be a market failure, but one that has to do with asymmetries of information, not market power. In other words, whether consumers know or not what terms and conditions they are accepting may be a public policy issue, but one that, in my humble view, is not for competition law to address.

P.S. I was supposed to be discussing this precise topic on Saturday at this AIJA conference on media and technology, but I have had to ask my colleague Sam Villiers to replace me. Chillin’Competiiton will nonetheless be represented by Pablo.

On Friday (4 March) Pablo and I will be coordinating a seminar on competition law in media and technology focused on access to digital content and on the legal issues surrounding open and closed systems. The seminar is part of the wider IEB Course. The programme is the following:

16.00-17.50: Access to digital content and competition law

Ben Van Rompuy  (Senior Researcher , T.M.C. Asser Instituut)

Alexandre de Streel (Professor of European Law, University of Namur; Director, Research
Centre for Information, Law and Society)

Pablo Ibanez Colomo (Associate Professor, London School of Economics; star of the viral Youtube video “Running in [he doesn’t let me say more….]”)

Chair: Jesús Alfaro (Professor, Universidad Autónoma; Counsel, Linklaters)

18.00-19.30 Open and closed systems under competition law

Sebastian Lecou (Economist, Autorité de la Concurrence)

Andrew Leyden (Associate, Cleary Gottlieb Steen & Hamilton)

Juan Delgado (Director, Global Economics Group)

Chair: myself

For more info, click here: Programa IEB 2016 – Seminario III – Competition Law in the Technology Se…  or drop me a line at alfonso.lamadrid@garrigues.com