Brussels, 14th October 2010
Antitrust: Commission welcomes Court judgement in Deutsche Telekom "margin squeeze" case
The European Commission welcomes today's judgment of the EU Court of Justice (case C-280/08), dismissing Deutsche Telekom's appeal against a judgement of the General Court, which had upheld a Commission decision of 2003 finding that Deutsche Telekom had squeezed its competitors out of the market by charging abusive prices to access German homes. This ruling is important because it confirms the Commission's action against dominant undertakings which pursue a margin squeeze policy. It also underlines that decisions of national regulators do not shield dominant companies from respecting competition rules.
Commission Vice President in charge of competition policy Joaquín Almunia stated: “Today's judgment confirmed the Commission's well established policy of fighting the temptation by dominant firms in network industries to set wholesale and retail prices at levels that do not allow their competitors, which have to rely on the dominant firms' infrastructure, to cover their costs. Such strategies prevent competition and breach EU competition rules. The judgement is good news for consumers and for the economy in general as effective competition in the crucial network industries such as telecoms or energy translates not only in more choice and ultimately lower prices but also more growth and jobs.”
The Court of Justice has confirmed the General Court's judgement of 2008 (case T-271/03 – see CJE/26/08), that had rejected all the pleas advanced by Deutsche Telekom against the Commission decision of 21 May 2003 (see IP/03/717).
From 1998 to 2001, Deutsche Telekom charged its competitors for accessing the so-called local loop - the 'last mile' connecting the network to peoples' homes - a price higher than that paid by its direct retail customers. This made it impossible for competition to develop in the downstream telecoms market. The German market was already open to competition based on national law ahead of liberalisation at EU level. In 2002, Deutsche Telekom lowered its wholesale prices but the difference with the retail subscription prices was still not sufficient to cover Deutsche Telekom’s costs for the supply of the end-user services. The Commission fined Deutsche Telekom €12.6 million for having charged unfair prices for access to its local network, in violation of the EU Treaty's prohibition of the abuse of a dominant market position (Article 102).
The Court confirmed that the approval by the German telecommunications Regulator RegTP of Deutsche Telekom’s wholesale prices did not absolve the latter from its obligations under EU competition law as Deutsche Telekom had sufficient scope to adjust its prices to end the margin squeeze.
The Court also confirmed the method used by the Commission to establish the margin squeeze. In particular, the Court found that the abusive nature of Deutsche Telekom's conduct relates to the spread between its prices for wholesale access and its retail prices.
Furthermore, the Commission was entitled to rely on the as-efficient-operator test which consists in considering whether the pricing practices of a dominant undertaking could drive an equally efficient economic operator from the market, relying solely on the dominant undertaking’s charges and costs. The Court confirmed that it was not necessary to take account of the cost structure of Deutsche Telekom's competitors on the market, which may not be known to the dominant company. This allows dominant companies to assess themselves the lawfulness of their activities. The Court underlines this principle: "Such an approach is particularly justified because, as the General Court indicated, ... it is also consistent with the general principle of legal certainty in so far as the account taken of the costs of the dominant undertaking allows that undertaking, in the light of its special responsibility under Article 82 EC, to assess the lawfulness of its own conduct."
Finally, the Court confirmed that decisions of national authorities under EU telecommunications law do not in any way affect the Commission’s power to find infringements of EU competition law.