Case T‑399/16
CK Telecoms UK Investments Ltd
v
European Commission
Judgment of the General Court (First Chamber, Extended Composition), 28 May 2020
(Competition — Concentrations — Wireless telecommunications — Retail market for mobile telecommunication services — Market for wholesale access and call origination on public mobile networks — Acquisition of Telefónica Europe by Hutchison — Decision declaring the concentration incompatible with the internal market — Oligopolistic market — Significant impediment to effective competition — Non-coordinated effects — Burden of proof — Standard of proof — Market shares — Effects of the merger on prices — Quantitative analysis of upward pricing pressure — Close competitors — Important competitive constraint — Important competitive force — Network-sharing agreements — Level of concentration — Herfindahl-Hirschmann Index — Error of law — Error of assessment)
1. Action for annulment — Decision to apply rules on concentrations between undertakings — Complex evaluation of economic matters — Judicial review — Scope and limits — Review of the application of the law to the facts — Review of the assessment of the effects of the concentration on competition
(Art. 263 TFEU; Council Regulation No 139/2004, Arts 2 and 8; Council Decision 88/591, recital 3)
(see paragraphs 72-76)
2. Concentrations between undertakings — Assessment of the compatibility with the internal market — Concentration neither creating nor strengthening a dominant position — Prohibition — Conditions — Concentration on an oligopolistic market giving rise to non-coordinated effects — Evidence of the existence of a significant impediment to effective competition in the internal market — Criteria for assessment — Elimination of important competitive constraints exerted reciprocally by the parties to the concentration — Reduction of competitive pressure on the remaining competitors — Cumulative conditions
(Art. 3(3) TEU; Council Regulation No 139/2004, Recitals 5, 6, 8, 24, 25 and 26 and Art. 2(3))
(see paragraphs 81-97, 102-104, 359)
3. Action for annulment — Jurisdiction of the EU judicature — Interpretation of EU law — Interpretation of the rules on concentrations between undertakings — Guidelines adopted by the Commission — Commission’s previous decision-making practice — Binding nature — Absence — Power of the Court to adopt the guidance and the economic or legal assessments of the Commission
(Art. 19 TEU; Commission Notice 2004/C 31/03)
(see paragraphs 100, 101, 163)
4. Concentrations between undertakings — Assessment of the compatibility with the internal market — Concentration neither creating nor strengthening a dominant position — Concentration on an oligopolistic market giving rise to non-coordinated effects — Prospective analysis — Evidentiary requirements — Assessment of the probable future conduct of the merged entity and of its competitors — Assessment of the strong probability of a significant impediment to effective competition in the internal market as a direct and immediate effect of the concentration — Extent of the burden of proof — Standard of proof going beyond reasonable doubt — Judicial review
(Council Regulation No 139/2004)
(see paragraphs 107-118, 332, 368)
5. Concentrations between undertakings — Examination by the Commission — Definition of the relevant market — Criteria — Substitutability of products — Assessment factors — Conditions of competition on the market — Structure of supply and demand
(Council Regulation No 139/2004)
(see paragraphs 144-146)
6. Concentrations between undertakings — Assessment of the compatibility with the internal market — Concentration neither creating nor strengthening a dominant position — Concentration on an oligopolistic market giving rise to non-coordinated effects — Evidence of the existence of a significant impediment to effective competition in the internal market — Criteria for assessment — Elimination of an undertaking constituting an ‘important competitive force’ — Concept — Undertaking with a more important competitive role than that resulting from its market share — Precluded — Distortion of the concept — Error of law — Error of assessment
(Council Regulation No 139/2004, recital 25 and Art. 2(3); Commission Notice 2004/C 31/03, paras 37 and 38)
(see paragraphs 171-175)
7. Concentrations between undertakings — Assessment of the compatibility with the internal market — Concentration neither creating nor strengthening a dominant position — Concentration on an oligopolistic market giving rise to non-coordinated effects — Evidence of the existence of a significant impediment to effective competition in the internal market — Criteria for assessment — Elimination of an undertaking constituting an ‘important competitive force’ or exerting an important competitive constraint on the market — Assessment factors — Mobile telephony retail market — Insufficiency of the evidence — Errors of assessment
(Council Regulation No 139/2004, Art. 2(3); Commission Notice 2004/C 31/03, paras 37 and 38)
(see paragraphs 183-190, 193-198, 212-216, 219-225)
8. Concentrations between undertakings — Assessment of the compatibility with the internal market — Concentration neither creating nor strengthening a dominant position — Concentration on an oligopolistic market giving rise to non-coordinated effects — Assessment factors — Concentration between two undertakings active on the mobile telephony retail market — Closest competitors — Concept — Indicia — Degree of substitutability between the products of the parties to the concentration — Degree of rivalry between the parties to the concentration — Insufficiency of evidence of important competitive constraints exerted reciprocally by the parties to the concentration — Error of assessment
(Council Regulation No 139/2004, recital 25 and Art. 2(3); Commission Notice 2004/C 31/03, para. 28)
(see paragraphs 234-250)
9. Concentrations between undertakings — Assessment of the compatibility with the internal market — Concentration neither creating nor strengthening a dominant position — Concentration on an oligopolistic market giving rise to non-coordinated effects — Taking into account of efficiencies — Assessment factors — Probative value of indicators of upward pressure on prices — Limits — Evidence of the probability of a significant price increase as a result of the elimination of important competitive constraints exerted reciprocally by the parties to the concentration — Absence — Error of assessment
(Council Regulation No 139/2004, Art. 2(3); Commission Notice 2004/C 31/03, paras 76 and 78)
(see paragraphs 274-282)
10. Concentrations between undertakings — Assessment of the compatibility with the internal market — Concentration neither creating nor strengthening a dominant position — Concentration on an oligopolistic market giving rise to non-coordinated effects — Overall assessment of non-coordinated effects — Scope — Demonstration of the existence of a significant impediment to effective competition in the internal market — Absence — Error of law — Error of assessment
(Council Regulation No 139/2004, Art. 2(3); Commission Notice 2004/C 31/03, para. 25)
(see paragraphs 286-290)
11. Concentrations between undertakings — Assessment of the compatibility with the internal market — Concentration neither creating nor strengthening a dominant position — Concentration on an oligopolistic market giving rise to non-coordinated effects — Concentration between two undertakings active on the mobile telephony market linked respectively to two other competing undertakings by network-sharing agreements — Assessment factors — Need to avoid any harm arising from the disruption to the alignment of the interests of the partners in the network-sharing agreements — New decision-making practice — Whether permissible — Conditions
(Council Regulation No 139/2004, Art. 2(3))
(see paragaphs 328-332)
12. Concentrations between undertakings — Assessment of the compatibility with the internal market — Concentration neither creating nor strengthening a dominant position — Concentration on an oligopolistic market giving rise to non-coordinated effects — Concentration between two undertakings active on the mobile telephony market linked respectively to two other competing undertakings by network-sharing agreements — Assessment factors — Disruption of the alignment of the interests of the partners in the network-sharing agreements — Decrease in the competitive pressure exerted by competing undertakings which are partners in the network-sharing agreements as a result of the alteration of their competitive position — Whether permissible — Conditions — Evidence of the existence of a significant impediment to effective competition in the internal market — Absence — Error of assessment
(Council Regulation No 139/2004, Art. 2(3))
(see paragraphs 338-348)
13. Concentrations between undertakings — Assessment of the compatibility with the internal market — Concentration neither creating nor strengthening a dominant position — Concentration on an oligopolistic market giving rise to non-coordinated effects — Concentration between two undertakings active on the mobile telephony market linked respectively to two other competing undertakings by network-sharing agreements — Assessment factors in the absence of any examination of the market power of the merged entity resulting in a degradation of the services offered or of the quality of its network — Need for a robust and convincing examination of the effects of the concentration on competitors
(Council Regulation No 139/2004, Art. 2(3); Commission Notice 2004/C 31/03, para. 25)
(see paragraphs 358-361)
14. Concentrations between undertakings — Assessment of the compatibility with the internal market — Concentration neither creating nor strengthening a dominant position — Concentration on an oligopolistic market giving rise to non-coordinated effects — Concentration between two undertakings active on the mobile telephony market linked respectively to two other competing undertakings by network-sharing agreements — Assessment factors — Effects of the concentration on competitors — Decrease in the competitive pressure exerted by competitors as a result of reduced infrastructure investments following the disruption of the alignment of the interests of the partners in the network-sharing agreements — Whether permissible — Conditions — Proof of the existence of a causal link between the increase in fixed costs and that of incremental costs — Absence — Error of assessment
(Council Regulation No 139/2004, recital 25 and Art. 2(3))
(see paragraphs 364-379)
15. Concentrations between undertakings — Assessment of the compatibility with the internal market — Concentration neither creating nor strengthening a dominant position — Concentration on an oligopolistic market giving rise to non-coordinated effects — Concentration between two undertakings active on the mobile telephony market linked respectively to two other competing undertakings by network-sharing agreements — Assessment factors — Effects of the concentration on competitors — Decrease in the competitive pressure exerted by competitors following the disruption of the alignment of the interests of the partners in the network-sharing agreements — Insufficient factor in the absence of evidence of the existence of a significant impediment to effective competition in the internal market — Risk of the degradation of the quality of networks as a result of the increase in the costs of maintaining and improving networks — Insufficient degree of probability — Error of assessment
(Council Regulation No 139/2004)
(see paragraphs 380-396)
16. Concentrations between undertakings — Assessment of the compatibility with the internal market — Concentration neither creating nor strengthening a dominant position — Concentration on an oligopolistic market giving rise to non-coordinated effects — Concentration between two undertakings active on the mobile telephony market linked respectively to two other competing undertakings by network-sharing agreements — Evidence of the existence of a significant impediment to effective competition in the internal market — Prospective analysis — Need to take into account possible coordinated or non-coordinated effects over the long term — Absence — Error of law
(Council Regulation No 139/2004)
(see paragraphs 408-416)
17. Concentrations between undertakings — Assessment of the compatibility with the internal market — Concentration neither creating nor strengthening a dominant position — Concentrations on an oligopolistic market giving rise to non-coordinated effects — Concentration between two undertakings active on the mobile telephony wholesale market — Evidence of the existence of a significant impediment to effective competition in the internal market — Assessment factors — Reduction in the number of operators active on the market — Elimination of an undertaking with low market shares — Insufficiency of the evidence — Evidence of the elimination of important competitive constraints exerted reciprocally by the parties to the concentration — Absence — Errors of assessment
(Council Regulation No 139/2004, Art. 2(2) and (3); Commission Notice 2004/C 31/03, paras 14, 19, 37 and 38)
(see paragraphs 434-453)
Résumé
By the judgment in CK Telecoms UK Investments v European Commission (T‑399/16), delivered on 28 May 2020, the General Court annulled the decision by which the Commission (1) had opposed the implementation of a proposed concentration between two of the four mobile telephone operators active in the retail market for mobile telecommunications services in the United Kingdom.
That proposal, notified to the Commission on 11 September 2015, was intended to enable the applicant, CK Telecoms UK Investments Ltd (‘Three’), an indirect subsidiary of CK Hutchison Holdings Ltd, to acquire sole control over Telefónica Europe Plc (‘O2’) and thus to become the main player in that market, ahead of the two remaining operators, EE Ltd, a subsidiary of BT Group plc (‘BT/EE’), the former legacy operator, and Vodafone.
By the contested decision, the Commission had, pursuant to the Merger Regulation (2) and its own Guidelines on the assessment of horizontal mergers (‘the Guidelines’), (3) declared the concentration incompatible with the internal market on the basis of three ‘theories of harm’. It considered that the transaction would give rise to significant impediments to effective competition as a result of the existence of non-coordinated effects arising, first, from the elimination of important competitive constraints on the retail market (the first ‘theory of harm’), which would probably have led to an increase in prices for mobile telephony services and a restriction of choice for consumers. Second, since the relevant market is characterised by the fact that BT/EE and Three, on the one hand, and Vodafone and O2, on the other, had concluded network-sharing agreements, the transaction would have had a negative influence on the quality of services for consumers, hindering the development of mobile network infrastructure in the United Kingdom (the second ‘theory of harm’). Third, since three mobile virtual network operators without their own network, Tesco Mobile, Virgin Mobile and TalkTalk (‘the non-MNOs’), had concluded agreements giving them access to the network of another operator at wholesale prices, the concentration was likely to have significant non-coordinated effects on the wholesale market (the third ‘theory of harm’).
The General Court was thus called upon to rule, for the first time, on the conditions for the application of the Merger Regulation to a concentration on an oligopolistic market not involving the creation or strengthening of an individual or collective dominant position, but giving rise to non-coordinated effects.
After recalling the limits of the review of legality which it is for the General Court to undertake on complex assessments entailed by merger reviews, it first of all set out the applicable criteria to establish that such an operation would give rise to a ‘significant impediment to effective competition’, as required by Article 2(3) of the Merger Regulation, and provided clarification on the burden and standard of proof on the Commission in such a context. (4) The Court stated in particular that, in order that non-coordinated effects arising from a concentration may result in a significant impediment to effective competition, two cumulative conditions must be satisfied: the concentration must involve (i) the elimination of important competitive constraints that the merging parties had exerted upon each other and (ii) a reduction of competitive pressure on the remaining competitors. The Court also stated that, in the context of the two-step prospective analysis which it was for the Commission to carry out in that regard, the Commission was not required to adduce evidence that the scenarios and theories of harm which it had identified would inevitably occur, but was required to produce sufficient evidence to demonstrate with a strong probability the existence of significant impediments following the concentration.
In the present case, the Court held that the Commission had not succeeded in proving that the notified concentration would generate non-coordinated effects capable of constituting significant impediments to effective competition, whether on the retail market, under the first and second theories of harm, or on the wholesale market, under the third theory.
Thus, the Court found, in the first place, that the Commission had made several errors in concluding, under the first theory of harm, that there were likely to be non-coordinated effects on the mobile telephony retail market arising from the elimination of important competitive constraints. It held, first of all, that the Commission had not established that Three was an ‘important competitive force’, the elimination of which would lead to a reduction in competitive pressure sufficient to establish the existence of a significant impediment to effective competition. By confusing the concepts of ‘significant impediment to effective competition’, (5) ‘elimination of an important competitive constraint’ (6) and ‘elimination of an important competitive force’, (7) the Commission considerably widened the scope of the rules on concentrations of undertakings and distorted the concept of ‘important competitive force’. Moreover, the various factors taken into account by the Commission in concluding that Three was an important competitive force or, at the very least, exerted an important competitive constraint on the market, whether in terms of the increase in the gross add share in the light of its market shares, the increase in the number of its subscribers, the aggressive pricing policy which it may have pursued or the disruptive role it may have historically played on the market, are considered insufficient.
Similarly, the General Court found that, although it is true that the relevant retail mobile telephony market is characterised by a low degree of product differentiation, with the result that the parties to the concentration and the other operators active on that market could be regarded as relatively close competitors, that factor alone is not however sufficient to prove the elimination of the important competitive constraints that the parties to the concentration exerted upon each other and thus the existence of a significant impediment to effective competition.
Moreover, while acknowledging that the Commission could take into consideration indicators of upward pressure on prices, (8) in that they reflect the incentives for the parties to the concentration to increase their prices, the General Court nevertheless held that its quantitative analysis lacks probative value, since the Commission had not demonstrated with a sufficient degree of probability that prices would rise ‘significantly’ following the elimination of the important competitive constraints. The Court also found that the Commission had not included in its quantitative analysis the efficiencies which the concentration could bring about. It held, lastly, that the Commission had not, in its overall assessment of the non-coordinated effects, at any point specified whether they would be ‘significant’ or would result in a significant impediment to effective competition.
The Court held, in the second place, that the Commission had also committed errors of law and of assessment in finding, under the second theory of harm, that there would be non-coordinated effects arising from the disruption to the network-sharing agreements.
On the basis of the principle that network-sharing agreements may have effects conducive to effective competition to the benefit of consumers, the Commission examined the extent to which the concentration, by disrupting the existing agreements, was capable of eliminating their competitive dynamic. After examining the notifying parties’ network consolidation plans and five other scenarios for the integration of the existing networks, the Commission concluded that the operation was likely to give rise to non-coordinated anticompetitive effects on the retail market, an oligopolistic market with high barriers to entry. The operation could weaken the competitive position of the competitors which are partners in the network-sharing agreements and thus reduce their competitive pressure. Moreover, it was likely that it would lead to fewer industry-wide investments in network infrastructure, and therefore a reduction in the degree of effective competition.
In that regard, the Court first of all observed that the novelty of that theory, as compared with the Commission’s previous decision-making practice, did not imply that it was unlikely or unfounded, and stated that it subscribed to it to a certain extent. However, it noted that BT/EE and Vodafone’s ability to compete and incentives to invest would not depend decisively on the merged entity’s investment decisions or on cost increases, but in particular on the level of competition that they would face, their financial resources and their strategies. It inferred from this that the possible misalignment of the interests of the partners in the network-sharing agreements, the disruption of those agreements following the concentration, or the termination of those agreements, did not constitute, in the present case, and as such, a significant impediment to effective competition in the context of a theory of harm based on non-coordinated effects.
Noting that the competition rules of the European Union are primarily intended to protect the competitive process as such, and not competitors, the General Court then examined the Commission’s assessment of the effects of the concentration on the two competitors, BT/EE and Vodafone, taking into account the network consolidation plans concerning them respectively.
In the case of BT/EE, it held that the Commission had not succeeded in establishing that, by increasing the costs of maintaining and improving the network and by degrading its quality, the concentration would affect its competitive position to such an extent as to constitute a significant impediment to effective competition. In that regard, the Court found, in particular, that the Commission had not adduced evidence that its theory of harm is based on a causal link between the alleged increase in fixed costs and that of incremental costs, which would lead to fewer investments, to a deterioration in the quality of services offered on the market or, if they were passed on to consumers as higher prices, to a decrease in the competitive pressure of BT/EE and Vodafone on the market.
In Vodafone’s case, after observing that the reduction in the competitive pressure that that undertaking was capable of exerting is not, in itself, sufficient to establish a significant impediment to effective competition in the present case, the Court held, inter alia, that the Commission had not proved to the requisite legal standard that any decision by Vodafone to restrict its investments in its own network would result in a sufficiently realistic and plausible manner from the merger, would alter the factors determining the state of competition on the markets affected and would, in the present case, ‘significantly’ impede effective competition on the relevant market.
Lastly, the General Court held that the Commission had erred in law in finding that the increased transparency of the overall investments of mobile network operators brought about by the network-sharing agreements would reduce their incentive to invest in their networks and, consequently, their competitive pressure, without, however, defining the appropriate time frame within which it intended to establish the existence of a significant impediment to effective competition. The Commission analysed (i) the immediate effects of the concentration in the short and the medium term in the light of the temporary overlap of the two network-sharing agreements and (ii) its medium- and long-term effects in the light of the network consolidation plans. However, it did not take into account the fact that the parties to the concentration would not maintain two separate networks in the long term, even though it had mentioned that possibility on several occasions in the contested decision. The examination of the effects of a concentration on an oligopolistic market in the telecommunications sector which requires long-term investment and where consumers are often tied by contracts over several years presupposes a dynamic prospective analysis calling for account to be taken of any coordinated or unilateral effects over a relatively long period of time in the future. The Commission therefore erred in law in characterising the effect on overall network investments of increased transparency as non-coordinated effects.
Lastly, in the third place, the Court held that the Commission had not succeeded in establishing, under the third theory of harm, the existence of non-coordinated effects on the wholesale market.
In that regard, it observed, first of all, that the reduction in the number of mobile network operators from four to three is not in itself capable of establishing the existence of a significant impediment to competition, since a large number of oligopolistic markets exhibit a degree of competition which can be described as healthy. It went on to hold that, notwithstanding the fact that the Herfindahl-Hirschmann index, used to measure the degree of concentration in a market, exceeded in the present case the thresholds below which it was in principle (9) precluded that the concentration would pose competition concerns, exceeding those thresholds does not imply, under paragraph 21 of the Guidelines, a presumption of the existence of competition concerns. However, noting that, in concluding that Three was an ‘important competitive force’ on the wholesale market, the Commission had relied not on its historic market shares and the concentration level, but on its gross add shares and the qualitative analysis of its importance on the wholesale market, the Court held that the Commission had not credibly explained why gross add shares were of such decisive importance in the present case, or therefore proved, in the absence of a detailed examination of the facts, the existence of a significant impediment to effective competition.
The Court also found that, although it could be considered, in the light of its gross add share, that Three has the ability to compete with the other players in the wholesale market, that it is a credible competitor, that it has an influence on competition and that it had strengthened its position on the market, that is not however sufficient either to establish the existence of a significant impediment to effective competition, in a context where its market share is, in reality, very low, or to conclude that it is an important competitive force. Lastly, it held that the Commission had not shown that the concentration would lead to a removal of the important competitive constraints which the parties had previously exerted upon each other.