On 10 July 2014, the EU Court of Justice (CJEU) sent sighs of relief through the EU Commission when it upheld in its entirety the Commission’s 2007 fine against Telefonica for a margin squeeze in the Spanish broadband market. The decision puts an end to a long fight by Telefonica, disputing the €151 million fine levelled against it. The ruling is important because the CJEU has affirmed the principle from the Deutsche Telekom case of 2010 that a company can still be guilty of operating a margin squeeze despite compliance with national regulatory decisions.
The margin squeeze involved in the Telefonica case related to the Spanish broadband market. The Commission in its 2007 investigation and decision found that Telefonica had inflated the price it sold wholesale broadband access to its competitors to a level where they could not effectively compete with Telefonica’s own prices to its retail customers. The Commission held this was in breach of Article 102 TFEU (a prohibition against an abuse of dominance) as Telefonica was held to be in a dominant position on the Spanish wholesale broadband market. It was the only operator in Spain with a nation-wide fixed telephone network. By charging this high wholesale price, competitors were forced to price their own retail customer prices at such a level they could not effectively compete or gain market share from Telefonica.
The 2007 decision was initially appealed by Telefonica to the EU General Court who entirely affirmed the Commission’s findings. Telefonica than appealed the General Court’s decision to the CJEU who have again upheld the Commission’s 2007 decision. Both this current case and the Deutsche Telekom case of 2010 emphasise the supremacy of EU competition law over national regulatory decisions and other regulatory European regulations.
A company may be acting entirely legitimately within a national regulatory framework (including getting regulatory approval for prices in the Deutsche case) but still abusing their dominant position by operating a margin squeeze under Article 102 TFEU.
Although both the Telefonica and Deutsche Telekom cases involve national broadband markets, the principles of the case are likely to be applicable to any former nationalised industries such as water, gas, electricity or postal services. These areas usually involve the slightly artificial starting point of the former national monopoly selling wholesale access to its new competitors. Anyone acting in similar industries and believing themselves to be acting within the national regulatory framework would do well to remember the Deutsche and Telefonica cases as a reminder of the supremacy and reach of EU competition law. A single complaint by a competitor to the Commission can start the ball rolling towards an investigation and the danger of fines.