In a judgement delivered by the
Before considering the judgement of the CJEU, it is worth assessing the Judgement under Appeal, together with the Commission Decision, as these provide the founding blocks on which the judgement of the CJEU is based.
O2 is also active in the
At the time four mobile network operators were present on the retail market for mobile telecommunications services in the
- O2, having a market share between 20% and 30% of subscribers;
- Vodafone, having a market share between 10% and 20% of subscribers; and
- Three, having a market share between 10% and 20% of subscribers.
- The second theory of harm concerns the existence of non-coordinated effects on the retail market relating to network sharing. According to the Commission, the proposed concentration would be likely to have a negative influence on the quality of services for consumers, hindering the development of mobile network infrastructure in the
United Kingdom; and
- The third theory of harm concerns the existence of non-coordinated effects arising from the elimination of important competitive constraints on the wholesale market. In particular, the Transaction was likely to have significant non-coordinated effects on the wholesale market resulting from a reduction in the number of mobile network operators from four to three, the elimination of Three as an important competitive force, the removal of important competitive constraints which the parties had previously exerted upon each other, and a reduction of competitive pressure on the remaining players.
- the Commission's assessment of the counterfactual scenario, on which it based its evaluation of the retail and wholesale markets; and
- the Commission's second theory of harm, concerning the retail market, in relation to network sharing, and CK Telecoms' commitments in relation to network sharing.
- the Commission failed to show that the effects of the concentration on the network-sharing agreements and on the mobile network infrastructure in the
UKwould constitute a significant impediment to effective competition; and
- the effects of the concentration on the wholesale market were not found to be sufficient to establish the existence of a significant impediment to effective competition.
Following the proposed Transaction, Three and O2 would account for approximately between 30% and 40% of the retail market and thus was able to become the main player on that market, ahead of BT/EE and Vodafone.
In its analysis, the Commission set out three theories of harm, all of which were based on the existence of non-coordinated effects on an oligopolistic market.
The first theory of harm relates to the existence of non-coordinated effects on the retail market arising from the elimination of important competitive constraints. According to the Commission, the sharp reduction in competition which would have resulted from the proposed concentration would probably have led to an increase in prices for mobile telephony services in the
The Commission, having considered the submissions made by the Parties, and the three theories of harm, concluded that the Transaction would significantly impede effective competition in the internal market or a substantial part thereof within the meaning of Article 2(3) of the Merger Regulation3. This is because the Transaction would give rise to horizontal non-coordinated anti-competitive effects in the retail market for the provision of retail mobile telecommunications services in the
the first and third theories of harm concerning elimination of competition between Three and O2 in the retail market and in the wholesale market respectively;
By the Judgement under Appeal, the General Court upheld the action made by CK Telecoms and annulled the Commission Decision for the following reasons:
the Commission failed to prove the effects of the Transaction on prices and on the quality of services to the requisite legal standard;
The Commission put forward an appeal to the CJEU based on six main grounds. The first ground alleged an error of law in that the General Court applied a stricter standard of proof than that resulting from the case-law of the
For the purposes of this report, only a salient overview of all grounds of appeal together with the CJEU's findings will be given.
First, by holding that the Commission is required to demonstrate with a 'strong probability the existence of significant impediments' to effective competition following the concentration and that 'the standard of proof applicable in the present case is therefore stricter than that under which a significant impediment to effective competition is "more likely than not", the General Court applied a standard of proof which does not follow from the Merger Regulation, as interpreted by the
Second, the General Court erred in law in holding that the Merger Regulation must be interpreted as meaning that, in the absence of the creation or strengthening of a dominant position following a concentration on an oligopolistic market, a significant impediment to effective competition can be established only if the Commission demonstrates that two cumulative conditions are satisfied, namely, first, the elimination of important competitive constraints that the merging parties had exerted upon each other and, second, the reduction of competitive pressure on the remaining competitors.
Third, the CJEU held that the General Court distorted the Commission Decision in finding that it was apparent from that decision that the Commission was of the view that the elimination of an 'important competitive force' or the closeness of competition between Three and O2 would be sufficient, in themselves, to prove a significant impediment to effective competition. In addition, in finding that, in order to classify Three as an 'important competitive force', the Commission was required to demonstrate that Three competed particularly aggressively in terms of price and that it forced the other players on the market to align with its prices or that its pricing policy was likely to alter significantly the competitive dynamics on the market, the General Court erred in law. In order to classify an undertaking as an 'important competitive force', it is sufficient that it has more of an influence on the competitive process than its market share or similar measures would suggest.
Fourth, as regards the quantitative analysis of the effects of the proposed concentration on prices, the General Court erred in law when it found that the Commission ought to have included the 'standard' efficiencies which, according to that court, accompany all concentrations, in its quantitative analysis. While certain concentrations may give rise to efficiencies which are specific to them, that possibility in no way implies that all concentrations give rise to such efficiencies. In any event, it is for the notifying parties to demonstrate those efficiencies so that the Commission can take them into account in its review.
Fifth, by failing to carry out an overall assessment of the relevant factors and findings to ascertain whether the Commission had demonstrated the existence of a significant impediment to effective competition, the General Court erred in law.
Sixth, the CJEU held that it is apparent from the Decision that the Commission did in fact assess the possible degradation of the quality of the network of the entity resulting from the proposed concentration. By observing that the Commission had not made such an assessment, the General Court distorted that Decision.
Having regard to the errors made by the General Court, which affect the General Court's reasoning, the CJEU decided to set aside the Judgement under Appeal and referred it back to the General Court.
1. Council Regulation (EC) No 139/2004 of
Article 4: "Concentrations with a Community dimension defined in this Regulation shall be notified to the Commission prior to their implementation and following the conclusion of the agreement, the announcement of the public bid, or the acquisition of a controlling interest."
2. Article 3(1)(b): "A concentration shall be deemed to arise where a change of control on a lasting basis results from:
(b) the acquisition, by one or more persons already controlling at least one undertaking, or by one or more undertakings, whether by purchase of securities or assets, by contract or by any other means, of direct or indirect control of the whole or parts of one or more other undertakings."
3. Article 2(3): "A concentration which would significantly impede effective competition in the common market or in a substantial part of it, in particular as a result of the creation or strengthening of a dominant position, shall be declared incompatible with the common market."
This article was first published on The Malta Independent on 02/08/2023.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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