Ex ante and ex post regulation following Telefónica

Hats off to Spain for having the nerve to suggest that it might have been a better target for the Commission’s attention than Telefónica, the former monopoly telecoms provider recently fined over €150 million for committing a margin squeeze in the Spanish broadband market (see case T-398/07 Kingdom of Spain v Commission).

The case is the latest in a line which tests the boundary between ex ante regulation (obligations imposed on particular undertakings by national regulatory bodies) and ex post competition law (in this case, the general prohibition against abuse of dominance).

Telefónica was subject to extensive ex ante regulation, including obligations to offer wholesale broadband products. It also offered retail products. The Commission decided it had abused its dominant position by committing a margin squeeze because equally efficient competitors which purchased the wholesale product would not be able to compete with Telefónica’s retail prices.

The judgment of the General Court, handed down on 29 March 2012, restates the principle that the existence of ex ante regulation, even extensive sectoral regulation, does not free the undertaking from the obligation to comply with ex post competition law. The key question is whether the national regulations allow for the possibility that the undertaking may engage in autonomous conduct which prevents, restricts or distorts competition. If the undertaking has enough autonomy to avoid breaching ex post competition law, it follows that it can breach competition law. Telefónica could have offered its wholesale products for lower prices (or, presumably, its retail products for higher prices): it was therefore not obliged to commit a margin squeeze, and had committed an abuse by doing so.

It is important to note that, although the Court is keen to stress that the ex ante and ex post regimes are distinct rules which serve different purposes, in practice they may be closely connected. The only reason Telefónica was offering wholesale products in the first place was because it was obliged to do so by national regulation. In other words, it breached ex post competition law in the course of taking steps to comply with its ex ante obligations. Perhaps sensing an injustice in that outcome, Spain argued that there could only be a margin squeeze if the dominant undertaking had chosen to offer the wholesale product, not where it had been obliged to do so. The General Court rejected that submission.

The Court also gave short shrift to Spain’s suggestion that, if the Commission had come to the conclusion that the decisions of the national regulatory authority did not ensure the absence of a margin squeeze and did not comply with the regulatory framework, it should have brought infringement proceedings against Spain under Article 226 EC. The Commission had come to no such conclusion: Spain did not force Telefónica to commit a margin squeeze, and in any event even if Spain had acted unlawfully it would not necessarily follow that Telefónica had not done so too.

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Filed under Abuse, Telecoms

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