The ruling confirms that the ACM will need to conduct a thorough legal, factual and economic analysis before concluding on ex ante regulation. Something that companies should keep in mind when verifying a competition authority’s theories of harm.
The Dutch Trade and Industry Appeals Tribunal (CBb) reversed the decision of the ACM requiring Dutch telecom providers KPN and VodafoneZiggo to open up their fixed networks to other providers. The message was clear and harsh; the ACM had failed to demonstrate the existence of collective dominance and that KPN and VodafoneZiggo would tacitly coordinate their behaviour in the absence of regulation. Consequently, the obligation for KPN and VodafoneZiggo to grant access to other providers could no longer hold.
In September 2018, the ACM concluded (in its market analysis decision on Wholesale Fixed Access) that KPN and VodafoneZiggo were obliged to grant other providers access to their networks. According to the ACM, the companies together had significant market power in an unregulated market, and could therefore tacitly collude and use that power to raise prices, change conditions to their advantage or delay investments.
KPN and VodafoneZiggo appealed the decision before the CBb. The ACM may only impose network access obligations if it is plausible that (i) there is a risk of collective dominance of KPN and VodafoneZiggo and (ii) without such regulatory obligations, KPN and Vodafone would tacitly coordinate their behaviour on the relevant markets. It is for the ACM to prove this.
The CBb confirmed that the Airtours criteria, laid down in EU case law, should be applied to establish collective dominance, and that those criteria are difficult to meet. According to the Airtours criteria, the following conditions are necessary for a finding of collective dominance (i) market transparency, (ii) a retaliatory mechanism for deviating conduct and (iii) the absence of external countervailing forces capable of counteracting the creation of a collective dominant position. The CBb considered that the ACM had not succeeded in demonstrating that these criteria had been fulfilled.
The ACM had used the modified Greenfield approach, which is essentially an analysis of a counterfactual ‘no regulated access’ scenario, to demonstrate that there was a risk KPN and VodafoneZiggo would tacitly coordinate their behaviour in the absence of access regulation. The CBb agreed that it follows from Dutch case law that the ACM must abstract from existing regulation to identify whether tacit coordination due to collective dominance is plausible. However, contrary to what the ACM had argued, when using the modified Greenfield approach, commercial contracts granting access to other telecom providers may be considered not only when assessing the proportionality of the regulatory obligations, but also in the analysis of dominance; the decisive question is whether the commercial contracts would also have been entered into absent (a threat of) regulation.
The ACM had used game theory to demonstrate how KPN and VodafoneZiggo would interact with each other on an unregulated market. The ACM had concluded that they would have no incentive to grant other providers access to their fixed networks. However, economic reports submitted by KPN and VodafoneZiggo countered the ACM’s claims that there was sufficient interaction, market symmetry and a proportional retaliation mechanism in place to support this conclusion. According to the economic reports, it would remain economically attractive for KPN to grant network access, irrespective of VodafoneZiggo’s access strategies. The CBb followed the parties’ economic reports to rule that the ACM’s game theory, and the counterfactual under the Greenfield approach, were not sufficient to demonstrate that KPN and VodafoneZiggo would engage in tacit coordination absent regulation.
Clearly, the CBb conducted a thorough legal, factual and economic analysis of the ACM’s theory of harm. The judgment confirms that a finding of collective dominance is difficult to reach and that ex ante regulation requires a solid theory of harm meeting the relevant principles of law and economics to hold.
This article was published in the Competition Newsletter of April 2020. Other articles in this newsletter: