The DT Margin Squeeze Case Stefan Lechler Head of Competition Law and Merger Control Deutsche...
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Transcript of The DT Margin Squeeze Case Stefan Lechler Head of Competition Law and Merger Control Deutsche...
The DT Margin Squeeze Case
Stefan Lechler
Head of Competition Law and Merger ControlDeutsche Telekom AG
Global Competition Law CentreLondon, 10 December 2004
The DT Margin Squeeze CaseStefan Lechler10 December 2004 page 2
The DT Margin Squeeze CaseMain issues
Future analysis of all types of wholesale access and retail charges in the telecommunications sector
Overlap/interaction of EC competition rules and Member State sector-specific regulation
Economic principles applied by the Commission to complex price squeeze situations
The DT Margin Squeeze CaseStefan Lechler10 December 2004 page 3
The EU Commission's decisionHistory
Spring ‘99: Several complaints of competitors
Summer ‘99: Requests for information
During 8 months no reaction by EU COM Spring ‘00: EU COM informs DT that proceedings were initiated
against Germany (Art. 226)
No further steps/communication for more than a year
Spring ‘01: Several further requests for information until January 2002
May ‘02: Statement of objections (amended in February 2003)
Fall/winter ‘02: Hearing, further requests for information
21.05.03 Commission decision
The DT Margin Squeeze CaseStefan Lechler10 December 2004 page 4
The EU Commission‘s decisionSummary
EU COM: DT abused its dominance in the local loop by charging unfair prices for wholesale access and retail access (“Margin Squeeze”):
Insufficient margin for competitors between the tariff for ULL and the tariff for retail access
Price-Cap 1998 until 2001: Decrease in call charges could have been used for an increase in retail access charges
From 2002: Tariffs for ULL were lower than retail access tariffs, however the ULL tariff plus product-specific cost was higher than the average weighted retail subscription
The Commission’s decision of May 2003 is pending before the CFI
The DT Margin Squeeze CaseStefan Lechler10 December 2004 page 5
Procedural issuesThe EU Commission has exceeded its jurisdiction
No jurisdiction to act as a Super-Regulator
All of DT‘s relevant tariffs were subject to price regulation:
Access: approved by RegTP within Price-Cap
ULL: set by RegTP (cost based)
RegTP decisions: "no price-squeeze in Germany"
Commission’s decision undermines regulation by the RegTP and puts legal certainty at risk
If the RegTP or the Price-Cap-regime contravenes EU law, the Commission must take infringement action against Germany
The Commission’s decision infringes principles of good faith
The DT Margin Squeeze CaseStefan Lechler10 December 2004 page 6
Substantive issues DT has no discretion to set wholesale prices for ULL
DT is bound by RegTP’s approved wholesale rates
RegTP would not have approved lower wholesale rates
EU law: ULL access rates to be cost-based
Cost of efficient service provision is determined by RegTP via its own cost model
Result: DT could only have restricted competition by charging too low retail tariffs
Dumping-test would have been the correct method
The DT Margin Squeeze CaseStefan Lechler10 December 2004 page 7
Substantive issues DT has no discretion to set retail subscriber line prices DT is bound by the RegTP’s approved retail rates. RegTP approval
is needed for any price-adjustment. RegTP considerations:
Tariffs have to be based on cost of efficient service provision
Tariffs have to be in line "with other legal provisions" (e.g. Art. 82)
The 2002/2003 price caps precluded DT from increasing subscriber line prices
RegTP rejected DT's application for an increase in excess of the price cap margin for 2003
Local loop price squeeze cannot be based only on DSL charges
No proof for low price elasticity
No causal link between DT not increasing DSL charges and the alleged price squeeze
The DT Margin Squeeze CaseStefan Lechler10 December 2004 page 8
Substantive issuesEU Commission fails to prove Price Squeeze (1)
Comparison between unbundled access charges and subscriber line fees is economically unsound
Commission compares weighted retail prices for various types of sub-scriber line access with weighted one-off and monthly wholesale charges
Economic analysis is solely based on Commission's market definition without taking into account the reality of the market place
Failure to consider competitor's incremental revenue opportunities is economically unsound
Telecommunication service providers compete on bundles of access and individual call services
The DT Margin Squeeze CaseStefan Lechler10 December 2004 page 9
Substantive issuesEU Commission fails to prove Price Squeeze (2)
US Regulator FCC also includes other revenue in its local loop price squeeze analysis (Verizon New Hampshire & Delaware Order 2002)
Differences in regulatory approaches to unbundled access and subscriber rates
Inconsistent application of the Commission’s own approach due to the inclusion of inefficiency costs
Commission ignores the prospect of positive margins by focussing only on average calculations
The DT Margin Squeeze CaseStefan Lechler10 December 2004 page 10
Lack of market-analysisEU Commission fails to prove a hindrance to competition
ECJ (Hoffmann-La Roche): Hindering "maintenance or growth of competition" is prerequisite for application of Art. 82
Focus of DT's competitors on attractive market segments creates lively competition
“Mixed calculation" possible
Regional areas as origin of competition
Wholesale charges in Germany are clearly below EU average
New entrants into the German local loop market account for more than 85% of all unbundled subscriber lines in Europe
Germany accounts for half of all European local loop operators
More than 30% of the German population have access to two or more operators; 22% have access to three to five operators
The DT Margin Squeeze CaseStefan Lechler10 December 2004 page 11
The success of competitors is measurableIn comparison with other EU countries, Germany plays leading role
Retail subscriber market Wholesale market
0
100000
200000
300000
400000
500000
600000
700000
800000
900000
1000000944941
155844061
350001043
1509
82100
1882878002810
1181
Germany is the unchallenged leader for unbundled local loop access
77% of all subscriber lines can be served by competitors.
The market conditions in certain areas of Germany demonstrate that current ULL charges allow extensive competition.
Source: EU-Commission Implementation Report Dec. 2002