Block on proposed acquisition of Telefónica UK annulled by General Court

The European Commission erred in law and in its assessment finds the General Court.

The General Court has annulled the European Commission’s decision to block the proposed acquisition of Telefónica UK by Hutchison 3G UK in the mobile telephony market in CK Telecoms UK Investments Ltd v European Commission (T-399/16).

Facts of case

On 11 May 2016, the European Commission adopted a decision blocking the proposed acquisition of Telefónica UK/02 by Hutchison 3G UK/Three under the Merger Regulation 139/2004/EC.

The Commission took the view that the proposed acquisition would have removed an important competitor on the UK mobile telephony market and the merged entity would have faced competition only from two mobile network operators.  The Commission considered that this would probably have led to price increases as well as less choice and poor service quality for consumers. Finally, it would have reduced the number of mobile network operators wishing to host other mobile operators on their networks.

Three brought an action before the General Court seeking annulment of the Commission’s Decision.  

The effects on prices and on the quality of services for consumers have not been proved to the requisite legal standard

After clarifying the scope of the Merger Regulation, as well as the burden of proof and the standard of proof in relation to concentrations, the General Court found that there had been several errors of law and of assessment.

The Court said that the mere effect of reducing competitive pressure on the remaining competitors was not, in principle, sufficient in itself to demonstrate a significant impediment to effective competition in the context of a theory of harm based on non-coordinated effects.

With regard to the classification of Three as an ‘important competitive force’, the Court found that the Commission erred in considering that an ‘important competitive force’ need not necessarily stand out from its competitors in terms of its impact on competition. 

Further, the Court found that that although the Commission established that Three and O2 are relatively close competitors in some of the segments of a market, this was not sufficient to prove the elimination of the important competitive constraints which the parties to the concentration exerted upon each other and therefore to establish a significant impediment to effective competition. The Court also found that the Commission’s quantitative analysis of the effects of the concentration on prices did not establish, with a sufficiently high degree of probability, that prices would increase significantly.

The Commission failed to show that the effects of the concentration on the network-sharing agreements and on the mobile network infrastructure in the UK would constitute a significant impediment to effective competition

The current four mobile network operators in the UK are parties to two network-sharing agreements which enables them to share the costs of rolling out their networks while continuing to compete at the retail level.

According to the Commission, the future development of the mobile network infrastructure in the UK would have been hindered to the extent that the merged entity would have been party to both network-sharing agreements. 

The Court found that a possible misalignment of the interests of the partners in a network-sharing agreement, a disruption of the pre-existing network-sharing agreements, or even the termination of those agreements did not constitute, as such, a significant impediment to effective competition.

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.

In addition to the four mobile network operators, there are also several ‘virtual’ operators on the UK mobile telephony retail market, such as Virgin Media which use the infrastructure of the ‘host’ mobile network operators to provide their services to consumers in the UK.

According to the Commission, the loss of Three as an ‘important competitive force’ and the ensuing reduction in the number of host mobile networks would have placed the virtual operators in a weaker negotiating position to obtain favourable wholesale access conditions. 

The Court found that neither Three’s wholesale market shares nor their recent increase justified its classification as an ‘important competitive force’. The mere fact that Three had more of an influence on competition than its market share suggested that it was not sufficient to establish the existence of a significant impediment to effective competition, particularly as it was not disputed that Three’s market share was small. 

Published: 2020-06-01T16:00:00

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