The term margin squeeze or price squeeze refers to some forms of abuses intended to exclude competitors or potential competitors from a market. It applies in particular to cases where the controller of an infrastructure facility (such as fixed telephony networks) seeks to reserve to itself parts of a related downstream market. The Deutsche Telekom case dealt with the pricing policy of such a controller within the ambit of a liberalised telecommunications market.
Advocate General Jan Mazák recently dealt with allowing and maintaining access of competitors to the fixed telephony network of Deutsche Telekom, where access was needed for those competitors to enter and compete effectively on the retail market. Naturally, an incumbent company that has the necessary infrastructure in place, like Deutsche Telekom, is at an advantage when compared to new entrants on the market.
The Advocate General's opinion was recently delivered in Deutsche Telekom's appeal, currently pending before the European Court of Justice. The appeal was filed against a judgment of the General Court, which upheld a European Commission decision imposing on Deutsche Telekom a fine of €12.6 million.
It all started when several competitors filed complaints against Deutsche Telekom. The Commission found that Deutsche Telekom had abused its dominant position on the market due to the fact that it charged prices to its competitors for access to the network ("wholesale prices") above or slightly below the prices it charged to end-users ("retail prices").
As a result, since Deutsche Telekom had control over the only gateway to the telecom market, its competitors were not in a position to offer lower prices to end-users than Deutsche Telekom. The prices they charged were dependable on the wholesale access purchased from Deutsche Telekom. The wholesale tariffs failed to respect the principle of equal opportunity, which ultimately safeguards open competition on a market.
The Commission decision was eventually upheld by the General Court. Deutsche Telekom submitted an appeal from this decision. It first claimed that the infringement cannot be attributed to it since its wholesale charges as well as retail tariffs were regulated by the National Regulatory Authority. Therefore, it argued that prices approved by the competent Authority created a legitimate expectation that its prices were lawful.
The Advocate General, however, shot down this argument, noting that Deutsche Telekom had still a sufficient margin of discretion to breach or comply with competition rules, even though prices were regulated by the national authority. In these circumstances, the Commission was not impeded from finding an infringement of competition law attributable to Deutsche Telekom, which was solely responsible for its conduct.
On the merits, Deutsche Telekom argued that the court did not sufficiently analyse whether a margin squeeze could constitute a stand-alone infringement of competition law. The Advocate General begged to differ, explaining that in such a case as this, the court rightly judged that the margin squeeze made it economically impossible for competitors to propose services at the same price as Deutsche Telekom, since competitors were not able to offer the services feasibly, let alone, profitably. Therefore, Deutsche Telekom pricing practices created barriers to entry into the market and thus constituted an abuse of a dominant position.
In line with the General Court's judgment, the Advocate General recommended to the Court of Justice to dismiss the appeal and maintain the fine against Deutsche Telekom.
It is ultimately up to the European Court of Justice to follow the Advocate General's opinion. Given that it is the first time that the ECJ has been called upon to rule on the issue of whether "margin squeeze" may constitute an abuse of a dominant position, even in the absence of abusive wholesale prices or predatory retail prices, this is a closely-watched case and any eventual decision will be a landmark one.
Dr Grech is an associate with Guido de Marco & Associates and heads its European law division.