In a judgement delivered by the Court of Justice of the European Union (the “CJEU” or the “Court“) on the 13 July 2023, in the case of Commission vs CK Telecoms UK Investments Ltd (“CK Telecoms“), the Court had to consider the lawfulness of the judgement delivered by the General Court of the European Union (the “General Court“) on the 28 May 2020 (the “Judgement under Appeal“) which set aside Commission Decision C (2016) 2796 of the 11 May 2016 declaring a concentration incompatible with the internal market of the European Union (the “Commission Decision“).
Preliminary considerations:
Before considering the judgement of the CJEU, it is worth assessing the Judgement under Appeal, together with the Commission Decision, as these provide the founding blocks on which the judgement of the CJEU is based.
On 11 September 2015, the European Commission received a notification of a proposed concentration pursuant to Article 4 of the Merger Regulation¹ by which the undertaking, CK Hutchison Holdings Limited (“CKHH“), through its indirect subsidiary Hutchison 3G UK Investments Limited (the “Notifying Party“), proposed to acquire, within the meaning of Article 3(1)(b) of the Merger Regulation², control of Telefónica Europe Plc (“O2“), by way of purchase of its shares (the “Transaction“). The Notifying Party and O2 are referred to collectively as the ‘Parties’.
The Notifying Party is an indirect wholly owned subsidiary of CKHH. CKHH is a multinational group listed on the Hong Kong Stock Exchange Limited and has five core businesses: ports and related services, retail, infrastructure, energy, and telecommunications. CKHH’s indirect wholly owned subsidiary, Hutchison 3G UK Limited (“Three“) is a Mobile Network Operator (“MNO“) in the United Kingdom. Three offers mobile telecommunications services such as voice, SMS, MMS, mobile internet, mobile broadband, roaming and call termination services.
O2 is also active in the United Kingdom and offers mobile telecommunications services such as voice, SMS, MMS, mobile internet, mobile broadband, roaming and call termination services. O2 belongs to Telefónica S.A. (“Telefónica“), a holding company of a group of companies that operate fixed and mobile communication networks.
At the time four mobile network operators were present on the retail market for mobile telecommunications services in the United Kingdom namely:
Following the proposed Transaction, Three and O2 would account for approximately between 30% and 40% of the retail market and thus was able to become the main player on that market, ahead of BT/EE and Vodafone.
In its analysis, the Commission set out three theories of harm, all of which were based on the existence of non-coordinated effects on an oligopolistic market.
The Commission, having considered the submissions made by the Parties, and the three theories of harm, concluded that the Transaction would significantly impede effective competition in the internal market or a substantial part thereof within the meaning of Article 2(3) of the Merger Regulation³. This is because the Transaction would give rise to horizontal non-coordinated anti-competitive effects in the retail market for the provision of retail mobile telecommunications services in the United Kingdom given it involves the elimination of important competitive constraints that the Parties currently exert on each other and on the other competitors. Moreover, the Transaction would likely reduce the competitive pressure exerted by either one, or both, of the other MNOs that are partners of the Parties in the network sharing arrangements and to lead to less industry-wide investments into network infrastructure. In addition, the Transaction would give rise to non-coordinated anti-competitive effects in the wholesale services for access and call origination on public mobile telephone networks in the United Kingdom by reducing the number of providers of wholesale access.
On the 25 July 2016, CK Telecoms brought an action for annulment of the Decision before the General Court. CK Telecoms relied on the following pleas:
By the Judgement under Appeal, the General Court upheld the action made by CK Telecoms and annulled the Commission Decision for the following reasons:
The Appeal:
The Commission put forward an appeal to the CJEU based on six main grounds. The first ground alleged an error of law in that the General Court applied a stricter standard of proof than that resulting from the case-law of the Court of Justice concerning concentrations. The second ground alleged a misinterpretation of Article 2(3) of the Merger Regulation. The third ground alleged that the General Court exceeded the limits of judicial review in interpreting the concepts of ‘important competitive force’ and ‘close competitors’, whilst misinterpreted those concepts and distorted both the decision at issue and the Commission’s defence. The fourth ground alleged distortion of the Commission’s arguments concerning the quantitative analysis of the effects of the proposed concentration on prices and errors of law made by the General Court in its assessment of that analysis. The fifth ground alleged that the General Court did not assess all the relevant evidence together. The sixth ground alleged errors concerning network sharing.
For the purposes of this report, only a salient overview of all grounds of appeal together with the CJEU’s findings will be given.
First, by holding that the Commission is required to demonstrate with a ‘strong probability the existence of significant impediments’ to effective competition following the concentration and that ‘the standard of proof applicable in the present case is therefore stricter than that under which a significant impediment to effective competition is “more likely than not”, the General Court applied a standard of proof which does not follow from the Merger Regulation, as interpreted by the Court of Justice, and thus made an error in law.
Second, the General Court erred in law in holding that the Merger Regulation must be interpreted as meaning that, in the absence of the creation or strengthening of a dominant position following a concentration on an oligopolistic market, a significant impediment to effective competition can be established only if the Commission demonstrates that two cumulative conditions are satisfied, namely, first, the elimination of important competitive constraints that the merging parties had exerted upon each other and, second, the reduction of competitive pressure on the remaining competitors.
Third, the CJEU held that the General Court distorted the Commission Decision in finding that it was apparent from that decision that the Commission was of the view that the elimination of an ‘important competitive force’ or the closeness of competition between Three and O2 would be sufficient, in themselves, to prove a significant impediment to effective competition. In addition, in finding that, in order to classify Three as an ‘important competitive force’, the Commission was required to demonstrate that Three competed particularly aggressively in terms of price and that it forced the other players on the market to align with its prices or that its pricing policy was likely to alter significantly the competitive dynamics on the market, the General Court erred in law. In order to classify an undertaking as an ‘important competitive force’, it is sufficient that it has more of an influence on the competitive process than its market share or similar measures would suggest.
Fourth, as regards the quantitative analysis of the effects of the proposed concentration on prices, the General Court erred in law when it found that the Commission ought to have included the ‘standard’ efficiencies which, according to that court, accompany all concentrations, in its quantitative analysis. While certain concentrations may give rise to efficiencies which are specific to them, that possibility in no way implies that all concentrations give rise to such efficiencies. In any event, it is for the notifying parties to demonstrate those efficiencies so that the Commission can take them into account in its review.
Fifth, by failing to carry out an overall assessment of the relevant factors and findings to ascertain whether the Commission had demonstrated the existence of a significant impediment to effective competition, the General Court erred in law.
Sixth, the CJEU held that it is apparent from the Decision that the Commission did in fact assess the possible degradation of the quality of the network of the entity resulting from the proposed concentration. By observing that the Commission had not made such an assessment, the General Court distorted that Decision.
Having regard to the errors made by the General Court, which affect the General Court’s reasoning, the CJEU decided to set aside the Judgement under Appeal and referred it back to the General Court.
Footnotes
1. Council Regulation (EC) No 139/2004 of 20 January 2004 on the control of concentrations between undertakings
Article 4: “Concentrations with a Community dimension defined in this Regulation shall be notified to the Commission prior to their implementation and following the conclusion of the agreement, the announcement of the public bid, or the acquisition of a controlling interest.”
2. Article 3(1)(b): “A concentration shall be deemed to arise where a change of control on a lasting basis results from:
(b) the acquisition, by one or more persons already controlling at least one undertaking, or by one or more undertakings, whether by purchase of securities or assets, by contract or by any other means, of direct or indirect control of the whole or parts of one or more other undertakings.”
3. Article 2(3): “A concentration which would significantly impede effective competition in the common market or in a substantial part of it, in particular as a result of the creation or strengthening of a dominant position, shall be declared incompatible with the common market.”
This article was first published on The Malta Independent on 02/08/2023.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
Dr. Saman Bugeja Ganado Advocates
171 Old Bakery Street,
Valletta
VLT1455
MALTA
Tel: 2123 5406
Fax: 2123 23 72
E-mail: [email protected]
URL: www.ganado.com/

© Mondaq Ltd, 2023 – Tel. +44 (0)20 8544 8300 – http://www.mondaq.com, source Business Briefing
Add to a list

0 selected
 
Currency / Forex
Commodities
Cryptocurrencies

source