Antitrust Law Daily Wrap Up, ANTITRUST NEWS: EC fines Slovak Telekom and parent Deutsche Telekom for abuses in Slovak broadband market, (Oct 17, 2014)

The European Commission (EC) announced on October 15 the imposition of fines totaling over €38M on Slovak Telekom a.s. and its parent company, Deutsche Telekom AG, for having pursued during more than five years an abusive strategy to shut out competitors from the Slovak market for broadband services. In particular, the Commission concluded that Slovak Telekom refused to supply unbundled access to its local loops to competitors, and imposed a margin squeeze on alternative operators. Deutsche Telekom as parent company is also responsible for the conduct of its subsidiary and is therefore jointly and severally liable for Slovak Telekom's fine. Deutsche Telekom also received an additional fine of €31M to ensure sufficient deterrence as well as to sanction its recidivism as it had already been fined in 2003 for a margin squeeze in broadband markets in Germany.

Slovak Telekom, the incumbent telecom operator in Slovakia, offers fixed broadband services over its legacy metallic telephone networks and over fiber networks. In June 2005, the Slovak telecommunications regulator (TUSR) obliged Slovak Telekom to give access to the local loops within its legacy telephone network.

In August 2005, Slovak Telekom published conditions under which it would allow alternative operators to access its unbundled local loops (ULL). These conditions were such as to render the access unacceptable. In particular, Slovak Telekom unjustifiably withheld network information necessary for the unbundling of the local loops and unilaterally reduced the scope of its regulatory obligation to unbundle and set other unfair terms and conditions in relation to each of the steps needed to obtain access (e.g. collocation, qualification, forecasting, repairs and bank guarantees). This delayed or prevented the entry of alternative operators into the retail broadband services market in Slovakia and amounts to a refusal to grant access.

Furthermore, Slovak Telekom set the prices for access to its local loops and its retail prices at levels which would force competitors to incur losses if they wanted to sell broadband services to retail customers at retail prices matching those offered by Slovak Telekom (a so-called "margin squeeze"). Under such conditions alternative operators could not viably enter the Slovak market. Where alternative operators decided to roll out their own networks, market entry only occurred in geographically limited areas and was also delayed.

Deutsche Telekom is a majority shareholder of Slovak Telekom and has a number of special rights such as the right to nominate the majority of the Board of Directors and to be informed about all management matters within Slovak Telekom, allowing it to exercise decisive influence over the company. The EC's investigation revealed that Deutsche Telekom did indeed exercise decisive influence notably through overlaps in senior management personnel and by influencing the decision-making process at Slovak Telekom. Under European Union (EU) antitrust rules, parent companies exercising such decisive influence are liable for infringements committed by their subsidiaries. Therefore Deutsche Telekom shares liability for the infringement with Slovak Telekom.

The EC's decision, which is accompanied by a memorandum of frequently asked questions, follows the opening of the formal investigation in April 2009 and the Statement of Objections that was sent to the parties in May 2012.

Commission Vice-President Joaquín Almunia, in charge of competition policy, said: “Slovak Telekom's strategy has distorted competition in the broadband market in Slovakia during more than 5 years, to the detriment of competition and consumers. Slovak Telekom did not only refuse to give access to its unbundled local loops under fair conditions. It also pursued a margin squeeze policy which made it impossible for alternative operators to use its legacy telephone network infrastructure without incurring a loss. As the parent company with decisive influence on its subsidiary Deutsche Telekom has also been held responsible for the abusive conduct.”

Companies: Slovak Telekom a.s.; Deutsche Telekom AG

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