62016TJ0399
JUDGMENT OF THE GENERAL COURT (First Chamber, Extended Composition)
28 May 2020 (
*1
)
(Competition — Concentrations — Wireless telecommunications — Retail market for mobile telecommunication services — Market for wholesale access and call origination on public mobile networks — Acquisition of Telefónica Europe by Hutchison — Decision declaring the concentration incompatible with the internal market — Oligopolistic market — Significant impediment to effective competition — Non-coordinated effects — Burden of proof — Standard of proof — Market shares — Effects of the merger on prices — Quantitative analysis of upward pricing pressure — Close competitors — Important competitive constraint — Important competitive force — Network-sharing agreements — Level of concentration — Herfindahl-Hirschmann Index — Error of law — Error of assessment)
In Case T‑399/16,
CK Telecoms UK Investments Ltd, established in London (United Kingdom), represented by T. Wessely, O. Brouwer, lawyers, A. Woods, M. Davis, I. Ditchfield, S. Prichard, J. Aitken, R. Romney, M. Dickson and K. Asakura, Solicitors, and B. Kennelly QC,
applicant,
v
European Commission, represented by T. Christoforou, G. Conte, M. Farley, J. Szczodrowski and C. Urraca Caviedes, acting as Agents,
defendant,
supported by
United Kingdom of Great Britain and Northern Ireland, represented by S. Jones, S. Brandon, S. Huijts, C. Blairs, M. Rahman, J. McInnes, M. Brown, B. Potterill, S. Cardell, C. Brannigan, S. Munday, C. Short and A. Dadley, Agents, and R. Williams and J. Morrison, Barristers,
and by
EE Ltd, established in Hatfield (United Kingdom), represented by A. Lindsay, Barrister, C. Chapman and J. Hulsmann, Solicitors,
interveners,
APPLICATION under Article 263 TFEU for the annulment of Commission Decision C(2016) 2796 final of 11 May 2016 declaring incompatible with the internal market the concentration resulting from the acquisition of Telefónica Europe Plc by Hutchison 3G UK Investments Ltd (Case COMP/M.7612 — Hutchison 3G UK/Telefónica UK),
THE GENERAL COURT (First Chamber, Extended Composition),
composed of M. van der Woude, President, E. Buttigieg, P. Nihoul, J. Svenningsen and U. Öberg (Rapporteur), Judges,
Registrar: S. Bukšek Tomac, Administrator,
having regard to the written part of the procedure and further to the hearing on 2 and 3 May 2019,
gives the following
Judgment
I. Background to the dispute
1
On 11 September 2015, the European Commission received notification, in accordance with Article 4 of Council Regulation (EC) No 139/2004 of 20 January 2004 on the control of concentrations between undertakings (OJ 2004 L 24, p. 1), of a proposed concentration whereby CK Hutchison Holdings Ltd was to acquire, through the intermediary of its indirect subsidiary Hutchison 3G UK Investments Ltd, which is now the applicant, CK Telecoms UK Investments Ltd, in the manner described in Article 3(1)(b) of the abovementioned regulation, sole control over Telefónica Europe Plc (‘O2’).
2
At the time of the facts which gave rise to this case, there were, on the retail market for mobile telecommunication services in the United Kingdom (‘the retail market’), four mobile network operators: EE Ltd, which is a subsidiary of BT Group plc, acquired by BT Group plc in 2016 (together ‘BT/EE’), O2, Vodafone and Hutchison 3G UK Ltd (‘Three’), an indirect subsidiary of CK Hutchison Holdings, whose market shares, in terms of subscribers, were approximately [between 30 and 40%], [between 20 and 30%], [between 10 and 20%], and [between 10 and 20%] respectively. The concentration which is the subject of the present dispute (‘the operation’, ‘the concentration’ or ‘the transaction’) would have enabled the entity resulting from the concentration, a merger of Three and O2 (together ‘the parties to the concentration’) to account for approximately [between 30 and 40%] of the retail market and thus to become the main player on that market, ahead of the former legacy operator BT/EE and Vodafone.
3
In addition to these mobile network operators, the retail market also included several mobile virtual network operators, such as Tesco Mobile, Virgin Mobile and TalkTalk, which do not own the networks they use in order to provide mobile services to United Kingdom consumers and which had therefore concluded agreements with one or other mobile network operator so as to have access to its network at wholesale prices. Tesco Mobile is owned in equal shares by Tesco and O2. The retail market also included branded resellers (together with the mobile virtual network operators referred to as ‘non-MNOs’) and independent retailers, such as Dixons.
4
One particular characteristic of the retail market was that BT/EE and Three, on the one hand, and Vodafone and O2, on the other, had shared their networks through network-sharing agreements. This has enabled BT/EE and Three (under the MBNL joint venture, ‘MBNL’) and Vodafone and O2 (under the so-called ‘Beacon’ agreements, ‘Beacon’), to share the costs of rolling out their respective networks while continuing to compete on retail trade.
5
On 2 October 2015, the United Kingdom requested, through the intermediary of its national competition authority, the Competition and Markets Authority, that the concentration be referred to it, pursuant to Article 9(2)(a) of Regulation No 139/2004. In that request, the United Kingdom expressed the view that the concentration threatened significantly to impede competition on the retail market and on the market for wholesale access and call origination on public mobile networks in the United Kingdom (‘the wholesale market’). The United Kingdom also considered that it was the best placed to deal with the concentration.
6
On 4 December 2015, the Commission adopted Decision C(2015) 8534 final concerning Article 9 of Regulation No 139/2004 in Case M.7612 Hutchison 3G UK/Telefónica UK, by which it rejected that referral request. In that decision, it considered in particular that it was necessary for it to ensure a coherent and consistent approach when assessing mergers in the telecommunications sector in various Member States and it also referred to the considerable expertise it had gained in the assessment of concentrations in the European mobile telecommunications markets.
7
After the phase I investigation, the Commission concluded that the transaction raised serious doubts as to its compatibility with the internal market and on 30 October 2015 it adopted a decision to initiate the procedure under Article 6(1)(c) of Regulation No 139/2004.
8
On 4 February 2016, on the basis of the phase II investigation, which supplemented the findings of the phase I market investigation, the Commission issued a Statement of Objections. The applicant submitted its written observations on the Statement of Objections on 26 February 2016.
9
In order to address the competition concerns identified in the Statement of Objections, the applicant submitted a first set of commitments on 2 March 2016
10
At the applicant’s request, an oral hearing was held on 7 March 2016.
11
On 15 March 2016, the applicant submitted revised commitments (‘the Second Commitments’). On 18 March 2016 the Commission launched a market test of the Second Commitments, in which it consulted, first, current and potential providers of mobile telecommunication services in the United Kingdom, providers of infrastructure services in the mobile telecommunications sector, and the associations MVNO Europe and iMVNOx and, second, national telecommunications regulators, including the United Kingdom telecommunications regulatory authority (‘Ofcom’). In addition, the national competition authorities of the United Kingdom, Germany, and the Netherlands provided their views on the Second Commitments.
12
On 17 and 23 March 2016, the Commission sent the applicant letters in which it pointed to additional evidence in its file in support of the preliminary findings of the Statement of Objections. On 29 March 2016 and 4 April 2016 the applicant submitted written observations on the letters of facts of 17 and 23 March 2016 respectively.
13
On 6 April 2016, following the market test, the applicant submitted a further revised set of commitments
14
The Advisory Committee on Concentrations discussed the draft of the Commission’s decision on 27 April 2016 and issued a favourable opinion.
15
On 11 May 2016, the Commission adopted Decision C(2016) 2796 final declaring the concentration incompatible with the internal market (Case COMP/M.7612 — Hutchison 3G UK/Telefónica UK) (‘the contested decision’).
16
A summary of the contested decision was published on 29 September 2016 in the Official Journal of the European Union (OJ 2016 C 357, p. 15).
II. Contested decision
17
In the contested decision, the Commission defined the two relevant markets: the retail market and the wholesale market.
18
The Commission developed three theories of harm, all of which were based on the existence of ‘non-coordinated’ effects on an oligopolistic market.
19
The first two theories of harm relate to the retail market, while the third relates to the wholesale market.
20
More specifically, the first theory of harm relates to the existence of non-coordinated effects on the retail market arising from the elimination of important competitive constraints. In essence, according to the Commission, the sharp reduction in competition which would have resulted from the operation would probably have led to an increase in prices for mobile telephony services in the United Kingdom and a restriction of choice for consumers.
21
According to the second theory of harm, which relates to the existence of non-coordinated effects on the retail market relating to network sharing, the transaction would also be likely to have a negative influence on the quality of services for United Kingdom consumers, hindering the development of mobile network infrastructure in the United Kingdom.
22
The third theory of harm relates to the existence of non-coordinated effects arising from the elimination of important competitive constraints on the wholesale market. On this market, the four mobile network operators provide hosting services to non-MNOs, which in turn offer retail services to subscribers. In particular, according to the Commission, the acquisition is likely to have significant non-coordinated effects on the wholesale market resulting from a reduction in the number of mobile network operators from four to three, the elimination of Three as an important competitive force, the removal of important competitive constraints which the parties had previously exerted upon each other, and a reduction of competitive pressure on the remaining players.
23
As regards the efficiencies alleged by the applicant, the Commission found that they were not verifiable, were not specific to the concentration and were unlikely to benefit consumers.
24
In the final section of the contested decision, the Commission examined the remedies proposed by the applicant in the form of commitments. The Commission found that the Second Commitments did not eliminate the competition concerns identified and that the Third Commitments, proposed on 6 April 2016, did not eliminate the competition concerns identified and were not comprehensive and effective in all respects.
25
Consequently, the Commission declared the operation to be incompatible with the internal market.
III. Procedure
26
By application lodged at the Court Registry on 25 July 2016, the applicant brought the present action.
27
In its application, the applicant requested the adoption of a measure of organisation of the procedure or of a measure of inquiry requesting the Commission to submit to the Court certain information in its file necessary for the Court’s examination of the case but confidential vis-à-vis the applicant, to which only the applicant’s lawyers or external economic advisers had had access during the administrative procedure.
28
By documents lodged at the Court Registry on 1 December 2016, BT/EE and the United Kingdom applied for leave to intervene in these proceedings in support of the form of order sought by the Commission.
29
By documents lodged at the Court Registry on 21 December 2016 and 5 January 2017 respectively, the Commission and the applicant submitted their observations on the applications of BT/EE and of the United Kingdom for leave to intervene.
30
On 31 January 2017, the Commission lodged its defence.
31
In its defence, the Commission stated that it had no objections to producing the documents which were the subject of the request made in the application for a measure of organisation of the procedure or a measure of inquiry, provided that appropriate confidentiality measures were taken, in accordance with Article 103(3) of the Rules of Procedure of the General Court.
32
On 31 January 2017, the applicant lodged at the Court Registry requests for confidential treatment and non-confidential versions of the application for (i) BT/EE and (ii) the United Kingdom.
33
By orders of 16 March 2017, the President of the First Chamber of the General Court granted BT/EE and the United Kingdom leave to intervene in support of the form of order sought by the Commission and to receive a non-confidential version of each procedural document served on the main parties, the decision on the merits of the requests for confidential treatment being reserved.
34
By order of 16 March 2017, the General Court directed the Commission to produce the documents which were the subject of the request made in the application for a measure of organisation of the procedure or a measure of inquiry. The Commission produced those documents on 3 April 2017.
35
On 17 March 2017, in the context of the measures of organisation of procedure provided for in Article 89 of the Rules of Procedure, the Court requested the applicant to submit a new version of its request for confidential treatment with regard to BT/EE.
36
By letter of 17 March 2017, the Court Registry informed the parties that the decision on the second round of pleadings was being reserved.
37
On 31 March 2017, the applicant lodged at the Court Registry a new version of its request for confidential treatment with regard to BT/EE, along with requests for confidential treatment and non-confidential versions of the defence for (i) BT/EE and (ii) the United Kingdom.
38
Acting on a proposal from the First Chamber, the Court decided, pursuant to Article 28 of the Rules of Procedure, to refer the case to a chamber sitting in extended composition.
39
By documents lodged at the Court Registry on 21 April 2017, the United Kingdom and BT/EE set out objections to the requests for confidential treatment submitted by the applicant.
40
On 26 April 2017, a meeting took place between the parties, their representatives and the Judge-Rapporteur, concerning confidentiality issues and the possibility of concentrating the pleas and arguments of the main parties to the proceedings.
41
On 10 May 2017, the applicant submitted observations on the relevance of the documents which were the subject of the request made in the application for a measure of organisation of the procedure or a measure of inquiry. On 31 May 2017, the Commission lodged at the Court Registry a request for confidential treatment and a non-confidential version of those observations for BT/EE.
42
On 16 May 2017, by way of the measures of organisation of procedure provided for in Article 89 of the Rules of Procedure, the Court asked the parties to lodge certain documents and put to them written questions, asking them to reply in writing.
43
The parties lodged their observations in reply on 2 and 16 June 2017 and, as annexes to their reply and rejoinder, on 4 July and 31 October 2017 respectively. The applicant inter alia lodged a revised version of its requests for confidential treatment vis-à-vis BT/EE. BT/EE made no objection to those requests within the prescribed period. In addition, the applicant and the United Kingdom indicated that they had reached an agreement whereby the applicant would send the confidential versions of various documents in the file to the United Kingdom. The main parties also requested that certain data not be made public.
44
On 4 July 2017, the applicant lodged its reply at the Court Registry, along with a request for confidential treatment and a non-confidential version of its reply for BT/EE, as well as a request that certain data not be made public. In response to one of the measures of organisation of the procedure of 16 May 2017, the applicant submitted, as an annex to its reply, a definitive summary of the evidence, specifying the relevance of each item of evidence.
45
On 28 August 2017, the Commission lodged at the Court Registry a request for confidential treatment and a non-confidential version of the reply for BT/EE.
46
On 31 August 2017, the United Kingdom and BT/EE submitted their respective statements in intervention.
47
On 18 September 2017, the Commission lodged a request that certain data relating to the reply not be made public.
48
By order of 26 September 2017, the President of the First Chamber of the General Court granted BT/EE, pursuant to the requests for confidential treatment vis-à-vis BT/EE lodged by the Commission, leave to receive a non-confidential version of each procedural document served on the main parties, the decision on the merits of those requests for confidential treatment being reserved.
49
On 6 October 2017, the main parties requested that certain information not be made public and made a request for confidential treatment vis-à-vis BT/EE in connection with the United Kingdom’s statement in intervention, accompanied by the corresponding non-confidential versions. BT/EE made no objection to that request for confidential treatment within the prescribed period.
50
On 20 October 2017, BT/EE confirmed that it had no objection to the requests made by the main parties for confidential treatment of the reply.
51
On 31 October 2017, the Commission lodged its rejoinder. In response to one of the measures of organisation of the procedure of 16 May 2017, it submitted, as an annex to its rejoinder, a definitive summary of the evidence, specifying the relevance of each item of evidence.
52
On 28 November 2017, the main parties jointly requested that certain data not be made public and made a joint request for confidential treatment vis-à-vis BT/EE in connection with the rejoinder, accompanied by the corresponding non-confidential versions. BT/EE made no objection to that request for confidential treatment within the prescribed period.
53
On 31 October 2017, the applicant submitted its observations on BT/EE’s and the United Kingdom’s statements in intervention. The Commission indicated that it had no observations on those statements. On 14 December 2017, the main parties lodged at the Court Registry a request for confidential treatment and a joint non-confidential version, vis-à-vis BT/EE, of the applicant’s observations on the statements in intervention of BT/EE and of the United Kingdom, and a joint request for the omission of certain information vis-à-vis the public. BT/EE made no objection to those requests within the prescribed period.
54
By document lodged at the Court Registry on 9 February 2018, the applicant requested that a hearing be held. The Commission did not express a view as to whether there should be a hearing within the period prescribed.
55
On 17 April and 25 July 2018, by way of measures of organisation of the procedure as laid down in Article 89 of the Rules of Procedure, the General Court put written questions to the parties and requested that they answer them in writing.
56
The parties lodged their observations in reply on 1, 2 and 18 May, 25 June, 13 July, and 8 and 13 August 2018. Since the applicant, BT/EE and the United Kingdom had provided, inter alia, confidentiality undertakings, signed by their representatives, the documents which were the subject of the request made in the application for a measure of organisation of the procedure or a measure of inquiry were sent to them. The applicant also submitted observations regarding those documents. The main parties then made a joint request for confidential treatment and lodged common non-confidential versions of those observations for BT/EE, the United Kingdom and the general public. BT/EE and the United Kingdom did not express any desire to submit observations regarding those documents.
57
On 23 November 2018, the Commission submitted observations regarding the applicant’s observations vis-à-vis the documents which were the subject of the request made in the application for a measure of organisation of the procedure or a measure of inquiry. The main parties then made a joint request for confidential treatment and lodged common non-confidential versions of those observations for BT/EE, the United Kingdom and the general public.
58
On 14 December 2018, the applicant lodged a letter with the Court Registry regarding the organisation of the hearing. The Commission lodged its observations on that letter on 8 February 2019.
59
By a measure of organisation of procedure of 15 February 2019, the Court requested the main parties to produce common non-confidential versions of the Report for the Hearing vis-à-vis BT/EE and the public. The main parties produced those versions on 1 March 2019.
60
On a proposal from the Judge-Rapporteur, the Court (First Chamber, Extended Composition) decided to open the oral part of the procedure on 1 March 2019.
61
By an order for a measure of inquiry of 19 March 2019, the Court requested the Commission to produce certain documents. The Commission produced those documents on 2 April 2019.
62
By a measure of organisation of procedure of 19 March 2019, the Court put written questions to the parties, asking them to reply in writing. The parties lodged their observations in response on 10 April 2019. The main parties made a joint request for confidential treatment and lodged common non-confidential versions of their observations for BT/EE and the general public.
63
On 22 March 2019, the applicant sent the Court Registry a letter requesting that the hearing be held partly in camera. The Commission, BT/EE and the United Kingdom lodged their observations on that letter on 2, 3 and 4 April 2019 respectively.
64
On 15 April 2019, the Court adopted a measure of organisation of procedure concerning the hearing.
65
On 24 April 2019, the applicant lodged a letter with the Court Registry regarding the organisation of the hearing. BT/EE submitted its observations on that letter on 30 April 2019.
66
Following the hearing on 2 and 3 May 2019, the applicant lodged at the Court Registry, on 10 May 2019, a letter containing answers to the questions put at the hearing. The main parties made a joint request for confidential treatment and lodged common non-confidential versions of that letter at the Court Registry for BT/EE and the general public.
67
The oral part of the procedure was closed on 27 June 2019.
IV. Forms of order sought
68
The applicant claims that the Court should:
–
annul the contested decision;
–
order the Commission to pay the costs, including those relating to any intervention.
69
The Commission, supported by BT/EE and the United Kingdom, contends that the Court should:
–
dismiss the action;
–
order the applicant to pay the costs.
V. Law
A. Legal background
70
In the first part of the first plea, the applicant puts forward arguments concerning the intensity of the judicial review carried out by the General Court in relation to concentrations, the legal framework applicable following the adoption of Regulation No 139/2004 and the burden of proof and the standard of proof incumbent on the Commission, where it has to prove a significant impediment to effective competition, in accordance with Article 2(3) of Regulation No 139/2004.
71
Since those arguments are relevant to the examination of all the pleas and arguments put forward by the parties, it is necessary to examine the first part of the first plea in law before examining the applicant’s other pleas and arguments. Furthermore, the Court considers that it is also appropriate to recall a number of principles concerning the obligation to state reasons.
1.
The intensity of the judicial review in relation to concentrations
72
As a preliminary point, it must be borne in mind that the purpose of attaching the General Court to the Court of Justice and of introducing two levels of jurisdiction was, first, to improve the judicial protection of individual interests, in particular in proceedings necessitating close examination of complex facts, and, second, to maintain the quality and effectiveness of judicial review in the EU legal order, by enabling the Court of Justice to concentrate on its essential task, namely to ensure that in the interpretation and application of EU law the law is observed (see, to that effect, judgment of 17 December 1998, Baustahlgewebe v Commission, C‑185/95 P, EU:C:1998:608, paragraph 41).
73
In the structure of the judicial system of the European Union, where the General Court is responsible for establishing the facts and undertaking a substantive examination of the dispute, the scope of judicial review provided for in Article 263 TFEU extends to all the elements of Commission decisions taken on the basis of Regulation No 139/2004 which are subject to in-depth review by the General Court, in law and in fact, in the light of the pleas raised by applicants and taking into account all the evidence submitted by the latter.
74
The action for annulment provides a particularly appropriate procedural framework for the thorough examination, both parties being duly heard, of legal and factual questions, particularly in complex fields such as competition law, as is apparent from the third recital of Council Decision 88/591/ECSC, EEC, Euratom of 24 October 1988 establishing a Court of First Instance of the European Communities (OJ 1988 L 319, p. 1) (see, by analogy, judgment of 25 July 2018, Georgsmarienhütte and Others, C‑135/16, EU:C:2018:582, paragraph 19).
75
Since the contested decision was adopted on the basis, in particular, of Article 8 of Regulation No 139/2004 and since it is a measure applying Article 2 of that regulation to a concentration, the General Court must, in its review of the legality of that decision, confine itself to analysing the position adopted by the Commission in relation to the transaction as notified, that is to say, it must examine, in the light of the pleas and arguments put forward by the applicant, the way in which the law has been applied to the facts and adjudicate on the merits of the Commission’s findings concerning the effects of the concentration on competition (see, to that effect, judgment of 6 June 2002, Airtours v Commission, T‑342/99, EU:T:2002:146, paragraph 53).
76
As the Court of Justice has repeatedly held, even in the case where complex assessments have been made by the Commission, the EU judicature must not only establish whether the evidence relied on is factually accurate, reliable and consistent but also ascertain whether that evidence contains all the information which must be taken into account in order to assess a complex situation and whether it is capable of supporting the conclusions drawn from it (judgment of 15 February 2005, Commission v Tetra Laval, C‑12/03 P, EU:C:2005:87, paragraph 39; see also judgment of 26 March 2019, Commission v Italy, C‑621/16 P, EU:C:2019:251, paragraph 104 and the case-law cited).
2.
The scope of the change made by Regulation No 139/2004
77
The applicant maintains that the Commission erred in law by establishing in the contested decision such a low intervention threshold that the requirement of a significant impediment to effective competition was rendered meaningless. The application of the legal criterion adopted by the Commission in the present case, based on its own Guidelines on the assessment of horizontal mergers under the Council Regulation on the control of concentrations between undertakings (OJ 2004 C 31, p. 5; ‘the Guidelines’), would enable it to prevent any horizontal concentration in an oligopolistic market.
78
In its application, the applicant requested the Court to clarify the applicable criteria for establishing the existence of a ‘significant impediment to effective competition’ where there is no dominant position or coordination between the parties on an oligopolistic market.
79
According to the applicant, the change in the wording of Article 2(3) of Regulation No 139/2004, the purpose of which was to include situations where there are non-coordinated effects in oligopolistic markets, did not lower the threshold for Commission intervention in concentrations.
80
The Commission argues that, while recital 25 of Regulation No 139/2004 does not make it possible to establish any presumption of a significant impediment to effective competition based on the oligopolistic structure of a market, it does however indicate that, while no conclusion can be drawn and none has been drawn in the present case from the mere oligopolistic structure of the market, oligopolies deserve particular scrutiny.
81
The Court notes, in that regard, that Council Regulation (EEC) No 4064/89 of 21 December 1989 on the control of concentrations between undertakings (OJ 1989 L 395, p. 1), now replaced by Regulation No 139/2004, established the principle that a concentration with a Community dimension which creates or strengthens a dominant position as a result of which effective competition in the common market or in a substantial part of it would be significantly impeded is to be declared incompatible with the internal market; this is confirmed by recital 24 of Regulation No 139/2004.
82
Recital 26 of Regulation No 139/2004 states that significant impediments to effective competition are generally the result of the creation or strengthening of a dominant position, and provides that ‘with a view to preserving the guidance that may be drawn from past judgments of the European [C]ourts and Commission decisions pursuant to Regulation … No 4064/89, while at the same time maintaining consistency with the standards of competitive harm which have been applied by the Commission and the Community [C]ourts regarding the compatibility of a concentration with the common market, this Regulation should accordingly establish the principle that a concentration with a Community dimension which would significantly impede effective competition, in the common market or in a substantial part thereof, in particular as a result of the creation or strengthening of a dominant position, is to be declared incompatible with the common market’.
83
In addition, Article 2(3) of Regulation No 139/2004, which replaced Article 2(3) of Regulation No 4064/89, now provides that a concentration which would significantly impede effective competition, in the internal market or in a substantial part of it, in particular as a result of the creation or strengthening of a dominant position, is to be declared incompatible with the internal market.
84
It follows that proof of the creation or strengthening of a dominant position within the meaning of Regulation No 139/2004 may in certain cases constitute proof of a significant impediment to effective competition. That observation does not however in any way mean that the second criterion is the same in law as the first, but only that it may follow from one and the same factual analysis of a specific market that both criteria are satisfied (see, to that effect, judgment of 21 September 2005, EDP v Commission, T‑87/05, EU:T:2005:333, paragraph 49).
85
The Courts of the European Union have not, to date, expressly interpreted Regulation No 4064/89 or Regulation No 139/2004 as regards the compatibility with the internal market of concentrations giving rise to non-coordinated effects on an oligopolistic market.
86
It is apparent from the preparatory work for, and the wording of Article 2(3) of, Regulation No 139/2004 (see, in particular, the words ‘in particular’) that that provision was adopted in order to achieve the following three objectives.
87
In the first place, it was a question of extending the scope of substantive review by enabling the Commission to catch, in the specific context of oligopolistic markets, transactions significantly impeding effective competition even if they do not enable the undertakings concerned to create or strengthen an individual or collective dominant position.
88
In the second place, Article 2(3) of Regulation No 139/2004 was intended to maintain and even strengthen the concept of a dominant position by recognising the role played by that concept in the system established within the European Union by competition law, as interpreted by the Courts of the European Union, which is to enable the authorities to intervene, in a context marked by the freedom to conduct a business, when faced with transactions which, if implemented, would enable one or more operators to determine the competitive conditions and to eliminate competition in whole or in part on the relevant market without fear of the reaction of competitors and consumers.
89
In the third place, that provision was intended to increase legal certainty and render the Commission’s analysis of concentrations more transparent and more foreseeable.
90
In order to take those factors into account, Article 2(3) of Regulation No 139/2004 must be interpreted as allowing the Commission to prohibit, in certain circumstances, on oligopolistic markets concentrations which, although not giving rise to the creation or strengthening of an individual or collective dominant position, are liable to affect the competitive conditions on the market to an extent equivalent to that attributable to such positions, by conferring on the merged entity the power to enable it to determine, by itself, the parameters of competition and, in particular, to become a price maker instead of remaining a price taker.
91
However, since the conditions and limits of such an extension of the scope of Regulation No 139/2004 have not been specified by the EU legislature, that regulation must be interpreted in the light of its objectives.
92
Article 3(3) TEU states that the European Union is to establish an internal market, which — in accordance with Protocol (No 27) on the internal market and competition, annexed to the Treaty of Lisbon (OJ 2010 C 83, p. 309), which, under Article 51 TEU, has the same legal value as the Treaties — includes a system ensuring that competition is not distorted.
93
Thus, Regulation No 139/2004 is, like Articles 101 and 102 TFEU, among the competition rules referred to in Article 3(1)(b) TFEU which are necessary for the functioning of that internal market. The function of those rules is precisely to prevent competition from being distorted to the detriment of the public interest, individual undertakings and consumers, thereby ensuring the well-being of the European Union (see, by analogy, judgments of 17 February 2011, TeliaSonera Sverige, C‑52/09, EU:C:2011:83, paragraphs 20 to 22, and of 12 December 2018, Servier and Others v Commission, T‑691/14, under appeal, EU:T:2018:922, paragraph 238).
94
In particular, according to now well-established case-law, Regulation No 139/2004 seeks to ensure that the process of reorganisation of undertakings does not result in lasting damage to competition. According to recitals 5, 6 and 8 of Regulation No 139/2004, EU law must include provisions governing those concentrations that may significantly impede effective competition in the internal market or in a substantial part of it and permitting effective control of all those concentrations in terms of their effect on the structure of competition in the European Union (judgments of 7 September 2017, Austria Asphalt, C‑248/16, EU:C:2017:643, paragraph 21, and of 31 May 2018, Ernst & Young, C‑633/16, EU:C:2018:371, paragraph 41).
95
More specifically, it should be noted that recital 25 of Regulation No 139/2004 states that, ‘under certain circumstances, concentrations involving the elimination of important competitive constraints that the merging parties had exerted upon each other, as well as a reduction of competitive pressure on the remaining competitors, may, even in the absence of a likelihood of coordination between the members of the oligopoly, result in a significant impediment to effective competition’.
96
Thus, Article 2(3) of Regulation No 139/2004 must be interpreted in the light of recital 25 thereof, which lays down two cumulative conditions in order that non-coordinated effects arising from a concentration may, under certain circumstances, result in a significant impediment to effective competition: the concentration must involve (i) ‘the elimination of important competitive constraints that the merging parties had exerted upon each other’ and (ii) ‘a reduction of competitive pressure on the remaining competitors’.
97
It follows that the mere effect of reducing competitive pressure on the remaining competitors is 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.
98
It is in particular in the light of those considerations that the Commission relied, in the contested decision, on the concepts of ‘non-coordinated effects’, ‘closeness of competition’, ‘reduction of competitive pressure on the remaining competitors’ and ‘important competitive force’, which do not appear in Article 2(3) of Regulation No 139/2004, but only in recital 25 thereof and in the Guidelines.
99
In that regard, it has been held that the Commission is bound by guidelines and notices which it adopts in the area of control of concentrations, provided that they do not depart from the rules of the Treaty and of Regulation No 139/2004 (see judgment of 7 June 2013, Spar Österreichische Warenhandels v Commission, T‑405/08, not published, EU:T:2013:306, paragraph 58 and the case-law cited).
100
Moreover, although the practice followed by the Commission in its previous decisions or the content of the Guidelines may constitute a useful point of reference and clearly be of interest in the present case, they cannot, on their own, guide the General Court’s analysis. The Commission’s Guidelines, as well as its previous practice, cannot, in any event, bind the EU Courts which have exclusive jurisdiction to interpret EU law, under Article 19 TEU, since in particular those guidelines merely describe the way in which the Commission, as an administrative authority, interprets the relevant legislation and, acting as the European Union competition authority, applies, in particular from an economic point of view, Regulation No 139/2004 (see, to that effect, judgments of 7 March 2002, Italy v Commission, C‑310/99, EU:C:2002:143, paragraph 52; of 1 October 2015, Electrabel and Dunamenti Erőmű v Commission, C‑357/14 P, EU:C:2015:642, paragraph 68; and of 13 December 2017, Crédit mutuel Arkéa v ECB, T‑712/15, EU:T:2017:900, paragraph 75).
101
Those considerations do not, however, mean that the General Court may not, in carrying out its task of interpreting EU law, adopt the guidance and the economic or legal assessments contained in the Commission’s practice in previous decisions or in its Guidelines.
102
As the Commission observes, in paragraph 24 of the Guidelines, on non-coordinated effects, a concentration may significantly impede effective competition in a market by removing significant competitive pressure on one or more sellers whose market power is therefore increased. The most direct effect of the merger is the loss of competition between the merging firms. For example, if prior to the merger one of the merging firms had raised its price, it would have lost some sales to the other merging firm. The merger removes this particular constraint.
103
Non-merging firms in the same market might also benefit from the reduction of competitive pressure that would result from the merger, since the merging firms’ price increase might switch some demand to the rival firms, which, in turn, might find it profitable to increase their prices. The reduction in these competitive constraints could lead to significant price increases in the relevant market.
104
As the Commission observes in paragraph 28 of the Guidelines, which relates to the case where the merging parties are ‘close competitors’, the fact that rivalry between the merging parties has been an important source of competition on the market is a key factor in that analysis.
105
It is in the light of that interpretation of Article 2(3) of Regulation No 139/2004 that it is necessary to examine in turn the applicant’s first, third and fourth pleas relating to the three theories of harm developed by the Commission in the contested decision.
3.
The burden of proof and standard of proof in relation to concentrations
106
For the purposes of the hearing and at the hearing, the parties were requested to express their views on the allocation of the burden of proof and on the standard of proof before the General Court in relation to concentrations and in the present case.
107
The Court recalls that, to declare a concentration incompatible with the internal market, the Commission has to prove, in accordance with Article 2(3) of Regulation 139/2004, that the implementation of the notified concentration would significantly impede effective competition in the internal market or in a substantial part of it, in particular as a result of the creation or strengthening of a dominant position (judgment of 6 July 2010, Ryanair v Commission, T‑342/07, EU:T:2010:280, paragraph 26).
108
In merger control procedures, it should be recalled that the necessary prospective analysis consists of an examination of how a concentration might alter the factors determining the state and structure of competition on the markets affected. Such an analysis makes it necessary to envisage various chains of cause and effect with a view to ascertaining which of them are the most likely (see, to that effect, judgment of 16 January 2019, Commission v United Parcel Service, C‑265/17 P, EU:C:2019:23, paragraph 32).
109
As the applicant correctly observed, the standard of proof applicable in order to establish that there are non-coordinated effects on an oligopolistic market is not substantially different from that applicable in order to establish coordinated effects. If that were not the case, the Commission might classify the facts in such a way as to benefit from the most favourable rules of evidence before the General Court.
110
It must be borne in mind that the inherent complexity of one or more theories of harm advanced in support of one or more significant impediments to effective competition put forward in relation to a concentration is a factor which must be taken into account when assessing the plausibility of the various consequences such a concentration may have, in order to identify those which are most likely to arise, but such complexity does not, of itself, have an impact on the standard of proof which is required (see, to that effect, judgment of 10 July 2008, Bertelsmann and Sony Corporation of America v Impala, C‑413/06 P, EU:C:2008:392, paragraph 51).
111
However, the more prospective the analysis is and the chains of cause and effect dimly discernible, uncertain and difficult to establish, the more the quality of the evidence produced by the Commission in order to establish that it is necessary to adopt a decision declaring the concentration incompatible with the internal market is important (see, to that effect, judgment of 15 February 2005, Commission v Tetra Laval, C‑12/03 P, EU:C:2005:87, paragraph 44). In other words, the more a theory of harm advanced in support of a significant impediment to effective competition put forward with regard to a concentration is complex or uncertain, or stems from a cause-and-effect relationship which is difficult to establish, the more demanding the Courts of the European Union must be as regards the specific examination of the evidence submitted by the Commission in this respect.
112
It has also been held that the prospective analysis necessary in merger control must be carried out with great care since it does not entail the examination of past events — for which often many items of evidence are available which make it possible to understand the causes — or of current events, but rather a prediction of events which are more or less likely to occur in future if a decision prohibiting the planned concentration or laying down the conditions for it is not adopted (see, to that effect, judgment of 15 February 2005, Commission v Tetra Laval, C‑12/03 P, EU:C:2005:87, paragraph 42).
113
That analysis requires, as a first step, an evaluation of the future conduct which the Commission contends will be engaged in by the merged entity and the other operators following the merger (see, to that effect, judgment of 14 December 2005, General Electric v Commission, T‑210/01, EU:T:2005:456, paragraph 464), by means of the assessment of the economic outcome attributable to the concentration which is most likely to ensue (see, to that effect, judgment of 10 July 2008, Bertelsmann and Sony Corporation of America v Impala, C‑413/06 P, EU:C:2008:392, paragraph 51).
114
Furthermore, the Court observes that it is settled case-law that the Commission may declare a concentration incompatible with the internal market only if the significant impediment to effective competition is the direct and immediate effect of the concentration. Such an impediment, which would stem from future decisions by the merged entity, may be regarded as a direct and immediate effect of the concentration, if that future conduct is made possible and economically rational by the alteration of the characteristics and the structure of the market caused by the concentration (see judgment of 11 December 2013, Cisco Systems and Messagenet v Commission, T‑79/12, EU:T:2013:635, paragraph 118 and the case-law cited).
115
That evaluation is supplemented, as a second step, by an assessment, by means of a prospective analysis of the reference market, of whether that future conduct will probably lead to a situation in which effective competition in the relevant market is significantly impeded (see, to that effect, judgment of 6 June 2002, Airtours v Commission, T‑342/99, EU:T:2002:146, paragraph 59).
116
It is therefore in the light of the economic outcome attributable to the concentration which is the most likely to ensue that the Commission must, as a following step, show that that concentration would probably and significantly impede effective competition in the relevant market (see, to that effect, judgment of 14 December 2005, General Electric v Commission, T‑210/01, EU:T:2005:456, paragraph 364).
117
Since the second stage of the analysis which must be carried out by the Commission is the result of an assessment based on hypotheses, it cannot be required that proof be adduced that the scenarios and theories of harm underpinning that assessment will inevitably occur. However, those scenarios and theories of harm must appear sufficiently realistic and plausible, and cannot therefore solely be conceivable from a theoretical point of view, in the light of an analysis of all the relevant factors.
118
In the context of an analysis of a significant impediment to effective competition the existence of which is inferred from a body of evidence and indicia, and which is based on several theories of harm, the Commission is required to produce sufficient evidence to demonstrate with a strong probability the existence of significant impediments following the concentration. Thus, 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’, on the basis of a ‘balance of probabilities’, as the Commission maintains. By contrast, it is less strict than a standard of proof based on ‘being beyond all reasonable doubt’ (see, to that effect, Opinion of Advocate General Tizzano in Commission v Tetra Laval, C‑12/03 P, EU:C:2004:318, points 72 to 77, and of Advocate General Jääskinen in France v Commission, C‑559/12 P, EU:C:2013:766, points 34 and 35; see, a contrario, Opinion of Advocate General Kokott in Bertelsmann and Sony Corporation of America v Impala, C‑413/06 P, EU:C:2007:790, points 209 to 211).
119
It is in the light of those considerations that the arguments put forward by the applicant in support of the action, and in particular the three theories of harm developed by the Commission, must be examined.
4.
Statement of reasons
120
The Court notes that the Commission is not obliged, in the statement of reasons for decisions adopted under Regulation No 139/2004, to take a position on all the information and arguments relied on before it, including those which are plainly of secondary importance to the appraisal it is required to undertake; this approach enables it to distinguish the core issues from the inessential ones.
121
It is however required to set out clearly and succinctly the decisive facts and legal and economic considerations, and the pleas in law and evidence having decisive importance in the context of a merger decision. The reasoning must in addition be logical and must not disclose any internal contradictions (see, to that effect, judgment of 10 July 2008, Bertelsmann and Sony Corporation of America v Impala, C‑413/06 P, EU:C:2008:392, paragraph 169).
122
Moreover, according also to settled case-law, the obligation of the General Court to state reasons, pursuant to the first sentence of Article 36 and the first paragraph of Article 53 of the Statute of the Court of Justice of the European Union, does not require the General Court to provide an account that follows exhaustively and point by point all the pleas and arguments articulated by the parties to the case (see judgment of 21 July 2011, Evropaïki Dynamiki v EMSA, C‑252/10 P, not published, EU:C:2011:512, paragraph 46 and the case-law cited).
123
In the interests of procedural economy and in accordance with the principle of the proper administration of justice, the Courts of the Union may give judgment in an action without necessarily having to rule on all the pleas in law and arguments put forward by the parties.
B. Summary of the pleas in law and structure of the action
124
In its action, the applicant puts forward five pleas in law, disputing the three theories of harm developed in the contested decision and the conclusions drawn by the Commission regarding the commitments which it gave in order to resolve the issues raised by that institution.
125
The first and fourth pleas in law relate to the Commission’s first and third theories of harm, which concern the elimination of competition between Three and O2 in the retail market (the first plea) and in the wholesale market (the fourth plea) respectively. The second plea relates to the Commission’s assessment of the counterfactual scenario, on which it based its evaluation of the retail and wholesale markets. The third plea relates to the Commission’s second theory of harm, which concerns the retail market, in relation to network sharing, and the applicant’s commitments in relation to network sharing. The fifth plea relates to the other commitments offered by the applicant.
126
The relationship between the structure of the contested decision and that of the application is illustrated in the table below, submitted by the applicant.
127
It is therefore appropriate, first of all, to examine in turn the applicant’s first, third and fourth pleas, relating to the three theories of harm developed by the Commission, and then to examine the second and fifth pleas.
C. The first theory of harm, relating to the existence of non-coordinated effects on the retail market
1.
Summary of the Decision
128
In the first theory of harm, the Commission relies on the important competitive constraint exerted by Three and O2, the fact that they competed closely, their market shares and the incentives for the merged entity to increase prices, and on the ability of its competitors to compete in order to conclude, in recital 1226 of the contested decision, that the concentration ‘is likely to give rise to non-coordinated anticompetitive effects on the retail market’.
129
In particular, the Commission noted that Three and O2 were the only mobile network operators in the United Kingdom whose market shares had been constantly growing over recent years (recitals 330 to 406 of the contested decision) and that they competed closely, both against one another and against the other mobile network operators (recitals 407 to 463 of the contested decision).
130
In recitals 468 to 681 of the contested decision, the Commission took the view that Three constituted, prior to the merger, an ‘important competitive force’ within the meaning of paragraph 37 of the Guidelines or, in any event, exerted an important competitive constraint. According to the Commission, it was the most aggressive and innovative player, offering the most competitive prices in the direct channel and having offered 4G at no extra cost, which had forced its competitors to abandon strategies to sell 4G at a premium.
131
In recitals 682 to 776 of the contested decision, the Commission submitted that, in the absence of the transaction, Three would probably continue to exert an important competitive constraint, since it was financially sound and was unlikely to experience capacity constraints, as it explained further in Annex C to the contested decision, which is an integral part of that decision.
132
Similarly, the Commission took the view that, pre-transaction, O2 exerted an important competitive constraint and was likely to continue to do so in the absence of the transaction (recitals 778 to 872 of the contested decision).
133
The transaction would eliminate the competitive constraints that Three and O2 exerted on one another and on the other mobile network operators, and this would result in significantly weakened competition in the retail market. In particular, it appeared likely that the merged entity would increase prices (recitals 873 to 906 of the contested decision).
134
The Commission drew the same conclusions from its quantitative analysis of the likely effects on prices as a result of the elimination of competition in the retail market (recitals 1191 to 1225 of the contested decision), of which it gave details in Annex A to the contested decision, which forms an integral part of that decision.
135
The Commission found that the transaction was likely to have a negative impact on the ability of the remaining mobile network operators to compete. It would disrupt the existing network-sharing arrangements, which currently worked well. The Commission also found it likely that, given BT/EE’s and Vodafone’s history and current strategy and positioning, those two operators were likely to follow price increases applied by the merged entity (recitals 907 to 960 of the contested decision).
136
In so far as concerns non-MNOs, their ability to compete and to innovate would be limited (recitals 961 to 1148 of the contested decision).
2.
Summary of the first plea in law and of the main items of evidence adduced in support of the first theory of harm
137
By its first plea in law, the applicant submits that, in the contested decision, the Commission made errors in law and manifest errors of assessment and also infringed essential procedural requirements, first, in its interpretation and application to Three of the criterion of ‘important competitive force’ (second part), second, as regards the closeness of competition (third part) and, third, regarding the assessment of market shares (fourth part).
138
In addition, it alleges that the Commission erred in law and made manifest errors of assessment and also distorted the evidence in its assessment of the quantitative pricing effects of the concentration (the fifth part) and the incentives of the merged entity post-merger (the sixth part). Lastly, the applicant alleges that the Commission did not conduct an overall examination of these various factors (the seventh part).
139
At the hearing, the Commission specified that the first theory of harm was essentially based on the following three items of evidence: the fact that Three constitutes an important competitive force, the closeness of competition between Three and O2, and the quantitative analysis of the effects of the concentration on prices.
140
The Court therefore considers it appropriate to begin by examining the fourth part, concerning the analysis of market shares, and the second part, concerning the classification of Three as an important competitive force, which overlap in part, and then the third part, relating to the assessment of the closeness of competition, and the fifth part, relating to the quantitative pricing effects of the concentration. Subsequently, if necessary, it will be necessary to examine the sixth and seventh parts of this plea.
(a)
The market share analysis
141
In the fourth part of the first plea, the applicant submits that the Commission made a manifest error of assessment and an error of law in finding (i) that the merged entity would, following the merger, have the largest market share and (ii) that that situation must be regarded as an indicator of the loss of an important competitive constraint.
142
The applicant argues, first of all, that the market share of the new entity would have been well below 50%, second, that the Commission failed to have regard, in its assessment of market shares, to other factors, such as the power of the competitors of Three and O2 and, third, that it failed to take into account the effects of the divestment of O2’s shareholding in Tesco Mobile, which the applicant proposed as part of the commitments it offered the Commission.
143
The Commission contests those arguments.
144
It should be recalled, as a preliminary point, that, according to settled case-law, a proper definition of the relevant market is a necessary precondition for any assessment of the effect of a concentration on competition (judgments of 31 March 1998, France and Others v Commission, C‑68/94 and C‑30/95, EU:C:1998:148, paragraph 143, and of 7 June 2013, Spar Österreichische Warenhandels v Commission, T‑405/08, not published, EU:T:2013:306, paragraph 116).
145
The definition of the relevant markets constitutes an essential stage in the control of concentrations, since it makes it possible, first, to identify the boundaries of competition between firms and then to assess their market power.
146
The definition of the market in the products affected by the merger must take account of the overall economic context so as to make it possible to assess the actual economic power of the undertaking or undertakings in question and, for that purpose, it is necessary first to define the products which, although incapable of being substituted for other products, are sufficiently interchangeable with the undertaking’s own products, both as regards their objective characteristics and the competitive conditions and the structure of supply and demand on the market (judgment of 6 June 2002, Airtours v Commission, T‑342/99, EU:T:2002:146, paragraph 20).
147
In so far as significant impediments to effective competition arise generally from the creation or strengthening of a dominant position, market shares may only be used as indicia of competition concerns to the extent that the market to which those shares relate has been correctly defined beforehand. The same is true of the Herfindahl-Hirschmann Index (used to measure the degree of concentration in a market; ‘the HHI’), to which the Commission refers in recitals 398 to 405 of the contested decision.
148
In the present case, the Court finds that the applicant does not dispute that the concentration would result in a strengthening of an oligopolistic market on a market which is already highly concentrated. It is a market on which four operators, or three if the concentration were implemented, share 90% of the market. The concentration would have enabled the merged entity, consisting of Three and O2, to account for [between 30 and 40%] of the retail market and thus become the main operator, ahead of BT/EE and Vodafone, whose market shares are [between 30 and 40%] and [between 20% and 30%] respectively.
149
Although such an analysis, based on more or less similar market shares, creating symmetrical effects conducive to tacit collusion, supports the conclusion that the concentration would be strengthened on an oligopolistic market, it cannot, however, lead to the conclusion that such a concentration would cause lasting harm to competition which would, as such, be liable to constitute a significant impediment to effective competition in the context of a theory of harm based on non-coordinated effects.
150
Such reasoning would amount in practice to allowing the Commission to prohibit any horizontal concentration in an oligopolistic market, since, based on an application of recital 25 of Regulation No 139/2004, the criteria for eliminating the important competitive constraints exerted by the merging parties (i) upon each other and (ii) on the remaining competitors, would, by definition, be fulfilled.
151
That is why the Commission rightly states that the market shares examined in recitals 330 to 406 of the contested decision provided only a ‘first indication’ of the competitive importance of the parties to the concentration (see recitals 330 and 406 and footnote 271 of the contested decision). In recital 406 of the contested decision, the Commission states that ‘the size and evolution of the market shares of the parties in the relevant market and segments thereof provide a first indication of the important competitive constraint exerted by Three and O2’.
152
Contrary to what is argued by the applicant, the Commission did not therefore consider the fact that the merged entity would have the largest market share as an indicator of the loss of an important competitive constraint, but took the view that the size and evolution of the market shares of Three and O2 were a first indication of the important competitive constraint exerted by them, which would be eliminated by the concentration.
153
Moreover, the market share analysis does not demonstrate anything other than the fact that the transaction would further concentrate a tight mobile communication oligopoly in the United Kingdom, without however giving rise to anticompetitive effects similar to those which might result from the creation or strengthening of an individual or collective dominant position.
154
The fourth part of the first plea must therefore be rejected.
(b)
Classification of Three as an ‘important competitive force’
155
According to the contested decision, one of the factors which the Commission took into account in concluding that the concentration would give rise to non-coordinated effects was that ‘Three constitute[d] an important competitive force in the [retail market] … pursuant to paragraph 37 of the … Guidelines, or in any event it exert[ed] an important competitive constraint on that market, and [was] likely to continue exerting such a constraint absent the transaction’ (recital 777 of the contested decision).
156
By the second part of the first plea, alleging errors with respect to the classification of Three as an important competitive force, the applicant puts forward three complaints, relating, first, to the distortion of the concept of important competitive force, second, to the degree of competitive constraint exerted by Three in the retail market and, third, to the distortion of the concept of important competitive constraint. Each of those errors is sufficient, according to the applicant, to result in the annulment of the contested decision.
(1) Distortion of the concept of ‘important competitive force’
157
According to the applicant, the Commission erred in law in taking the view that it was sufficient, to support the conclusion that it was an important competitive force, that an undertaking ‘contribute[d] substantially and consistently to the competitive process’, since such an interpretation of the concept of ‘important competitive force’ fails to differentiate between the contribution to the competitive process made by every competitor in an oligopolistic market and the particular role played by an important competitive force, within the meaning of paragraphs 37 and 38 of the Guidelines.
158
The Commission’s assertion, in recital 326 of the contested decision and in its defence, that an important competitive force need not necessarily stand out from its competitors in terms of its impact on competition constitutes an error in law. Indeed, such a position would allow it to treat as an important competitive force any undertaking in an oligopolistic market, which would amount to a de facto prohibition on horizontal mergers in oligopolistic markets and would be a breach of the principle of legal certainty.
159
The Commission’s approach to the concept of ‘important competitive force’ is also incompatible with the approach to the concept taken by the competition authorities in the United Kingdom and the United States, as well as with the way in which that concept has been developed in the preparatory work for Regulation No 139/2004, the Commission’s own precedents, and the Guidelines.
160
The Commission replies that it is clear from paragraph 37 of the Guidelines that, contrary to what the applicant claims, it is not necessary for an undertaking to stand out from its competitors in terms of its impact on competition in order for it to constitute an important competitive force. It must simply have more of an influence on the competitive process than its market share would suggest.
161
The applicant’s assertion that the Commission fails to differentiate between the contribution to the competitive process made by every competitor in an oligopolistic market and the particular role played by an important competitive force is clearly unfounded, given that it did not classify O2 as an important competitive force, as is apparent from recital 872 of the contested decision. Furthermore, a member of an oligopoly could, because of its rather defensive approach, have a limited influence on competition.
162
Lastly, the applicant’s assertion that the Commission’s approach is incompatible with the approach taken by the United Kingdom and United States competition authorities is irrelevant and unfounded. The Guidelines are intentionally different from their American equivalent. Furthermore, the Competition and Markets Authority of the United Kingdom supported the Commission’s findings as to the competitive constraint exerted by Three, as is apparent from recital 483 of the contested decision.
163
The Court finds, as was observed in paragraphs 100 and 101 above, that although the Commission’s Guidelines, as well as its previous decision-making practice, cannot bind the EU Courts, the General Court may, where appropriate, adopt the guidance and the economic or legal assessments contained in the Commission’s practice in previous decisions or in those guidelines.
164
Moreover, the Court observes that, in a number of cases (see Cases COMP/M.6203 — Western Digital Ireland/Viviti Technologies (2011), COMP/M.6497 — Hutchison 3G Austria/Orange Austria (2012), COMP/M.7018 — Telefónica Deutschland/E-Plus (2014) (‘the German case’), COMP/M.6992 — Hutchison 3G UK/Telefonica Ireland (2014) (‘the Irish case’), COMP/M.7421 — Orange/Jazztel (2015), COMP/M.7637 — Liberty Global/BASE Belgium (2016), COMP/M.7758 — Hutchinson 3G Italy/Wind/JV (2016)), the Commission classified one or both of the merging parties as ‘important competitive force(s)’, whose elimination as a result of the concentration, in combination with other factors (barriers to entry, degree of concentration of the market, prices rises, closeness of the competition between the merging parties, etc.), would be liable to result in a significant impediment to effective competition, whilst authorising, subject to conditions, the concentration.
165
As regards the applicant’s argument that the Commission’s approach to the concept of ‘important competitive force’ is incompatible with its own precedents, it should be pointed out that the position adopted by the Commission in the contested decision is consistent with that set out in the German case (recitals 120 to 122; see paragraph 164 above), Case COMP/M.7421 — Orange/Jazztel (2015) (recital 245) and Case COMP/M.6497 — Hutchison 3G Austria/Orange Austria (2012) (recitals 265 and 283).
166
Moreover, the Commission examined, inter alia, in Case COMP/M.5650 — T-Mobile/Orange (2010), the question whether one or other of the parties to that concentration could be regarded as a ‘particularly important competitor’ in the United Kingdom mobile telecommunications market exerting a ‘particularly important restraint’ on the other participants in that market. In that decision, the Commission found, on the basis of an analysis of the gross add shares, that 3UK could be regarded as a ‘maverick in the market’ since it ‘captured’ more customers from Orange and T-Mobile than its market share would suggest. Furthermore, the Commission considered in that decision that 3UK was a market leader in pricing and service innovations.
167
In paragraph 380 of the Statement of Objections, the Commission stated that, for an undertaking to be an important competitive force, it was not necessary for it to be a ‘maverick’ on the market. More specifically, the Commission took the view that such an undertaking has to contribute, substantially and consistently, to the competitive process on the market based on parameters such as price, quality, choice and innovation. A merger involving a company which has recently entered the market, and which may be presumed to exert significant competitive pressure on the market is, according to the Commission, only one example of a situation where significant non-coordinated anticompetitive effects may arise.
168
The Court observes that, as is apparent from recital 318 of the contested decision, the applicant had already argued during the administrative procedure that, in order for an undertaking to be classified as an ‘important competitive force’, it must stand out from its competitors in terms of its impact on competition, in that it plays a unique role in the market enabling it to exert disproportionately strong constraints on the other players compared to its market share that is indispensable for the preservation of effective competition.
169
In recital 326 of the contested decision, the Commission responded to that argument by finding that an ‘important competitive force’ does not need to stand out from its competitors in terms of impact on competition. According to the Commission, the fact that, in previous decisions, it found that certain undertakings had been unique in their ‘aggression’ in the market and had grown their presence on that market faster than any other competitor, as important competitive forces, does not mean that there is only one definition of the concept of ‘important competitive force’.
170
However, in its defence, the Commission conceded that an ‘important competitive force’ must have more of an influence on competition than its market share would suggest, compete in a particularly aggressive way and force other players to follow that conduct.
171
It is apparent from the contested decision that, as regards the elimination of an ‘important competitive force’, the Commission is of the opinion that the mere decline in the competitive pressure which would result, in particular, from the loss of an undertaking having more of an influence on competition than its market share would suggest is sufficient, in itself, to prove a significant impediment to effective competition.
172
Such an interpretation of the concept of ‘important competitive force’, developed in the contested decision, would introduce, if it were to be regarded as an autonomous legal criterion, a concept additional and alternative to the concept of ‘important competitive constraint’ set out in recital 25 of Regulation No 139/2004. That would lower the standard of proof required to prove a significant impediment to effective competition, according to whether the Commission classifies the foreseeable effects of a concentration as ‘non-coordinated effects’ or as ‘coordinated effects’.
173
The approach taken by the Commission in the contested decision amounts in practice to confusing three concepts, namely the concept of a ‘significant impediment to effective competition’, which is the legal criterion referred to in Article 2(3) of Regulation No 139/2004, the concept of ‘elimination of [an] important competitive [constraint]’, referred to in recital 25 of that regulation, and the concept of elimination of an ‘important competitive force’, used in the contested decision and based on the Guidelines. By confusing those concepts, the Commission considerably broadens the scope of Article 2(3) of Regulation No 139/2004, since any elimination of an important competitive force would amount to the elimination of an important competitive constraint which, in turn, would justify a finding of a significant impediment to effective competition.
174
It follows that the Commission made an error of law and an error of assessment, in recital 326 of the contested decision, in finding that an ‘important competitive force’ does not need to stand out from its competitors in terms of impact on competition, particularly in so far as such a position would allow it to treat as an ‘important competitive force’ any undertaking in an oligopolistic market exerting competitive pressure.
175
As the applicant has rightly pointed out, that would amount to allowing the Commission to prohibit, by that fact alone, horizontal concentrations in such markets and would infringe the principle of legal certainty, since the Commission could thus omit to analyse the possible elimination of the important competitive constraints that the merging parties exert upon each other in favour of a theory of harm based solely on a reduction of competitive pressure on the remaining competitors.
176
The complaint relating to distortion of the concept of ‘important competitive force’ is therefore well founded.
(2) The degree of competitive constraint exerted by Three in the retail market
177
The Commission’s conclusion in the contested decision that Three was an ‘important competitive force’, or that it in any event exerted an important competitive constraint on that market, was based on the following factors: first, gross subscriber additions that are disproportionately high in relation to Three’s market share (recital 481 of the contested decision), second, the development of its market share and customer base (recitals 475 to 480), third, its pricing policies (recitals 578 to 633), fourth, its contributions to innovation and competition (recitals 485 to 577) and, fifth, the quality of its network, its customer service and the loyalty of its customers (recitals 653 to 680).
178
According to the applicant, the Commission’s evaluation of the first four factors is vitiated by manifest errors of assessment.
(i) Gross subscriber additions
179
In order to conclude that Three is an ‘important competitive force’, or in any event exerts an important competitive constraint on the retail market, the Commission relied, inter alia, on the fact that its gross subscriber additions were disproportionately high in comparison with its market share (recitals 481 to 484 of the contested decision).
180
According to the applicant, the Commission made a manifest error of assessment by concluding, in recital 397 of the contested decision, that Three’s gross add shares (that is to say, the share of new customers won) was ‘a first indication that Three exert[ed] on the retail market a greater competitive constraint than its market share would suggest’, whereas Three’s gross add share of [between 10 and 20%] (depending on whether Three’s or the Commission’s calculations are used) is (i) very low in absolute terms and (ii) at a similar level to, or even below its subscriber share of [between 10 and 20%].
181
In the present case, the Commission states, in recital 388 of the contested decision that, according to its calculations, Three’s gross add share was higher than its market share.
182
However, the Commission acknowledges, in paragraphs 65 and 74 of the defence, that, according to its reconstruction of market shares and gross add shares, Three’s gross add shares for 2014 and the first half of 2015 were only slightly higher than its market shares in the same period. In other words, there is no major difference between Three’s gross add shares and its market shares.
183
In that regard, it should be pointed out that Three’s gross add shares do not indicate that Three would have more of an influence on competition than its market share would suggest. On the basis of the proposition most favourable to the Commission, namely that the undertaking experienced sustained growth, its gross add share would be [between 10 and 20%]. Such a figure is very low in comparison with the market shares described in recitals 335 and 343 of the contested decision. Moreover, such an addition must be regarded as very limited if compared with the figures relating to new subscribers of the undertakings that the Commission classified as ‘important competitive forces’ in its previous decisions, in Case M.3916 — T-Mobile Austria/Tele.ring (2006), COMP/M.6497 — Hutchison 3G Austria/Orange Austria (2012), and the German and Irish cases (see paragraph 164 above).
184
In response to a question put by the Court at the hearing on the importance to be attached, as evidence of the existence of a significant impediment to effective competition, to a gross add share which is [between 0 and 5%] higher than the market share, the Commission merely stated that that addition was only one indication among others for the purposes of its overall assessment of several factors in support of its findings in the contested decision.
185
In particular, the Commission contended that the fact that an operator such as Three has a gross add share which is even limited in relation to its market share is still sufficient to make it an ‘important competitive force’ when account is taken of the fact that it has continuously evolved on the relevant market. According to the Commission, the fact that, in the years preceding the adoption of the contested decision, Three recorded strong growth in its gross add share is a sufficient indication to establish that Three is a competitor exerting competitive pressure on the retail market.
186
However, it must be observed that, in relation to the market shares described in recitals 335 and 343 of the contested decision, a gross add share which could be quantified, in this situation — most favourable to the Commission’s case — with the highest growth rate, of approximately [between 10 and 20%], appears very low and is not comparable to the figures relating to new subscribers of the undertakings that the Commission classified as ‘important competitive forces’ in its previous decisions, in Case M.3916 — T-Mobile Austria/Tele.ring (2006), COMP/M.6497 — Hutchison 3G Austria/Orange Austria (2012), and the German and Irish cases (see paragraph 164 above).
187
Moreover, the applicant submitted, during the written part of the procedure and at the hearing, without being contradicted on this point by the Commission, that the gross add share of other undertakings that the Commission had also classified as ‘important competitive forces’ in the context of concentrations reducing the number of competitors from four to three in the mobile communication sector was between 21% and 50%, which is clearly not the case of Three.
188
It follows that, in any event, the Commission was not entitled to conclude from Three’s gross add shares that that operator was an ‘important competitive force’, in the context of a theory of harm based on non-coordinated effects.
189
Consequently, the Commission’s conclusion, in recital 397 of the contested decision, that Three’s gross add shares were ‘a first indication that Three exert[ed] on the retail market a greater competitive constraint than its market share would suggest’ is vitiated by an error of assessment.
190
The line of argument concerning, in essence, an error of assessment relating to Three’s gross add shares is therefore well founded.
(ii) The development of Three’s customer base
191
According to the applicant, the Commission made a manifest error of assessment in concluding, in recital 474 of the contested decision, that the evolution of Three’s market share was an indicator that it was an ‘important competitive force’. Indeed, the data set out in recitals 335, 343, 475 and 477 of the contested decision prove that Three’s growth is painfully slow.
192
The Commission maintains that Three’s market share by subscribers and revenues has been constantly growing. Three’s 1% per year growth rate, as provider, between 2013 and 2014, must be read in the context of a market in which no other player, with the exception of O2, was able to achieve such growth, as is illustrated in recitals 343 and 346 of the contested decision. Moreover, contrary to what the applicant claims, Three’s customer base was consistently [confidential] (
1
) in the market between 2010 and 2014, the total number of subscribers of Three, O2 and Vodafone having increased by [confidential] respectively and that of BT/EE having decreased by almost [confidential] (recital 477 of the contested decision).
193
The Court finds that the data set out in recitals 335, 343, 346 and 477 of the contested decision appear to show that Three experienced stronger growth than its competitors. In that regard, the Commission maintained that the General Court had ruled in the judgment of 14 December 2005, General Electric v Commission (T‑210/01, EU:T:2005:456), that constant growth in market shares is a convincing factor in terms of the competitive pressure exerted by an operator.
194
It must be stated that the strengthening of market shares over several consecutive years is indeed indicative of competitive strength. However, it is necessary to distinguish the present case from the findings made by the Court in the judgment of 14 December 2005, General Electric v Commission (T‑210/01, EU:T:2005:456), where the applicant was by far the leading supplier of aircraft engines, had the highest growth rate on the market, and was thus in a dominant position.
195
That reasoning is not applicable to the present case, which does not concern an undertaking in a dominant position which has strengthened its power on the market. The mere growth in gross add shares over several consecutive years of the smallest mobile network operator in an oligopolistic market, namely Three, which has in the past been classified as a ‘maverick’ by the Commission (Case COMP/M.5650 — T-Mobile/Orange) and in the Statement of Objections in the present case, does not in itself constitute sufficient evidence of that operator’s power on the market or of the elimination of the important competitive constraints that the parties to the concentration exert upon each other.
196
Moreover, the Court finds that, as the applicant submitted in its application and at the hearing, it is apparent from figures No 19 and No 20 of the contested decision that Three’s market shares stagnated or stabilised [between 5% and 10%] between 2012 and 2014, in terms of both subscribers and revenue. According to those figures, Three has experienced weak subscriber growth in recent years.
197
Accordingly, the Commission’s conclusion, in recital 474 of the contested decision, that the evolution of Three’s market share indicates that it was an ‘important competitive force’ is also vitiated by an error of assessment.
198
The line of argument alleging, in essence, an error in the assessment of Three’s growth in subscribers is therefore well founded.
(iii) Three’s pricing policy
199
The applicant claims that the Commission made a manifest error of assessment in concluding, in recitals 578 and 579 of the contested decision, on the basis of a ‘qualitative and quantitative pricing analysis’, that ‘Three has consistently exerted an important competitive constraint on the market with its tariffs’.
200
The applicant’s analyses show that Three charges prices slightly lower than those charged by other mobile network operators in the direct channel, but substantially more expensive than those charged by the other mobile network operators in the indirect channel and by the mobile virtual network operators.
201
As regards the qualitative pricing analysis carried out by the Commission, it ignores sales via indirect distribution channels, and contains a very limited analysis of sales by mobile virtual network operators.
202
The Commission maintains, as regards its own qualitative pricing analysis, that it expressly considered, in recitals 1032 to 1079 of the contested decision, the pricing position of mobile virtual network operators and indirect distributors, along with their limited ability to countervail the likely price effects arising from the transaction.
203
In addition, according to the Commission, the applicant’s quantitative analysis, set out in recital 604 of the contested decision, confirms that Three was the cheapest mobile network operator in the direct sale channel between October 2014 and February 2016.
204
As regards the qualitative price analysis carried out by the Commission set out in recitals 580 to 602 of the contested decision, it is apparent from this analysis, according to the Commission, that Three offered the most competitive market prices for a number of contracts, compared with the other mobile network operators, and among the most competitive on the market for others.
205
According to the applicant, the qualitative and quantitative pricing analyses included in its reply to the Statement of Objections, as well as in the study carried out by Hutchison, each show that Three’s prices were middle of the road, lying between those charged by other mobile network operators in the direct sales channel and those charged by the mobile virtual network operators in the indirect sales channel.
206
More specifically, a quantitative analysis of the parties based on 80000 prices, between 2014 and 2016, led, in the applicant’s submission, to the conclusion that Three was a ‘middle-of-the-road’ competitor, namely a ‘slightly cheaper’ competitor than other mobile network operators in the direct channel, but ‘substantially more expensive’ than the other mobile network operators in the indirect channel and the mobile virtual network operators. Moreover, the contested decision assumes that low pricing equates to an aggressive pricing policy, when in fact it may merely reflect a lower quality of offer or lower brand value, and therefore does not lead to a significant competitive impact.
207
According to the applicant, that exhaustive analysis of all prices on the market at the relevant time shows that Three’s pricing policy was in line with market prices. By contrast, the contested decision refers to selective, or even anecdotal, prices, in comparison with certain allowances at certain times, without however explaining the rationale for that selection.
208
In that regard, the Commission maintains that it included in its analysis the most representative handsets in the United Kingdom. In its view, even though the tariffs offered by operators present differences (in terms of data allowances, minutes of conversation and so on) and do not always offer identical conditions, they are nevertheless comparable.
209
The Court finds, contrary to the applicant’s submission, that the Commission took account, in recitals 584, 589, 590, 592 to 595 and 601 of the contested decision, of the tariffs of non-MNOs and of indirect distributors. Thus, while the Commission took account of the tariffs of mobile virtual network operators in the contested decision, it also stated that a number of tariffs, in particular those of Tesco Mobile and Virgin Mobile, were cheaper than Three’s.
210
Moreover, the Court notes that, in Case COMP/M.5650 — T-Mobile/Orange, the Commission found that, ‘in the UK mobile retail market, [mobile virtual network operators] play a significant role. … [Mobile virtual network operators] not only compete on price and consumer service with their host networks but they also stimulate competition by introducing innovative business models’.
211
In recital 969 et seq. of the contested decision, the Commission concluded that mobile virtual network operators were unable at the time to meaningfully constrain the competitive behaviour of mobile network operators on the retail market.
212
However, it does not follow from this that Three exerted significant competitive pressure through its pricing policy.
213
Without it being necessary for the Court to adopt a position on that matter, it must be held that the mere fact that Three’s tariffs include 4G services at no extra cost is not sufficient to prove that Three was pursuing a particularly aggressive pricing policy.
214
Similarly, as the applicant correctly observes, the mere fact that Three’s offer is cheaper for some and not for all market segments is not sufficient, in any event, to demonstrate that it is an ‘important competitive force’, since its pricing policy must be capable of significantly changing competitive dynamics.
215
In recitals 588 to 590, the contested decision merely states that Three’s prices are ‘among the lowest in the market’ and ‘among the cheapest for [the] low data segment’. That description of Three falls far short of proving that its pricing policy is capable of significantly altering competitive dynamics on the market.
216
The line of argument concerning, in essence, an error of assessment of Three’s pricing policy is therefore well founded, since the Commission has not shown, in the present case, to the requisite legal standard and by convincing evidence, that Three was competing particularly aggressively in terms of prices and that it forced the other players on the market to align with its prices or that its pricing policy was capable of significantly altering the competitive dynamics on the market, in accordance with the definition of the concept of ‘important competitive force’ set out in paragraph 170 above and which the Commission moreover itself set out in detail in its defence.
(iv) The role historically played by Three on the market
217
According to the applicant, the alleged evidence set out in recitals 497 to 575 of the contested decision, which relates to the role historically played by Three on the market, is anecdotal and does not support the conclusion that it is an ‘important competitive force’. The evidence which the applicant put forward demonstrates that Three’s initiatives, as referred to in the contested decision, had a limited impact on competition.
218
The Commission replies that Three’s historical role on the market is relevant, because it demonstrates its ability to cope with competitive challenges and is predictive of its future behaviour (recital 486 of the contested decision). Its initiatives contributed significantly to its yearly growth. The evidence in the file shows that Three played a substantial role in reducing 4G prices.
219
The Court observes that, in the contested decision, the Commission explained the manner in which Three, the most recent operator to enter the retail market, broke the industry trend of reining in data usage and increasing the price of data by launching its ‘One Plan’ (see recitals 497 to 522, and, in particular, recitals 515 and 522), by launching free international roaming (recitals 523 to 538) and by offering 4G at no extra cost, which obliged its competitors to abandon their strategies of selling 4G at a premium (recitals 539 to 572, and, in particular, recitals 565 and 572).
220
However, as the applicant observes, the marketing initiatives taken by Three, which are examined by the Commission in recitals 497 to 575 of the contested decision, in order to demonstrate the highly competitive conduct of that company, are now historical in nature, since they were mostly implemented prior to its major strategy shift from price-to brand-led competition in late 2013.
221
The Commission appears initially to have confirmed in its Statement of Objections its previous classification of Three as a ‘maverick’ on the United Kingdom mobile telecommunications market.
222
In paragraphs 1258 and 1357 of the Statement of Objections, the Commission concluded that, following the transaction, Three would become a market leader with little or even no incentive to disrupt any potential coordination. Following the transaction, there would thus be three non-disruptive undertakings on the market, which would be capable of producing coordinated effects on the market, whereas attempts at coordination had previously failed because of Three’s disruptive conduct.
223
Since the theory of harm based on coordinated effects was subsequently abandoned by the Commission in the contested decision, the Commission’s line of argument concerning Three’s historic role on the market is of anecdotal probative value in the overall analysis of the body of evidence in support of the first theory of harm.
224
Even if the Commission’s line of argument concerning Three’s historic role were as such correct, which the applicant does not seem to dispute in itself, the Commission has failed to establish in the contested decision that Three’s historic role was representative of its pricing policy at the time that the concentration was notified. The Commission’s reasoning in that regard seems to imply that an undertaking which has historically played a disruptive role will necessarily play the same role in the future and cannot reposition itself on the market by adopting a different pricing policy.
225
The line of argument alleging, in essence, an error in assessing the historic role played by Three on the market, and in particular its value as evidence of a significant impediment to effective competition, is therefore well founded.
226
In the light of all the foregoing, the complaint relating to the degree of competitive constraint exerted by Three on the retail market must be upheld.
(c)
The assessment of the closeness of competition
227
Another factor on which the Commission relied in finding that the concentration would give rise to non-coordinated effects is the fact that Three and O2 ‘are close competitors on the overall retail market’ (recital 463 of the contested decision). That conclusion is based on a qualitative assessment of diversion ratios based on MNP (mobile number portability) data and diversion ratios based on a survey carried out by the Commission.
228
By the third part of the first plea, the applicant submits, in essence, that the Commission erred in finding that all four mobile network operators are close on the retail market (recitals 438 and 439 of the contested decision), that it failed to take into account the high degree of substitutability with third parties’ offerings, and that it wrongly concluded that Three and O2 were close competitors, although they were not the closest competitors. The Commission’s conclusion regarding the closeness of competition is vitiated by an error in law and a manifest error of assessment in that the institution failed to undertake an assessment of how close the parties are.
229
In the first place, the Commission submits that it carried out a relative assessment of the closeness of the parties (in accordance with the principles set out in recital 323 of the contested decision) and that it found that, for a large number of participants in its market investigation, Three and O2 were each other’s closest competitors (recital 417 of the contested decision). The internal documents of the parties (recitals 418, 430 and 438 of the contested decision), the diversion ratios (recitals 455 and 460 of the contested decision) and the survey which it commissioned (recital 461 of the contested decision) showed that Three and O2 are close competitors.
230
The Commission maintains, moreover, that it inferred from the evidence in the file that the four mobile network operators compete closely with each other in the retail market, which is not necessarily the case, however, for every four-player market or every oligopolistic market.
231
In the second place, the Commission contends that, while the degree of substitutability with non-merging firms does affect the reaction of such rivals to price increases adopted by the merged entity, it does not alter the elimination of important competitive constraints which the merging parties exert on one another, which is the most direct effect of a merger on an oligopolistic market, and which enables that effect to be measured.
232
In addition, while it is not required that the parties to a concentration should be each other’s closest competitor (recital 324 of the contested decision), the fact that other competitors are equally close competitors, or even closer competitors than the merging parties, does not refute the existence of a significant impediment to effective competition. Evidence of substitutability between the merging parties’ products and those of non-merging firms is therefore of secondary importance, as compared with evidence of the substitutability of the products of the merging parties.
233
In the third place, the Commission does not dispute that, according to the diversion ratios based on the MNP data [confidential]. However, in order for a unilateral price increase to be profitable for the merged entity, what matters is not that the merging parties’ products should be each other’s closest substitutes (recitals 324 and 1193 of the contested decision), but that the merging parties should be close competitors and that their rivalry has been an important source of competition in the market (recital 463 of the contested decision).
234
The Court notes that the concept of a ‘close competitor’ does not appear in Regulation No 139/2004 but only in the Guidelines, which include a section headed ‘merging firms are close competitors’.
235
Moreover, the applicability of Article 2(3) of Regulation No 139/2004, read in the light of recital 25 of that regulation, requires the elimination of important competitive constraints that the merging parties had exerted upon each other, which constitutes the most direct unilateral effect of a concentration on an oligopolistic market, as the Commission rightly pointed out before the General Court.
236
In that regard, ‘closeness of competition’ was already accepted as an economic item of evidence by the Court in the judgments of 9 July 2007, Sun Chemical Group and Others v Commission (T‑282/06, EU:T:2007:203), and of 6 July 2010, Ryanair v Commission (T‑342/07, EU:T:2010:280, paragraph 63 et seq.).
237
The judgment of 6 July 2010, Ryanair v Commission (T‑342/07, EU:T:2010:280), related to the use of the concept of ‘closest competitors’ and the question whether the Commission could automatically infer from this concept the existence, and then the elimination, of the important competitive constraints that the merging parties had exerted upon each other. Conversely, in the judgment of 9 July 2007, Sun Chemical Group and Others v Commission (T‑282/06, EU:T:2007:203), the Court found that the Commission could not be criticised for not dealing with the closeness of competitive relations between the merging parties in the contested decision.
238
According to paragraph 28 of the Guidelines, such proximity is assessed by reference to the degree of substitutability between the parties’ products. That same paragraph thus states that ‘products may be differentiated within a relevant market such that some products are closer substitutes than others. The higher the degree of substitutability between the merging firms’ products, the more likely it is that the merging firms will raise prices significantly. … The merging firms’ incentive to raise prices is more likely to be constrained when rival firms produce close substitutes to the products of the merging firms than when they offer less close substitutes. It is therefore less likely that a merger will significantly impede effective competition … when there is a high degree of substitutability between the products of the merging firms and those supplied by rival producers’.
239
Depending on the circumstances, a relevant product market may include more or less close substitutes, so that the competition between the products belonging to that market may vary in intensity, irrespective of market shares. Consequently, the non-coordinated effects of a concentration may depend more on the closeness of the products of the merging parties than on their respective market shares.
240
In the present case, first, it should be noted that, according to paragraph 1366 of the Statement of Objections, the reference market is characterised, in general, by a low degree of product differentiation. On that market, operators attempt to overcome this by pursuing differentiation strategies, which have, however, had only limited success.
241
Second, the Court notes that the concept of a ‘close competitor’ in the Guidelines allows account to be taken of the fact that rivalry between the merging parties is an important source of competition on the market, and may therefore be a central factor in the analysis, as is apparent from paragraph 28 of the Guidelines. Furthermore, it should be borne in mind that the applicability of Article 2(3) of Regulation No 139/2004, read in the light of recital 25 of that regulation, requires the elimination ‘of important competitive constraints that the merging parties had exerted upon each other’, which constitutes the most direct unilateral effect of a concentration on an oligopolistic market, as the Commission rightly pointed out before the General Court.
242
However, most of the examples mentioned in the contested decision are not intended to identify how close the parties are, or to show that they exerted important competitive constraints on each other, but are aimed above all at showing that Three and O2 are ‘close competitors’ rather than ‘particularly close competitors’. Thus, the Commission seems more to analyse the closeness of competition between Three and O2, on the one hand, and the other two mobile network operators, on the other. It concludes, in recital 1183 of the contested decision, that the four mobile network operators, and not only Three and O2, ‘compete closely’.
243
Third, the data used by the Commission to calculate the diversion ratios, which are used to analyse the degree of closeness of the various operators, are derived from a survey which it carried out on a relatively small sample, of approximately 100 users. Moreover, the results of that analysis do not tally with those of the quantitative analysis set out in Annex A to the contested decision. By contrast, the ratios calculated by the applicant are based on MNP data and relate to 200000 observations.
244
Fourth, according to the figures submitted by the applicant, in relation to the destination of O2’s private customers, [confidential] with a diversion ratio of only [confidential], whereas BT/EE’s diversion ratio is [confidential] and Vodafone’s is [confidential]. Moreover, the closest competitors of O2 [confidential] are overall [confidential], which account for [confidential] of O2 diversions. This means that [confidential].
245
At the hearing, the applicant substantiated those figures convincingly, without being contradicted in that regard by the Commission; this confirms the fact that Three was not a particularly close competitor of O2, that [confidential] was Three’s closest competitor, and [confidential] closest competitor, and by a significant margin.
246
Furthermore, the Commission confirmed at the hearing that Three was not active in the segment of professional mobile telephone consumers and that Three and O2 were not therefore competitors in that segment. The lack of closeness of competition in that market segment is borne out by Table 35 of the contested decision, and in particular by footnote 313 on the concentration level and the HHI, which were not provided in the contested decision, since the Commission did not encounter structural concerns in relation to that market segment.
247
It follows that, on the United Kingdom mobile telecommunications market, Three and O2 were not particularly close mobile network operators, even if, on such a market, all operators are, by definition, close to a greater or lesser extent.
248
Also according to the figures submitted by the applicant at the hearing, which were not disputed by the Commission, as regards the destination of Three’s customers [confidential] of customers who switched from Three, that is to say almost [confidential] than O2. In total, [confidential] of Three’s switchers move to a player other than O2.
249
Although it may indeed be established that Three and O2 are relatively close competitors in some of the segments of a concentrated market comprising four mobile network operators, that factor alone is not sufficient to prove, in the present case, the elimination of the important competitive constraints which the parties to the concentration exerted upon each other and cannot suffice to establish a significant impediment to effective competition; if that were not the case, any concentration resulting in a reduction from four to three operators would as a matter of principle be prohibited.
250
The third part of the first plea, relating to the weak probative value of the analysis of the closeness of competition between Three and O2 in the present case, must therefore be upheld.
(d)
The assessment of the quantitative pricing effects of the concentration
251
On the basis of its quantitative analysis of upward pricing pressure (‘the UPP analysis’), the Commission concluded, in recital 1225 of the contested decision, that ‘the transaction is likely to generate an incentive for the merged entity to significantly increase prices’.
252
By the fifth part of the first plea, the applicant puts forward two complaints concerning the UPP analysis. First, it submits that that analysis does not have the probative value which the Commission ascribes to it. Next, it submits that such an analysis has no probative value in the present case.
(1) The probative value of the UPP analysis as a first ‘screen’
253
In the first place, according to the applicant, the Commission made a manifest error of assessment regarding the probative value of the UPP analysis in using it, in recital 1191 of the contested decision, as corroborating evidence of a significant impediment to effective competition, since the purpose of the UPP analysis is to provide a first ‘screen’ as to whether a merger merits closer investigation, and since such analyses are, in any event, highly contested.
254
The Commission contests those arguments.
255
The Court finds, as a preliminary point, that the indicators of upward pressure on prices, based on the diversion ratios and the margins of the parties to a concentration, reflect those parties’ incentives to increase prices following the concentration. They are used to assess the non-coordinated effects of mergers, which are usually observed in the case of homogeneous products.
256
It is generally accepted that, while indicators of upward pressure on prices may be useful for screening purposes, by enabling the competition authorities to judge the need for a more thorough investigation, they must not, however, be regarded as credible forecasts of price increases or simulations of mergers.
257
The applicant therefore rightly states that the UPP analysis, in particular, was initially developed to provide a first ‘screen’ as to whether a merger merits closer investigation.
258
However, it must be found that, as the Commission observes, its quantitative analysis, based on a GUPPI (Gross Upward Pricing Pressure Index) analysis, is more elaborate than a simple UPP analysis, since it is able to take account of the likely reaction of competitors to a unilateral price increase by the merged entity, as is indicated in recitals 253 and 254 of Annex A to the contested decision.
259
This complaint is not therefore well founded.
(2) The UPP analysis in the present case
260
In the second place, according to the applicant, the Commission made a further manifest error of assessment in connection with the conclusions it drew from the UPP analysis, in that a UPP analysis will predict a price increase for any horizontal merger and can produce useful results only if a threshold is defined above which the predicted post-merger price increase is regarded as sufficiently significant. The Commission failed to take any of those factors into account in the contested decision.
261
Notwithstanding the limitations of the UPP analysis, the applicant states that its results show that the present merger raises limited competition concerns, in particular, in comparison with the results obtained in previous cases.
262
As regards the applicant’s argument that the price effects predicted by the quantitative analysis are lower than in previous cases, the Commission states that it answered that point in recitals 3056 to 3058 of the contested decision by demonstrating that the effects on average prices in this specific case are between those which were predicted in the Irish and German cases (see paragraph 164 above).
263
In addition, according to the Commission, the fact that, in the absence of efficiencies or other qualitative countervailing factors, the quantitative analysis will always predict some, possibly very small, price increase does not mean that that analysis cannot be used as part of an overall assessment of the body of evidence of whether a transaction is likely to lead to a significant impediment to effective competition.
264
First, the Court notes that the Commission recognises that its quantitative analysis relied on a limited number of key inputs, in particular, diversion ratios and margins, but argues that those measures are key market indicators, as is explained in recital 1195 of the contested decision and in recital 246 of Annex A to that decision.
265
That is why the Commission itself seems to have taken a somewhat prudent approach in the contested decision to the probative value of its quantitative analysis.
266
On the one hand, the Commission concludes, following the qualitative assessment set out in recitals 1175 to 1190 of the contested decision, that the concentration would lead to the elimination of important competitive constraints on the retail market, which would ‘probably’ result in a price increase. That qualitative assessment is supplemented by a quantitative analysis, summarised in recitals 1191 to 1225 of the contested decision and set out in detail in Annex A to that decision, from which the Commission draws the same conclusion.
267
Moreover, the Commission states, in essence, in recital 250 of Annex A to the contested decision, that the result obtained should not be seen as an exact and precise quantification of the price increases that may result from the transaction, but rather as an ‘indication for the likelihood’ of such increases.
268
It follows that, as is apparent from the contested decision itself, the quantitative analysis is not regarded as decisive evidence. Accordingly, that analysis is not sufficient to demonstrate, in accordance with the standard of proof referred to in paragraph 118 above, that the elimination of the important competitive constraints that the parties exerted upon each other would result in a significant increase in prices and, therefore, in a significant impediment to effective competition.
269
Second, the applicant submits that it is necessary to define a threshold above which the predicted post-merger price increase is regarded as sufficiently significant.
270
In that regard, it should be noted that, in recital 252 of Annex A to the contested decision, the Commission acknowledges that a UPP analysis will, in the absence of efficiencies, always predict some price increase from a horizontal merger that eliminates competition between the merging parties.
271
The Commission states, however, in recital 252 of Annex A to the contested decision, that the quantitative analysis relating to price increases and the evidentiary weight that may be ascribed to such an analysis will vary from one case to another.
272
Moreover, the magnitude of the price increases is only one of the factors relevant to the Commission’s overall assessment, in particular in cases, such as the present case, where significant harm is identified in relation to separate theories of harm, resulting from the elimination of horizontal competition between the parties to the concentration. The Commission explains that, for this reason, it did not consider it necessary to define a threshold above which a price increase indicated by an individual piece of evidence would be significant.
273
However, the Court finds that argument unpersuasive, since, in the present case, the predicted price increase is, according to the applicant — which is not contradicted on that point by the Commission — [confidential], whereas a predicted price increase of 6.6% in the Irish case and 9.5% in the German case did not prevent the Commission from authorising those concentrations subject to compliance with certain conditions.
274
Third, even if the Commission had proved to the requisite legal standard in the contested decision that the concentration would be liable to encourage the merged entity to increase prices, and had quantified that price increase in the contested decision, the Commission has not, in any event, demonstrated in the present case that the quantified price increase would be significant.
275
Without there being any need to require the Commission to adopt a ‘de minimis’ rule or ‘safe harbour’ on price increases in the context of demonstrating the possible anticompetitive effects of a concentration, the Commission must, in any event, establish that increase with a sufficiently high degree of probability. When it decides to use quantitative analyses, such as those in Annex A to the contested decision, for that purpose, it must take into account all the relevant factors which may affect the price level.
276
It must be held that, because of the competitive conditions on such a market, concentrations in an oligopolistic market tend to lead almost automatically to an increase in prices in the short term on account of the loss of competition between the merging parties. It is only in the medium term that external competition from players already present on the market or, depending on how high barriers to entry are, from new players, will force the merged entity to lower its prices.
277
Similarly, any concentration will lead to efficiencies, the extent of which will also depend on external competitive pressure. Those efficiencies stem in particular from the rationalisation and integration of production and distribution processes by the merged entity. Indeed, that entity will generally eliminate duplicate structures in the production and distribution chains, and will redeploy members of staff or make them redundant. Depending on the circumstances, those rationalisation efforts may lead the merged entity to lower its prices.
278
It must be stated that the Commission did not include those standard efficiencies in its quantitative analysis, taking the view, in recitals 1197 and 1223 of the contested decision, that it was for the notifying party to demonstrate their existence and referring for that purpose to Section 8.5 of the contested decision relating to efficiencies.
279
The Commission thus confuses two types of efficiencies, namely those referred to in Section VII of the Guidelines and those specific to each concentration. Efficiencies within the meaning of the Guidelines must be taken into account in the overall competitive appraisal of the concentration, in order to ascertain whether they are likely to counteract the restrictive effects of the concentration. However, the category of efficiencies at issue in the present case is merely a component of a quantitative model designed to establish whether a concentration is capable of producing such restrictive effects. It is therefore an evidential matter relating to the existence of restrictive effects which arises prior to the overall competitive appraisal as provided for in paragraph 76 of the Guidelines.
280
Moreover, the Court finds that it is apparent from the evidence submitted during the administrative procedure that, while a positive correlation may be established between concentrations which reduce the number of operators in the mobile telecommunications sector from four to three and result in price increases, a correlation may also be established between those concentrations and an increase in network investments by mobile network operators (see, in particular the Centre on Regulation in Europe (CERRE) Study by Genakos, C., Valletti, T., Verboven, F., CERRE, Brussels, 2015) entitled ‘Evaluating Market Consolidation in Mobile Communications’, which is referred to inter alia in paragraphs 1, 64 to 68, 71, 72, 76 to 80 and 108 of Annex B to the contested decision).
281
Although an increase in investment by operator does not necessarily mean a better network quality, as the Commission observes in paragraph 79 of Annex B to the contested decision, such a correlation is more likely than the opposite hypothesis, consisting in a degradation in the network quality. The Commission, which bears the burden of proof, has not, in that regard, proved in the contested decision, in accordance with the applicable standard of proof, its proposition of a degradation of network quality, on which its second theory of harm, aimed at demonstrating a significant impediment to effective competition, is based in part.
282
It must therefore be concluded that the quantitative analysis carried out in the present case lacks probative value, since the Commission has not demonstrated with a sufficient degree of probability that prices would increase ‘significantly’ following the elimination of the important competitive constraints which the parties to the concentration exerted upon each other.
283
In view of the foregoing, the fifth part of the first plea must be upheld.
(e)
The overall assessment of non-coordinated effects
284
By the seventh part of the first plea, the applicant claims that the Commission failed to make an overall assessment of the existence of non-coordinated effects, which constitutes an error in law and a manifest error of assessment. Equally, the Commission fails to state on what basis it concluded, in recitals 1226 and 1227 of the contested decision, that the alleged constraints removed by the concentration are important within the meaning of paragraph 25 of the Guidelines and that the alleged impediments to competition brought about by the concentration are significant within the meaning of Article 2(3) of Regulation No 139/2004. It confuses the reduction of competition between Three and O2 with the elimination of important competitive constraints.
285
The Commission replies that it carried out an overall assessment of the non-coordinated effects that were likely to flow from the transaction. In the first place, it presented its qualitative assessment, in recitals 1175 to 1190 of the contested decision. In the second place, it presented its overall assessment of the quantitative analysis, in recitals 1191 to 1225 of the contested decision. In the third place, it presented its overall conclusion, in recitals 1226 and 1227 of the contested decision.
286
In that regard, it is necessary to examine whether the Commission specified or clarified in the contested decision to what extent non-coordinated effects would be so important that they would warrant the conclusion that the concentration would ‘significantly’ impede effective competition, as is required by Article 2(3) of Regulation No 139/2004.
287
In order to demonstrate the existence of non-coordinated effects on the retail market, the Commission examined various factors in turn in recitals 330 to 1174 of the contested decision and summarised its qualitative and quantitative assessment in recitals 1175 to 1225 of that decision. It then carried out an overall assessment in recitals 1226 and 1227 of the contested decision, concluding therein that effective competition would be significantly impeded. Thus, contrary to what the applicant claims, the contested decision does in fact contain an overall assessment of whether such non-coordinated effects exist.
288
However, that global assessment is limited to a cursory reference to the body of evidence and circumstances concerning, in particular, the elimination of an important competitive force by the concentration, the closeness of competition and the large market share of the merged entity, and which are thus aimed at demonstrating the existence of non-coordinated effects.
289
Irrespective of the probative value of that body of evidence and circumstances, it must be stated that the Commission did not at any point specify in the contested decision whether the non-coordinated effects identified would be ‘significant’ or would result in the present case in a significant impediment to effective competition, as it asserts in recital 1227 of the contested decision.
290
The Court must therefore uphold the applicant’s argument that the Commission did not specify on what basis it concluded that the alleged impediments to competition resulting from the concentration would be significant.
291
In the light of all the foregoing considerations, the first plea must be upheld, without there being any need to examine the sixth and seventh parts thereof.
D. The second theory of harm, relating to the non-coordinated effects produced by the disruption of the network-sharing agreements
1.
Summary of the contested decision
292
During the procedure before the Commission, the applicant submitted two network consolidation plans: ‘plan [A]’ and ‘plan [B]’. Those consolidation plans were based on the existence of two network-sharing agreements, (i) between BT/EE and Three, namely MBNL, and (ii) between Vodafone and O2, namely Beacon.
293
MBNL consists of the ‘passive’ sharing of a grid of approximately [confidential] sites and active sharing of 3G technology alone, [confidential]. MBNL is therefore largely a passive sharing arrangement. It authorises unilateral deployments.
294
As for Beacon, it comprises sharing within Cornerstone Telecommunications Infrastructure Ltd, covering approximately [confidential], and active sharing, by which each party provides the other with an active network in one half of the United Kingdom (Vodafone in western regions and O2 in eastern regions) and relies on the network of the other party in the other half of the United Kingdom. [Confidential], the parties actively share 2G, 3G and 4G [confidential]. Beacon is therefore [confidential]. It contains certain exclusivity provisions.
295
In recitals 1229 to 1234 of the contested decision, the Commission sets out its two sub-theories of harm relating to the network-sharing arrangements.
296
According to the Commission, the partners of each of the two network-sharing arrangements today have an incentive to jointly develop the shared elements of their networks with a view to achieving a better network than the other mobile network operators and in particular than the mobile network operators in the other network-sharing arrangement. Post-transaction, this competitive dynamic would be lost, inasmuch as the merged entity would be party to both network-sharing agreements and Vodafone and BT/EE would no longer have a fully committed partner in, respectively, Beacon and MBNL.
297
One of the forms of harm relates to the weakening of the competitive position of the two respective partners in the network-sharing agreements to which the parties to the concentration are linked. In recital 1231 of the contested decision, the Commission finds that mobile networks are crucial infrastructure for mobile network operators in order to provide mobile telecommunications services to their customers.
298
According to the Commission, the quality of those networks is a key factor of competition. That is why one of the sub-theories of harm, summarised in recital 1232 of the contested decision, concerns reduced competition exerted by either one or both of the other mobile network operators that are linked to the parties to the concentration through the network-sharing arrangements; this could lead to a significant impediment to effective competition in an oligopolistic market featuring a limited number of players and high barriers to entry.
299
According to the Commission, potential further harm would be caused if the network-sharing situation resulting from the transaction led to fewer industry-wide investments in network infrastructure. In recital 1233 of the contested decision, the Commission claims that the transaction might lead to a loss of synergies affecting the partners in the network-sharing agreements and allow opportunistic investment behaviour by the merged entity, thereby reducing industry-wide investments and, consequently, the level of effective competition which would have prevailed in the absence of the transaction. For that reason also, the transaction could lead to a significant impediment to effective competition in an oligopolistic market featuring a limited number of players and high barriers to entry.
300
It was in the light of those two sub-theories of harm that the Commission examined, in recitals 1244 to 1784 of the contested decision, the applicant’s network consolidation plans, after explaining in detail, in recitals 1235 to 1243 of that decision, the importance of an alignment of interests between the parties to a network-sharing arrangement.
301
Under [plan A], the merged entity would agree [confidential] (recitals 1373 to 1381 of the contested decision).
302
Under [plan B], the merged entity [confidential] (recitals 1382 to 1385 of the contested decision).
303
Both plans [confidential].
304
In recital 1246 of the contested decision, the Commission set out the central argument underlying its assessment of possible market developments following the transaction, namely that a lasting disruption of the proper functioning of a network-sharing agreement is liable to constitute a barrier to competition exerted by the partner to such an agreement.
305
In that regard, the Commission stated, in recital 1229 of the contested decision, that, in general, network sharing can have pro-competitive effects, by achieving cost synergies in the deployment and operation of mobile networks, which, in turn, can enable mobile network operators to achieve better coverage and higher network quality, thereby promoting effective competition and benefiting consumers and society as a whole.
306
In recital 1230 of the contested decision, the Commission states that, given that those goals were achieved through network-sharing agreements concluded between the parties to a concentration with another operator, it is a question of assessing to what extent the transaction is likely to influence the continued achievement of effective competition benefiting consumers.
307
As regards [plan A], in recitals 1567 and 1778 of the contested decision, the Commission found that [that] plan presented by the parties to the concentration would have a severe negative impact on the competitive position of BT/EE by increasing its costs to maintain and improve the MBNL network, and by degrading MBNL network quality, in particular by delaying or frustrating investments by BT/EE. The Commission found, in recital 1778 of the contested decision, that [plan A] would be likely to result in significant harm to BT/EE’s ability to compete in the mobile telecommunications markets in the United Kingdom.
308
According to the Commission, such a reduction in competitive pressure would probably have the effect of significantly impeding effective competition in an oligopolistic market featuring a limited number of players and high barriers to entry.
309
That conclusion is corroborated, in particular, by recital 1247 of the contested decision, which states that increasing the costs of maintaining and expanding the current network or of achieving a future network standard could significantly impede the competitive position of Vodafone and BT/EE. Increases in incremental costs would be likely to result in higher prices and in harm to consumers. According to the Commission, increases in fixed costs would be likely to result in lower investments because higher fixed costs would turn investments unprofitable that would be profitable if the fixed costs were lower. Lower investments in network quality would thus be likely to reduce the network quality compared to the situation in the absence of the transaction.
310
In recital 1679 of the contested decision, the Commission concedes that higher costs for a competing operator do not necessarily cause harm to competition. However, if higher costs lead to fewer investments or to a decrease in the quality of services offered on the market, or if they are passed on to consumers as higher prices, they decrease, according to the Commission, the competitive pressure of such an operator on the market.
311
Higher incremental costs would be likely to result in higher prices while higher fixed costs would be likely to result in lower network quality. In the context of oligopolistic markets with a limited number of operators, such loss of competitive pressure by one operator would be highly likely to translate into an overall loss of competition on that market.
312
In so far as concerns [plan B], the Commission concluded that it was likely to result in a significant impediment to Vodafone’s and, to a lesser extent, BT/EE’s ability to compete in the mobile telecommunications markets in the United Kingdom (recitals 1568 to 1749 and 1779 of the contested decision).
313
In particular, the Commission considered [confidential] (recitals 1605 to 1652 of the contested decision). There was also a risk of the degradation of Vodafone’s network owing to possible temporary network congestion [confidential] (recitals 1660 to 1667 of the contested decision). Lastly, the Commission examined the potential increase in costs and the effect thereof on [confidential] (recitals 1668 to 1724 of the contested decision).
314
According to the Commission, [plan B] was also likely to increase transparency on network investments, which could decrease the overall level of investments in network infrastructure in the United Kingdom (recitals 1725 to 1742 of the contested decision).
315
The Commission also considered five other integration scenarios and concluded that, in all the other scenarios it reviewed, the transaction would harm the competitive position of one or both of the partners of the parties to the concentration in the network-sharing arrangements (recitals 1386 to 1389 and 1750 to 1776 of the contested decision).
316
Consequently, in recitals 1777 to 1784 of the contested decision, the Commission concluded that the transaction was likely to reduce the competitive pressure exerted by one or both of the mobile network operators that are partners of the parties to the concentration in the network-sharing arrangements.
317
In recital 1777 of the contested decision, the Commission concluded that the implementation of the network consolidation plans as presented to it by the notifying parties, following the reduction of mobile network operators, would significantly harm the competitive position of either one or both of the partners in the network-sharing arrangements, namely BT/EE or Vodafone.
318
In addition, the Commission noted that neither of those consolidation plans as presented to it provides for a commitment to implement them. Taking into account also the five other possible integration scenarios, referred to in paragraph 315 above, the Commission concluded, in recital 1780 of the contested decision, that, in all those other scenarios, the transaction would harm the competitive position of either one or both of the mobile network operators which are partners of the parties to the concentration in the network-sharing arrangements.
319
That is why the Commission took the view, in recital 1781 of the contested decision, that the transaction would be likely to reduce the competitive pressure exerted either by BT/EE or by Vodafone, or by both of the mobile network operators that are partners of the parties to the concentration in the network-sharing arrangements.
320
In addition, the Commission took the view, in relation to its second sub-theory of harm set out in paragraph 299 above and recital 1233 of the contested decision, that the network-sharing situation resulting from the transaction under [plan B] would probably lead to fewer industry-wide investments in network infrastructure, which would reduce the level of effective competition which would have prevailed in the absence of the transaction.
321
Consequently, the Commission concluded, in recital 1783 of the contested decision, that, due to the reduced competitive pressure exerted by either one or both of the other mobile network operators and to the lower level of industry-wide investments in network infrastructure that would result from some of the network consolidation plans examined by the Commission, the transaction is likely to give rise to non-coordinated anticompetitive effects on the retail market for mobile telecommunications services in the United Kingdom.
322
In recital 1784 of the contested decision, the Commission concluded, in essence, that, since such effects cannot be offset by buyer power, market entry or the efficiencies resulting from these, the transaction would significantly impede competition in an oligopolistic market featuring a limited number of competitors and high barriers to entry.
2.
The third plea in law, alleging errors in connection with the horizontal non-coordinated effects arising from network sharing
323
By its third plea in law, the applicant maintains that, in the contested decision, the Commission erred in law and made manifest errors of assessment and also infringed essential procedural requirements with respect to non-coordinated effects allegedly arising from network sharing, in particular, in so far as concerns the need for and extent of alignment between the parties to the network-sharing agreements (the first part), the development of the two network-sharing agreements in the counterfactual scenario (the second part), Three’s ability to delay or frustrate BT/EE’s unilateral deployments (the third part), the Commission’s consideration of whether the concentration would harm competitors as opposed to competition (the fourth part), the harm to the competitive position of BT/EE and Vodafone (the fifth part), the effect on overall network investments from increased transparency (the sixth part) and the assessment of the network-sharing commitments (the seventh part).
324
The Commission, supported by the United Kingdom and BT/EE, disputes the applicant’s arguments.
(a)
The alignment between the parties to the network-sharing agreements
325
In the first part of the third plea, the applicant claims that the theory of alignment of interests is both novel, not having been raised in previous telecoms mergers, and counter-intuitive, in that it implies that alignment between the parties to the network-sharing agreement is preferable to the competition that would result from the merger, which is contrary to the concept of competition and is contradicted by the Commission’s own findings in relation to the applicant’s proposed remedies.
326
The Commission states that, in so far as concerns the alleged novelty of the theory of alignment of interests, the fact that it did not identify similar concerns in previous cases is explained by the particular nature of the network-sharing agreements at issue in the present case. BT/EE adds that the theory of alignment was identified in Case COMP/M.5650 — T-Mobile/Orange, in which the Commission concluded that, after the merger, T-Mobile might try to deteriorate the quality of the radio access network (RAN) of Three in the context of MBNL.
327
As regards the allegation that the theory of alignment is counter-intuitive, the Commission, supported on this point by the United Kingdom, argues that its assessment of the alignment of interests is in no way counter-intuitive. While the network-sharing agreements have the effect of creating commonalities between the parties to them, which can be pro-competitive, in particular where the arrangement results in cost synergies or improvement of the network, the parties to such agreements typically retain their ability to compete on other significant parameters, including price. The contested decision does not refer to the alignment or coordination of conduct, but to an alignment of interests, regarding the fact of having a network that allows each of the parties to compete effectively.
(1) The novel nature of the theory of harm on the network-sharing agreements
328
As regards the innovative nature of the theory of harm on the network-sharing agreements, set out by way of introduction in the context of the first part of the third plea, the Court finds that it is apparent from recitals 1242 and 1243 of the contested decision that the need for and the importance of an alignment of interests between the parties to a network-sharing arrangement had been raised by 3UK before the Commission in its observations on the concentration notified in Case M.5650 — T-Mobile/Orange.
329
However, the Commission’s theory of harm in Case M.5650 — T-Mobile/Orange was based not on the alignment or disruption of interests between the parties to the network-sharing agreement, but on the need to ensure that a given undertaking had access to the network which it would share with another company, whereas the latter had entered into a transaction with a third undertaking which could jeopardise the former’s access to that network. For that reason, in order to dispel the serious doubts identified by the Commission, the merging parties had, under Article 6(2) of Regulation No 139/2004, entered into commitments vis-à-vis 3UK relating to the duration of the MBNL network-sharing agreement, which was extended [confidential], and to the establishment of a mechanism for the rapid resolution of disputes.
330
It follows that the Commission’s theory of harm in the present case, based on the need to avoid disruption of the alignment of the interests of the parties to each network-sharing agreement and on those agreements remaining stable, is novel in the light of its previous decision-making practice.
331
However, the mere fact that a theory of harm formulated by the Commission in a decision is innovative does not, in itself, lead to the conclusion that it is, as such, unlikely or unfounded. As BT/EE correctly observes, the Commission need not limit its analysis to the theories of harm developed in previous decisions.
332
In addition, and as is apparent from paragraph 111 above, the more prospective the analysis is and the chains of cause and effect dimly discernible, uncertain and difficult to establish, the more demanding the EU judicature must be in terms of the specific examination of the evidence produced by the Commission.
(2) The allegedly counter-intuitive and erroneous nature of the theory of the alignment of interests and the disruption to network-sharing agreements
333
The applicant claims that the Commission’s conclusion, in recitals 1238 and 1239 of the contested decision, that MBNL and Beacon are ‘based on a certain degree of alignment of interests’, which the concentration was likely to disrupt, is vitiated by errors.
334
The applicant alleges in particular that a loosening of the ties within MBNL and Beacon following the concentration could encourage greater competition between the parties to those agreements and increase network competition.
335
The Commission disputes those arguments, asserting, in essence, that network-sharing agreements play an important role in the mobile telecommunications sector, in particular in the United Kingdom, where an assessment of the alignment of interests is in no way counter-intuitive. The contested decision does not refer to the alignment or coordination of conduct, but to an alignment of interests, regarding the fact of having a network that allows each of the parties to compete effectively.
336
In that regard, the Court finds, as a preliminary point, that it may at the outset subscribe to part of the Commission’s theory of harm, summarised in recital 1232 of the contested decision, inasmuch as reduced competition from one mobile network operator, which is linked to the parties to the concentration through network-sharing arrangements, could, in certain cases, lead to a significant impediment to competition. That would be the case, for example, of a disruptive undertaking, which would be dependent on a network-sharing arrangement in order to be able to gain access to the market so as to be able to offer its services, and which might be foreclosed from the market following the concentration.
337
As was already noted in paragraph 296 above, according to the Commission, the partners of each of the two pre-existing network-sharing arrangements in the United Kingdom, namely BT/EE and Vodafone, today have an incentive to jointly develop the shared elements of their networks with a view to achieving a better shared network than the other mobile network operators and in particular than the mobile network operators in the other network-sharing arrangement. According to the Commission, post-transaction, this competitive dynamic would thus be lost, inasmuch as the merged entity would, in any event, in the short to medium term, be party to both network-sharing agreements and Vodafone and BT/EE would no longer have a fully committed partner in Beacon and MBNL respectively.
338
In short, the first sub-theory of harm developed by the Commission presupposes, as the Commission itself states in recitals 1777 to 1783 of the contested decision, that the transaction would harm the competitive position of one or both mobile network operators, and would thus be likely to reduce the competitive pressure exerted either by BT/EE or by Vodafone, or by both mobile network operators which are partners of the parties to the concentration in the network-sharing arrangements. The Court notes in that regard that infrastructure-based competition may be an important factor in ensuring the quality of services in the mobile telecommunications market.
339
According to the Commission’s decision-making practice relating to Article 101(1) and (3) TFEU, network-sharing agreements, which involve the pooling of certain infrastructures, present, from that point of view, competitive risks which vary according to the context and whether the type of sharing is active or passive. Depending on the method of cooperation chosen, the independence of operators and the risk of collusion are more or less prevalent and the risks of undermining competition are more or less significant. At the same time, network-sharing agreements may produce substantial economic benefits in terms of costs savings, improved coverage, and faster network roll-out (see, in particular, Commission Decision 2003/570/EC of 30 April 2003 relating to a proceeding under Article 81 of the EC Treaty and Article 53 of the EEA Agreement — Case COMP/38.370 — O2 UK Limited/T-Mobile UK Limited (‘UK Network-sharing agreement’) (OJ 2003 L 200, p. 59), and Commission Decision 2004/207/EC of 16 July 2003 relating to a proceeding under Article 81 of the EC Treaty and Article 53 of the EEA Agreement (Case COMP/38.369: T-Mobile Deutschland and O2 Germany: Network Sharing Rahmenvertrag) (OJ 2004 L 75 p. 32)).
340
The Court finds that the fact that a network-sharing agreement may, when it is concluded, result in pro-competitive effects, thus counteracting the restrictions which it contains, does not necessarily mean that the termination, renegotiation, or that each subsequent alteration to its balance following a concentration may necessarily be characterised as a significant impediment to effective competition.
341
Such an assessment of the new competitive balance on the market, owing in particular to the existence of such network-sharing agreements, will depend on the possible pro-competitive or anticompetitive effects of the new situation, which is capable of being assessed separately and individually by the Commission or by the national competition authorities, in the light, in particular, of market developments, as was pointed out, moreover, by Ofcom on several occasions during the administrative procedure before the Commission, as is apparent from the annexes to the United Kingdom’s statement in intervention which have been submitted to the Court.
342
As the applicant observes in reply to the United Kingdom’s statement in intervention on that point, BT/EE and Vodafone’s ability to compete and incentives to invest would not depend decisively on Three’s investment decisions or on cost increases, but in particular on the level of competition that they would face, their financial resources and their strategies. A reduction in Three’s incentives to invest in one or other of the networks cannot result only — and significantly — in the weakening of the ability to compete of the other party to the network-sharing agreement.
343
According to the Commission, that would be the case, however, in particular if the merged entity decided to withdraw from one of the two network-sharing agreements in order to concentrate exclusively on the other, as the Commission considered in two further network consolidation scenarios set out in recitals 1752 to 1756 of the contested decision in respect of the first scenario, where it is envisaged that the merged entity would rely only on MBNL, and in recitals 1757 to 1759 of the contested decision in respect of the second scenario, where it is envisaged that the merged entity would rely only on Beacon. In both those cases, the Commission concluded, in recitals 1755 and 1759 of the contested decision, that reduced industry-wide investments seem unlikely.
344
Even if it were accepted that such scenarios could in fact harm the competitive position of either BT/EE or Vodafone, it must be stated that those anticompetitive effects cannot be classified, in the present case, and as such, as significant impediments to effective competition on the United Kingdom mobile telecommunications market.
345
To conclude otherwise would amount to allowing the Commission to prohibit, as a matter of principle and on that basis alone, any concentration involving a reduction from four to three operators, other than those concentrations which might be effected between partners to network-sharing agreements.
346
In that regard, as the applicant rightly observes, a loosening of the ties within MBNL and Beacon following the concentration could equally encourage greater infrastructure competition between the parties to those agreements and increase network competition.
347
Therefore, it must be held that a possible misalignment of the interests of the partners in a network-sharing agreement, a disruption of the pre-existing network-sharing arrangements the duration of which was extended for the benefit of Three, or even the termination of those agreements does not constitute, in the present case, and as such, a significant impediment to effective competition in the context of a theory of harm based on non-coordinated effects.
348
In those circumstances, the first part of the third plea must be upheld, in so far as the Commission incorrectly found that a lasting disruption to a network-sharing agreement would be likely to significantly impede competition exerted by the partner to such an arrangement.
(b)
The effects of the concentration on competitors
349
In the context of the third part of the third plea, the applicant maintains that the Commission’s finding in recital 1522 of the contested decision that the merged entity would be likely to harm BT/EE significantly by delaying or frustrating its network investments is vitiated by errors.
350
In the applicant’s submission, the Commission was therefore wrong to state, in recital 1512 of the contested decision, [confidential].
351
In the context of the fourth part of the third plea, the applicant maintains that the Commission erred in law and made a manifest error of assessment in examining the effects of the operation on competitors, rather than on competition (recital 1231 of the contested decision), in order to establish whether there was a significant impediment to effective competition.
352
In the context of the fifth part of the third plea, the applicant submits that the Commission’s findings that the merger would harm the competitive position of BT/EE and Vodafone are based not on evidence but on mere assumptions. The Commission erred in law and made manifest errors of assessment resulting from the lack of evidence of harm to the competitive position of BT/EE and Vodafone.
353
The Commission maintains that the applicant takes certain recitals of the contested decision out of context, such as the recital relating to disruption of a network-sharing arrangement (recital 1246 of the contested decision). In addition, while it is true that the Commission had begun by setting out the categories of harm identified by BT/EE and Vodafone (recitals 1249 to 1285 of the contested decision), it then went on to analyse them, in light of the applicant’s observations, with reference to [plan A] (recitals 1391 to 1567 of the contested decision) and [plan B] (recitals 1568 to 1748 of the contested decision).
354
In that regard, the United Kingdom alleges that the Commission’s conclusion in relation to disruption of a network-sharing arrangement (recital 1246 of the contested decision) is inherent in the nature and operation of such arrangements. The United Kingdom also argues that, in addition to conducting a thorough assessment of the potential impact of the operation, it was appropriate for the Commission to have regard to the views of Ofcom on the existing network-sharing arrangements (recital 1722 of the contested decision).
355
In addition, the Commission argues that, since the retail market is very concentrated and competition between Three and O2 would cease following the concentration, any reduction in the level of effective competition that BT/EE or Vodafone could exercise would be likely to have a negative effect on competition in general, as was found in recital 1679 of the contested decision, in particular if the likely harm is manifested in a reduction in the quality of their networks. BT/EE maintains in that regard that it is clear from recitals 1230 and 1529 to 1546 of the contested decision that the Commission was concerned about the scope for Three to weaken BT/EE’s competitive position because BT/EE contributes significantly to competition.
356
The Court considers that the third, fourth and fifth parts of the third plea are interdependent and may be usefully examined together. The Court also notes, as a preliminary point, that the applicant grouped together under that fifth part a number of complaints relating to the assessment of the effects of the concentration on BT/EE and Vodafone, without making a clear distinction between [plan A] and [plan B].
357
That is why the Court will examine in turn the effects on BT/EE and Vodafone, given that the effects on BT/EE resulting from [plan A] which are noted in paragraphs 362 to 379 below also arise, but to a lesser degree, in respect of BT/EE in the context of [plan B].
358
As a preliminary point, it should be noted that the non-coordinated effects of the merger in relation to a possible exercise of market power, in the form of a degradation of the services offered by the merged entity or of the quality of its own network, were not analysed in the contested decision.
359
According to recital 25 of Regulation No 139/2004, the assessment of a possible elimination of important competitive constraints that the merging parties had exerted upon each other and a possible reduction of competitive pressure on the remaining competitors lies at the heart of the assessment of the non-coordinated effects arising from the concentration, as was already found in paragraphs 96 and 97 above.
360
The barriers to competition and thus the harm to consumers would result from the disappearance of the competitive relationship between the parties to the concentration and from the fact that no remaining competitor or potential entrant would be in a position to compete effectively with the merged entity. Aside from the effects on prices, since the entity resulting from the concentration would no longer be subject to the same pressure which previously existed between the parties to the concentration, the concentration would also have repercussions on the quality of the offer and choice made available to customers (see, to that effect, judgment of 6 July 2010, Ryanair v Commission, T‑342/07, EU:T:2010:280, paragraph 224).
361
The absence of a thorough examination of that issue constitutes a weakness in the analysis carried out by the Commission in the contested decision, which, in order to succeed, would require particularly solid and convincing reasoning in relation to the effects on competitors.
(1) The effects on BT/EE
362
First, EU competition rules are primarily intended to protect the competitive process as such, and not competitors. In that regard, the Commission rightly pointed out in its Guidelines on the assessment of non-horizontal mergers under the Council Regulation on the control of concentrations between undertakings (OJ 2008 C 265, p. 6) that the fact that a concentration affects competitors is not in itself a problem. In particular, the fact that rivals may be harmed because a merger creates efficiencies cannot in itself give rise to competition concerns.
363
That reasoning is applicable by analogy in the context of a horizontal concentration, or even in the context of a tight oligopoly, as is the case here.
364
In the present case, in recital 1265 of the contested decision, the Commission states that one of the ways of weakening the competitive position of one of the partners in the network-sharing arrangements would be to degrade the network quality of one or other of those two arrangements. For the Commission, that seems particularly relevant for the partner in the network-sharing arrangement that will not become the basis of the merged entity’s consolidated network.
365
By way of example, it is apparent from recitals 1430 and 1431 of the contested decision that, under [plan A], the merged entity did not plan to use [confidential] of MBNL sites. Nevertheless, it would still be obliged to share the costs of those sites on account of the commitments given to Three in 2009 in the context of the T-Mobile/Orange concentration (Case COMP/M.5650), which were intended to allay the fears expressed by Three, [confidential].
366
The maintenance of the obligation to share the costs relating to sites which become superfluous in the context of the present concentration would favour BT/EE’s competitive position, even though the Commission rightly concluded that that would increase the incentive for the parties to the concentration to reduce such costs. However, any deterioration of the incentive for the parties to the concentration to continue to invest in those redundant sites could not have a disproportionate effect on BT/EE’s competitive position or constitute a significant impediment to effective competition.
367
In that regard, although higher costs for a competing operator do not necessarily cause harm to competition, as the Commission correctly found in recital 1679 of the contested decision, it is, in any event, for the Commission to demonstrate that its theory of harm is based on a causal link between the alleged increase in fixed costs and that of incremental costs, which would lead to fewer investments, to a deterioration in the quality of services offered on the market or, if they were passed on to consumers as higher prices, to a decrease in the competitive pressure of BT/EE and Vodafone on the market.
368
In the present case, it must be stated that the Commission has failed to provide proof of such a causal link in the contested decision, in accordance with the standard of proof applicable in the present case, set out in paragraph 111 above.
369
In that regard, there is nothing in the contested decision to suggest that, in the context of an oligopolistic market in the telecommunications sector, comprising a limited number of operators, a loss of competitive pressure by a single operator would be ‘highly likely’ to translate into an overall loss of competition on that market, as the Commission contends in recital 1679 of the contested decision.
370
Second, the Court finds that, in so far as it was already established in paragraph 96 above that, in the context of a theory of harm based on non-coordinated effects, the concentration must involve ‘the elimination of important competitive constraints that the merging parties had exerted upon each other’, the mere effect of reducing the competitive pressure that the remaining competitors exerted on the market, in terms of quality, is not in itself sufficient to demonstrate a significant impediment to effective competition.
371
The Commission’s findings merely state that, as a result of the reduction in Three’s commitment, BT/EE would probably incur, or at least expect, higher costs for maintaining the current network (recitals 1445 to 1455 of the contested decision) and improving the network (recital 1530 of the contested decision).
372
In other words, the Commission has not proved to the requisite legal standard in the contested decision that a possible increase in costs would reduce BT/EE’s ability to invest. Nor has it indicated which types of investment would be impacted or likely to be shared as opposed to those that would not be. The contested decision appears to be based on rather improbable assumptions concerning the absence of any reaction by BT/EE, which, it is claimed, would simply cease to invest, following an increase in its costs.
373
Moreover, as the Court has already held in paragraph 280 above, it is apparent from the evidence submitted during the administrative procedure that, while a positive correlation may be established between concentrations which reduce the number of operators in the mobile telecommunications sector from four to three and result in price increases, a correlation may also be established between those concentrations and an increase in network investments by mobile network operators.
374
Third, as regards the possibility that Three might frustrate BT/EE’s unilateral deployments, which is developed in recitals 1473 to 1522 of the contested decision, it must be held that that reasoning, based in particular on BT/EE’s observations and on a disputed interpretation of MBNL, is not in itself sufficient to demonstrate the existence of a significant impediment to effective competition in the present case so far as concerns [plan A].
375
Any such damage to competition should be based not on the possibility that the parties to the concentration decide unilaterally to reduce the quality of their own network, but on the possible effects of the transaction on the other partner in the network-sharing agreement.
376
Moreover, the chain of cause and effect is especially weak in that case. In particular, the Commission’s proposition is based on the assertion that, for the mechanism of impeding BT/EE’s investments to be triggered by Three, [confidential].
377
[confidential].
378
Moreover, the Commission’s argument presupposes that the mechanism envisaged by the parties in the context of a cooperative business relationship may easily lend itself to abuses, which could mean that one of the two partners is seriously harmed. Lastly, it assumes that there is no possibility of effective retaliation by BT/EE against Three, by terminating or renegotiating the MBNL agreement, or by requesting that the Commission revise the commitments given vis-a-vis Three which are referred to in paragraph 329 above.
379
The fact that such a development is theoretically conceivable does not mean that it is sufficiently realistic and plausible that such a chain of events would take place and would make it impossible for BT/EE to offer a service level enabling it to compete effectively with the merged entity.
(2) The effects on Vodafone
380
The Court notes, as a preliminary point, that the objection relating to the effects on Vodafone would be effective only if the alternative network consolidation plan was the most likely in the present case, which is disputed by the applicant.
381
First, the Court notes, as has already been found with respect to BT/EE, that the mere fact that Vodafone would exert a lesser degree of competitive pressure following the concentration is not, in itself, sufficient to establish a significant impediment to effective competition in the present case.
382
Second, as regards the effects on Vodafone’s network, the Court finds that the Commission did not show in the contested decision that higher costs would have an effect on Vodafone’s incentives to invest in its network.
383
As is noted in recitals 1680 and 1681 of the contested decision, it is true that [confidential].
384
However, such effects of the concentration, which would result in [confidential], which is a priori less likely to favour collusion, would not necessarily entail lower investments by Vodafone. In particular, the Commission acknowledges, in recital 1643 of the contested decision, that Vodafone would have the ability to absorb an increase in costs resulting from the merger.
385
In that regard, as the Commission states in recital 1683 of the contested decision, a degradation of network quality would not be a consequence of a potential or claimed inability of Vodafone to make the investments required [confidential] on its own, but would be the result of an economic decision that would have to be made by Vodafone [confidential], according to a simulation model submitted by Vodafone during the administrative procedure.
386
The Commission’s theory of harm is based, inter alia, on Vodafone’s incentives to restrict investment in its own network on the basis of Vodafone’s modelling, which suggests that [confidential] would be economically justified (recital 1643 of the contested decision).
387
In the present case, the Commission submits, in essence, in recital 1645 of the contested decision, that ‘[confidential] coverage in a market in which all other [operators] are likely to promote [confidential] will significantly reduce the competitiveness of tariffs offered by Vodafone’.
388
While there is reason to doubt that such an effect, which would result not from future decisions of the merged entity, but from one of its competitors, could be regarded as a direct and immediate consequence of the concentration, the Commission has not, in any event, proved, in the contested decision, to the requisite legal standard and in accordance with the applicable standard of proof, that such a decision by Vodafone would result in a sufficiently realistic and plausible manner from the merger, would alter the factors determining the state of competition on the markets affected and would, in the present case, ‘significantly’ impede effective competition on the relevant market.
389
In that regard, the Commission has not succeeded in proving in the contested decision on what basis — even though Vodafone’s ability to cover the cost increase is not disputed — Vodafone would choose deliberately either to degrade the quality of its own network or not to invest in it.
390
Even if that were the case, the assessment of quality as one of the vectors of competition is often a complex and imprecise exercise, which requires, in each individual case, a weighing up of the means of perception of the various consumers, in particular in high-technology industries.
391
Even on the assumption that Vodafone therefore decides deliberately, and on the basis of the profitability of its sites, to reduce its network coverage rate to [confidential] in a market where all other operators would be required to ensure a network coverage rate of [confidential], it appears, in the present case, more likely that Vodafone would withdraw and degrade its network only in the least populated, and therefore the least profitable, regions.
392
Even if a degradation in the quality of the network alleged by the Commission were to occur as a result of a business decision by Vodafone not to invest in sites with low profitability [confidential], in particular in low-population density areas, such an effect of the concentration could be usefully remedied by the United Kingdom regulatory authorities.
393
Third, other factors also cast doubt on the probability of the analysis carried out by the Commission in the contested decision. In so far as the Commission noted, in recital 1736 of the contested decision, that the merged entity would invest in its own infrastructure [confidential], it seems likely that similar investments could be made [confidential] by Vodafone.
394
Moreover, [confidential], the parties to that agreement have already provided for the possibility that the costs incurred by the parties would increase following [confidential].
395
Given that such a possibility of the network-sharing agreement evolving was already provided for, it is difficult to see how the exercise of such a contractual option would actually cause significant harm to Vodafone.
396
It must therefore be concluded that the Commission did not demonstrate to the requisite legal standard in the contested decision Vodafone’s inability to compete effectively, or even that any increase in Vodafone’s costs would be passed on to consumers in the form of a price increase.
397
It follows that the third, fourth and fifth parts of the third plea, taken together, must be upheld.
(c)
The effect on overall network investments of increased transparency
398
In the context of the sixth part of the third plea, the applicant claims that the Commission erred in law and made manifest errors of assessment in its analysis of the effects of the concentration on network investments under [plan B] and [plan A] respectively.
399
The applicant maintains, inter alia, that the mechanism by which, under [plan B], the increased transparency of investments as between the mobile network operators could diminish their incentives to invest in the networks (recitals 1732 to 1742 of the contested decision) falls, in accordance with paragraph 22 of the Guidelines, within the category of coordinated effects, not non-coordinated effects.
400
The Commission, supported by the United Kingdom, states that it did not contend that BT/EE and Vodafone would coordinate their conduct, that is to say, reach a tacit understanding not to invest or take retaliatory steps in the event that the other did invest, but that, in the absence of an initiative on the part of the merged entity to invest, neither of the other mobile network operators would have an incentive unilaterally to invest in new technology. The Commission thus found that there would be a reduction in competitive pressure and reduced incentives to invest unilaterally in the network, and that scenario falls within the category of unilateral effects, or non-coordinated effects, pursuant to paragraph 24 of the Guidelines.
401
BT/EE argues that the Commission did not conduct an analysis of coordinated effects, but merely recognised that the retail market is an oligopolistic market. On such a market, all suppliers generally pay attention to the actions of their competitors and react intelligently.
402
The Court notes, as a preliminary point, that, in recital 1562 of the contested decision, the Commission concluded that the increased transparency of investments between mobile network operators would be unlikely to have a significant negative impact on investments in the context of [plan A] (recital 1564 of the contested decision).
403
Furthermore, the Commission concluded, in recital 1735 of the contested decision, that [plan B] was likely to have significant adverse effects on industry-wide network investments because the merged entity might become aware of investments made by BT/EE.
404
In addition, and as the applicant itself acknowledged in its own analysis of the consolidation scenarios, the option of [confidential], set out in recitals 1388 and 1389 of the contested decision, was discarded in view of the likely reservations of the competition authorities and the low probability of such a scenario being approved.
405
In the present case, the Commission found, in recital 1389 of the contested decision, that, in the short term, the merger would however create a situation of uncertainty, since the merged entity could not have implemented immediately either [plan B] or [plan A]. During an interim period, and in the short term, [confidential].
406
The merged entity would, eventually, have an incentive to make the same investments, both in the east and in the west of the country, which would ultimately enable BT/EE and Vodafone to gain knowledge of their respective investments (recitals 1735 and 1736 of the contested decision). That increased transparency would thus entail the risk that BT/EE and Vodafone would wait for the merged entity to make certain investments, primarily in relation the development of new technologies, before themselves investing (recitals 1737, 1739 and 1740 of the contested decision).
407
In other words, according to the Commission, its concerns in the context of the second theory of harm are based on a reduction of each mobile network operator’s incentives proactively to invest and improve its network and the reduction in competitive pressure that is likely to result from this. That reduction is due to the market structure which would prevail in the context of [plan B], [confidential], and to the increased transparency which that structure would result in for the investment strategies of each mobile network operator.
408
The Court finds, in that regard, that a particular difficulty in the present case, in relation to the judicial review which the Court must carry out of the contested decision, is that the Commission failed to set out the appropriate time frame within which it intends to establish a significant impediment to effective competition. In the contested decision, the Commission analysed the immediate effects of the concentration both in the short and the medium term as a result of a temporary overlap between the two network-sharing agreements, as well as the medium- and long-term effects in the light of the network consolidation plans, without however clearly establishing which of the multiple scenarios would be the most likely or in the light of which scenario(s) the effects of the concentration on competition should be examined as a priority.
409
That is why the General Court asked the parties, for the purposes of the hearing, to set out their respective positions on the appropriate time frame for assessing the effects of a concentration on competition.
410
The Court finds that it is established, in particular in recitals 1239 and 1244 of the contested decision, that, in the present case, whatever the network consolidation plan ultimately adopted by the parties to the concentration, those parties would not maintain two separate networks in the long term, and it does not appear that the long term was taken into consideration as the appropriate time frame for assessing the effects of the concentration in the contested decision.
411
In that regard, it follows from recital 1244 of the contested decision that, according to the applicant’s plans, the merged entity would not continue to maintain two separate networks in the long term. The merged entity would, in the long term, have to focus on one of the two network-sharing agreements.
412
In addition, in recital 1239 of the contested decision, the Commission concluded that, following the transaction, the alignment of interests and mutual dependency was likely to be disrupted in both network-sharing arrangements in the United Kingdom mobile telecommunications market. The Commission found that, while the merged entity would need both networks to continue providing mobile telecommunications services to Three and O2 customers, it would have an incentive not to continue operating two networks in the long term. According to the Commission, this will inevitably disrupt the alignment of interests with at least one of the two partners to the network-sharing agreements.
413
In footnote 1012 of the contested decision, the Commission notes that operating two separate, nationwide networks seems highly unlikely for several reasons. First, both network consolidation plans presented by the applicant as the only realistic scenarios provide for the creation of a consolidated network and, second, it seems economically imprudent to operate two separate networks after the transaction in the same way as if on a stand-alone basis, in particular regarding future investments. The Commission states that the merged entity would then have to duplicate investments in order to offer them to its entire customer base.
414
BT/EE drew the Court’s attention to the fact that there are a number of merger cases in which the Commission relied on an analysis of long-term effects, and cited Case COMP/M.2375, Shell/Enterprise Oil (2002) where the Commission had taken into consideration a period of more than 10 years when analysing the effects of the concentration.
415
The Court finds that the analysis of the effects of a concentration on an oligopolistic market in the telecommunications sector which requires long-term investment and where consumers are often tied by contracts over several years is a dynamic prospective analysis which requires account to be taken of any coordinated or unilateral effects over a relatively long period of time in the future.
416
Whatever the network consolidation plan ultimately adopted by the parties to the concentration, they would not maintain two separate networks in the long term. Consequently, the Commission’s proposition, relating to the effect on overall network investments of increased transparency, must be rejected, in so far as it is based on the assumption of the existence of two separate networks.
417
Accordingly, the sixth part of the third plea must be upheld, inasmuch as the Commission erred in law in classifying the effect on overall network investments of increased transparency as a non-coordinated effect.
418
Consequently, as regards the second theory of harm, the third plea must be upheld, without there being any need to examine the other parts of that plea.
E. The third theory of harm, relating to the existence of non-coordinated effects on the wholesale market
419
The third theory of harm, described in recitals 1815 to 2314 of the contested decision, relates to the existence of non-coordinated effects on the wholesale market arising from the elimination of important competitive constraints. On this market, the four mobile network operators provide hosting services to non-MNOs, which in turn offer retail services to subscribers. According to the Commission, the concentration would reduce the number of mobile network operators wishing to host non-MNOs.
420
More specifically, the Commission considered that Three constituted, prior to the transaction, an ‘important competitive force’ on the wholesale market. In this connection, the Commission found that, despite its historically low market share, which was [between 0 and 5%] in 2014 and 2015 (recitals 1856 to 1867 of the contested decision), Three had a gross add share that was disproportionately high in comparison with its market share (recitals 1868 to 1920 of the contested decision).
421
In reaching that conclusion, the Commission calculated the value of contracts with customers between 2012 and 2015. According to that calculation, the share obtained by Three was somewhere between [confidential] when weighted by those customers’ projected value in 2018. The Commission also found that Three had significantly improved its position on the wholesale market, had been participating in a number of competitive processes, including for the largest non-MNOs, and had concluded contracts with non-MNOs with growth potential. The Commission observes that its presence had a competitive impact in wholesale negotiations even in cases where it was not successful, that it provided competitive wholesale rates for new technologies, such as 4G, and that it was considered to be an important competitor (recitals 1921 to 2125 of the contested decision).
422
In addition, the Commission concluded, in recital 2210 of the contested decision, that the merger (i) would diminish the incentive of the merged entity to compete because the latter would have a larger customer base in the retail market, which would increase the risk of ‘cannibalisation’ (recital 2209 of the contested decision) and (ii) would negatively affect the ability and incentives of BT/EE and Vodafone to compete (recital 2291 of the contested decision).
423
The Commission concluded, in recital 2313 of the contested decision, that the concentration is likely to have significant non-coordinated effects on the wholesale market resulting from a reduction in the number of mobile network operators from four to three, the elimination of Three as an important competitive force, pursuant to paragraph 37 of the Guidelines, the removal of important competitive constraints which the parties had previously exerted upon each other, and a reduction of competitive pressure on the remaining players. Moreover, competing mobile network operators would have neither the ability nor the incentive to counter the non-coordinated anticompetitive effects of the concentration.
424
By its fourth plea, the applicant maintains that, in the contested decision, the Commission erred in law, made manifest errors of assessment and infringed essential procedural requirements with regard to non-coordinated effects in the wholesale market. These relate, in particular, to its conclusion that the concentration would significantly impede effective competition in the wholesale market (the first part), its finding that Three constituted an ‘important competitive force’ in the wholesale market (the second and third parts), its conclusions that the merged entity would have a lesser incentive to compete (the fourth part) and that its competitors would have neither the ability nor the incentive to compete with the merged entity (the fifth part) and to its reliance on assertions made by third parties (the sixth part). According to the applicant, each one of the errors should result in the annulment of the contested decision.
425
It is appropriate to examine, first and together, the first three parts of the fourth plea, alleging errors regarding the finding that the concentration would significantly impede effective competition in the wholesale market and a manifest error of assessment in relation to the finding that Three is an ‘important competitive force’.
426
By the first part of the fourth plea, the applicant maintains that, given that Three’s share of the wholesale market was [between 0 and 5%] in 2014 and at no time exceeded that threshold, a point which the Commission does not dispute (recital 1856 of the contested decision), the concentration would not have an appreciable effect on competition. In that regard, the applicant claims that the contested decision is based solely on findings concerning the elimination of Three as an ‘important competitive force’.
427
By the second and third parts of the fourth plea, the applicant submits that the Commission did not explain why the competition provided by Three on the wholesale market was particularly competitive in relation to that provided by the other operators, whose foreseeable market share was not examined. In its submission, not only are all of the other players significantly stronger than Three, but this position has endured over time and Three’s very recent slight gain in market share has been marginal with no impact on the competitive structure or dynamic in the market. Furthermore, in classifying Three as an ‘important competitive force’, the Commission made errors both in its analysis of market shares and in its analysis of Three’s gross add shares, as well as in its qualitative analysis of Three’s importance on the wholesale market.
428
In particular, as regards the latter point, the applicant maintains that figure No 125 of the contested decision, which charts the shares of the wholesale market of the four mobile network operators, as estimated by the Commission, clearly shows the weakness of Three’s position by comparison with that of its competitors. [confidential]
429
The Commission was also wrong to assert, in recital 1920 of the contested decision, that Three’s market share does not reflect its current competitive strength or its importance in the competitive process in the future. That assertion is based on a gross add shares projection for Three that is above current market data.
430
Lastly, according to the applicant, the fact that Three did not participate in [confidential] of the seven major mass-market tendering procedures in the three preceding years, as well as [confidential], run counter to the idea that Three can compete credibly and be an ‘important competitive force’ in the wholesale market.
431
The Commission contests those arguments.
432
The Commission argues in particular that market shares and additions of market shares provide only a first indication of market power (paragraph 27 of the Guidelines) and that the Guidelines contain several examples of situations in which small market shares will not prevent a concentration from giving rise to competition concerns, such as where the undertaking in question exercises more influence than its market share would suggest (see paragraph 37 of the Guidelines). Therefore, the fact that Three has only a small share of the wholesale market does not automatically lead to the conclusion that the concentration is incapable of giving rise to a significant impediment to effective competition.
433
Furthermore, according to the Commission, even though market shares, additions of market shares and the increase in the concentration level provide only a first indication of market power, they are relevant factors to be taken into consideration in oligopolistic markets, where the fact that an undertaking is an ‘important competitive force’ plays a significant role.
434
The Court finds that the reduction from four to three operators on the wholesale market is not, in itself, capable of establishing a significant impediment to competition on the wholesale market in the present case. As is apparent from recital 25 of Regulation No 139/2004, many oligopolistic markets exhibit a degree of competition which can be described as healthy.
435
As regards market shares, the Court finds that it is not disputed that Three’s wholesale market share was very small (namely [between 0 and 5%] in 2014 and 2015).
436
In that regard, the Commission conceded moreover during the procedure before the Court that market shares and additions of market shares provide only first indications of market power, according to paragraph 27 of the Guidelines, since it is generally accepted, including in its decision-making practice, that small market shares are generally a good indicator of a lack of important market power.
437
Just as the existence of very large market shares is highly important and the relationship between the market shares of the parties involved in the concentration and those of their competitors is relevant evidence of the existence of a dominant position or of a significant impediment to effective competition, in that that factor enables the competitive strength of the competitors of the undertaking in question to be assessed (judgment of 23 February 2006, Cementbouw Handel Industrie v Commission, T‑282/02, EU:T:2006:64, paragraph 201), a particularly small market share of one of the parties involved in the concentration tends to suggest, prima facie, an absence of any significant impediment to effective competition, especially where the other operators have much larger market shares.
438
While it cannot be ruled out that, despite the relatively small market share of one of the parties to the concentration, the concentration will have a significant effect on effective competition, it is for the Commission to adduce convincing evidence of this.
439
First, the combined market share of the parties to the concentration of [between 30 and 40%] is not indicative of the creation or strengthening of a dominant position in the present case or even, as such, of a significant impediment to effective competition.
440
Second, the Court notes that the Commission states, in recital 1865 of the contested decision, that the HHI produced by the merger would exceed the threshold laid down in the Guidelines.
441
As regards the calculation of the HHI, paragraph 14 of the Guidelines provides that market shares or the concentration level provide useful first indications of the market structure and the importance of the merging parties. It is also apparent from paragraph 16 of the Guidelines that the overall concentration level in a market may provide useful information about the competitive situation.
442
Paragraphs 19 to 21 of the Guidelines set HHI thresholds below which a concentration will not, in all probability, pose competition concerns. Thus, the Commission considers that a merger is unlikely to raise horizontal competition concerns in a market with a post-merger HHI between 1000 and 2000 and a delta below 250, or where a post-merger HHI is above 2000 and the delta below 150, save in exceptional circumstances.
443
The applicant submitted before the Court, without being contradicted by the Commission, that, in the present case, the post-merger delta would be just [confidential]. The Court finds that that value does indeed exceed the threshold below which it is, in principle, precluded that the concentration poses competition concerns. However, the second sentence of paragraph 21 of the Guidelines states that exceeding those thresholds does not give rise to a presumption of the existence of competition concerns.
444
It must however be held that the greater the margin by which those thresholds are exceeded, the more the values will be indicative of competition concerns (see, in that regard, judgment of 9 July 2007, Sun Chemical Group and Others v Commission, T‑282/06, EU:T:2007:203, paragraph 138) and that, in the present case, the delta is only [confidential] above the threshold laid down in the Guidelines on horizontal mergers.
445
In the present case, the Court finds that the Commission did not rely on Three’s historic market shares and the concentration level in order to conclude that Three is an ‘important competitive force’ on the wholesale market, but on gross add shares (recital 1857 of the contested decision) and its qualitative analysis of Three’s importance on the wholesale market.
446
However, the fact that the Commission determined that Three had more of an influence on competition than its market share would suggest is not, in itself, sufficient evidence to establish a significant impediment to effective competition in the present case.
447
Although the application of only one of the factors set out in the Guidelines may, in certain cases, be sufficient to establish the existence of a significant impediment to effective competition, the Commission did not credibly explain in the contested decision why gross add shares were of such decisive importance in the present case. While it is true that it is not necessary for the Commission to examine in every case all the criteria which it imposed on itself in the Guidelines, nor has it been established that only one of those criteria is sufficient to prove a significant impediment to effective competition, in the absence of a detailed examination of the facts.
448
Third, as regards gross add shares, the Commission states that Three won approximately between [confidential] of the total value of contestable contracts relating to wholesale customers. According to the Commission, even if all the adjustments suggested by the applicant were to be accepted, the remaining share of wholesale gross adds would be much higher than Three’s historic market share (recitals 1896 and 1917 of the contested decision).
449
However, the mere fact that Three’s gross add share is higher than its market share is not sufficient, in the present case, to establish a significant impediment to effective competition, in a context where Three’s market share is, in actual fact, very small and even its gross add share, on a market with only four operators, is limited.
450
It must be held that, although those factors permit the inference that Three has the ability to compete with the other players in the wholesale market, that it is a credible competitor and has an influence on competition, even when it does not win bids, and that it strengthened its position on the market, they are not sufficient, in any event, to classify Three as an ‘important competitive force’.
451
Fourth, as regards, lastly, its qualitative assessment of Three’s importance on the wholesale market, the Commission found that Three is considered to be a credible threat on the market and participated in a significant number of calls for tenders (recitals 1936 to 1987 of the contested decision).
452
As the applicant rightly points out, the Commission has not established that the criteria which it imposed on itself in paragraphs 37 and 38 of the Guidelines apply to Three. The Commission’s findings with regard to Three’s future market share, its credibility, the competitive terms of its offers and the effects of its participation in tendering procedures (recitals 2294 and 2295 of the contested decision), even if well founded, do not demonstrate that Three stands out from other participants in the wholesale market.
453
Moreover, even if the factors taken into account by the Commission were capable of characterising Three as an ‘important competitive force’, they do not show that Three and O2 exerted upon on each other important competitive constraints which would be eliminated following the concentration.
454
The first three parts of the fourth plea must therefore be upheld, without there being any need for the Court to examine the fourth, fifth and sixth parts of the fourth plea.
455
The contested decision must therefore be annulled, without there being any need for the Court to rule on whether the three theories of harm are independent or interdependent, or to rule on the applicant’s other arguments and pleas.
Costs
456
Under Article 134(1) of the Rules of Procedure, the unsuccessful party is to be ordered to pay the costs if they have been applied for in the successful party’s pleadings. As the Commission has been unsuccessful, it must be ordered to bear its own costs and to pay the applicant’s costs, in accordance with the form of order sought by the latter. The United Kingdom and BT/EE are to bear their own costs pursuant to Article 138 of the Rules of Procedure.
On those grounds,
THE GENERAL COURT (First Chamber, Extended Composition)
hereby:
1.
Annuls Commission Decision C(2016) 2796 final of 11 May 2016 declaring incompatible with the internal market the concentration resulting from the acquisition of Telefónica Europe Plc by Hutchison 3G UK Investments Ltd (Case COMP/M.7612 — Hutchison 3G UK/Telefónica UK);
2.
Orders the European Commission to bear its own costs and to pay those incurred by CK Telecoms UK Investments Ltd;
3.
Orders the United Kingdom of Great Britain and Northern Ireland and EE Ltd to each bear their own costs.
Van der Woude
Buttigieg
Nihoul
Svenningsen
Öberg
Delivered in open court in Luxembourg on 28 May 2020.
E. Coulon
Registrar
M. van der Woude
President
Table of contents
I. Background to the dispute
II. Contested decision
III. Procedure
IV. Forms of order sought
V. Law
A. Legal background
1. The intensity of the judicial review in relation to concentrations
2. The scope of the change made by Regulation No 139/2004
3. The burden of proof and standard of proof in relation to concentrations
4. Statement of reasons
B. Summary of the pleas in law and structure of the action
C. The first theory of harm, relating to the existence of non-coordinated effects on the retail market
1. Summary of the Decision
2. Summary of the first plea in law and of the main items of evidence adduced in support of the first theory of harm
(a) The market share analysis
(b) Classification of Three as an ‘important competitive force’
(1) Distortion of the concept of ‘important competitive force’
(2) The degree of competitive constraint exerted by Three in the retail market
(i) Gross subscriber additions
(ii) The development of Three’s customer base
(iii) Three’s pricing policy
(iv) The role historically played by Three on the market
(c) The assessment of the closeness of competition
(d) The assessment of the quantitative pricing effects of the concentration
(1) The probative value of the UPP analysis as a first ‘screen’
(2) The UPP analysis in the present case
(e) The overall assessment of non-coordinated effects
D. The second theory of harm, relating to the non-coordinated effects produced by the disruption of the network-sharing agreements
1. Summary of the contested decision
2. The third plea in law, alleging errors in connection with the horizontal non-coordinated effects arising from network sharing
(a) The alignment between the parties to the network-sharing agreements
(1) The novel nature of the theory of harm on the network-sharing agreements
(2) The allegedly counter-intuitive and erroneous nature of the theory of the alignment of interests and the disruption to network-sharing agreements
(b) The effects of the concentration on competitors
(1) The effects on BT/EE
(2) The effects on Vodafone
(c) The effect on overall network investments of increased transparency
E. The third theory of harm, relating to the existence of non-coordinated effects on the wholesale market
Costs
(
*1
)	Language of the case: English.
(
1
)	Confidential data omitted.