EN Official Journal of the European Communities C 233/2

GUIDELINES ON THE APPLICATION OF EEC COMPETITION RULES IN THE TELECOMMUNICATIONS SECTOR

(91/C 233/02)

PREFACE

These guidelines aim at clarifying the application of Community competition rules to the market participants in the telecommunications sector. They must be viewed in the context of the special conditions of the telecommunications sector, and the overall Community telecommunications policy will be taken into account in their application. In particular, account will have to be taken of the actions the Commission will be in a position to propose for the telecommunications industry as a whole, actions deriving from the assessment of the state of play and issues at stake for this industry, as has already been the case for the European electronics and information technology industry in the communication of the Commission of 3 April 1991 (1).

A major political aim, as emphasized by the Commission, the Council, and the European Parliament, must be the development of efficient Europe-wide networks and services, at the lowest cost and of the highest quality, to provide the European user in the single market of 1992 with a basic infrastructure for efficient operation.

The Commission has made it clear in the past that in this context it is considered that liberalization and harmonization in the sector must go hand in hand.

Given the competition context in the telecommunications sector, the telecommunications operators should be allowed, and encouraged, to establish the necessary cooperation mechanisms, in order to create — or ensure — Community-wide full interconnectivity between public networks, and where required between services to enable European users to benefit from a wider range of better and cheaper telecommunications services.

This can and has to be done in compliance with, and respect of, EEC competition rules in order to avoid the diseconomies which otherwise could result. For the same reasons, operators and other firms that may be in a dominant market position should be made aware of the prohibition of abuse of such positions.

The guidelines should be read in the light of this objective. They set out to clarify, inter alia, which forms of cooperation amount to undesirable collusion, and in this sense they list what is not acceptable. They should therefore be seen as one aspect of an overall Community policy towards telecommunications, and notably of policies and actions to encourage and stimulate those forms of cooperation which promote the development and availability of advanced communications for Europe.

The full application of competition rules forms a major part of the Community's overall approach to telecommunications. These guidelines should help market participants to shape their strategies and arrangements for Europe-wide networks and services from the outset in a manner which allows them to be fully in line with these rules. In the event of significant changes in the conditions which prevailed when the guidelines were drawn up, the Commission may find it appropriate to adapt the guidelines to the evolution of the situation in the telecommunications sector.

I. SUMMARY

1. The Commission of the European Communities in its Green Paper on the development of the common market for telecommunications services and equipment (COM(87)290) dated 30 June 1987 proposed a number of Community positions. Amongst these, positions (H) and (I) are as follows: ‘(H) strict continuous review of operational (commercial) activities of telecommunications administrations according to Articles 85, 86 and 90 of the EEC Treaty. This applies in particular to practices of cross-subsidization of activities in the competitive services sector and of activities in manufacturing; (J) strict continuous review of all private providers in the newly opened sectors according to Articles 85 and 86, in order to avoid the abuse of dominant positions;’.

2. These positions were restated in the Commission's document of 9 February 1988‘Implementing the Green Paper on the development of the common market for telecommunications services and equipment/state of discussions and proposals by the Commission’ (COM(88)48). Among the areas where the development of concrete policy actions is now possible, the Commission indicated the following: ‘Ensuring fair conditions of competition: Ensuring an open competitive market makes continuous review of the telecommunications sector necessary. The Commission intends to issue guidelines regarding the application of competition rules to the telecommunications sector and on the way that the review should be carried out.’ This is the objective of this communication. The telecommunications sector in many cases requires cooperation agreements, inter alia, between telecommunications organizations (TOs) in order to ensure network and services interconnectivity, one-stop shopping and one-stop billing which are necessary to provide for Europe-wide services and to offer optimum service to users. These objectives can be achieved, inter alia, by TOs cooperating — for example, in those areas where exclusive or special rights for provision may continue in accordance with Community law, including competition law, as well as in areas where optimum service will require certain features of cooperation. On the other hand the overriding objective to develop the conditions for the market to provide European users with a greater variety of telecommunications services, of better quality and at lower cost requires the introduction and safeguarding of a strong competitive structure. Competition plays a central role for the Community, especially in view of the completion of the single market for 1992. This role has already been emphasized in the Green Paper. The single market will represent a new dimension for telecoms operators and users. Competition will give them the opportunity to make full use of technological development and to accelerate it, and encouraging them to restructure and reach the necessary economies of scale to become competitive not only on the Community market, but worldwide. With this in mind, these guidelines recall the main principles which the Commission, according to its mandate under the Treaty's competition rules, has applied and will apply in the sector without prejudging the outcome of any specific case which will have to be considered on the facts. The objective is, inter alia, to contribute to more certainty of condititions for investment in the sector and the development of Europe-wide services. The mechanisms for creating certainty for individual cases (apart from complaints and ex-officio investigations) are provided for by the notification and negative clearance procedures provided under Regulation No 17, which give a formal procedure for clearing cooperation agreements in this area whenever a formal clearance is requested. This is set out in further detail in this communication.

II. INTRODUCTION

3. The fundamental technological development worldwide in the telecommunications sector (2) has caused considerable changes in the competition conditions. The traditional monopolistic administrations cannot alone take up the challenge of the technological revolution. New economic forces have appeared on the telecoms scene which are capable of offering users the numerous enhanced services generated by the new technologies. This has given rise to and stimulated a wide deregulation process propagated in the Community with various degrees of intensity. This move is progressively changing the face of the European market structure. New private suppliers have penetrated the market with more and more transnational value-added services and equipment. The telecommunications administrations, although keeping a central role as public services providers, have acquired a business-like way of thinking. They have started competing dynamically with private operators in services and equipment. Wide restructuring, through mergers and joint ventures, is taking place in order to compete more effectively on the deregulated market through economies of scale and rationalization. All these events have a multiplier effect on technological progress.

4. In the light of this, the central role of competition for the Community appears clear, especially in view of the completion of the single market for 1992. This role has already been emphasized in the Green Paper.

5. In the application of competition rules the Commission endeavours to avoid the adopting of State measures or undertakings erecting or maintaining artificial barriers incompatible with the single market. But it also favours all forms of cooperation which foster innovation and economic progress, as contemplated by competition law. Pursuing effective competition in telecoms is not a matter of political choice. The choice of a free market and a competition-oriented economy was already envisaged in the EEC Treaty, and the competition rules of the Treaty are directly applicable within the Community. The abovementioned fundamental changes make necessary the full application of competition law.

6. There is a need for more certainty as to the application of competition rules. The telecommunication administrations together with keeping their duties of public interest, are now confronted with the application of these rules practically without transition from a long tradition of legal protection. Their scope and actual implications are often not easily perceivable. As the technology is fast-moving and huge investments are necessary, in order to benefit from the new possibilities on the market-place, all the operators, public or private, have to take quick decisions, taking into account the competition regulatory framework.

7. This need for more certainty regarding the application of competition rules is already met by assessments made in several individual cases. However, assessments of individual cases so far have enabled a response to only some of the numerous competition questions which arise in telecommunications. Future cases will further develop the Commission's practice in this sector.

Purpose of these guidelines

8. These guidelines are intended to advise public telecommunications operators, other telecommunications service and equipment suppliers and users, the legal profession and the interested members of the public about the general legal and economic principles which have been and are being followed by the Commission in the application of competition rules to undertakings in the telecommunications sector, based on experience gained in individual cases in compliance with the rulings of the Court of Justice of the European Communities.

9. The Commission will apply these principles also to future individual cases in a flexible way, and taking the particular context of each case into account. These guidelines do not cover all the general principles governing the application of competition rules, but only those which are of specific relevance to telecommunication issues. The general principles of competition rules not specifically connected with telecommunications but entirely applicable to these can be found, inter alia, in the regulatory acts, the Court judgments and the Commission decisions dealing with the individual cases, the Commission's yearly reports on competition policy, press releases and other public information originating from the Commission.

10. These guidelines do not create enforceable rights. Moreover, they do not prejudice the application of EEC competition rules by the Court of Justice of the European Communities and by national authorities (as these rules may be directly applied in each Member State, by the national authorities, administrative or judicial).

11. A change in the economic and legal situation will not automatically bring about a simultaneous amendment to the guidelines. The Commission, however, reserves the possibility to make such an amendment when it considers that these guidelines no longer satisfy their purpose, because of fundamental and/or repeated changes in legal precedents, methods of applying competition rules, and the regulatory, economic and technical context.

12. These guidelines essentially concern the direct application of competition rules to undertakings, i.e. Articles 85 and 86 of the EEC Treaty. They do not concern those applicable to the Member States, in particular Articles 5 and 90 (1) and (3). Principles ruling the application of Article 90 in telecommunications are expressed in Commission Directives adopted under Article 90 (3) for the implementation of the Green Paper (3).

Relationship between competition rules applicable to undertakings and those applicable to Member States

13. The Court of Justice of the European Communities (4) has ruled that while it is true that Articles 85 and 86 of the Treaty concern the conduct of undertakings and not the laws or regulations of the Member States, by virtue of Article 5 (2) of the EEC Treaty, Member States must not adopt or maintain in force any measure which could deprive those provisions of their effectiveness. The Court has stated that such would be the case, in particular, if a Member State were to require or favour prohibited cartels or reinforce the effects thereof or to encourage abuses by dominant undertakings. If those measures are adopted or maintained in force vis-à-vis public undertakings or undertakings to which a Member State grants special or exclusive rights, Article 90 might also apply.

14. When the conduct of a public undertaking or an undertaking to which a Member State grants special or exclusive rights arises entirely as a result of the exercise of the undertaking's autonomous behaviour, it can only be caught by Articles 85 and 86. When this behaviour is imposed by a mandatory State measure (regulative or administrative), leaving no discretionary choice to the undertakings concerned, Article 90 may apply to the State involved in association with Articles 85 and 86. In this case Articles 85 and 86 apply to the undertakings' behaviour taking into account the constraints to which the undertakings are submitted by the mandatory State measure. Ultimately, when the behaviour arises from the free choice of the undertakings involved, but the State has taken a measure which encourages the behaviour or strengthens its effects, Articles 85 and/or 86 apply to the undertakings' behaviour and Article 90 may apply to the State measure. This could be the case, inter alia, when the State has approved and/or legally endorsed the result of the undertakings' behaviour (for instance tariffs). These guidelines and the Article 90 Directives complement each other to a certain extent in that they cover the principles governing the application of the competition rules: Articles 85 and 86 on the one hand, Article 90 on the other.

Application of competition rules and other Community law, including open network provision (ONP) rules

15. Articles 85 and 86 and Regulations implementing those Articles in application of Article 87 of the EEC Treaty constitute law in force and enforceable throughout the Community. Conflicts should not arise with other Community rules because Community law forms a coherent regulatory framework. Other Community rules, and in particular those specifically governing the telecommunications sector, cannot be considered as provisions implementing Articles 85 and 86 in this sector. However it is obvious that Community acts adopted in the telecommunications sector are to be interpreted in a way consistent with competition rules, so to ensure the best possible implementation of all aspects of the Community telecommunications policy.

16. This applies, inter alia, to the relationship between competition rules applicable to undertakings and the ONP rules. According to the Council Resolution of 30 June 1988 on the development of the common market for telecommunications services and equipment up to 1992 (5), ONP comprises the ‘rapid definition, by Council Directives, of technical conditions, usage conditions, and tariff principles for open network provision, starting with harmonized conditions for the use of leased lines’. The details of the ONP procedures have been fixed by Directive 90/387/EEC (6) on the establishment of the internal market for telecommunications services through the implementation of open network provision, adopted by Council on 28 June 1990 under Article 100a of the EEC Treaty.

17. ONP has a fundamental role in providing European-wide access to Community-wide interconnected public networks. When ONP harmonization is implemented, a network user will be offered harmonized access conditions throughout the EEC, whichever country they address. Harmonized access will be ensured in compliance with the competition rules as mentioned above, as the ONP rules specifically provide. ONP rules cannot be considered as competition rules which apply to States and/or to undertakings' behaviour. ONP and competition rules therefore constitute two different but coherent sets of rules. Hence, the competition rules have full application, even when all ONP rules have been adopted.

18. Competition rules are and will be applied in a coherent manner with Community trade rules in force. However, competition rules apply in a non-discriminatory manner to EEC undertakings and to non-EEC ones which have access to the EEC market.

III. COMMON PRINCIPLES OF APPLICATION OF ARTICLES 85 AND 86

Equal application of Articles 85 and 86

19. Articles 85 and 86 apply directly and throughout the Community to all undertakings, whether public or private, on equal terms and to the same extent, apart from the exception provided in Article 90 (2) (7). The Commission and national administrative and judicial authorities are competent to apply these rules under the conditions set out in Council Regulation No 17 (8).

20. Therefore, Articles 85 and 86 apply both to private enterprises and public telecommunications operators embracing telecommunications administrations and recognized private operating agencies, hereinafter called ‘telecommunications organizations’ (TOs). TOs are undertakings within the meaning of Articles 85 and 86 to the extent that they exert an economic activity, for the manufacturing and/or sale of telecommunications equipment and/or for the provision of telecommunications services, regardless of other facts such as, for example, whether their nature is economic or not and whether they are legally distinct entities or form part of the State organization (9). Associations of TOs are associations of undertakings within the meaning of Article 85, even though TOs participate as undertakings in organizations in which governmental authorities are also represented. Articles 85 and 86 apply also to undertakings located outside the EEC when restrictive agreements are implemented or intended to be implemented or abuses are committed by those undertakings within the common market to the extent that trade between Member States is affected (10).

Competition restrictions justified under Article 90 (2) or by essential requirements

21. The exception provided in Article 90 (2) may apply both to State measures and to practices by undertakings. The Services Directive 90/388/EEC, in particular in Article 3, makes provision for a Member State to impose specified restrictions in the licences which it can grant for the provision of certain telecommunications services. These restrictions may be imposed under Article 90 (2) or in order to ensure the compliance with State essential requirements specified in the Directive.

22. As far as Article 90 (2) is concerned, the benefit of the exception provided by this provision may still be invoked for a TO's behaviour when it brings about competition restrictions which its Member State did not impose in application of the Services Directive. However, the fact should be taken into account that in this case the State whose function is to protect the public and the general economic interest, did not deem it necessary to impose the said restrictions. This makes particularly hard the burden of proving that the Article 90 (2) exception still applies to an undertakings's behaviour involving these restrictions.

23. The Commission infers from the case law of the Court of Justice (11) that it has exclusive competence, under the control of the Court, to decide that the exception of Article 90 (2) applies. The national authorities including judicial authorities can assess that this exception does not apply, when they find that the competition rules clearly do not obstruct the performance of the task of general economic interest assigned to undertakings. When those authorities cannot make a clear assessment in this sense they should suspend their decision in order to enable the Commission to find that the conditions for the application of that provision are fulfilled.

24. As to measures aiming at the compliance with ‘essential requirements’ within the meaning of the Services Directive, under Article 1 of the latter (12), they can only be taken by Member States and not by undertakings.

The relevant market

25. In order to assess the effects of an agreement on competition for the purposes of Article 85 and whether there is a dominant position on the market for the purposes of Article 86, it is necessary to define the relevant market(s), product or service market(s) and geographic market(s), within the domain of telecommunications. In a context of fast-moving technology the relevant market definition is dynamic and variable.

(a) The product market

26. A product market comprises the totality of the products which, with respect to their characteristics, are particularly suitable for satisfying constant needs and are only to a limited extent interchangeable with other products in terms of price, usage and consumer preference. An examination limited to the objective characteristics only of the relevant products cannot be sufficient: the competitive conditions and the structure of supply and demand on the market must also be taken into consideration (13). The Commission can precisely define these markets only within the framework of individual cases.

27. For the guidelines' purpose it can only be indicated that distinct service markets could exist at least for terrestrial network provision, voice communication, data communication and satellites. With regard to the equipment market, the following areas could all be taken into account for the purposes of market definition: public switches, private switches, transmission systems and more particularly, in the field of terminals, telephone sets, modems, telex terminals, data transmission terminals and mobile telephones. The above indications are without prejudice to the definition of further narrower distinct markets. As to other services — such as value-added ones — as well as terminal and network equipment, it cannot be specified here whether there is a market for each of them or for an aggregate of them, or for both, depending upon the interchangeability existing in different geographic markets. This is mainly determined by the supply and the requirements in those markets.

28. Since the various national public networks compete for the installation of the telecommunication hubs of large users, market definition may accordingly vary. Indeed, large telecommunications users, whether or not they are service providers, locate their premises depending, inter alia, upon the features of the telecommunications services supplied by each TO. Therefore, they compare national public networks and other services provided by the TOs in terms of characteristics and prices.

29. As to satellite provision, the question is whether or not it is substantially interchangeable with terrestrial network provision: (a) communication by satellite can be of various kinds: fixed service (point to point communication), multipoint (point to multipoint and multipoint to multipoint), one-way or two-way; (b) satellites' main characteristics are: coverage of a wide geographic area not limited by national borders, insensitivity of costs to distance, flexibility and ease of networks deployment, in particular in the very small aperture terminals (VSAT) systems; (c) satellites' uses can be broken down into the following categories: public switched voice and data transmission, business value-added services and broadcasting; (d) a satellite provision presents a broad interchange-ability with the terrestrial transmission link for the basic voice and data transmission on long distance. Conversely, because of its characteristics it is not substantially interchangeable but rather complementary to terrestrial transmission links for several specific voice and data transmission uses. These uses are: services to peripheral or less-developed regions, links between non-contiguous countries, reconfiguration of capacity and provision of routing for traffic restoration. Moreover, satellites are not currently substantially interchangeable for direct broadcasting and multipoint private networks for value-added business services. Therefore, for all those uses satellites should constitute distinct product markets. Within satellites, there may be distinct markets.

30. In mobile communications distinct services seem to exist such as cellular telephone, paging, telepoint, cordless voice and cordless data communication. Technical development permits providing each of these systems with more and more enhanced features. A consequence of this is that the differences between all these systems are progressively blurring and their interchange-ability increasing. Therefore, it cannot be excluded that in future for certain uses several of those systems be embraced by a single product market. By the same token, it is likely that, for certain uses, mobile systems will be comprised in a single market with certain services offered on the public switched network.

(b) The geographic market

31. A geographic market is an area: — where undertakings enter into competition with each other, and — where the objective conditions of competition applying to the product or service in question are similar for all traders (14).

32. Without prejudice to the definition of the geographic market in individual cases, each national territory within the EEC seems still to be a distinct geographic market as regards those relevant services or products, where: — the customer's needs cannot be satisfied by using a non-domestic service, — there are different regulatory conditions of access to services, in particular special or exclusive rights which are apt to isolate national territories, — as to equipment and network, there are no Community-common standards, whether mandatory or voluntary, whose absence could also isolate the national markets. The absence of voluntary Community-wide standards shows different national customers' requirements. However, it is expected that the geographic market will progressively extend to the EEC territory at the pace of the progressive realization of a single EEC market.

33. It has also to be ascertained whether each national market or a part thereof is a substantial part of the common market. This is the case where the services of the product involved represent a substantial percentage of volume within the EEC. This applies to all services and products involved.

34. As to satellite uplinks, for cross-border communication by satellite the uplink could be provided from any of several countries. In this case, the geographic market is wider than the national territory and may cover the whole EEC. As to space segment capacity, the extension of the geographic market will depend on the power of the satellite and its ability to compete with other satellites for transmission to a given area, in other words on its range. This can be assessed only case by case.

35. As to services in general as well as terminal and network equipment, the Commission assesses the market power of the undertakings concerned and the result for EEC competition of the undertakings' conduct, taking into account their interrelated activities and interaction between the EEC and world markets. This is even more necessary to the extent that the EEC market is progressively being opened. This could have a considerable effect on the structure of the markets in the EEC, on the overall competitivity of the undertakings operating in those markets, and in the long run, on their capacity to remain independent operators.

IV. APPLICATION OF ARTICLE 85

36. The Commission recalls that a major policy target of the Council Resolution of 30 June 1988 on the development of the common market for telecommunications services and equipment up to 1992 was that of: ‘... stimulating European cooperation at all levels, as far as compatible with Community competition rules, and particularly in the field of research and development, in order to secure a strong European presence on the telecommunications markets and to ensure the full participation of all Member States’. In many cases Europe-wide services can be achieved by TOs' cooperation — for example, by ensuring interconnectivity and interoperability (i) in those areas where exclusive or special rights for provision may continue in accordance with Community law and in particular with the Services Directive 90/388/EEC; and (ii) in areas where optimum service will require certain features of cooperation, such as so-called ‘one-stop shopping’ arrangements, i.e. the possibility of acquiring Europe-wide services at a single sales point. The Council is giving guidance, by Directives, Decisions, recommendations and resolutions on those areas where Europe-wide services are most urgently needed: such as by recommendation 86/659/EEC on the coordinated introduction of the integrated services digital network (ISDN) in the European Community (15) and by recommendation 87/371/EEC on the coordinated introduction of public pan-European cellular digital land-based mobile communications in the Community (16). The Commission welcomes and fully supports the necessity of cooperation particularly in order to promote the development of trans-Europe an services and strengthen the competitivity of the EEC industry throughout the Community and in the world markets. However, this cooperation can only attain that objective if it complies with Community competition rules. Regulation No 17 provides well-defined clearing procedures for such cooperation agreements. The procedures foreseen by Regulation No 17 are: (i) the application for negative clearance, by which the Commission certifies that the agreements are not caught by Article 85, because they do not restrict competition and/or do not affect trade between Member States; and (ii) the notification of agreements caught by Article 85 in order to obtain an exemption under Article 85 (3). Although if a particular agreement is caught by Article 85, an exemption can be granted by the Commission under Article 85 (3), this is only so when the agreement brings about economic benefits — assessed on the basis of the criteria in the said paragraph 3 — which outweigh its restrictions on competition. In any event competition may not be eliminated for a substantial part of the products in question. Notification is not an obligation; but if, for reasons of legal certainty, the parties decide to request an exemption pursuant to Article 4 of Regulation No 17 the agreements may not be exempted until they have been notified to the Commission.

37. Cooperation agreements may be covered by one of the Commission block exemption Regulations or Notices (17). In the first case the agreement is automatically exempted under Article 85 (3). In the latter case, in the Commission's view, the agreement does not appreciably restrict competition and trade between Member States and therefore does not justify a Commission action. In either case, the agreement does not need to be notified; but it may be notified in case of doubt. If the Commission receives a multitude of notifications of similar cooperation agreements in the telecommunications sector, it may consider whether a specific block exemption regulation for such agreements would be appropriate.

38. The categories of agreements (18) which seem to be typical in telecommunications and may be caught by Article 85 are listed below. This list provides examples only and is, therefore, not exhaustive. The Commission is thereby indicating possible competition restrictions which could be caught by Article 85 and cases where there may be the possibility of an exemption.

39. These agreements may affect trade between Member States for the following reasons: (i) services other than services reserved to TOs, equipment and spatial segment facilities are traded throughout the EEC; agreements on these services and equipment are therefore likely to affect trade. Although at present cross-frontier trade is limited, there is potentially no reason to suppose that suppliers of such facilities will in future confine themselves to their national market; (ii) as to reserved network services, one can consider that they also are traded throughout the Community. These services could be provided by an operator located in one Member State to customers located in other Member States, which decide to move their telecommunications hub into the first one because it is economically or qualitatively advantageous. Moreover, agreements on these matters are likely to affect EEC trade at least to the extent they influence the conditions under which the other services and equipment are supplied throughout the EEC.

40. Finally, to the extent that the TOs hold dominant positions in facilities, services and equipment markets, their behaviour leading to — and including the conclusion of — the agreements in question could also give rise to a violation of Article 86, if agreements have or are likely to have as their effect hindering the maintenance of the degree of competition still existing in the market or the growth of that competition, or causing the TOs to reap trading benefits which they would not have reaped if there had been normal and sufficiently effective competition.

A. Horizontal agreements concerning the provision of terrestrial facilities and reserved services

41. Agreements concerning terrestrial facilities (public switched network or leased circuits) or services (e. g. voice telephony for the general public) can currently only be concluded between TOs because of this legal regime providing for exclusive or special rights. The fact that the Services Directive recognizes the possibility for a Member State to reserve this provision to certain operators does not exempt those operators from complying with the competition rules in providing these facilities or services. These agreements may restrict competition within a Member State only where such exclusive rights are granted to more than one provider.

42. These agreements may restrict the competition between TOs for retaining or attracting large telecommunications users for their telecommunications centres. Such ‘hub competition’ is substantially based upon favourable rates and other conditions, as well as the quality of the services. Member States are not allowed to prevent such competition since the Directive allows only the granting of exclusive and special rights by each Member State in its own territory.

43. Finally, these agreements may restrict competition in non-reserved services from third party undertakings, which are supported by the facilities in question, for example if they impose discriminatory or inequitable trading conditions on certain users.

44. (aa) Price agreements: all TOs' agreements on prices, discounting or collection charges for international services, are apt to restrict the hub competition to an appreciable extent. Coordination on or prohibition of discounting could cause particularly serious restrictions. In situations of public knowledge such as exists in respect of the tariff level, discounting could remain the only possibility of effective price competition.

45. In several cases the Court of Justice and the Commission have considered price agreements among the most serious infringements of Article 85 (19). While harmonization of tariff structures may be a major element for the provision of Community-wide services, this goal should be pursued as far as compatible with Community competition rules and should include definition of efficient pricing principles throughout the Community. Price competition is a crucial, if not the principal, element of customer choice and is apt to stimulate technical progress. Without prejudice to any application for individual exemption that may be made, the justification of any price agreement in terms of Article 85 (3) would be the subject of very rigorous examination by the Commission.

46. Conversely, where the agreements concern only the setting up of common tariff structures or principles, the Commission may consider whether this would not constitute one of the economic benefits under Article 85 (3) which outweigh the competition restriction. Indeed, this could provide the necessary transparency on tariff calculations and facilitate users' decisions about traffic flow or the location of headquarters or premises. Such agreements could also contribute to achieving one of the Green Paper's economic objectives — more cost-orientated tariffs. In this connection, following the intervention of the Commission, the CEPT has decided to abolish recommendation PGT/10 on the general principles for the lease of international telecommunications circuits and the establishment of private international networks. This recommendation recommended, inter alia, the imposition of a 30 % surcharge or an access charge where third-party traffic was carried on an international telecommunications leased circuit, or if such a circuit was interconnected to the public telecommunications network. It also recommended the application of uniform tariff coefficients in order to determine the relative price level of international telecommunications leased circuits. Thanks to the CEPT's cooperation with the Commission leading to the abolition of the recommendation, competition between telecoms operators for the supply of international leased circuits is re-established, to the benefit of users, especially suppliers of non-reserved services. The Commission had found that the recommendation amounted to a price agreement between undertakings under Article 85 of the Treaty which substantially restricted competition within the European Community (20).

47. (ab) Agreements on other conditions for the provision of facilities These agreements may limit hub competition between the partners. Moreover, they may limit the access of users to the network, and thus restrict third undertakings' competition as to non-reserved services. This applies especially to the use of leased circuits. The abolished CEPT recommendation PGT/10 on tariffs had also recommended restrictions on conditions of sale which the Commission objected to. These restrictions were mainly: — making the use of leased circuits between the customer and third parties subject to the condition that the communication concern exclusively the activity for which the circuit has been granted, — a ban on subleasing, — authorization of private networks only for customers tied to each other by economic links and which carry out the same activity, — prior consultation between the TOs for any approval of a private network and of any modification of the use of the network, and for any interconnection of private networks. For the purpose of an exemption under Article 85 (3), the granting of special conditions for a particular facility in order to promote its development could be taken into account among other elements. This could foster technologies which reduce the costs of services and contribute to increasing competitiveness of European industry structures. Naturally, the other Article 85 (3) requirements should also be met.

48. (ac) Agreements on the choice of telecommunication routes. These may have the following restrictive effects: (i) to the extent that they coordinate the TOs' choice of the routes to be set up in international services, they may limit competition between TOs as suppliers to users' communications hubs, in terms of investments and production, with a possible effect on tariffs. It should be determined whether this restriction of their business autonomy is sufficiently appreciable to be caught by Article 85. In any event, an argument for an exemption under Article 85 (3) could be more easily sustained if common routes designation were necessary to enable interconnections and, therefore, the use of a Europe-wide network; (ii) to the extent that they reserve the choice of routes already set up to the TOs, and this choice concerns one determined facility, they could limit the use of other facilities and thus services provision possibly to the detriment of technological progress. By contrast, the choice of routes does not seem restrictive in principle to the extent that it constitutes a technical requirement.

49. (ad) Agreements on the imposition of technical and quality standards on the services provided on the public network Standardization brings substantial economic benefits which can be relevant under Article 85 (3). It facilitates inter alia the provision of pan-European telecommunications services. As set out in the framework of the Community's approach to standardization, products and services complying with standards may be used Community-wide. In the context of this approach, European standards institutions have developed in this field (ETSI and CEN-Cenelec). National markets in the EC would be opened up and form a Community market. Service and equipment markets would be enlarged, hence favouring economies of scale. Cheaper products and services are thus available to users. Standardization may also offer an alternative to specifications controlled by undertakings dominant in the network architecture and in non-reserved services. Standardization agreements may, therefore, lessen the risk of abuses by these undertakings which could block the access to the markets for non-reserved services and for equipment. However, certain standardization agreements can have restrictive effects on competition: hindering innovation, freezing a particular stage of technical development, blocking the network access of some users/service providers. This restriction could be appreciable, for example when deciding to what extent intelligence will in future be located in the network or continue to be permitted in customers' equipment. The imposition of specifications other than those provided for by Community law could have restrictive effects on competition. Agreements having these effects are, therefore, caught by Article 85. The balance between economic benefits and competition restrictions is complex. In principle, an exemption could be granted if an agreement brings more openness and facilitates access to the market, and these benefits outweigh the restrictions caused by it.

50. Standards jointly developed and/or published in accordance with the ONP procedures carry with them the presumption that the cooperating TOs which comply with those standards fulfil the requirement of open and efficient access (see the ONP Directive mentioned in paragraph 16). This presumption can be rebutted, inter alia, if the agreement contains restrictions which are not foreseen by Community law and are not indispensable for the standardization sought.

51. One important Article 85 (3) requirement is that users must also be allowed a fair share of the resulting benefit. This is more likely to happen when users are directly involved in the standardization process in order to contribute to deciding what products or services will meet their needs. Also, the involvement of manufacturers or service providers other than TOs seems a positive element for Article 85 (3) purposes. However, this involvement must be open and widely representative in order to avoid competition restrictions to the detriment of excluded manufacturers or service providers. Licensing other manufacturers may be deemed necessary, for the purpose of granting an exemption to these agreements under Article 85 (3).

52. (ae) Agreements foreseeing special treatment for TOs' terminal equipment or other companies' equipment for the interconnection or interoperation of terminal equipment with reserved services and facilities

53. (af) Agreements on the exchange of information A general exchange of information could indeed be necessary for the good functioning of international telecommunications services, and for cooperation aimed at ensuring interconnectivity or one-stop shopping and billing. It should not be extended to competition-sensitive information, such as certain tariff information which constitutes business secrets, discounting, customers and commercial strategy, including that concerning new products. The exchange of this information would affect the autonomy of each TO's commercial policy and it is not necessary to attain the said objectives.

B. Agreements concerning the provision of non-reserved services and terminal equipment

54. Unlike facilities markets, where only the TOs are the providers, in the services markets the actual or potential competitors are numerous and include, besides the TOs, international private companies, computer companies, publishers and others. Agreements on services and terminal equipment could therefore be concluded between TOs, between TOs and private companies, and between private companies.

55. The liberalizing process has led mostly to strategic agreements between (i) TOs, and (ii) TOs and other companies. These agreements usually take the form of joint ventures.

56. (ba) Agreements between TOs The scope of these agreements, in general, is the provision by each partner of a value-added service including the management of the service. Those agreements are mostly based on the ‘one-stop shopping’ principle, i.e. each partner offers to the customer the entire package of services which he needs. These managed services are called managed data network services (MDNS). An MDNS essentially consists of a broad package of services including facilities, value-added services and management. The agreements may also concern such basic services as satellite uplink.

57. These agreements could restrict competition in the MDNS market and also in the markets for a service or a group of services included in the MDNS: (i) between the participating TOs themselves; and (ii) vis-à-vis other actual or potential third-party providers.

58. (i) Restrictions of competition between TOs Cooperation between TOs could limit the number of potential individual MDNS offered by each participating TO. The agreements may affect competition at least in certain aspects which are contemplated as specific examples of prohibited practices under Article 85 (1) (a) to (c), in the event that: — they fix or recommend, or at least lead (through the exchange of price information) to coordination of prices charged by each participant to customers, — they provide for joint specification of MDNS products, quotas, joint delivery, specification of customers' systems; all this would amount to controlling production, markets, technical development and investments, — they contemplate joint purchase of MDNS hardware and/or software, which would amount to sharing markets or sources of supply.

59. (ii) Restrictive effects on third party undertakings Third parties' market entry could be precluded or hampered if the participating TOs: — refuse to provide facilities to third party suppliers of services, — apply usage restrictions only to third parties and not to themselves (e.g. a private provider is precluded from placing multiple customers on a leased line facility to obtain lower unit costs), — favour their MDNS offerings over those of private suppliers with respect to access, availability, quality and price of leased circuits, maintenance and other services, — apply especially low rates to their MDNS offerings, cross-subsidizing them with higher rates for monopoly services. Examples of this could be the restrictions imposed by the TOs on private network operators as to the qualifications of the users, the nature of the messages to be exchanged over the network or the use of international private leased circuits.

60. Finally, as the participating TOs hold, individually or collectively, a dominant position for the creation and the exploitation of the network in each national market, any restrictive behaviour described in paragraph 59 could amount to an abuse of a dominant position under Article 86 (see V below).

61. On the other hand, agreements between TOs may bring economic benefits which could be taken into account for the possible granting of an exemption under Article 85 (3). Inter alia, the possible benefits could be as follows: — a European-wide service and ‘one-stop shopping’ could favour business in Europe. Large multinational undertakings are provided with a European communication service using only a single point of contact, — the cooperation could lead to a certain amount of European-wide standardization even before further EEC legislation on this matter is adopted, — the cooperation could bring a cost reduction and consequently cheaper offerings to the advantage of consumers, — a general improvement of public infrastructure could arise from a joint service provision.

62. Only by notification of the cases in question, in accordance with the appropriate procedures under Regulation No 17, will the Commission be able, where requested, to ascertain, on the merits, whether these benefits outweigh the competition restrictions. But in any event, restrictions on access for third parties seem likely to be considered as not indispensable and to lead to the elimination of competition for a substantial part of the products and services concerned within the meaning of Article 85 (3), thus excluding the possibility of an exemption. Moreover, if an MDNS agreement strengthens appreciably a dominant position which a participating TO holds in the market for a service included in the MDNS, this is also likely to lead to a rejection of the exemption.

63. The Commission has outlined the conditions for exempting such forms of cooperation in a case concerning a proposed joint venture between 22 TOs for the provision of a Europe-wide MDNS, later abandoned for commercial reasons (21), The Commission considered that the MDNS project presented the risks of restriction of competition between the operators themselves and private service suppliers but it accepted that the project also offered economic benefits to telecommunications users such as access to Europe-wide services through a single operator. Such cooperation could also have accelerated European standardization, reduced costs and increased the quality of the services. The Commission had informed the participants that approval of the project would have to be subject to guarantees designed to prevent undue restriction of competition in the telecommunications services markets, such as discrimination against private services suppliers and cross-subsidization. Such guarantees would be essential conditions for the granting of an exemption under the competition rules to cooperation agreements involving TOs. The requirement for an appropriate guarantee of non-discrimination and non-cross-subsidization will be specified in individual cases according to the examples of discrimination indicated in Section V below concerning the application of Article 86.

64. (bb) Agreements between TOs and other service providers Cooperation between TOs and other operators is increasing in telecommunications services. It frequently takes the form of a joint venture. The Commission recognizes that it may have beneficial effects. However, this cooperation may also adversely affect competition and the opening up of services markets. Beneficial and harmful effects must therefore be carefully weighed.

65. Such agreements may restrict competition for the provision of telecommunications services: (i) between the partners; and (ii) from third parties.

66. (i) Competition between the partners may be restricted when these are actual or potential competitors for the relevant telecommunications service. This is generally the case, even when only the other partners and not the TOs are already providing the service. Indeed, TOs may have the required financial capacity, technical and commercial skills to enter the market for non-reserved services and could reasonably bear the technical and financial risk of doing it. This is also generally the case as far as private operators are concerned, when they do not yet provide the service in the geographical market covered by the cooperation, but do provide this service elsewhere. They may therefore be potential competitors in this geographic market.

67. (ii) The cooperation may restrict competition from third parties because: — there is an appreciable risk that the participant TO, i.e. the dominant network provider, will give more favourable network access to its cooperation partners than to other service providers in competition with the partners, — potential competitors may refrain from entering the market because of this objective risk or, in any event, because of the presence on the market-place of a cooperation involving the monopolist for the network provision. This is especially the case when market entry barriers are high: the market structure allows only few suppliers and the size and the market power of the partners are considerable.

68. On the other hand, the cooperation may bring economic benefits which outweigh its harmful effect and therefore justify the granting of an exemption under Article 85 (3). The economic benefits can consist, inter alia, of the rationalization of the production and distribution of telecommunication services, in improvements in existing services or development of new services, or transfer of technology which improves the efficiency and the competitiveness of the European industrial structures.

69. In the absence of such economic benefits a complementarity between partners, i.e. between the. provision of a reserved activity and that of a service under competition, is not a benefit as such. Considering it as a benefit would be equal to justifying an involvement through restrictive agreements of TOs in any non-reserved service provision. This would be to hinder a competitive structure in this market. In certain cases, the cooperation could consolidate or extend the dominant position of the TOs concerned to a non-reserved services market, in violation of Article 86.

70. The imposition or the proposal of cooperation with the service provider as a condition for the provision of the network may be deemed abusive (see paragraph 98 (vi)).

71. (bc) Agreements between service providers other than TOs The Commission will apply the same principles indicated in (ba) and (bb) above also to agreements between private service providers, inter alia, agreements providing quotas, price fixing, market and/or customer allocation. In principle, they are unlikely to qualify for an exemption. The Commission will be particularly vigilant in order to avoid cooperation on services leading to a strengthening of dominant positions of the partners or restricting competition from third parties. There is a danger of this occurring for example when an undertaking is dominant with regard to the network architecture and its proprietary standard is adopted to support the service contemplated by the cooperation. This architecture enabling interconnection between computer systems of the partners could attract some partners to the dominant partner. The dominant position for the network architecture will be strengthened and Article 86 may apply.

72. In any exemption of agreements between TOs and other services and/or equipment providers, or between these providers, the Commission will require from the partners appropriate guarantees of non-cross-subsidization and non-discrimination. The risk of cross-subsidization and discrimination is higher when the TOs or the other partners provide both services and equipment, whether within or outside the Community.

C. Agreements on research and development (R&D)

73. As in other high technology based sectors, R&D in telecommunications is essential for keeping pace with technological progress and being competitive on the market-place to the benefit of users. R&D requires more and more important financial, technical and human resources which only few undertakings can generate individually. Cooperation is therefore crucial for attaining the above objectives.

74. The Commission has adopted a Regulation for the block exemption under Article 85 (3) of R&D agreements in all sectors, including telecommunications (22).

75. Agreements which are not covered by this Regulation (or the other Commission block exemption Regulations) could still obtain an individual exemption from the Commission if Article 85 (3) requirements are met individually. However, not in all cases do the economic benefits of an R&D agreement outweigh its competition restrictions. In telecommunications, one major asset, enabling access to new markets, is the launch of new products or services. Competition is based not only on price, but also on technology. R&D agreements could constitute the means for powerful undertakings with high market shares to avoid or limit competition from more innovative rivals. The risk of excessive restrictions of competition increases when the cooperation is extended from R&D to manufacturing and even more to distribution.

76. The importance which the Commission attaches to R&D and innovation is demonstrated by the fact that it has launched several programmes for this purpose. The joint companies' activities which may result from these programmes are not automatically cleared or exempted as such in all aspects from the application of the competition rules. However, most of those joint activities may be covered by the Commission's block exemption Regulations. If not, the joint activities in question may be exempted, where required, in accordance with the appropriate criteria and procedures.

77. In the Commission's experience joint distribution linked to joint R&D which is not covered by the Regulation on R&D does not play the crucial role in the exploitation of the results of R&D. Nevertheless, in individual cases, provided that a competitive environment is maintained, the Commission is prepared to consider full-range cooperation even between large firms. This should lead to improving the structure of European industry and thus enable it to meet strong competition in the world market place.

V. APPLICATION OF ARTICLE 86

78. Article 86 applies when: (i) the undertaking concerned holds an individual or a joint dominant position; (ii) it commits an abuse of that dominant position; and (iii) the abuse may affect trade between Member States.

Dominant position

79. In each national market the TOs hold individually or collectively a dominant position for the creation and the exploitation of the network, since they are protected by exclusive or special rights granted by the State. Moreover, the TOs hold a dominant position for some telecommunications services, in so far as they hold exclusive or special rights with respect to those services (23).

80. The TOs may also hold dominant positions on the markets for certain equipment or services, even though they no longer hold any exclusive rights on those markets. After the elimination of these rights, they may have kept very important market shares in this sector. When the market share in itself does not suffice to give the TOs a dominant position, it could do it in combination with the other factors such as the monopoly for the network or other related services and a powerful and wide distribution network. As to the equipment, for example terminal equipment, even if the TOs are not involved in the equipment manufacturing or in the services provision, they may hold a dominant position in the market as distributors.

81. Also, firms other than TOs may hold individual or collective dominant positions in markets where there are no exclusive rights. This may be the case especially for certain non-reserved services because of either the market shares alone of those undertakings, or because of a combination of several factors. Among these factors, in addition to the market shares, two of particular importance are the technological advance and the holding of the information concerning access protocols or interfaces necessary to ensure interoperability of software and hardware. When this information is covered by intellectual property rights this is a further factor of dominance.

82. Finally, the TOs hold, individually or collectively, dominant positions in the demand for some telecommunication equipment, works or software services. Being dominant for the network and other services provisions they may account for a purchaser's share high enough to give them dominance as to the demand, i.e. making suppliers dependent on them. Dependence could exist when the supplier cannot sell to other customers a substantial part of its production or change a production. In certain national markets, for example in large switching equipment, big purchasers such as the TOs face big suppliers. In this situation, it should be weighed up case by case whether the supplier or the customer position will prevail on the other to such an extent as to be considered dominant under Article 86. With the liberalization of services and the expansion of new forces on the services markets, dominant positions of undertakings other than the TOs may arise for the purchasing of equipment.

Abuse

83. Commission's activity may concern mainly the following broad areas of abuses: A. TOs' abuses: in particular, they may take advantage of their monopoly or at least dominant position to acquire a foothold or to extend their power in non-reserved neighbouring markets, to the detriment of competitors and customers. B. Abuses by undertaking other than TOs: these may take advantage of the fundamental information they hold, whether or not covered by intellectual property rights, with the object and/or effect of restricting competition. C. Abuses of a dominant purchasing position: for the time being this concerns mainly the TOs, especially to the extent that they hold a dominant position for reserved activities in the national market. However, it may also increasingly concern other undertakings which have entered the market.

A. TOs'Abuses

84. The Commission has recognized in the Green Paper the central role of the TOs, which justifies the maintenance of certain monopolies to enable them to perform their public task. This public task consists in the provision and exploitation of a universal network or, where appropriate, universal service, i.e. one having general coverage and available to all users (including service providers and the TOs themselves) upon request on reasonable and non-discriminatory conditions. This fundamental obligation could justify the benefit of the exception provided in Article 90 (2) under certain circumstances, as laid down in the Services Directive.

85. In most cases, however, the competition rules, far from obstructing the fulfilment of this obligation, contribute to ensuring it. In particular, Article 86 can apply to behaviour of dominant undertakings resulting in a refusal to supply, discrimination, restrictive tying clauses, unfair prices or other inequitable conditions. If one of these types of behaviour occurs in the provision of one of the monopoly services, the fundamental obligation indicated above is not performed. This could be the case when a TO tries to take advantage of its monopoly for certain services (for instance: network provision) in order to limit the competition they have to face in respect of non-reserved services, which in turn are supported by those monopoly services. It is not necessary for the purpose of the application of Article 86 that competition be restricted as to a service which is supported by the monopoly provision in question. It would suffice that the behaviour results in an appreciable restriction of competition in whatever way. This means that an abuse may occur when the company affected by the behaviour is not a service provider but an end user who could himself be disadvantaged in competition in the course of his own business.

86. The Court of Justice has set out this fundamental principle of competition in telecommunications in one of its judgments (24). An abuse within the meaning of Article 86 is committed where, without any objective necessity, an undertaking holding a dominant position on a particular market reserves to itself or to an undertaking belonging to the same group an ancillary activity which might be carried out by another undertaking as part of its activities on a neighbouring but separate market, with the possibility of eliminating all competition from such undertaking. The Commission believes that this principle applies, not only when a dominant undertaking monopolizes other markets, but also when by anti-competitive means it extends its activity to other markets. Hampering the provision of non-reserved services could limit production, markets and above all the technical progress which is a key factor of telecommunications. The Commission has already shown these adverse effects of usage restrictions on monopoly provision in its decision in the ‘British Telecom’ case (25). In this Decision it was found that the restrictions imposed by British Telecom on telex and telephone networks usage, namely on the transmission of international messages on behalf of third parties: (i) limited the activity of economic operators to the detriment of technological progress; (ii) discriminated against these operators, thereby placing them at a competitive disadvantage vis-à-vis TOs not bound by these restrictions; and (iii) made the conclusion of the contracts for the supply of telex circuits subject to acceptance by the other parties of supplementary obligations which had no connection with such contracts. These were considered abuses of a dominant position identified respectively in Article 86 (b), (c) and (d). This could be done: (a) as above, by refusing or restricting the usage of the service provided under monopoly so as to limit the provision of non-reserved services by third parties; or (b) by predatory behaviour, as a result of cross-subsidization.

87. The separation of the TOs' regulatory power from their business activity is a crucial matter in the context of the application of Article 86. This separation is provided in the Article 90 Directives on terminals and on services mentioned in Note 2 above.

(a) Usage restrictions

88. Usage restrictions on provisions of reserved services are likely to correspond to the specific examples of abuses indicated in Article 86. In particular: — they may limit the provision of telecommunications services in free competition, the investments and the technical progress, to the prejudice of telecommunications consumers (Article 86 (b)), — to the extent that these usage restrictions are not applied to all users, including the TOs themselves as users, they may result in discrimination against certain users, placing them at a competitive disadvantage (Article 86 (c)), — they may make the usage of the reserved services subject to the acceptance of obligations which have no connection with this usage (Article 86 (d)).

89. The usage restrictions in question mainly concern public networks (public switched telephone network (PSTN) or public switched data networks (PSDN)) and especially leased circuits. They may also concern other provisions such as satellite uplink, and mobile communication networks. The most frequent types of behaviour are as follows:

(i) Prohibition imposed by TOs on third parties:

(a) to connect private leased circuits by means of concentrator, multiplexer or other equipment to the public switched network; and/or

(b) to use private leased circuits for providing services, to the extent that these services are not reserved, but under competition.

90. To the extent that the user is granted a licence by State regulatory authorities under national law in compliance with EEC law, these prohibitions limit the user's freedom of access to the leased circuits, the provision of which is a public service. Moreover, it discriminates between users, depending upon the usage (Article 86 (c)). This is one of the most serious restrictions and could substantially hinder the development of international telecommunications services (Article 86 (b)).

91. When the usage restriction limits the provision of non-reserved service in competition with that provided by the TO itself the abuse is even more serious and the principles of the abovementioned ‘Télémarketing’ judgment (Note 23 supra) apply.

92. In individual cases, the Commission will assess whether the service provided on the leased circuit is reserved or not, on the basis of the Community regulatory acts interpreted in the technical and economic context of each case. Even though a service could be considered reserved according to the law, the fact that a TO actually prohibits the usage of the leased circuit only to some users and not to others could constitute a discrimination under Article 86 (c).

93. The Commission has taken action in respect of the Belgian Régie des télégraphes et téléphones after receiving a complaint concerning an alleged abuse of dominant position from a private supplier of value-added telecommunications services relating to the conditions under which telecommunications circuits were being leased. Following discussions with the Commission, the RTT authorized the private supplier concerned to use the leased telecommunications circuits subject to no restrictions other than that they should not be used for the simple transport of data. Moreover, pending the possible adoption of new rules in Belgium, and without prejudice to any such rules, the RTT undertook that all its existing and potential clients for leased telecommunications circuits to which third parties may have access shall be governed by the same conditions as those which were agreed with the private sector supplier mentioned above (26).

(ii) Refusal by TOs to provide reserved services (in particular the network and leased circuits) to third parties

94. Refusal to supply has been considered an abuse by the Commission and the Court of Justice (27). This behaviour would make it impossible or at least appreciably difficult for third parties to provide non-reserved services. This, in turn, would lead to a limitation of services and of technical development (Article 86 (b)) and, if applied only to some users, result in discrimination (Article 86 (c)).

(iii) Imposition of extra charges or other special conditions for certain usages of reserved services

95. An example would be the imposition of access charges to leased circuits when they are connected to the public switched network or other special prices and charges for service provision to third parties. Such access charges may discriminate between users of the same service (leased circuits provision) depending upon the usage and result in imposing unfair trading conditions. This will limit the usage of leased circuits and finally non-reserved service provision. Conversely, it does not constitute an abuse provided that it is shown, in each specific case, that the access charges correspond to costs which are entailed directly for the TOs for the access in question. In this case, access charges can be imposed only on an equal basis to all users, including TOs themselves.

96. Apart from these possible additional costs which should be covered by an extra charge, the interconnection of a leased circuit to the public switched network is already remunerated by the price related to the use of this network. Certainly, a leased circuit can represent a subjective value for a user depending on the profitability of the enhanced service to be provided on that leased circuit. However, this cannot be a criterion on which a dominant undertaking, and above all a public service provider, can base the price of this public service.

97. The Commission appreciates that the substantial difference between leased circuits and the public switched network causes a problem of obtaining the necessary revenues to cover the costs of the switched network. However, the remedy chosen must not be contrary to law, i.e. the EEC Treaty, as discriminatory pricing between customers would be.

(iv) Discriminatory price or quality of the service provided

98. This behaviour may relate, inter alia, to tariffs or to restrictions or delays in connection to the public switched network or leased circuits provision, in installation, maintenance and repair, in effecting interconnection of systems or in providing information concerning network planning, signalling protocols, technical standards and all other information necessary for an appropriate interconnection and interoperation with the reserved service and which may affect the inter-working of competitive services or terminal equipment offerings.

(v) Tying the provision of the reserved service to the supply by the TOs or others of terminal equipment to be interconnected or interoperated, in particular through imposition, pressure, offer of special prices or other trading conditions for the reserved service linked to the equipment.

(vi) Tying the provision of the reserved service to the agreement of the user to enter into cooperation with the reserved service provider himself as to the non-reserved service to be carried on the network

(vii) Reserving to itself for the purpose of non-reserved service provision or to other service providers information obtained in the exercise of a reserved service in particular information concerning users of a reserved services providers more favourable conditions for the supply of this information

This latter information could be important for the provision of services under competition to the extent that it permits the targeting of customers of those services and the definition of business strategy. The behaviour indicated above could result in a discrimination against undertakings to which the use of this information is denied in violation of Article 86 (c). The information in question can only be disclosed with the agreement of the users concerned and in accordance with relevant data protection legislation (see the proposal for a Council Directive concerning the protection of personal data and privacy in the context of public digital telecommunications networks, in particular the integrated services digital network (ISDN) and public digital mobile networks) (28).

(viii) Imposition of unneeded reserved services by supplying reserved and/or non-reserved services when the former reserved services are reasonably separable from the others

99. The practices under (v) (vi) (vii) and (viii) result in applying conditions which have no connection with the reserved service, contravening Article 86 (d).

100. Most of these practices were in fact identified in the Services Directive as restrictions on the provision of services within the meaning of Article 59 and Article 86 of the Treaty brought about by State measures. They are therefore covered by the broader concept of ‘restrictions’ which under Article 6 of the Directive have to be removed by Member States.

101. The Commission believes that the Directives on terminals and on services also clarify some principles of application of Articles 85 and 86 in the sector. The Services Directive does not apply to important sectors such as mobile communications and satellites; however, competition rules apply fully to these sectors. Moreover, as to the services covered by the Directive it will depend very much on the degree of precision of the licences given by the regulatory body whether the TOs still have a discretionary margin for imposing conditions which should be scrutinized under competition rules. Not all the conditions can be regulated in licences: consequently, there could be room for discretionary action. The application of competition rules to companies will therefore depend very much on a case-by-case examination of the licences. Nothing more than a class licence can be required for terminals.

(b) Cross-subsidization

102. Cross-subsidization means that an undertaking allocates all or part of the costs of its activity in one product or geographic market to its activity in another product or geographic market. Under certain circumstances, cross-subsidization in telecommunications could distort competition, i.e. lead to beating other competitors with offers which are made possible not by efficiency and performance but by artificial means such as subsidies. Avoiding cross-subsidization leading to unfair competition is crucial for the development of service provision and equipment supply.

103. Cross-subsidization does not lead to predatory pricing and does not restrict competition when it is the costs of reserved activities which are subsidized by the revenue generated by other reserved activities since there is no competition possible as to these activities. This form of subsidization is even necessary, as it enables the TOs holders of exclusive rights to perform their obligation to provide a public service universally and on the same conditions to everybody. For instance, telephone provision in unprofitable rural areas is subsidized through revenues from telephone provision in profitable urban areas or long-distance calls. The same could be said of subsidizing the provision of reserved services through revenues generated by activities under competition. The application of the general principle of cost-orientation should be the ultimate goal, in order, inter alia, to ensure that prices are not inequitable as between users.

104. Subsidizing activities under competition, whether concerning services or equipment, by allocating their costs to monopoly activities, however, is likely to distort competition in violation of Article 86. It could amount to an abuse by an undertaking holding a dominant position within the Community. Moreover, users of activities under monopoly have to bear unrelated costs for the provision of these activities. Cross-subsidization can also exist between monopoly provision and equipment manufacturing and sale. Cross-subsidization can be carried out through: — funding the operation of the activities in question with capital remunerated substantially below the market rate; — providing for those activities premises, equipment, experts and/or services with a remuneration substantially lower than the market price.

105. As to funding through monopoly revenues or making available monopoly material and intellectual means for the starting up of new activities under competition, this constitutes an investment whose costs should be allocated to the new activity. Offering the new product or service should normally include a reasonable remuneration of such investment in the long run. If it does not, the Commission will assess the case on the basis of the remuneration plans of the undertaking concerned and of the economic context.

106. Transparency in the TOs' accounting should enable the Commission to ascertain whether there is cross-subsidization in the cases in which this question arises. The ONP Directive provides in this respect for the definition of harmonized tariff principles which should lessen the number of these cases. This transparency can be provided by an accounting system which ensures the fully proportionate distribution of all costs between reserved and non-reserved activities. Proper allocation of costs is more easily ensured in cases of structural separation, i.e. creating distinct entities for running each of these two categories of activities. An appropriate accounting system approach should permit the identification and allocation of all costs between the activities which they support. In this system all products and services should bear proportionally all the relevant costs, including costs of research and development, facilities and overheads. It should enable the production of recorded figures which can be verified by accountants.

107. As indicated above (paragraph 59), in cases of cooperation agreements involving TOs a guarantee of no cross-subsidization is one of the conditions required by the Commission for exemption under Article 85 (3). In order to monitor properly compliance with that guarantee, the Commission now envisages requesting the parties to ensure an appropriate accounting system as described above, the accounts being regularly submitted to the Commission. Where the accounting method is chosen, the Commission will reserve the possibility of submitting the accounts to independent audit, especially if any doubt arises as to the capability of the system to ensure the necessary transparency or to detect any cross-subsidization. If the guarantee cannot be properly monitored, the Commission may withdraw the exemption.

108. In all other cases, the Commission does not envisage requiring such transparency of the TOs. However, if in a specific case there are substantial elements converging in indicating the existence of an abusive cross-subsidization and/or predatory pricing, the Commission could establish a presumption of such cross-subsidization and predatory pricing. An appropriate separate accounting system could be important in order to counter this presumption.

109. Cross-subsidization of a reserved activity by a non-reserved one does not in principle restrict competition. However, the application of the exception provided in Article 90 (2) to this non-reserved activity could not as a rule be justified by the fact that the financial viability of the TO in question rests on the non-reserved activity. Its financial viability and the performance of its task of general economic interest can only be ensured by the State where appropriate by the granting of an exclusive or special right and by imposing restrictions on activities competing with the reserved ones.

110. Also cross-subsidization by a public or private operator outside the EEC may be deemed abusive in terms of Article 86 if that operator holds a dominant position for equipment or non-reserved services within the EEC. The existence of this dominant position, which allows the holder to behave to an appreciable extent independently of its competitors and customers and ultimately of consumers, will be assessed in the light of all elements in the EEC and outside.

B. Abuses by undertakings other than the TOs

111. Further to the liberalization of services, undertakings other than the TOs may increasingly extend their power to acquire dominant positions in non-reserved markets. They may already hold such a position in some services markets which had not been reserved. When they take advantage of their dominant position to restrict competition and to extend their power, Article 86 may also apply to them. The abuses in which they might indulge are broadly similar to most of those previously described in relation to the TOs.

112. Infringements of Article 86 may be committed by the abusive exercise of industrial property rights in relation with standards, which are of crucial importance for telecommunications. Standards may be either the results of international standardization, or de facto standards and the property of undertakings.

113. Producers of equipment or suppliers of services are dependent on proprietary standards to ensure the interconnectivity of their computer resources. An undertaking which owns a dominant network architecture may abuse its dominant position by refusing to provide the necessary information for the interconnection of other architecture resources to its architecture products. Other possible abuses — similar to those indicated as to the TOs — are, inter alia, delays in providing the information, discrimination in the quality of the information, discriminatory pricing or other trading conditions, and making the information provision subject to the acceptance by the producer, supplier or user of unfair trading conditions.

114. On 1 August 1984, the Commission accepted a unilateral undertaking from IBM to provide other manufacturers with the technical interface information needed to permit competitive products to be used with IBM's then most powerful range of computers, the System/370. The Commission thereupon suspended the proceedings under Article 86 which it had initiated against IBM in December 1980. The IBM Undertaking (29) also contains a commitment relating to SNA formats and protocols.

115. The question how to reconcile copyrights on standards with the competition requirements is particularly difficult. In any event, copyright cannot be used unduly to restrict competition.

C. Abuses of dominant purchasing position

116. Article 86 also applies to behaviour of undertakings holding a dominant purchasing position. The examples of abuses indicated in that Article may therefore also concern that behaviour.

117. The Council Directive 90/531/EEC (30) based on Articles 57 (2), 66, 100a and 113 of the EEC Treaty on the procurement procedures of entities operating in inter alia the telecommunications sector regulates essentially: (i) procurement procedures in order to ensure on a reciprocal basis non-discrimination on the basis of nationality; and (ii)for products or services for use in reserved markets, not in competitive markets. That Directive, which is addressed to States, does not exclude the application of Article 86 to the purchasing of products within the scope of the Directive. The Commission will decide case by case how to ensure that these. different sets of rules are applied in a coherent manner.

118. Furthermore, both in reserved and competitive markets, practices other than those covered by the Directive may be established in violation of Article 86. One example is taking advantage of a dominant purchasing position for imposing excessively favourable prices or other trading conditions, in comparison with other purchasers and suppliers (Article 86 (a)). This could result in discrimination under Article 86 (c). Also obtaining, whether or not through imposition, an exclusive distributorship for the purchased product by the dominant purchaser may constitute an abusive extension of its economic power to other markets (see ‘Telemarketing’ Court judgment (Note 23 supra)).

119. Another abusive practice could be that of making the purchase subject to licensing by the supplier of standards for the product to be purchased or for other products, to the purchaser itself, or to other suppliers (Article 86 (d)).

120. Moreover, even in competitive markets, discriminatory procedures on the basis of nationality may exist, because national pressures and traditional links of a non-economic nature do not always disappear quickly after the liberalization of the markets. In this case, a systematic exclusion or considerably unfavourable treatment of a supplier, without economic necessity, could be examined under Article 86, especially (b) (limitation of outlets) and (c) (discrimination). In assessing the case, the Commission will substantially examine whether the same criteria for awarding the contract have been followed by the dominant undertaking for all suppliers. The Commission will normally take into account criteria similar to those indicated in Article 27 (1) of the Directive (31). The purchases in question being outside the scope of the Directive, the Commission will not require that transparent purchasing procedures be pursued.

D. Effect on trade between Member States

121. The same principle outlined regarding Article 85 applies here. Moreover, in certain circumstances, such as the case of the elimination of a competitor by an undertaking holding a dominant position, although trade between Member States is not directly affected, for the purposes of Article 86 it is sufficient to show that there will be repercussions on the competitive structure of the common market.

VI. APPLICATION OF ARTICLES 85 AND 86 IN THE FIELD OF SATELLITES

122. The development of this sector is addressed globally by the Commission in the ‘Green Paper on a common approach in the field of satellite communications in the European Community’ of 20 November 1990 (Doc. COM(90) 490 final). Due to the increasing importance of satellites and the particular uncertainty among undertakings as to the application of competition rules to individual cases in this sector, it is appropriate to address the sector in a distinct section in these guidelines.

123. State regulations on satellites are not covered by the Commission Directives under Article 90 of the EEC Treaty respectively on terminals and services mentioned above except in the Directive on terminals which contemplates receive-only satellite stations not connected to a public network. The Commission's position on the regulatory framework compatible with the Treaty competition rules is stated in the Commission Green Paper on satellites mentioned above.

124. In any event the Treaty competition rules fully apply to the satellites domain, inter alia, Articles 85 and 86 to undertakings. Below is indicated how the principles set out above, in particular in Sections IV and V, apply to satellites.

125. Agreements between European TOs in particular within international conventions may play an important role in providing European satellites systems and a harmonious development of satellite services throughout the Community. These benefits are taken into consideration under competition rules, provided that the agreements do not contain restrictions which are not indispensable for the attainment of these objectives.

126. Agreements between TOs concerning the operation of satellite systems in the broadest sense may be caught by Article 85. As to space segment capacity, the TOs are each other's competitors, whether actual or potential. In pooling together totally or partially their supplies of space segment capacity they may restrict competition between themselves. Moreover, they are likely to restrict competition vis-à-vis third parties to the extent that their agreements contain provisions with this object or effect: for instance provisions limiting their supplies in quality and/or quantity, or restricting their business autonomy by imposing directly or indirectly a coordination between these third parties and the parties to the agreements. It should be examined whether such agreements could qualify for an exemption under Article 85 (3) provided that they are notified. However, restrictions on third parties' ability to compete are likely to preclude such an exemption. It should also be examined whether such agreements strengthen any individual or collective dominant position of the parties, which also would exclude the granting of an exemption. This could be the case in particular if the agreement provides that the parties are exclusive distributors of the space segment capacity provided by the agreement.

127. Such agreements between TOs could also restrict competition as to the uplink with respect to which TOs are competitors. In certain cases the customer for satellite communication has the choice between providers in several countries, and his choice will be substantially determined by the quality, price and other sales conditions of each provider. This choice will be even ampler since uplink is being progressively liberalized and to the extent that the application of EEC rules to State legislations will open up the uplink markets. Community-wide agreements providing directly or indirectly for coordination as to the parties' uplink provision are therefore caught by Article 85.

128. Agreements between TOs and private operators on space segment capacity may be also caught by Article 85, as that provision applies, inter alia, to cooperation, and in particular joint venture agreements. These agreements could be exempted if they bring specific benefits such as technology transfer, improvement of the quality of the service or enabling better marketing, especially for a new capacity, outweighing the restrictions. In any event, imposing on customers the bundled uplink and space segment capacity provision is likely to exclude an exemption since it limits competition in uplink provision to the detriment of the customer's choice, and in the current market situation will almost certainly strengthen the TOs' dominant position in violation of Article 86. An exemption is unlikely to be granted also when the agreement has the effect of reducing substantially the supply in an oligopolistic market, and even more clearly when an effect of the agreement is to prevent the only potential competitor of a dominant provider in a given market from offering its services independently. This could amount to a violation of Article 86. Direct or indirect imposition of any kind of agreement by a TO, for instance by making the uplink subject to the conclusion of an agreement with a third party, would constitute an infringement of Article 86.

VII. RESTRUCTURING IN TELECOMMUNICATIONS

129. Deregulation, the objective of a single market for 1992 and the fundamental changes in the telecommunications technology have caused wide strategic restructuring in Europe and throughout the world as well. They have mostly taken the form of mergers and joint ventures.

(a) Mergers

130. In assessing telecom mergers in the framework of Council Regulation (EEC) No 4064/89 on the control of concentrations between undertakings (32) the Commission will take into account, inter alia, the following elements.

131. Restructuring moves are in general beneficial to the European telecommunications industry. They may enable the companies to rationalize and to reach the critical mass necessary to obtain the economies of scale needed to make the important investments in research and development. These are necessary to develop new technologies and to remain competitive in the world market. However, in certain cases they may also lead to the anticompetitive creation or strengthening of dominant positions.

132. The economic benefits resulting from critical mass must be demonstrated. The concentration operation could result in a mere aggregation of market shares, unaccompanied by restructuring measures or plans. This operation may create or strengthen Community or national dominant positions in a way which impedes competition.

133. When concentration operations have this sole effect, they can hardly be justified by the objective of increasing the competitivity of Community industry in the world market. This objective, strongly pursued by the Commission, rather requires competition in EEC domestic markets in order that the EEC undertakings acquire the competitive structure and attitude needed to operate in the world market.

134. In assessing concentration cases in telecommunications, the Commission will be particularly vigilant to avoid the strengthening of dominant positions through integration. If dominant service providers are allowed to integrate into the equipment market by way of mergers, access to this market by other equipment suppliers may be seriously hindered. A dominant service provider is likely to give preferential treatment to its own equipment subsidiary. Moreover, the possibility of disclosure by the service provider to its subsidiary of sensitive information obtained from competing equipment manufacturers can put the latter at a competitive disadvantage. The Commission- will examine case by case whether vertical integration has such effects or rather is likely to reinforce the competitive structure in the Community.

135. The Commission has enforced principles on restructuring in a case concerning the GEC and Siemens joint bid for Plessey (33).

136. Article 85 (1) applies to the acquisition by an undertaking of a minority shareholding in a competitor where, inter alia, the arrangements involve the creation of a structure of cooperation between the investor and the other undertakings, which will influence these undertakings' competitive conduct (34).

(b) Joint ventures

137. A joint venture can be of a cooperative or a concentrative nature. If is of a cooperative nature when it has as its object or effect the coordination of the competitive behaviour of undertakings which remain independent. The principles governing cooperative joint ventures are to be set out in Commission guidelines to that effect. Concentrative joint ventures fall under Regulation (EEC) No 4064/89 (35).

138. In some of the latest joint venture cases the Commission granted an exemption under Article 85 (3) on grounds which are particularly relevant to telecommunications. Precisely in a decision concerning telecommunications, the ‘Optical Fibres’ case (36), the Commission considered that the joint venture enabled European companies to produce a high technology product, promoted technical progress, and facilitated technology transfer. Therefore, the joint venture permits European companies to withstand competition from non-Community producers, especially in the USA and Japan, in an area of fast-moving technology characterized by international markets. The Commission confirmed this approach in the ‘Canon-Olivetti’ case (37).

VIII. IMPACT OF THE INTERNATIONAL CONVENTIONS ON THE APPLICATION OF EEC COMPETITION RULES TO TELECOMMUNICATIONS

139. International conventions (such as the Convention of International Telecommunication Union (ITU) or Conventions on Satellites) play a fundamental role in ensuring worldwide cooperation for the provision of international services. However, application of such international conventions on telecommunications by EEC Member States must not affect compliance with the EEC law, in particular with competition rules.

140. Article 234 of the EEC Treaty regulates this matter (38). The relevant obligations provided in the various conventions or related Acts do not pre-date the entry into force of the Treaty. As to the ITU and World Administrative Telegraph and Telephone Conference (WATTC), whenever a revision or a new adoption of the ITU Convention or of the WATTC Regulations occurs, the ITU or WATTC members recover their freedom of action. The Satellites Conventions were adopted much later. Moreover, as to all conventions, the application of EEC rules does not seem to affect the fulfilment of obligations of Member States vis-à-vis third countries. Article 234 does not protect obligations between EEC Member States entered into in international treaties. The purpose of Article 234 is to protect the right of third countries only and it is not intended to crystallize the acquired international treaty rights of Member States to the detriment of the EEC Treaty's objectives or of the Community interest. Finally, even if Article 234 (1) did apply, the Member States concerned would nevertheless be obliged to take all appropriate steps to eliminate incompatibility between their obligations vis-à-vis third countries and the EEC rules. This applies in particular where Member States acting collectively have the statutory possibility to modify the