REPORT FROM THE COMMISSION - Part One - XXXIIIrd Report on Competition Policy - 2003

Introduction

1. This year's report not only reflects significant changes to the internal organisation and working methods of the Commission in the field of EU competition policy, but also provides evidence of the way the Commission ensures coherence in the European economic governance fabric by balancing continuity and the need for new approaches.

2. On the one hand, the current Commission is approaching the end of its term, and 10 new Member States will soon be welcomed in the enlarged Union. Emphasis on continued and extended application of a common set of competition rules is essential for allowing them a soft landing. Preparations for the practical implementation of the modernised procedural framework for antitrust enforcement are therefore fully on course. In the same way, the review of the current Merger Regulation is scheduled to be finalised by the time the new Member States join. While the need to step up reforms in the field of state aid control has been known for some time, the time is now ripe for putting the vision into practice. This year's decisive intervention of the Commission in favour of equal application of state aid rules to all Member states, small and large, highlights the importance of tackling state intervention which distorts competition.

3. On the other hand, sectoral developments require a great deal of attention and work, both on the part of industry and by the Commission. Making a reality of the liberalisation of electronic communications, energy or transport in Europe without compromising on the effective provision of services to all consumers is difficult but attainable. For example balancing the sound economic development of the media sector with other public interest objectives, such as ensuring diversity of reliable information sources requires the careful application of the appropriate instruments.

4. EU competition policy plays an important role in achieving the competitiveness goals of the Lisbon agenda. It encompasses not only antitrust and merger rules which are fundamental to any well-functioning market economy, but also the application of an efficient and firm state-aid discipline. In view of the world economic situation in general and efforts in Europe to encourage growth, it is essential that the interaction between the various policy instruments at the Commission's disposal is used to the best effect and that the improvement of the EU's competitiveness remains high on the Commission's agenda.

Statistics on Commission activity in applying competition law in 2003

5. In 2003, the total number of new cases was 815, comprising 262 antitrust cases (under Articles 81, 82 and 86 of the EC Treaty), 212 merger cases and 377 state aid cases (excluding complaints). New cases decreased significantly in all fields, in the antitrust and in the merger fields by about one fifth, in the state aid field by approximately one seventh.

6. In antitrust, the number of new notifications decreased further (by about a quarter) in line with the final abolition of the notification system which will take effect in May 2004. According to the same logic, new own-initiative cases (97) are slightly on the rise. Figures for cases triggered by complaints (94) are of equal importance, although they remain clearly below last years' figures (by about a quarter). As concerns concentrations, activity further slowed down and again reached the (already elevated) level seen in the late 1990ies. In state aid control, the number of notifications and new cases of non-notified aid decreased, while new cases concerning existing aid nearly quadrupled (after a steep decline in 2002). 203 cases where reported by Member States under the block exemption regulation.

7. The total number of cases closed in 2003 was 831, comprising 319 antitrust cases, 230 merger cases, and 282 state aid cases (excluding complaints) [1]. In antitrust, 24 cases were closed by formal decision and the backlog of pending cases was further reduced. In the field of merger control, 231 formal decisions were taken during the year, the number of cases requiring in-depth investigation (9) remaining stable. As for state aid, the number of final negative decisions (20) was nearly halved and positive decisions (18) were down by more than a third compared to 2002. The number of formal proceedings initiated (55) was also lower than in the year before.

[1] Number of state aid cases closed by final decisions of the following type: no objection, positive decision, negative decision, conditional decision.

Box 1: Competition policy and the consumer

During 2003 there were significant developments towards the better integration of the Commission's competition and consumer protection policies. These are a good foundation for further progress in 2004.

On the occasion of the year's second Competition Day on 9 December in Rome, Commissioner Monti announced the appointment of Mr Juan Rivière y Martí [2] to the newly created function of Consumer Liaison Officer within the Commission's Competition Directorate-General. This post was created in order to ensure a permanent dialogue with European consumers, whose welfare is the primary concern of competition policy, but whose voice is not sufficiently heard when individual cases are handled or policy issues are discussed. It is also designed to intensify contacts between DG Competition and other Directorates-General (DGs) within the Commission, most notably with DG Health and Consumer Protection.

[2] Mr. Rivière y Martí has been working in DG Competition since 1989. In his previous position he was Advisor to the Policy Development and Coordination Directorate.

More specifically, the tasks of the Consumer Liaison Officer include:

acting as primary contact point for consumer organisations, and for individual consumers;

establishing more regular and comprehensive contacts with consumer organisations and in particular the European Consumer Consultative Group "ECCG" [3];

[3] ECCG is comprised of 18 members, one representing the consumer organisations of each Member State, and one for each of three European consumer organisations, AEC, ANEC and BEUC. Observers representing consumer organisations from Acceding Countries are already participating in the work of ECCG.

alerting consumer groups to competition cases when their input might be useful, and advising them on the way they can provide input and express their views;

contacts with National Competition Authorities (NCA) regarding consumer protection matters.

As in the case of the Chief Competition Economist, the role of the Consumer Liaison Officer is not confined to the merger control area, but also concerns the antitrust field - cartels and abuses of dominant positions - as well as other competition cases and policies [4].

[4] The intention to create such a post was first announced in December 2002, when a package of reforms concerning the control of mergers in the EU was adopted.

Consumer organisations, as well as individual consumers, will be able to contact the Consumer Liaison Officer directly on competition-related issues by e-mail

Moreover, for the first time the Commission chaired a Joint Meeting of Senior Competition and Consumer Officials from the 15 Member States, Acceding Countries and EFTA countries on 19 November in Brussels. Participants expressed support for the better integration of competition and consumer protection policies. In particular, they pointed to the need to develop a common methodology to collect and analyse relevant data, such as consumer complaints, to identify consumer detriment and other losses in consumer welfare in specific markets. They also agreed it was not sufficient, in itself, to maintain competition in the market, and that the outcome of competition was equally important, in terms of lower prices and/or better choices for consumers.

Apart from these important developments for consumers, the Commission has been involved in a number of cases which affect consumers or are of particular interest to them. Many of the decisions described in this Report - be they individual decisions (for example, in the mobile phone, broadcasting or airline sectors) or sector-based initiatives (for example, in the transport, liberal professions, motor vehicle and media sectors) - affect the day to day welfare of consumers directly.

The reform of merger control and the modernisation of antitrust rules, described in this Report, are major initiatives designed to make Community competition policy more effective and relevant in the market, while seeking to ensure that the consumer protection perspective is adequately taken into consideration. Another potentially significant development set out is the identification by the Commission of potentially unlawful state aid in the Acceding Countries.

Apart from formal procedures there are informal ways of tackling the potentially negative impact caused by the behaviour of market players and the Commission uses these means. The case described below is a topical example of such action in the interest of consumers.

Athens Olympic Games arrangement [5]

[5] Case COMP/D-3/38.468.

The organising committee for the Olympic Games in Athens, ATHOC, sought reassurance from the Commission that its ticketing arrangements for the 2004 Games were in line with European Union competition rules.

The arrangements provide for various sales channels for tickets for residents in the European Economic Area (EEA). For the first time residents in the EEA are able to purchase tickets directly from the organising committee via the Internet. EEA residents can also purchase tickets through any of the National Olympic Committees or their appointed agent(s). These measures ensure that all residents of the EEA are able to purchase tickets on equal terms without discrimination on the basis of nationality. Furthermore, spectators can purchase their tickets separately from the travel or accommodation agencies whose services they employ.

After discussions between ATHOC and the Commission with a view to safeguarding consumer interests and ensuring compliance with the competition rules, ATHOC modified the ticketing arrangements in respect of Internet sales as well as of sales by National Olympic Committees in the EEA by allowing them to sell tickets below face value, rather than imposing a minimum price. As a result of these modifications, the Commission came to the conclusion that, on the basis of the information available, the ticketing arrangements did not breach the EU competition rules.

I - Antitrust - Articles 81 and 82; state monopolies and monopoly rights - Articles 31 and 86

A - Modernisation of the legislative and interpretative rules

1. New Commission competition rules

Review of the technology transfer block exemption regulation

8. In October the Commission published draft rules and guidelines on technology transfer licensing agreements [6] Licensing of technology such as patents, know-how and software copyrights is growing in importance and is vital to disseminating innovations on a large scale. The object of the proposed new rules is to clarify the application of competition rules in this area and to ensure their continuing relevance in today's changing economy.

[6] OJ C 235, 1.10.2003.

9. It is proposed that the new rules should be aligned on the new generation of block exemption regulations and guidelines for distribution agreements and horizontal cooperation agreements while taking account of the specificities of licensing agreements. This was also requested by many of those who commented on the December 2001 evaluation report. This will have the following advantages:

- The block exemption regulation will have only a black list: whatever is not explicitly excluded from the block exemption is now exempted. By doing away with the white and grey lists of the current regulation, the straitjacket effect is avoided. This increases the possibilities for companies to design the commercially most viable forms of licensing agreements while ensuring effective competition and providing adequate legal certainty to companies.

- The scope of the new rules is extended to all types of technology transfer agreement for the production of goods or services. It is proposed that the new regulation should cover not only patent and know-how licensing but also software copyright licensing, as requested by many of those who commented on the evaluation report. Where the Commission does not have the power to adopt a block exemption regulation, as is the case with patent pools and with copyright licensing in general, the guidelines will give clear guidance as to future enforcement policy.

- The new rules will make a clear distinction between licensing between competitors and licensing between non-competitors. For obvious reasons, competition policy should distinguish between licensing between competitors and between non-competitors as in particular the applicable hardcore list should differ. Competition problems are more likely to arise in licensing between competitors than in licensing between non-competitors.

10. When the draft regulation and guidelines were published, the Commission invited interested parties to comment on the new draft rules before the end of November. It received 79 comments. After analysing these comments, the Commission will revise the drafts and adopt the new rules. The aim is to have the revised rules in place before the new antitrust modernisation regime comes into force in May 2004.

2. Modernisation of the rules implementing Articles 81 and 82 of the EC Treaty

11. In order to complete the modernisation of the enforcement of EU antitrust rules, the Commission has to adopt a series of acts commonly referred to as the modernisation package. These acts are meant primarily to facilitate the application of the enforcement powers vested in the Competition Authorities and to elaborate on the cooperation mechanisms with National Competition Authorities (NCAs) and National Courts provided for by Regulation 1/2003.

12. In September, the Commission adopted draft texts for public consultation on all elements of the modernisation package [7] This public consultation led to around 50 comments. After analysis of these comments, the Commission will revise the drafts and adopt the new texts early next year, before 1 May 2004, the date of application of Regulation 1/2003.

[7] The draft texts were published for public consultation in OJ C 243, 10.10.2003.

13. The package contains a Commission regulation implementing Council Regulation 1/2003 and six notices. The Commission implementing regulation mainly addresses the modalities for the hearing of the parties concerned, complainants and third parties as well as a range of other procedural issues, such as access to the file and the treatment of confidential information. The six draft notices can be subdivided into three categories:

(a) the first series of notices outlines the current state of the case law of the Court of Justice and of the practice of the Commission regarding two concepts that are central to the application of Article 81 of the EC Treaty, namely the concept of effect on trade between Member States and the principles underlying Article 81(3). By setting out the methodology for applying those Treaty provisions and summarising the existing case law, these notices will assist national competition authorities and national courts in applying the provisions;

(b) the second series of notices focuses on the mechanisms for cooperation between the various enforcers of EU competition rules - the Commission, national competition authorities and national courts - and is designed mainly to elaborate on the cooperation mechanisms provided for by Regulation 1/2003 to ensure efficient, consistent application of Articles 81 and 82 of the EC Treaty throughout the European Union. The notices address in particular the issue of division of casework and the subsequent coordination and cooperation activities between competition authorities within the European Competition Network (ECN) and the possibility for the Commission to make written and oral submissions to national courts;

(c) the final series of draft notices deals with relations between the Commission and some of the key stakeholders in the field of competition policy: consumers and the business community. In this connection, the Commission envisages adopting a notice on the treatment of complaints and a notice on guidance letters, which the Commission may issue in order to assist companies in assessing novel or unresolved questions.

3. Review of procedural rules

3.1. Appointment of a Chief Competition Economist

14. The Commission appointed Professor Lars-Hendrik Röller for three years to the post of chief competition economist as of 1 September. A staff of 10 or so specialised economists is dedicated to this post.

15. Professor Röller holds the Chair in Industrial Economics at Humboldt University in Berlin. He is also Director of the Institute for Competitiveness and Industrial Change at the Wissenschaftszentrum Berlin für Sozialforschung. Since 1996, he has been programme director of the industrial organisation group of the London-based Centre for Economic Policy Research (CEPR). After obtaining a B.Sc. in Computer Science at Texas A&M University, he pursued his studies at the University of Pennsylvania (M.S. in Computer and Information Science, M.A. in Economics, Ph.D. in Economics). He has subsequently held posts at a number of academic institutions, including the French-based European Institute of Business Management INSEAD, Stanford University, New York University and the Universitat Autònoma de Barcelona. He has advised a number of public bodies as well as private firms in competition policy cases. He has published extensively on competition issues and sits on the editorial boards of a number of journals, including the International Journal of Industrial Economics (which he has edited since 1999).

16. "I am convinced that Professor Röller's outstanding academic record and his experience in the field will provide invaluable support to the Commission in the preparation of its decisions in complex cases in the merger area but also in antitrust and state aid investigations", said Competition Commissioner Mario Monti.

17. The Chief Economist has three main tasks:

- Guidance on economics and econometrics in the application of EU competition rules. This may include contributing to the development of general policy instruments;

- General guidance in individual competition cases from the early stages;

- and

- Detailed guidance in the most important competition cases involving complex economic issues, in particular those requiring sophisticated quantitative analysis.

18. The Chief Economist will be also responsible for maintaining contact with the academic world and will organise and chair meetings of the Academic Advisory Group for Competition Policy, a group of leading academics working in the area of industrial organisation and in the field of state aid.

3.2. Activities of the Hearing Officer

3.2.1. The second year under the new Mandate

19. In 2001, the Commission adopted a new decision in order to further strengthen the role of the Hearing Officer in competition proceedings under Articles 81 and 82 of the EC Treaty and the Merger Regulation [8] In the preamble to Commission Decision 462/2001/EC, ECSC of 23 May 2001 on the terms of reference of Hearing Officers in certain competition proceedings [9], the Commission acknowledges that, in order for the right to be heard to be guaranteed, the conduct of administrative proceedings needs to be entrusted to an independent person experienced in competition matters who has the integrity necessary to contribute to the objectivity, transparency and efficiency of those proceedings [10]. This was the second year in which the Hearing Officers [11] were able to benefit from the enlarged responsibility and enhanced independence conferred upon them by the new Mandate. In this, their first contribution to the annual Report, the Hearing Officers would like to take advantage of the opportunity to briefly outline their functions.

[8] Council Regulation (EEC) No 4064/89 of 21.12.1989 on the control of concentrations between undertakings.

[9] OJ L 162, 19.6.2001; hereinafter "the Mandate".

[10] Hearing Officer's Mandate, Preamble, recitals 1-3.

[11] At present, the two appointed Hearing Officers are Serge Durande and Karen Williams.

3.2.2. Transparency to guarantee independence

20. In order to guarantee the Hearing Officer's independence, his appointment and any reasoned decision by which he is transferred or dismissed must be published in the Official Journal of the European Union [12]. Furthermore, the Hearing Officer is directly attached to the member of the Commission in charge of competition matters [13] and does not receive any instructions from DG Competition.

[12] Article 2(1) of the Mandate.

[13] Article 2(2) of the Mandate.

3.2.3. The Hearing Officer as guarantor of a fair process

21. Although the Hearing Officer's main task is to ensure respect for the right to be heard, he can intervene whenever legitimate due process issues are at stake. To this end, he can be called upon to submit observations at any time in order to guarantee that all the relevant aspects of the individual case are examined thoroughly and objectively [14].

[14] According to Article 3(3) of the Mandate, the Hearing Officer may present observations on any matter arising out of any Commission proceeding to the competent member of the Commission. This is a means by which he seeks to ensure that, in the preparation of draft Commission decisions, due account is taken of all the relevant facts, whether favourable or unfavourable to the parties concerned, including the factual elements related to the gravity of any infringement (Article 5 of the Mandate). This requires, in line with Article 3(2) of the Mandate, that the Hearing Officer is kept informed by the Director responsible for investigating the case about the development of the procedure.

22. In addition to dealing with individual cases, the Hearing Officers are frequently consulted by DG Competition [15]about questions regarding rights of defence, and they participate in discussions on many fair process related issues.

[15] In this respect, the French job title "Conseiller Auditeur" is more appropriate to describe the full reality of the function than the English term "Hearing Officer".

3.2.4. The conduct of the oral hearing

23. As regards individual competition proceedings, the Hearing Officer's traditional function is to organise and to conduct objectively the oral hearing [16] The oral hearing is a forum where the undertakings concerned are given the opportunity to present their case to a wider audience than the team of officials responsible for the investigation. As a matter of fact, the direction taken by a number of cases as presented in the statement of objections has been modified following the oral hearing. The value placed on oral hearings is also reflected in the fact that, in 2003, the vast majority of undertakings took advantage of their right to defend their case in an oral hearing [17] The Hearing Officer decides if parties other than the addressee of the statement of objections can show a sufficient interest to be admitted as an interested third party [18] Moreover, fresh documents may be produced only with the Hearing Officer's consent [19]. After the hearing, the Hearing Officer reports to the competent member of the Commission on the hearing and on the conclusions he draws from it with regard to respect for the right to be heard [20] While these observations, contained in the so-called "interim report", concern mainly procedural issues [21], they may also relate to the need for further information or to the recommendation that certain objections be formulated or withdrawn [22].

[16] According to Article 12(2) of the Mandate, the Hearing Officer shall be fully responsible for the conduct of the hearing. In preparing it, the Hearing Officer usually asks the responsible case -team to provide a comprehensive table which clearly spells out all the arguments of the parties in response to the Commission's objections and the answers which are given to them.

[17] Only approximately one fifth of the addressees of a statement of objections waived this right to an oral hearing.

[18] Article 6 of the Mandate.

[19] Article 12(3) of the Mandate. It is important to note, however, that the hearing cannot operate as a substitute for a statement of objections. If the Commission advances new allegations of infringements or new essential facts, different from those contained in the statement of objections, it has to issue a supplementary statement of objections and conduct a new hearing.

[20] Article 13(1) of the Mandate. A copy of the report is given to the responsible Director and the Director-General for Competition.

[21] e.g. access to the file, time limits for replying to the statement of objections and the proper conduct of the oral hearing.

[22] In this respect, the interim report has to be distinguished from the Hearing Officer's final report under Article 15 of the Mandate, which is concerned exclusively with respect for the right to be heard and the related question of whether the draft decision deals only with objections in respect of which the parties have been afforded the opportunity of making known their views. The final report is prepared on the basis of the draft decision that is submitted to the Advisory Committee. In contrast to the interim report, it is also communicated, together with the decision, to the addressee of the decision and is published in the Official Journal of the European Union.

3.2.5. Extension of time limits and requests for confidentiality

24. The Hearing Officer decides on applications for time extensions in order to ensure that parties have sufficient time to express their views adequately on both the substantive and the procedural issues relating to their case [23]. He also decides on the issue of granting access to the file, balancing the interest of confidentiality against the undertaking's right to access all information collected throughout the proceeding [24]. By the same token, he decides on the disclosure of information whose content is claimed to be confidential when a Commission decision is published in the Official Journal of the European Union. Where it is intended to disclose information containing alleged business secrets, the undertaking concerned must be granted the opportunity to challenge the Hearing Officer's decision before the Court of First Instance [25]. It should be noted that these formal decisions on the disclosure of business secrets, which are taken by the Hearing Officer on the Commission's behalf, have been challenged before the Court in only a very small number of cases [26].

[23] Article 10 of the Mandate.

[24] Only information disclosed to the undertaking can be relied on by the Commission in its final decision. Therefore, the Hearing Officer must also take into account that the enforcement of competition law can be unduly impaired by third parties' claims to confidentiality.

[25] This procedure is laid down in Article 9 of the Mandate. It is equivalent to that described by the Court of Justice in AKZO II (Case 53/85, AKZO v Commission [1986] ECR 1965).

[26] In this context, the Court of First Instance is currently addressing an interesting issue. In the Bank Austria Creditanstalt case (T-198/03 R), a recent Court order (of 7.11.2003) has identified an ambiguity in Article 9(3) of the Mandate, questioning whether the Hearing Officer has to decide also whether or not parts of a Commission decision, being not part of the decision's "main content", should be published under Article 21 of Regulation 17.

B - Application of Articles 81, 82 and 86

1. Article 81

1.1. Overview of anti-cartel enforcement

25. During 2003, the Commission maintained the trend of anti-cartel activity set during the two previous years by issuing another five decisions against unlawful horizontal agreements, involving some 27 individual companies or associations. These cases were: French Beef, Sorbates Electrical and Mechanical Carbon and Graphite Products, Organic Peroxides, Industrial Copper Tubes.

26. The sum of the fines imposed in these decisions amounted to EUR 404 million, bringing the total amount of fines imposed against hardcore cartels since 2001 to more than EUR 3 200 million. During these last three years, the Commission has been able to issue an average of more than eight decisions a year. This represents a considerably higher level of activity than during the entire 30-year period prior to 2001, during which the average number of decisions was 1.5 per year. Given the number of ongoing cartel investigations, well over 30 in total, the trend of the last three years looks set to continue.

27. The amount of fines imposed in 2003, at more than EUR 400 million, was commensurate with the size of the markets on which the cartels were operating, and the size of the infringing companies. In line with the Commission's standing practice, the level of fines set in each case was appropriate to ensuring deterrence.

28. As a consequence of the influx of new cases that took place in the second half of 2002 and the beginning of 2003, DG Competition had to shift resources from a number of ongoing investigations to these new cases, for which immunity requests needed to be examined and inspections had to be organised. During the course of the year, the Commission carried out cartel inspections in cases covering no less than 21 products or services. (It should be borne in mind that each case/inspection usually involves visits to a number of different companies.) The carrying out of inspections is of value, not only as a means of uncovering unlawful conduct, but also in itself, as companies usually stop their illegal behaviour immediately after the Commission's intervention.

29. The revised Leniency Notice adopted in 2002 [27] continued to be an important source of new cases. The core elements of the 2002 Leniency Notice are briefly as follows [28]: first, full immunity from fines is available to the first undertaking that comes forward; second, to qualify for immunity the evidence supplied should at least be enough for the Commission to order an inspection; third, the Commission allows hypothetical applications, where actual evidence only needs to be supplied in a second stage; fourth, by granting conditional immunity within a matter of weeks, applicants are provided up-front with legal certainty; fifth, even after the Commission has undertaken an inspection, immunity may still be available under certain circumstances and provided immunity has not already been granted to another undertaking; sixth, if immunity has already been granted, or the Commission already has enough evidence to find an infringement, reductions of fines of up to 50% remain possible for companies that provide significant added value to the Commission's case; last but not least, with a view to introducing more certainty, the Commission informs the company of the band of reduction intended to be applied at the latest at the same time as it issues a statement of objections.

[27] Notice on immunity from fines and reduction of fines in cartel cases (OJ C 45, 19.2.2002).

[28] More detail is provided in the XXXIInd Annual Report on Competition Policy (2002).

30. Since the entry into force of the new Leniency Notice in February 2002, the Commission has received 34 applications for immunity dealing with at least 30 separate alleged infringements. Conditional immunity has been granted in 27 cases. Almost all of these have been investigated by the Commission, most through inspections. Statements of objections are currently being prepared in most of these cases. These numbers, reached in not even two years of operation, signal that the new 2002 Leniency Notice is proving to be very effective. By comparison, full immunity has so far been granted in only 11 cases under the 1996 Leniency Notice [29].

[29] In cases decided in 2003 as well as in a number of ongoing investigations, the 1996 Notice is applied, since the undertakings had applied for leniency before the 2002 Notice entered into force.

31. The information for the start of new cases is not limited to immunity applications. Investigations into potentially illegal conspiracies are also started on an ex-officio basis following information collected through the monitoring of (specialised) press and industry data, information supplied by whistleblowers (these may include disgruntled employees or former employees), or by submissions from complainants (consumers or business customers, or sometimes even competitors).

32. The timing of investigations, is increasingly being influenced by cooperation efforts between cartel agencies worldwide due to the growing number of cases with an international dimension. The best example of this is the case of Heat Stabilisers and Impact Modifiers, where the Commission and the antitrust authorities in the USA, Canada and Japan closely coordinated their investigative actions and undertook near-simultaneous inspections or other investigative measures in February. Another example is the Industrial Copper Tubes case decided in December, where much of the evidence on which the decision relied resulted from inspections which were coordinated with the US antitrust authorities.

33. Among the substantive issues raised in the Commission's cartel decisions and investigations, three aspects are worth mentioning:

- First, the imposition by the Commission of a fine on an entity which was not an undertaking active in the market in question. In Organic Peroxides, the Swiss consultancy firm AC Treuhand was fined for its role in the organisation and operation of a cartel. The fine imposed on the company was very small because of the relative novelty of the issue, but the Commission made clear in the press release that it would come down harder in future cases of a similar kind.

- Second, the protection of client-attorney correspondence ('legal privilege'), which arose in certain inspections during 2003, notably in the course of inspections carried out in February in the Heat Stabilisers and Impact Modifiers case. An issue relating to the taking of copies for which the companies were claiming legal privilege has been brought before the Court of First Instance [30].

[30] Joined Cases T-125/03 and T-253/03 Akzo Nobel Chemicals Ltd. and Akcros Chemicals Ltd. v Commission. While the President of the Court of First Instance issued an order rejecting partially interim measures on 30.10.2003, the main actions in these court cases are still pending.

- Third, the efforts the Commission has made to protect the integrity of its leniency policy in the light of the US civil procedure rules on 'discovery'. As a result of the US rules of civil procedure regarding 'open discovery' in cases where civil damages are being claimed before the US courts, information produced voluntarily by companies to antitrust agencies may become 'discoverable' to the opposing parties. Written corporate statements prepared for the Commission within the framework of immunity or leniency applications were on certain occasions considered by lower US courts to constitute such discoverable documents. Given the potential financial implications of such lawsuits, which can lead to the award of treble damages, companies might become reluctant to come forward to the Commission, or might even refrain from doing so completely, thus limiting the effect of the Commission's Leniency policy. Apart from intervening before US courts as an amicus curiae or otherwise in order to preserve the use of these documents for the Commission procedure only [31], the Commission started to revise its own procedures in 2003. The Commission is continuing its dialogue with the legal and business community with a view to further improvement of its procedures so as to minimise the risk of discovery of corporate statements. Its efforts are aimed solely at enhancing the effectiveness of its Leniency Notice and at ensuring that immunity or leniency applicants are not disadvantaged in respect of possible civil claims compared with companies that do not cooperate with it.

[31] To ensure that its position was clearly stated, the Commission intervened, by submitting amicus curiae briefs, before a number of US courts. It intervened firstly before the US District Court for the District of Columbia concerning the ongoing Vitamins litigation. Secondly, before the US District Court for the District of Northern California concerning the Methionine litigation; in this case, the Commission's stance on the non-discoverability of corporate statements submitted to the Commission within the framework of its leniency programme was confirmed by the court at final instance. And thirdly, before the US Supreme Court in the AMD v Intel case. This last case, although it does not concern directly the issue of discoverability, has potential repercussions for the efficacy of the EU leniency programme and hence for the discoverability of corporate statements.

34. In terms of administrative organisation, an important change took place in the handling of cartel investigations as a result of the internal reorganisation of DG Competition. In 1998 the Commission set up a specialised cartel unit that processed most of the cartel cases dealt with by DG Competition. Following a gradual increase in resources, a second cartel unit was set up in 2002. During the period that these cartel units were in operation, the Commission was able, as a result inter alia of new management procedures, considerably to reduce the time elapsed between initiating and concluding cartel cases. Since July 2003, as a consequence of the internal reorganisation of DG Competition in anticipation of the entry into force of Regulation 1/2003, all antitrust units of DG Competition have been dedicating - and will increasingly dedicate - greater efforts and resources to the detection and prosecution of cartels within their area of responsibility.

35. A last point worth mentioning in the area of cartel activity is the fifth international cartel workshop, which the Commission hosted in October. The purpose of these workshops is to share expertise in investigating, prosecuting and suppressing cartels. The workshop brought together around 160 officials from competition agencies in over 35 countries. A number of international organisations dealing with competition matters were also represented, such as the OECD.

1.2. Cartel cases

French Beef [32]

[32] Case COMP/F-3/38.279; OJ L 209 of 19.8.2003.

36. On 2 April, the Commission decided to impose fines totalling EUR 16.68 million on six French federations in the beef sector, four representing farmers (including the Fédération Nationale des Syndicats d'Exploitants Agricoles, the main French farming federation) and two representing slaughterers. The fines are punishment for the conclusion on 24 October 2001 of a written agreement which was continued orally as from late November-early December 2001. In the context of depressed beef prices linked to the 'mad cows' crisis, the agreement provided for commitments to suspend beef imports provisionally and to set minimum purchase prices for certain categories of cattle.

37. The Commission concluded that the agreement infringed Article 81 of the EC Treaty and that it did not qualify for exemption under Article 2 of Regulation No 26/62 [33]. In view of the highly specific situation in the beef market, it substantially reduced the amount of the fines imposed. The various parties have appealed against the decision before the Court of First Instance [34] and asked for suspension of the payment of fines.

[33] Council Regulation No 26/62 of 4.4.1962 applying certain rules on competition to production of and trade in agricultural products, OJ 30 of 20.4.1962.

[34] Cases T-217/03, T-245/03, T-252/03.

Sorbates [35]

[35] Case COMP/E-1/37.370.

38. On 1 October, the Commission fined Hoechst AG (Germany), Daicel Chemical Industries, Ltd (Japan), Ueno Fine Chemicals Industry, Ltd (Japan) and The Nippon Synthetic Chemical Industry Co., Ltd (Japan) EUR 99.0 million, EUR 16.6 million, EUR 12.3 million and EUR 10.5 million respectively for participating in a price-fixing and market-sharing cartel in sorbates together with Chisso Corporation (Japan). Sorbates are chemical preservatives used for retarding or preventing growth of micro-organisms. They are primarily used in the food and beverage industry. Following an investigation started in 1998, the Commission found that these companies participated in a worldwide cartel between 1979 and 1996. Hoechst AG's penalty was increased to take account of the aggravating factor of a repeat infringement. With regard to the Leniency Notice, it is important to note that Chisso Corporation (Japan) was granted full immunity from fines because it was the first to submit decisive evidence on the operation of the cartel.

Electrical and Mechanical Carbon and Graphite Products [36]

[36] Case COMP/E-2/38.359.

39. On 3 December, the Commission imposed fines totalling EUR 101.44 million on C. Conradty Nürnberg GmbH (EUR 1.06 million), Hoffmann & Co. Elektrokohle AG (EUR 2.82 million), Le Carbone Lorraine SA (EUR 43.05 million), Schunk GmbH and Schunk Kohlenstofftechnik GmbH (jointly and severally EUR 30.87 million) and SGL Carbon AG (EUR 23.64 million) for participating in a price-fixing and market-sharing cartel in the EEA market for electrical and mechanical carbon and graphite products. The cartel lasted from October 1988 to December 1999. Morgan Crucible Company plc received immunity from fines for having been the first undertaking to denounce the cartel.

Organic peroxides [37]

[37] Case COMP/E-2/37.857.

40. On 10 December, the Commission fined Atofina SA, Peroxid Chemie GmbH & Co KG, Degussa UK Holdings Ltd and Peroxid Chemie GmbH & Co KG (Germany) jointly and severally, Peroxidos Organicos SA and AC Treuhand AG (Switzerland)EUR 43.47 million, EUR 8.83 million, EUR 16.73 million, EUR 0.5 million and EUR 1 000 respectively. Akzo (Akzo Nobel Polymer Chemicals BV, Akzo Nobel NV and Akzo Nobel Chemicals International BV) received immunity from fines for having been the first to denounce the cartel. Following an investigation which started in 2000, the Commission found that these companies had participated in an EEA-wide cartel concerning organic peroxides [38] between 1971 and 1999 (some companies for shorter periods).

[38] Organic peroxides are double oxygen bond organic chemical products for the production of plastic and rubber.

41. With regard to the fine, it is important to note that the consultancy firm AC Treuhand was found to have violated EU law by participating in the organisation of the cartel, but its fine is limited in amount because of the relative novelty of the approach. Three addressees of the decision - Peroxid Chemie, Atofina and Degussa UK Holdings - incurred increased fines as they had been participants in other cartels before.

Industrial Copper Tubes [39]

[39] Case COMP/E-1/38.240.

42. On 16 December, the Commission fined the leading European copper tubes producers, KM Europa Metal AG (together with its wholly-owned subsidiaries Europa Metalli SpA and Tréfimétaux SA), Wieland Werke AG and Outokumpu Oyj (together with its wholly owned subsidiary Outokumpu Copper Products Oy), for an infringement of EU competition rules. Following an investigation started in 2001, the Commission established that the undertakings in question had colluded to fix prices and share markets for industrial copper tubes in level wound coils (LWCs) from 1988 to early 2001 within the framework of the Swiss-based Cuproclima Quality Association for ACR Tubes (air-conditioning and refrigeration).

43. All the addressees of the decision cooperated with the Commission in its investigation under the 1996 Leniency Notice. The Commission granted a 50% reduction in the fine to Outokumpu, 30% to the KME group and 20% to Wieland Werke for their cooperation. The highest fine was imposed on the companies of the KME group, totalling EUR 39.81 million, whereas Wieland Werke received a fine of EUR 20.79 million. Outokumpu was rewarded by a mitigating factor for its cooperation outside the 1996 Leniency Notice, as it was the first undertaking to disclose the whole duration of the cartel, extending as it did over more than 12 years. On the other hand, its penalty was increased to take account of the aggravating factor of a repeat infringement, since it had been an addressee of another Commission decision condemning a cartel in the stainless steel sector in 1990. Outokumpu's final fine was EUR 18.13 million, and the total amount of fines imposed on the undertakings in this case was EUR 78.73 million.

1.3. Court cases

Amino acids [40]

[40] Cases T-220/00, T-223/00, T-224/00 and T-230/00.

44. In the Amino acids judgments [41] the Court of First Instance (CFI) rejected the applicants' argument that the Commission had to determine the amount of the fine by taking account of fines already imposed in other jurisdictions. The applicants contended that the Commission breached the principle that a second penalty may not be imposed for the same offence, and failed to take into account the deterrent effect of previous fines. The CFI concluded that, at present, there is no principle of public international law that prevents the authorities or courts of different States from trying and convicting the same person on the basis of the same facts.

[41] Case T-224/00.

45. The CFI also set out the principle that the provision of information which cannot be regarded as cooperation falling within the scope of the Leniency Notice, but which nevertheless assists the Commission in its investigation, constitutes effective cooperation outside the scope of the notice (within the meaning of the sixth indent of Section 3 of the guidelines). This information gives entitlement to an additional reduction in fines by reason of mitigating circumstances.

46. It also established that any percentage increases or reductions decided upon to reflect aggravating or mitigating circumstances must be applied to the basic amount of the fine set by reference to the gravity and duration of the infringement.

Greek Ferries [42]

[42] Case COMP/D-2/34.466 Commission Decision 1999/271/EC of 9.12.1998 pursuant to Article 81 of the EC Treaty, OJ L 109 of 27.4.1999, p. 24; CFI judgements of 11.12.2003 in Cases T-56/99 Marlines/ Commission, T-59/99 Ventouris Group/Commission, T-61/99 Adriatica/Commission, T-65/99 Strintzis/Commission and T-66/99 Minoan/Commission.

47. In 1992, following a complaint made by a passenger that prices on the various ferries operating crossings between Greece and Italy were very similar, the Commission opened an investigation into the activities of a number of companies providing passenger and freight transportation services on several lines between Greece and Italy. In 1998, the Commission concluded in a decision that seven of these companies had infringed EU competition rules through tariff fixing agreements and practices. Fines totalling approximately EUR 9 million were imposed on them.

48. The judgments of the Court of First Instance (CFI) of December 2003 confirmed the substance of the Commission's decision and the initial amount of all fines except for two companies for which the fines were reduced.

49. On substance, the CFI confirmed notably that under certain circumstances, an inspection in the premises of an agent with a separate legal identity is lawful even if the decision for the inspection is addressed only to the principal. The CFI also confirmed that the actions of an agent of separate legal identity can be imputed to the principal where the two companies formed one and the same economic unit or undertaking for the purposes of applying Article 81 EC. As regards the role of public authorities, the CFI also accepted that, even in heavily regulated sectors where the authorities recommend a certain pricing policy, as the maritime transport in question, companies remain responsible for their participation in a price-fixing cartel as long as the public authorities do not exercise on them irresistible pressure compelling them to conclude price agreements. Furthermore, the CFI confirmed the Commission's current method of calculating the fines including the assessment of mitigating and aggravating factors. However, the CFI reduced the fines imposed on Adriatica and Ventouris, two medium-sized companies, because they were active only on the so-called southern routes (Bari, Brindisi) and because of the minor role that they played in the cartel.

1.4. Other cases

BA/SN airline alliance [43]

[43] Case COMP/D-2/38.477.

50. On 25 July 2002, British Airways (BA) and SN Brussels Airlines (SN) notified to the Commission under Regulation 3975/87 [44] a number of cooperation agreements enabling them to cooperate across their respective networks in terms of pricing, scheduling and capacity. The parties requested an exemption under Article 81(3) of the EC Treaty. The 90-day period expired on 10 March 2003 without the Commission having raised serious doubts.

[44] Council Regulation (EEC) No 3975/87, OJ L 374 of 31.12.1987, p. 1, laying down the procedure for the application of the rules on competition to undertakings in the air transport sector, as last amended by Council Regulation (EEC) No 1284/91 of 14.5.1991 (OJ L 122, 17.5.1991, p. 2) and Council Regulation (EEC) No 2410/92 of 23.7.1992 (OJ L 240, 24.8.1992, p.18); The Regulation provides that notified agreements are automatically exempted for a maximum period of six years, if the Commission does not object within 90 days starting from the publication of a summary of the agreement by the Commission in the Official Journal of the European Union. In this case, the summary was published in OJ C 306 of 10.12.2002.

51. The Commission's analysis showed that the parties' networks are largely complementary and that their network cooperation will bring benefits for consumers. In particular, the agreement will allow SN's passengers to have access to a long-haul network, while BA's passengers will benefit from easier access to SN's African destinations.

52. In order to ensure that the alliance would not result in competition being eliminated on certain affected markets, the Commission looked closely at the impact of the alliance on the overlap routes, and in particular on Brussels-London and Brussels-Manchester.

53. As far as Brussels-London is concerned, the Commission came to the conclusion that the alliance will not eliminate competition as BA and SN will continue facing two strong competitors, bmi and Eurostar. Brussels-Manchester was the route where the alliance would have the most restrictive effect as the parties' cumulated market share is close to 100%. Furthermore, there are capacity constraints at Brussels National airport at peak periods, which could prejudice a new entrant's ability to enter this market. In order to remedy the concerns raised by the Commission during the initial review, the carriers undertook to release enough landing and take-off slots at Brussels National for a new entrant to operate three daily services to Manchester, should these slots not be available through the normal slot allocation procedure.

ARA, ARGEV, ARO [45]

[45] Cases COMP/D-3/35.470 and COMP/D-3/35.473.

54. On 16 October, the Commission adopted a positive decision on the Austrian packaging take-back system ARA. The decision grants negative clearance under Article 81(1) of the EC Treaty for all the notified agreements except for the agreement concluded between the ARA system and its collectors/sorters. This agreement benefits from an exemption under Article 81(3). In order to ensure unlimited access to the collection infrastructure for competitors of the ARA system, obligations are attached to the exemption.

55. Altstoff Recycling Austria AG (ARA) is the only undertaking to organise a comprehensive packaging take-back system for household and commercial packaging in Austria. ARA grants licences for use of the Green Dot and takes over the duties of companies covered by the Austrian Packaging Ordinance. The Sector Recycling Companies (SRCs, including ARGEV in charge of collection and sorting of plastic packaging and ARO in charge of paper packaging) cooperate with ARA in organising the collection and recovery of packaging waste. Together with ARA they form the ARA system. The actual collection, sorting and recovery are performed by companies which offer their services to the SRCs.

56. The decision on the ARA system in Austria applies and refines the Commission's overall policy line in the field of environmental packaging take-back systems as established in the 2001 decisions concerning DSD in Germany and Eco-Emballages in France [46]. In particular, it seeks to ensure that the ARA system does not impose unjustified exclusivity clauses or other unjustified constraints in its contractual relationships with its partners, which could prevent the market entry of competitors. As a result of the Commission's intervention, the ARA system submitted substantial commitments concerning use of the Green Dot and the duration of agreements with collectors and sorters.

[46] DSD: Commission decisions of 20.4.2001, OJ L 166 of 21.6.2001, p. 1, and of 17.9.2001, OJ L 319 of 4.12.2001, p. 1; Eco Emballages: Commission decision of 15.6.2001, OJ L 233 of 31.8.2001, p. 37.

57. ARA does not charge a licence fee for packaging which does not take part in the system but bears the Green Dot. The licence fee provision therefore corresponds to the "no service no fee" principle. Furthermore, ARA has submitted a commitment to the effect that it will allow the use of the Green Dot on the full amount of packaging placed on the Austrian market even if producers and importers (partly) contract the services of an ARA competitor. This is important for companies which sell their products in Member States where the Green Dot is obligatory, as they can place their products on the Austrian market without having to run two production lines.

58. Under the agreements with collectors and sorters, there is only one collector and sorter per region and per material. The contractual relationship can be terminated after three years and the ARA system has undertaken to award new contracts via a competitive, transparent and objective procedure after five years at the latest. A duration of between three and five years for these agreements with an exclusivity obligation can be accepted to allow recycling companies to recover the investments necessary to build up the collection infrastructure.

59. However, the specific supply-side conditions in the market for the collection and sorting of packaging waste at households make duplication of the existing collection infrastructure impossible or economically unviable. It was therefore necessary to attach obligations to the exemption decision, according to which ARGEV may not prevent collectors and sorters from opening up their infrastructure to competitors of the ARA system.

UK and Germany network sharing agreements [47]

[47] Case COMP/C-1/38.370 O2 UK Limited/T-Mobile UK Limited - UK Network Sharing Agreement, OJ L 200 of 7.8.2003 and press release IP/03/589, 30.4.2003; Case COMP/C-1/38.369 T-Mobile Deutschland/O2 Germany - Network Sharing Rahmenvertrag, press release IP/03/1026, 16.7.2003.

60. On 30 April and 16 July, the Commission adopted two exemption decisions which determine the extent to which mobile operators can cooperate through network sharing. In February 2002, T-Mobile and mmO2 had notified two agreements that provided for the parties' cooperation by way of network sharing in the build-out of their third generation ('3G') mobile telecommunications networks in the United Kingdom and Germany.

61. Site sharing between mobile operators was found not to restrict competition in either of the cases: the cooperation extends only to basic network elements and the parties retain independent control of their core networks. Site sharing was also considered beneficial for environmental and health reasons.

62. National roaming between mobile operators was found to restrict competition at the wholesale level with potentially harmful effects in downstream retail markets. However, national roaming allows operators to provide better coverage, quality and transmission rates for their services, as well as roll-out and service provision within a shorter time frame. In the two decisions, the Commission exempted national roaming in rural areas until 31 December 2008, whereas national roaming in urban areas is to be phased out in accordance with a strict timetable by 31 December 2008.

Yamaha [48]

[48] Case COMP/F-1/37.975.

63. On 16 July, the Commission adopted a decision [49] imposing a fine of EUR 2.56 million on Yamaha Corporation Japan, Yamaha Europa GmbH, Yamaha Musica Italia SpA, Yamaha Musique France SA and Yamaha Scandinavia AB for restrictions of trade and resale price maintenance. Yamaha is the market leader in most of the relevant markets for musical instruments in Europe.

[49] Commission decision of 16.7.2003, press release IP/03/1028 of 16.7.2003.

64. Yamaha's European subsidiaries and their official dealers implemented various agreements and/or concerted practices which had as their object the restriction of competition in various EU Member States and EEA Contracting Parties (Germany, Italy, France, Austria, Belgium, the Netherlands, Denmark and Iceland) within the meaning of Article 81(1) of the EC Treaty and Article 53(1) of the EEA Agreement. The measures in question, which were mainly contained in the distribution contracts, consisted of territorial restrictions (mainly composed of bans on supplies between dealers within the selective distribution network) and restrictions on the dealers' ability to determine their resale prices.

Box 2: Competition and TV distribution for top international sports events - fixing the ground rules: the UEFA Champions League decision [50]

[50] Exemption decision with conditions/obligations of 23.7.2003 in Case COMP/C-2/37.398, press release IP/03/1105, 24.7.2003.

A limited number of sports rights - especially in football - together with first-run blockbuster feature films constitute the broadcasting content which determines broadcasters' ability to attract advertising and subscribers - the key sources of revenue for commercial free-TV and pay-TV operators. Exclusive possession of a majority of such content rights gives an incumbent broadcaster a market position that renders the successful emergence of new competing broadcasting services very difficult.

Competition problems in the markets for sports content rights are often caused by joint selling arrangements and exclusive rights contracts that have a wide scope and/or long duration. Promoting efficient competition for sports TV rights is likely to improve competition on TV broadcasting markets and to give viewers access to quality TV services that are reasonably priced, innovative and varied. The Commission is therefore seeking to ensure that TV rights are regularly offered to the market in a manner which allows potential bidders a genuine chance of winning them.

It is likely that the development of the new Internet and mobile media markets will parallel the development of the pay-TV markets in that sport content will be among the drivers of the development of these new services. However, rights holders currently have a tendency to hold back the exploitation of new media rights because they fear that they will cannibalise the value of the TV rights. The Commission cannot accept restrictive agreements that lead to the holding back of such rights.

The Commission's decision of 23 July in the UEFA Champions League case is an example of how to achieve a joint selling arrangement for exclusive media rights which creates consumer benefits and which avoids unnecessary restrictions of competition in terms of restricting output and price competition.

UEFA's joint selling arrangements that were in place prior to the Commission's intervention illustrate these points. UEFA sold all TV rights in one package to a single broadcaster on an exclusive basis for four years per Member State. Many rights remained unused as generally only one or two matches were broadcast live out of a maximum of 16. No new media rights were exploited and football clubs could not exploit any media rights individually.

This situation was damaging for competition in the market for the acquisition of TV broadcasting rights of regular (as opposed to periodic) football events - a market where the UEFA Champions League on an EU average holds approximately 20%.

However, the Commission recognises that a joint selling arrangement has the potential to improve production and distribution to the advantage of football clubs, broadcasters and viewers. A joint selling arrangement creates a single point of sale for the acquisition of a branded and packaged league media product. It can lead to a substantial lowering of transaction costs. Obviously, a joint selling arrangement should not contain restrictions of competition that are not indispensable to achieving these efficiencies and consumer benefits.

The Commission considers that it has achieved this with the new joint selling arrangements that UEFA notified - following intense negotiations - in 2002. These agreements ensure that all media rights are sold via a tender procedure in 14 separate packages for up to three years. Moreover, UEFA will lose its exclusive rights to sell any TV rights that have not been sold before a certain cut-off date. Both UEFA and the individual clubs will exploit in parallel certain live TV rights, deferred TV rights, archive rights, and not least new media rights. This will provide a more extensive and diverse coverage of the competition. In addition to UEFA producing a wide selection of League products, football clubs are now able to produce totally new club-branded products emphasising individual clubs' action in the UEFA Champions League on their websites, mobile services, DVD and the like.

The Commission's intervention has led to a successful opening of the market. Twice as many broadcasters will be broadcasting the UEFA Champions League compared with before the Commission's intervention. The new scheme has created new competition on media markets, with broadcasters and new media operators competing to provide offers to consumers.

Applying the principles established in the UEFA Champions League case, the Commission is also investigating the joint selling of football by certain national leagues, where, however, market positions are substantially stronger and the risk of market foreclosure correspondingly higher. It will pay particular attention to the scrutiny of these aspects.

Philips/Sony [51]

[51] Cases COMP/C-3/37.228 Ingman Disc + VDC/vs Philips and Sony, COMP/C-3/37.561 Pollydisc/vs Philips and Sony, COMP/C-3/37.707 Broadcrest & other/vs Philips and Sony and COMP/C-3/38.787 Philips and Sony: notification of the standard licence agreement.

65. On 25 July, the Commission cleared, by means of a comfort letter, a notification by Philips and Sony of their bilateral agreements establishing a worldwide joint CD disc licensing programme and the 2003 version of a standard licence agreement to be offered by Philips to third parties under the enforceable patents of Philips and Sony as well as those based on both companies' joint inventions in the CD technology field.

66. The Commission concluded that the agreements establishing the joint CD disc licensing programme were covered by the block exemption regulation concerning certain categories of technology transfer agreements (the TTBE regulation). Although agreements between members of a patent pool are normally excluded from the TTBE regulation, Article 5.2(2) of that regulation covers patent pools concluded between only two parties without any territorial restrictions within the EEA.

67. Furthermore, the 2003 version of the standard licence agreement was found not to restrict competition appreciably within the meaning of Article 81(1) of the EC Treaty, particularly since only essential patents are now licensed under this version. In addition, licensees can opt to take the joint licence or individual licences from Philips or Sony and to use them within or outside the standard specifications. The grant-back provision applies only to patents essential for the type(s) of CD discs selected by each licensee.

REIMS II [52]

[52] Case COMP/C-1/38.170, OJ L 56 of 24.2.2004, p.76.

68. On 23 October, the Commission adopted an exemption decision granting a further five-year exemption to the REIMS II agreement [53]. This agreement concerns the remuneration, called terminal dues, that the parties pay each other for the delivery of cross-border mail, i.e. mail sent from one country to another. Seventeen public postal operators (PPOs), including those of all EU Member States apart from the Netherlands, and those of Norway, Iceland and Switzerland, have currently signed the REIMS II agreement.

[53] Press release IP/03/1438, 23.10.2003.

69. The agreement, which had already been exempted by the Commission in 1999 until 31 December 2001, was re-notified by the parties on 18 June 2001 with a request for renewal of the previous exemption. The agreement was found to restrict competition within the meaning of Article 81(1) because of the obstacles it imposes on the parties' freedom to agree on terminal dues different from those fixed in the agreement.

70. However, given the benefits as already identified in the 1999 exemption decision, in particular the improved quality of service in the delivery of cross-border mail, the Commission decided to exempt the agreement again for a five-year period, subject to strict new conditions regarding non-discriminatory access by private postal operators to the REIMS II terms of delivery, on the one hand, and the provision of low-cost alternatives to terminal dues, on the other.

2. Articles 82 and 86

2.1. Article 82 cases

Deutsche Telekom [54]

[54] Case COMP/C-1/37.451, 37.578, 37.579, OJ L 263 of 14.10.2003, p. 9.

71. On 21 May, the Commission adopted a decision under Article 82 regarding the pricing strategy employed by Deutsche Telekom AG (DT) for local access to the fixed telephony network and imposed a fine of EUR 12.6 million on the company [55]. In its decision, the Commission found that DT was engaging in a margin squeeze by charging new entrants fees for wholesale access to the local loop which were either higher than or too close to what subscribers had to pay for retail lines. This discouraged new companies from entering the market and reduced the choice of suppliers of telecommunications services as well as price competition for final consumers. The Commission's action originated in 1999 with complaints from 15 new entrants to the German fixed-line telecommunications market.

[55] Press release IP/03/717, 21.5.2003.

72. The Commission found that an abusive margin squeeze was in operation, because the difference between DT's retail and wholesale prices was either negative or slightly positive, but insufficient to cover DT's product-specific cost of providing its own retail services. Because of the insufficient spread, ever since local loop unbundling started in Germany and still at the date of the decision, new entrants had no scope to compete with DT for fixed-line access to end consumers.

73. The Commission found that DT could have avoided the margin squeeze, notably by increasing the retail charges for analogue, ISDN and ADSL connections within the German price cap system. Under the initial price cap system between 1998 and 2001 DT could have avoided the margin squeeze by restructuring its tariff system at retail level. Increases in access charges could have been offset by reduced call charges. From 2002 onwards, DT could have at least reduced the margin squeeze by raising its tariffs for ADSL access. Therefore, the margin squeeze was not imposed on DT by decisions of the German telecoms regulator.

Wanadoo Interactive [56]

[56] Case COMP/C-1/38.233.

74. On 16 July, the Commission adopted a decision under Article 82 regarding Wanadoo's pricing strategy for its ADSL services [57]. It found that Wanadoo, at the time a 72%-owned subsidiary of France Télécom, had engaged in predatory pricing from March 2001 until October 2002 and it imposed a fine of EUR 10.35 million on the company.

[57] Press release IP/03/1025, 16.7.2003.

75. ADSL is the main technology available in France for the provision of high-speed Internet access to residential and small office/home office (SOHO) customers. ADSL makes it possible to provide broadband services over a conventional telephone line. During the period covered by the decision, almost all ADSL lines in France were operated by the incumbent operator, France Télécom. The first broadband services were marketed in 1998, but it was not until the end of 1999 that the market started to take off on a significant scale and at a significant pace. Since the mass marketing of Wanadoo's ADSL services began only in March 2001, the Commission considered that the abuse started only at that time.

76. The Commission found that, from the end of 1999 to October 2002, Wanadoo marketed its ADSL services at prices below their average total costs. The prices charged by Wanadoo were well below average variable costs until August 2001. In the subsequent period they were approximately equivalent to average variable costs, but significantly below average total costs. Wanadoo suffered substantial losses up to the end of 2002 as a result of this practice. The recoupment of these initial losses over a certain period of time was a likely scenario, although Wanadoo's predatory strategy may have responded to a different rationale. From documents found during an inspection at Wanadoo's premises, the Commission also concluded that Wanadoo had the intention of pre-empting the strategic market for high-speed Internet access [58].

[58] Wanadoo has brought an action for annulment of this decision before the Court of First Instance: Case T-340/03.

Box 3: Price abuses in telecommunications

During the first half of the year, the Commission adopted two formal prohibition decisions pursuant to Article 82 of the EC Treaty regarding abusive exclusionary pricing for the provision of telecommunications services. These are the first such decisions since the telecommunications sector was fully liberalised in 1998, and even since 1982, when British Telecommunications, still acting under a state monopoly, was found to have been abusing its dominant position by restricting the use of telex and telephone facilities [59].

[59] OJ L 360, 21.12.1982.

These two decisions are particularly noteworthy because they concern an economic sector subject to ex ante regulation in which the Member States play an important role through the decision-making practice of National Regulatory Authorities. The rules of such regulation were reformed in 2002 by the new EU directives on electronic communications, and are about to shift towards concepts based on competition law.

The Commission will continue to act forcefully against cases of price abuse, even in scenarios where the prices under examination are subject to sector-specific regulation. The two decisions set out the conditions for the relevant test to be carried out. Predatory pricing requires a straightforward comparison between prices and the underlying costs and triggers an obligation to increase prices above abusive levels. The margin squeeze test starts with a comparison between wholesale and retail prices. Only if retail prices are higher than wholesale prices will the underlying downstream costs also be assessed. Both tests bear important precedent value for other future cases of price abuse in network industries, not only for the Commission and national regulators, but also for National Competition Authorities (NCA).

IMS Health [60]

[60] Case COMP/D-3/38.044.

77. In the sector of information services, the Commission decided to withdraw an interim measures decision adopted in 2001 [61]. At that time, the Commission ordered IMS Health, the world leader in data collection on pharmaceutical sales and prescriptions, by way of interim measures, to license its "1860 brick structure" [62] for data collection to its then competitors in the market for German regional pharmaceutical sales data services. IMS, in return, was entitled to royalties. This decision was suspended by the President of the Court of First Instance [63]. In a judgment of 17 September 2002, a German court [64] allowed NDC Health, the main competitor of IMS in the German market, to offer a structure that met customers' needs. Though the court recognised that IMS Health's 1860 brick structure was protected by national copyright, it held that third parties could not be barred from developing another structure based on administrative and postal divisions even if the resulting structure might have a similar number of brick segments to the 1860 structure and might be deemed to be derived from that structure. Therefore other brick structures very similar to the 1860 structure could be developed for the collection of pharmaceutical sales data and used legitimately to produce and market pharmaceutical sales reports. At the same time, NDC improved its market position. In addition, one other competitor, who should have benefited from the Commission's interim measures decision, withdrew from the German market.

[61] Case COMP/D-3/38.044 NDC Health/IMS Health, decision of 3.7.2001, OJ L 59 of 28.2.2002.

[62] IMS's "1860 brick structure" segments Germany into 1 860 sales zones or "bricks".

[63] Order of 26.10.2001, in Case T-184/01R and Order of 11.4.2002, in Case C-481/01P(R), the President of the Court of Justice dismissing NDC's appeal against the order of the President of the Court of First Instance.

[64] Judgment of the Frankfurt Higher Regional Court (Frankfurter Oberlandesgericht) of 17.9.2002 in Case 11 U 67/2000.

78. Given this material change in circumstances, there was no longer any urgency requiring the Commission's intervention and the Commission decided to withdraw the 2001 interim measures decision.

79. National proceedings and a preliminary ruling procedure before the Court of Justice were pending. In the latter procedure, Advocate General Tizzano delivered his opinion on 2 October [65]. He considers that the refusal to license a copyright-protected good (here, the "1860 structure") constitutes an abuse of a dominant position if there was no objective justification for such refusal and if the use of the immaterial good is indispensable for the activity on a derived market in a way that the owner excludes any competition on that market. The condition, however, is that the undertaking requesting the licence intends to offer products or services with other characteristics which fulfil special needs of consumers which cannot be satisfied by the existing products or services.

[65] Opinion of Advocate General Tizzano of 2.10.2003 in Case C-418/01 IMS Health GmbH & Co.KG v NDC Health GmbH & Co. KG.

GVG/FS [66]

[66] Case COMP/D-1/37.685.

80. On 28 August, the Commission took a decision under Article 82 against Ferrovie dello Stato SpA (FS), the Italian national railway carrier, for abusing its dominant position in the Italian railway market. It considered that FS had prevented the private German railway undertaking Georg Verkehrsorganisation GmbH (GVG) from providing an international railway passenger transport service from Basle to Milan.

81. Since 1995, GVG had been asking FS to enter into an international grouping [67], to provide information about the price and availability of train paths, and to provide traction, i.e. a locomotive and a driver. GVG wanted to transport passengers coming from different cities in Germany to Basle. It then proposed a non-stop ("Sprinter") rail link that would operate twice a day from Basle to Milan via Domodossola. This service would compete in particular with the Cisalpino, a joint venture between FS and Schweizerische Bundesbahnen (SBB). The Cisalpino operates one daily connection between Basle and Milan.

[67] Directive 91/440/EEC requires the formation of an 'international grouping', an association of at least two train operators based in different Member States, to operate cross-border passenger or freight services, OJ L 237 of 24.8.1991.

82. As a vertically integrated company, FS has a statutory monopoly to operate the Italian railway infrastructure. In addition, as the designated infrastructure manager and allocation body, it has assumed regulatory functions of the State. It is responsible for establishing and maintaining the Italian railway infrastructure and for assigning train paths to railway operators in Italy in return for a fee. It is also responsible, as infrastructure manager, for issuing safety certificates to railway undertakings.

83. FS was found to be dominant in the market for access to its national rail network, the latter being considered an essential facility. As regards traction, the Commission concluded on the basis of a detailed market investigation that FS was dominant in that market, too. For the time being, no other Italian railway company is equipped to provide the required traction service to GVG [68]. Also with regard to the downstream market FS was found to be dominant, being the only company providing railway passenger services on the Italian segment of the Basle - Milan route. Apart from the Cisalpino, FS provides a number of daily passenger train services between Basle and Milan in cooperation with SBB. In addition, access to the downstream market is limited to international groupings. The Commission concluded that only FS was in a position to enter into such an international grouping with GVG.

[68] As a result of its market investigation, the Commission also concluded, for a number of reasons, that GVG could not provide traction by itself on the Italian market.

84. In its decision, the Commission concluded that FS had committed three abuses of a dominant position, infringing Article 82. First, by effectively refusing to deal with GVG's requests for access to the railway infrastructure, it had denied access to the network which is considered to be an essential facility. Second, as it had not responded to GVG's requests for traction, it had also effectively refused to provide traction services to GVG for this particular service. This constitutes an abuse as FS's refusal led to the elimination of a potential competitor and was not objectively justified. Lastly, FS did not provide any objective justification for its refusal to enter into negotiations with GVG to form an international grouping. By doing so, it prevented GVG from entering the downstream market for railway passenger transport services into Italy.

85. With a view to settling the case, FS made important commitments. In particular, it undertook to enter into international grouping agreements with any duly licensed train operator with concrete proposals to start an international rail service. It also undertook, for a period of five years, to provide traction to other railway companies which intended to provide cross-border passenger services. On this basis, it entered into agreements with GVG. It undertook furthermore to provide GVG suitable train paths as soon as corresponding train paths were made available by SBB on the Swiss network. While the Commission considered it appropriate to nevertheless issue a formal decision in this case, in view of ongoing liberalisation in the railway sector it refrained from imposing a fine owing to the novelty of the case.

2.2. Article 86 cases

No formal decision under Article 86 was taken during the year under review.

C - Sector-based competition developments

1. Energy

86. The year 2003 brought significant progress for the liberalisation process in the energy sector (electricity and gas). The main achievement was the adoption on 26 June of the legislative package ensuring that all European electricity and gas consumers can choose their supplier at the latest by 1 July 2007. These legislative measures were accompanied by continued activity by the Commission in competition cases. The discussions in the Council on security of supply in the gas sector led to political agreement on 15 December.

87. The legislative package consists of the following elements concerning the full liberalisation of the European gas and electricity industries. The Council and Parliament adopted (1) Directive 2003/54/EC concerning common rules for the internal market in electricity and repealing Directive 96/92/EC [69] (electricity directive), (2) Directive 2003/55/EC concerning common rules for the internal market in natural gas and repealing Directive 98/30/EC [70] (gas directive) and (3) Regulation (EC) No 1228/2003 on conditions for access to the network for cross-border exchanges in electricity [71] (electricity regulation). The gas and electricity directives replace earlier versions calling for a gradual market opening.

[69] OJ L 176, 15.7.2003, p. 37.

[70] OJ L 176, 15.7.2003, p. 57.

[71] OJ L 176, 15.7.2003, p. 1.

88. The new gas and electricity directives provide for a market opening for all non-household customers by 1 July 2004 and for all household customers by 1 July 2007. They also provide for the introduction of a regulated third party access (TPA) regime for access to the networks as well as to liquefied natural gas (LNG) terminals. Only for access to storage do Member States still have a choice between regulated and negotiated TPA regimes. Furthermore, the directives provide for the creation of a regulator, who will have the task of fixing or approving at least the methodologies used to calculate access tariffs prior to them being chargede. For further details and guidance, reference is made to the interpretative notices published by the Commission's departments.

89. The electricity regulation promotes fair rules for cross-border trade in electricity, thus enhancing competition within the internal electricity market. To this end, it establishes a compensation mechanism in favour of transmission system operators for costs incurred as a result of hosting cross-border flows of electricity; it sets harmonised principles for cross-border transmission charges, concerning in particular the non-discriminatory, transparent, and non-distance-related nature charges; it sets rules to maximise availability of transmission capacity; and it establishes principles to deal with congestion.

90. One of the most controversial points of the gas directive as well as of the electricity regulation is the exemptions from the different rules of the TPA regime that can be granted for major new infrastructures (interconnectors or LNG terminals). These provisions aim to strike a balance between creating incentives for new infrastructure and the creation of a common market. It is obvious that exemptions can only be granted if all the conditions listed in the directive/regulation are fulfilled. The most important condition for obtaining an exemption from the obligation to grant access to third parties is that the level of risk attached to the investment is such that the investment would not take place without exemption. Another important condition is that the investment must enhance supply competition. At the same time, the exemption must not be to the detriment of competition or the effective functioning of the internal (gas or electricity)market, or the efficient functioning of the regulated system to which the infrastructure is linked. Exemptions may be expected to provide incentives to ensure that unused capacity is not hoarded and, where practical, use-it-or-lose-it mechanisms would be expected to apply. Similarly, it would be easier to demonstrate that the exemption meets the competition requirements where the developer in question is able to demonstrate that it had offered access to third parties in designing the infrastructure in question, for example through an open season process. More generally, it follows from the rationale of the rule that all exemptions must be limited in scope and time to the absolute minimum [72].

[72] For further details reference is made to the notice on Directive 2003/54-55 and Regulation No 1228/03, prepared by DG Energy and Transport.

91. Additionally, in December, the Commission adopted a proposal for a regulation on conditions for access to the gas transmission networks [73]. This draft regulation aims at ensuring a level playing field across the EU on key conditions for third party access, and at improving compliance by all transmission system operators with the guidelines adopted in the framework of the Madrid Forum. The proposed regulation sets out basic principles concerning access charges, transparency requirements, a common minimum set of TPA services, capacity allocation and congestion management, balancing rules and imbalance charges, and the trading of capacity rights. It provides for minimum standards for access to the gas transmission networks, while Member States will be allowed to introduce or maintain more detailed measures.

[73] COM(2003)741 Proposal for a Regulation of the European Parliament and of the Council on conditions for access to the gas transmission networks.

92. Important progress for liberalisation is also initiated at the Madrid and Florence Fora, where the Commission, National Regulators and industry meet once or twice a year to discuss the liberalisation process. In September, the Madrid Forum, which relates to gas, adopted new Guidelines for Good Practice in improving the conditions for TPA to the European gas pipelines. The main achievements are improved transparency and better congestion management systems.

93. Security of supply was also high on the agenda in 2003. The electricity sector was confronted with a number of power cuts. They were at least partly attributed to insufficient investment into the network. As a reaction the Commission proposed a directive on security of supply in the electricity sector. For the gas sector the Commission had already proposed a directive in September 2002, on which a political agreement was reached as mentioned above.

94. The liberalisation process was - as in previous years - accompanied by a number of competition cases in the energy sector in which the Commission made use of every competition instrument, namely merger control, state aid control, and antitrust enforcement.

95. As regards antitrust, one of the main tendencies which could be observed in 2003 was the high level of cooperation with national regulators and national competition authorities. Such cooperation is appropriate to ensuring consistent application of the law throughout Europe and efficient allocation of resources. A good example of successful cooperation is the Dong/DUC case [74], in which the settlement negotiations were carried out jointly with the Danish Competition Authority and in which the national authority was entrusted with monitoring the commitments given by the market operators concerned.

[74] Press release IP/ 03/566, 24.4.2003.

96. It is also noteworthy that the focus of antitrust enforcement in the gas sector is shifting from cases concerning upstream activities to cases dealing with downstream activities. Whilst in the past competition cases related mostly to gas production (Corrib [75], GFU [76], Dong/DUC [77]), the cases currently under investigation relate more to downstream markets. They concern, for example, the question of long-term exclusive supply contracts, which might have foreclosure effects for new market participants, or territorial sales restrictions in transport contracts concluded between European operators.

[75] Case COMP/E-3/37.708; Press release IP/ 01/578, 20.4.2001.

[76] Case COMP/E-3/36.702; Press release IP/ 02/1084, 17.7.2002.

[77] Press release IP/ 03/566, 24.4.2003.

97. Whilst in the past a number of cases were closed following settlements, it is expected that in future more formal decisions will be taken. This will provide additional legal certainty and allow the Commission to clarify its policy formally. Nevertheless, the Commission will continue to accept requests for settlements if it considers that through a settlement a real change in the marketplace can be better achieved.

98. The main achievement as regards antitrust enforcement in 2003 was the settlement of the ENI/Gazprom case [78]. This case is part of the ongoing investigation into territorial sales restrictions contained in gas supply contracts between gas producers and European gas wholesalers/importers. The case was settled after the companies deleted the restrictive clause from their existing gas supply contracts and after ENI committed itself to taking a number of flanking measures, including the offer to sell significant gas volumes outside Italy. The settlement also added an element of legal certainty to long-term gas supply contracts, which are deemed necessary by the gas industry for the development of certain new gas fields.

[78] Case COMP/E-3/37..811; Press release IP/ 03/1345, 6.10.2003.

99. Other cases related to the improvement of the TPA regimes in Germany [79] and the Netherlands [80]. The commitments offered by the German gas company BEB led to the introduction of an entry/exit regime for the German gas market. Entry/exit regimes are considered superior to the TPA regime so far applied in Germany. Important clarifications were also provided in the Dong/DUC case [81], which underlined that use restrictions and reduction clauses are incompatible with European competition law. Use restrictions are clauses preventing the buyer from using the gas for purposes other than those agreed between it and the seller. Reduction clauses are clauses allowing the buyer to reduce the volumes bought from the seller if the latter starts selling into the supply area of the buyer.

[79] Press release IP/ 03/1129, 29.7.2003.

[80] Press release IP/ 03/547, 16.4.2003.

[81] Press release IP/ 03/566, 24.4.2003.

100. With respect to mergers, the most important case dealt with in 2003 was the merger between the Austrian power producer Verbund with the Austrian regional supply companies operating under the name Energie Allianz [82]. The Commission cleared this merger after the companies agreed to assist in the creation of a stronger competitor in the Austrian market and after they offered to make certain amounts of electricity available for sale by auction to smaller competitors.

[82] Case COMP/M.2947; Press release IP/ 03/825, 11.6.2003.

2. Postal services

2.1. Transposition of the new postal directive (Directive 2002/39/EC)

101. The new postal directive, adopted in 2002 [83], sets a clear path towards completion of the internal market for postal services through, in particular, a progressive reduction of the reserved area and the liberalisation of outgoing cross-border mail. The implementation of these provisions, aimed at widening the scope of the area in which competition is allowed, is likely to affect the application of EU competition rules in the postal sector. The directive should have been transposed by 31 December 2002.

[83] Directive 2002/39/EC of the European Parliament and of the Council of 10.6.2002 amending Directive 97/67/EC with regard to the further opening to competition of Community postal services, OJ L 176, 5.7.2002, p.21.

102. In January, the Commission opened infringement proceedings against those Member States which had not yet transposed (or notified the transposition of) the directive into national law. As of 14 October, all Member States except France had already completed the transposition of the directive.

103. Pursuant to Article 7 of Directive 97/67/EC as amended by Article 1 of Directive 2002/39, outgoing cross-border mail is liberalised in all Member States except in those where the revenue therefrom is deemed necessary to ensuring the provision of the universal service. An important issue as far as the application of the competition rules is concerned is therefore whether or not, in the context of the transposition of the directive, Member States have decided to maintain the market for outgoing cross-border mail within the monopoly area. As of 14 October, six Member States (Greece, Spain, Ireland, Italy, Luxembourg and Portugal) out of the 14 which had already completed the transposition had decided not to liberalise the market in question.

1.

104. The situation in the Member States is summarised in the following table:

>TABLE POSITION>

3. Electronic communications and the information society

3.1. Transposition of the new regulatory package

105. On 25 July, the deadline for transposing the new regulatory package on electronic communications into national law expired. The Council and the European Parliament had adopted on 7 March 2002 four directives [84] while the Commission had adopted an Article 86 directive in parallel. [85] These directives replaced the legislative measures on which regulatory intervention in the sector had been based in the past.

[84] OJ L 108, 24.4.2002.

[85] OJ L 249, 17.9.2002.

106. On 6 October, the Commission initiated proceedings against those Member States which had not communicated transposition measures to it or provided information showing that they complied with the relevant obligations. Belgium, Germany, Greece, Spain, France, Luxembourg, the Netherlands and Portugal were concerned as regards all five directives, and Sweden only as regards Directive 2002/77/EC. On 17 December, the Commission sent out reasoned opinions against all those Member States with the exception of Spain, which had transposed the directives in the meantime. The case against Sweden was closed in December. On 19 November, the Commission adopted its 9th report [86] on the state of implementation of the EU electronic communications regulatory package. The report highlights that the number of fixed broadband access lines has almost doubled over the last year but adds that the competitive situation must improve further if the broadband sector is to truly thrive in the EU economy. It forecasts that in 2003 the number of mobile subscribers will grow at a faster rate than in 2002, despite the penetration rate being already close to 90% in a number of EU countries. It also points out that only eight Member States have completed their transposition of the new EU legislation into national law so far.

[86] COM (2003) 715 final.

107. In view of this, the 9th report has deliberately focussed on key issues which need to be addressed in the transposition process, rather than assessing the situation in individual Member States. These key issues include the assignment of National Regulatory Authorities (NRA) tasks to competent national bodies and the clear division of those tasks where they are allocated among different bodies. The report also stresses the need to ensure wider powers and discretion as well as the full range of remedies for NRAs provided for in the new framework.

108. The report notes that the number of competing operators in each national market has remained more or less stable, although a number of operators have retrenched in their home markets. Competitive pressure seems to have shifted from the international and long-distance markets to the local call segment, where the incumbents' fixed market share has continued to decrease, while consumers have continued to benefit from price reductions for fixed voice telephony. While the downward trend in prices has been maintained, the pace in 2003 is significantly slower than in previous years and less than half that reported in 2002 [87].

[87] IP/03/1572, 19.11.2003.

109. Timely transposition is all the more important as the new framework introduces significant changes as regards the scope and role of regulation and competition policy in the telecommunications sector in Europe. The new framework is characterised by three principles. First, the degree and intensity of ex ante regulatory intervention must be proportional to the competition problem at hand. Where markets are effectively competitive, existing regulatory measures have to be withdrawn. Second, markets need to be analysed on the basis of the principles used in competition law and practice. This concerns the definition of markets, the assessment of market power and the identification of remedies. In particular, under the new framework, an operator is to be regulated only if he has a dominant position within the meaning of Article 82. Third, all electronic communications services and networks are to be treated in a similar manner ("technological neutrality"), which implies, for example, that cable TV networks are now subject to the same rules as other telecommunications networks.

110. The framework directive requires national telecommunications regulators to carry out market analyses to establish the state of competition in relevant communications markets and identify any providers with significant market power ("SMP") in these markets. Once an operator is found to have SMP, regulators have to identify which specific obligations it is appropriate to impose on that operator. Obligations can vary according to the nature and source of the competition problem, which allows for a high degree of flexibility in tailoring countermeasures to the specific circumstances.

111. In its recommendation on relevant markets to be regulated ex ante [88], the Commission has included 18 markets susceptible of being so regulated. The decision to include these markets was based on their structural characteristics and on the information available to the Commission at the time concerning the situation of these markets in all Member States. A consultation mechanism ("Article 7 procedure") has been introduced to provide for close cooperation between the Commission and national regulators in order to ensure consistent application of the new regulatory framework.

[88] Commission Recommendation 2003/311/EC of 11.2.2003 on relevant product and services markets within the electronic communications sector susceptible to ex ante regulation , OJ L 114 of 8.5.2003.

Box 4: The "Article 7" consultation mechanism

Pursuant to Article 7 of the framework directive, national regulators have to notify draft regulatory decisions to the Commission under certain circumstances. Within one month, the Commission may issue formal comments on the draft decisions of which national regulators have to take utmost account. When a draft measure affects trade between Member States and is based on a market definition which differs from that in the Commission recommendation or concludes/denies that an undertaking has SMP, the Commission may within two additional months require the national regulator to withdraw the intended measure ("veto powers" of the Commission).

With the adoption on 23 July of the Commission recommendation on procedural aspects [89] and the current inflow of draft measures from national regulators since early August, the framework has become op