Parties

Grounds

Operative part



Parties

In Case T‑271/03,

Deutsche Telekom AG, established in Bonn (Germany), represented initially by K. Quack, U. Quack and S. Ohlhoff, and subsequently by U. Quack and S. Ohlhoff, lawyers,

applicant,

v

Commission of the European Communities, represented initially by K. Mojzesowicz and S. Rating, then by K. Mojzesowicz and A. Whelan, and subsequently by K. Mojzesowicz, W. Mölls and O. Weber, acting as Agents,

defendant,

supported by

Arcor AG & Co. KG, established in Eschborn (Germany), represented initially by M. Klusmann, F. Wiemer and M. Rosenthal, then by M. Klusmann and F. Wiemer, and subsequently by M. Klusmann, lawyers,

and by

Versatel NRW GmbH, formerly Tropolys NRW GmbH, formerly CityKom Münster GmbH Telekommunikationsservice and TeleBeL Gesellschaft für Telekommunikation Bergisches Land mbH, established in Essen (Germany),

EWE TEL GmbH, established in Oldenburg (Germany),

HanseNet Telekommunikation GmbH, established in Hamburg (Germany),

Versatel Nord-Deutschland GmbH, formerly KomTel Gesellschaft für Kommunikations- und Informationsdienste mbH, established in Flensburg (Germany),

NetCologne Gesellschaft für Telekommunikation mbH , established in Cologne (Germany),

Versatel Süd-Deutschland GmbH, formerly tesion Telekommunikation GmbH, established in Stuttgart (Germany),

Versatel West-Deutschland GmbH, formerly Versatel Deutschland GmbH & Co. KG, established in Dortmund (Germany),

represented by N. Nolte, T. Wessely and J. Tiedemann, lawyers,

interveners,

APPLICATION for annulment of Commission Decision 2003/707/EC of 21 May 2003 relating to a proceeding under Article 82 EC (Case COMP/C‑1/37.451, 37.578, 37.579 – Deutsche Telekom AG) (OJ 2003 L 263, p. 9), and, in the alternative, reduction of the fine imposed on the applicant in Article 3 of that decision,

THE COURT OF FIRST INSTANCE OF THE EUROPEAN COMMUNITIES (Fifth Chamber, Extended Composition),

composed of M. Vilaras, President, M.E. Martins Ribeiro, D. Šváby, K. Jürimäe and N. Wahl, Judges,

Registrar: K. Andová, Administrator,

having regard to the written procedure and further to the hearing on 3 May 2007,

gives the following

Judgment

Grounds

Facts

1. The applicant, Deutsche Telekom AG, is the incumbent telecommunications operator in Germany. The German State holds 30.92% of shares directly in the capital of the applicant and (through the Kreditanstalt für Wiederaufbau) 12.13% indirectly; the remaining 56.95% of the shares are held by institutional and private investors.

2. The applicant operates the German fixed telephone network. Before the full liberalisation of telecommunications markets, it enjoyed a legal monopoly in the retail provision of fixed-line telecommunications services. The German markets in the provision of infrastructure and in the provision of telephone services have been liberalised since 1 August 1996, when the Telekommunikationsgesetz (German Law on telecommunications; ‘TKG’) of 25 July 1996 (BGBl. 1996 I, p. 1120) came into force. Since then, the applicant has faced varying degrees of competition from alternative operators on the two markets.

3. The applicant’s local networks each consist of a number of local loops for subscribers. The term ‘local loop’ signifies the physical circuit connecting the network termination point at a subscriber’s premises to the main distribution frame or equivalent facility in the fixed public telephone network.

4. The applicant offers access to its local networks to other telecommunications operators and to subscribers. As regards the applicant’s access services and charges, it is therefore necessary to distinguish between the local network access services which the applicant offers its competitors (‘wholesale access’) and the local network access services which the applicant offers its subscribers (‘retail access’).

I – Wholesale access

5. By Decision No 223a of the Federal Ministry of Post and Telecommunications (‘BMPT’) of 28 May 1997, the applicant was required to offer its competitors fully unbundled access to the local loop with effect from June 1997.

6. The applicant’s charges for wholesale access are made up of two components: a monthly subscription charge, and a one-off charge. When a competitor discontinues access to a local loop, the applicant charges him the cost of discontinuance.

7. Under Paragraph 25(1) of the TKG, the applicant’s wholesale access charges must be approved in advance by the Regulierungsbehörde für Telekommunikation und Post (German regulatory authority for telecommunications and post; ‘RegTP’).

8. In that context, RegTP checks whether the wholesale access charges proposed by the applicant satisfy the requirements laid down by Paragraph 24 of the TKG. Thus, under Paragraph 24(1) of the TKG, ‘[r]ates shall be based on the costs of efficient service provision’. Furthermore, under Paragraph 24(2) of the TKG, rates shall not:

‘1. contain surcharges which prevail solely as a result of the provider’s dominant position … in the relevant telecommunications market;

2. contain discounts which prejudice the competitive opportunities of other companies in a telecommunications market; or

3. create any advantages for individual users in relation to other users of identical or similar telecommunications services in the relevant telecommunications market;

unless there is evidence of an objectively justifiable reason therefor’.

9. Under Paragraph 29(1) of the TKG, the applicant is required to apply the charges authorised by RegTP throughout the period of validity of RegTP’s authorisation.

II – Retail access

10. As regards retail access, the applicant offers two basic variants: the traditional analogue connection (brand name: ‘T‑Net’) and the digital narrowband connection (integrated services digital network, or ISDN; brand name: ‘T‑ISDN’). Both these variants of end-user access can be provided over the applicant’s existing copper pair network (narrowband connections). The applicant also offers end-users a broadband connection (asymmetrical digital subscriber line, or ADSL; brand name: ‘T‑DSL’), for which it had to upgrade the existing T‑Net and T‑ISDN networks so as to be able to offer broadband services such as faster Internet access.

11. The applicant’s charges for retail access (also referred to as ‘retail charges’ or ‘retail prices’) for analogue and ISDN lines are regulated by a price cap system. By contrast, the applicant sets its retail prices for ADSL at its own discretion, but these may be reviewed subsequently.

12. The applicant’s retail prices are made up of two components: a basic monthly charge, which depends on the quality of the line and services supplied, and a one-off charge for a new connection or takeover of a line, depending on the work needed at the two ends of the line. The applicant does not charge its end-users the cost of discontinuance.

A – Charges for retail analogue lines (T‑Net) and digital narrowband or ISDN lines (T‑ISDN)

13. Retail prices for analogue and ISDN lines are regulated under a price cap system. Under point 2 of Paragraph 27(1) and Paragraph 25(1) of the TKG, and Paragraphs 4 and 5 of the Telecommunications Charges Order of 1 October 1996 (BGBl. 1996 I, p. 1492; ‘the Charges Order’), retail prices for connection to the applicant’s network and for telephone calls are not regulated separately for each service, according to the individual cost of that service; they are regulated for a block of services at a time, with different services being grouped together in ‘baskets’.

14. The price cap system for access to the applicant’s network was introduced by decision of the BMPT of 17 December 1997 (Communication 202/1997, Amtsblatt (BMPT) 34/97, p. 1891). The system was taken over by RegTP on 1 January 1998, whereupon RegTP established two baskets, one for services to residential customers and the other for services to business customers. Each basket contained both retail access (standard analogue and ISDN connections) and the full range of telephone products offered by the applicant, such as local, regional, long-distance and international calls.

15. In accordance with Paragraph 4(1) and (2) of the Charges Order, RegTP determines a starting charge level for all the services grouped in a basket, and targets for the movement of basket prices over a specified period.

16. The tariff system in question thus establishes a price ceiling for each basket but makes no provision for mandatory minimum basket prices.

17. Under the terms of the decision of the BMPT of 17 December 1997, the applicant was to reduce the aggregate price for each of the two baskets by 4.3% in the period from 1 January 1998 to 31 December 1999 (first price cap period). When that first period ended on 31 December 1999, RegTP – by decision of 23 December 1999 – essentially maintained the composition of the baskets and lowered the prices by a further 5.6% in the period from 1 January 2000 to 31 December 2001 (second price cap period).

18. Within this framework of binding price reductions, the applicant could modify the charges for individual components of each basket after obtaining prior authorisation from RegTP. Under Paragraph 27(2) of the TKG and Paragraph 5(3) of the Charges Order, adjustments to charges would be authorised if the average price of a basket did not exceed the price cap index imposed. The system thus enabled the charges for one or more components of a basket to be increased, provided that the price ceiling for the basket was not exceeded. However, under Paragraph 27(3) of the TKG, approval could be refused if ‘it [was] obvious that [the charges did] not meet the requirements of points 2 or 3 of Paragraph 24(2) [of the TKG] or where they [were] not in conformity with [the TKG] or other legal provisions’.

19. In the first two price cap periods, the applicant reduced the retail prices in both baskets substantially, going far beyond the mandatory reductions. Those price reductions essentially applied to call charges. Retail prices for analogue lines (monthly and one-off access charges), on the other hand, remained unchanged throughout both price cap periods, that is, from 1998 until the end of 2001. As regards retail prices for ISDN lines, the applicant lowered basic monthly charges during the same period, but did not adjust its one-off charges to end-users.

20. A new price cap system was adopted by decision of RegTP of 21 December 2001 and has been in effect since 1 January 2002 ( Amtsblatt ( RegTP ) 2/2002, of 6 February 2002, p. 75). In place of the two baskets for residential and business customers, the new system uses four baskets, for end-user lines (basket A), local calls (basket B), domestic long-distance calls (basket C), and international calls (basket D).

21. On 15 January 2002, the applicant informed RegTP that it proposed to increase its monthly charges for analogue and ISDN lines by EUR 0.56. That increase was authorised by RegTP by decision of 13 March 2002.

22. On 31 October 2002, the applicant made a further application to increase its retail charges. RegTP partly refused that application by decision of 19 December 2002 and authorised an increase of EUR 0.33 in the monthly charge for a T‑Net analogue line instead of the increase of EUR 0.99 sought by the applicant, and refused the increase of EUR 13.40 in the one-off takeover charge for T‑Net and T‑ISDN lines.

B – Charges for ADSL lines (T‑DSL)

23. ADSL (T-DSL) charges are not subject to advance regulation under the price cap system. Under Paragraph 30 of the TKG, those charges may be reviewed subsequently.

24. On 2 February 2001, following a number of complaints from competitors of the applicant, RegTP initiated a retrospective investigation of the applicant’s ADSL prices in order to determine whether there was any practice of below-cost selling, contrary to the German rules on competition. RegTP closed the proceeding on 25 January 2002, having found that the price increase which the applicant had announced on 15 January 2002 did not give rise to a suspicion of price dumping.

Administrative procedure

25. Between 18 March and 20 July 1999, the Commission received complaints from 15 companies which were competitors of the applicant, challenging the applicant’s pricing.

26. On 15 July 1999, the Commission sent the applicant a request for information pursuant to Article 11 of Council Regulation No 17 of 6 February 1962, First Regulation implementing Articles [81 EC] and [82 EC] (OJ, English Special Edition 1959-1962, p. 87). The applicant responded to that request by letters of 13 and 25 August 1999.

27. On 19 January 2000, the Commission sent a request for information to the applicant’s competitors.

28. On 22 June 2001, the Commission sent a further request for information to the applicant.

29. On 2 May 2002, the Commission sent the applicant a statement of objections pursuant to Article 19(1) of Regulation No 17.

30. On 29 July 2002, the applicant filed observations on the statement of objections.

31. On 25 October 2002, the applicant filed observations on the complainants’ responses to the statement of objections.

32. On 21 February 2003, the Commission sent the applicant a further statement of objections.

33. On 14 March 2003, the applicant filed observations on the further statement of objections.

The contested decision

34. On 21 May 2003, the Commission adopted Decision 2003/707/EC relating to a proceeding under Article 82 EC (Case COMP/C‑1/37.451, 37.578, 37.579 – Deutsche Telekom AG) (OJ 2003 L 263, p. 9; ‘the contested decision ’). The decision was notified to the applicant on 30 May 2003.

35. According to the Commission, the relevant product or service markets are the upstream market in local network access for the applicant’s competitors at the wholesale level and the downstream market in access to narrowband connections (analogue and ISDN lines) and broadband connections (ADSL lines) at the retail level (recital 91 to the contested decision). Geographically, those markets cover the territory of Germany (recital 92 to the contested decision).

36. The Commission finds that the applicant holds a dominant position on all the relevant product and service markets (recital 96 to the contested decision).

37. According to the Commission, the applicant has infringed Article 82 EC by operating abusive pricing in the form of a ‘margin squeeze’ by charging its competitors prices for wholesale access that are higher than its prices for retail access to the local network (recitals 1, 57, 102 and 103 to the contested decision).

38. As regards the margin squeeze, recitals 102 to 105 to the contested decision state:

‘102 A margin squeeze exists if the charges to be paid to [the applicant] for wholesale access, taking monthly charges and one-off charges together, are so expensive that competitors are forced to charge their end-users prices higher than the prices [the applicant] charges its own end-users for similar services. If wholesale charges are higher than retail charges, [the applicant’s] competitors, even if they are at least as efficient as [the applicant], can never make a profit, because on top of the wholesale charges they pay to [the applicant] they also have other costs such as marketing, billing, debt collection, etc.

103 If [the applicant] charges its competitors prices for wholesale access to the local loop that are higher than its own prices for retail local network access, it prevents its competitors from offering access via the local loop in addition to call services. If a competitor might be interested in ordering unbundled local loops in order to offer access services to its customers, [the applicant] forces it to offset its losses on access services out of higher revenue on telephone calls, as [the applicant] itself does. But in recent years call charges have fallen substantially in Germany, so that competitors often have no realistic possibility of offsetting one price against another.

104 [The applicant] takes the view that there cannot be abusive pricing in the form of a margin squeeze in the present case, because wholesale charges are imposed by the regulatory authority. A margin squeeze, [the applicant] contends, must be the result of excessive wholesale prices or insufficient retail prices, or a combination of the two, and it must be legally possible to end the situation by varying either of them. But the wholesale price is fixed by the regulatory authority, so that [the applicant] controls only the retail charges, and those are subject to review only for compatibility with the principles of abusive below-cost selling or predation.

105 Contrary to [the applicant’s] view, however, the margin squeeze is a form of abuse that is relevant to this case. On related markets on which competitors buy wholesale services from the established operator, and depend on the established operator in order to compete on a downstream product or service market, there can very well be a margin squeeze between regulated wholesale and retail prices. To show that there is a margin squeeze it is sufficient that there should be a disproportion between the two charges such that competition is restricted. Of course it has also to be shown that the undertaking subject to price regulation has the commercial discretion to avoid or end the margin squeeze on its own initiative. If it has that discretion, as it has in the present case …, the question which prices the undertaking can change without the intervention of the State is relevant only for purposes of the choice of remedies to bring the margin squeeze to an end.’

39. As regards the methodology of the margin squeeze test, the Commission finds that, through access to the applicant’s local network, its competitors can offer their end-users a range of retail access services, namely analogue narrowband access, digital narrowband access (ISDN) and broadband access in the form of ADSL services. Since RegTP applies single charges for the applicant’s wholesale services, irrespective of the nature of the downstream service provided over the line, the applicant’s monthly and one-off charges (pro rata according to the average length of subscription) for wholesale access must therefore be compared with its monthly and one-off charges (pro rata according to the average length of subscription) for retail access. In order to calculate the applicant’s average retail access prices, the Commission carries out a quantitative weighting exercise in respect of the applicant’s various retail charges for analogue, ISDN and ADSL lines, and for the ISDN and ADSL line variants (recitals 113, 115, 116, 142 to 151 to the contested decision).

40. For the purpose of calculating the margin squeeze, the Commission takes account only of charges for local network access. Telephone call charges are not included in that calculation (recital 119 to the contested decision).

41. According to the Commission, ‘there is an abusive margin squeeze if the difference between the retail prices charged by a dominant undertaking and the wholesale prices it charges its competitors for comparable services is negative, or insufficient to cover the product-specific costs to the dominant operator of providing its own retail services on the downstream market’ (recital 107 to the contested decision).

42. The Commission reaches the conclusion in its margin squeeze calculations that there was a negative spread between the applicant’s wholesale and retail prices between 1998 and 2001 (recital 153 to the contested decision). That spread was positive in 2002 (recital 154 to the contested decision). However, as the positive spread was insufficient to cover the applicant’s product-specific costs linked to the provision of retail services, there was a margin squeeze in 2002 (recitals 154 and 160 to the contested decision). That margin squeeze still existed at the time of the adoption of the contested decision (recital 161 to the contested decision).

43. The Commission goes on to find that the applicant’s wholesale and retail charges are subject to sector-specific regulation. Nevertheless, the applicant has sufficient discretion to restructure its charges so as to reduce or indeed put an end to the margin squeeze (recitals 57, 105, and 163 to 175 to the contested decision). The Commission concedes that, from 1 January 2002, the applicant no longer had discretion to increase retail prices for analogue or ISDN lines. However, it could have reduced the margin squeeze by increasing its charges for ADSL lines (recitals 171 to 175 and 206 to the contested decision).

44. The Commission concludes in recital 199 to the contested decision:

‘[The applicant] is abusing its dominant position on the relevant markets for direct access to its fixed telephone network. Such abuse consists in charging unfair prices for wholesale access services to competitors and retail access services in the local network, and is thus caught by Article 82(a) of the EC Treaty. In the period from the beginning of 1998 to the end of 2001, [the applicant] was in a position to end the margin squeeze entirely by adjusting its retail charges. Since the beginning of 2002, [the applicant] could in any event have reduced the margin squeeze, by increasing the ADSL retail access charges not subject to the price cap system.’

45. Having assessed the infringement as a serious infringement for the period from the beginning of 1998 to the end of 2001, and a minor infringement for the period since the beginning of 2002, the Commission imposed a fine of EUR 12.6 million (recitals 207 and 212 to the contested decision).

46. The operative part of the contested decision reads as follows:

‘Article 1

[The applicant] has since 1998 infringed Article 82(a) of the EC Treaty by charging its competitors and end-users unfair monthly and one-off charges for access to the local network, thus significantly impeding competition on the market for access to the local network.

Article 2

[The applicant] shall immediately bring to an end the infringement referred to in Article 1 and shall refrain from repeating any act or conduct described in Article 1.

Article 3

For the infringement referred to in Article 1, a fine of EUR 12.6 million is hereby imposed on [the applicant].

…’

Procedure

47. By application lodged at the Registry of the Court of First Instance on 30 July 2003, the applicant brought the present action.

48. By documents lodged at the Registry of the Court of First Instance on 12 December 2003, Arcor AG & Co. KG (‘the first intervener’), and CityKom Münster GmbH Telekommunikationsservice, subsequently known as Tropolys NRW GmbH, then Versatel NRW GmbH; EWE TEL GmbH; HanseNet Telekommunikation GmbH; ISIS Multimedia Net GmbH & Co. KG, subsequently known as Arcor AG & Co. KG; KomTel Gesellschaft für Kommunikations- und Informationsdienste mbH, subsequently known as Versatel Nord-Deutschland GmbH; NetCologne Gesellschaft für Telekommunikation mbH; TeleBeL Gesellschaft für Telekommunikation Bergisches Land mbH, subsequently known as Tropolys NRW GmbH, then Versatel NRW GmbH; tesion Telekommunikation GmbH, subsequently known as Versatel Süd-Deutschland GmbH; Versatel Deutschland GmbH & Co. KG, subsequently known as Versatel West‑Deutschland GmbH (together: ‘the second intervener’), applied for leave to intervene in support of the form of order sought by the Commission.

49. By letter of 30 January 2004, the applicant sent the Court a request for confidential treatment of certain passages in the application, the defence, the reply and certain annexes relating thereto.

50. By letter of 22 March 2004, the applicant sent the Court a request for confidential treatment of a passage in the rejoinder.

51. By order of the President of the First Chamber of the Court of First Instance of 6 May 2004, the companies mentioned in paragraph 48 above were granted leave to intervene in support of the form of order sought by the Commission. The decision on the validity of the request for confidential treatment was reserved.

52. Non-confidential versions of various procedural documents, prepared by the applicant, were sent to the first and second interveners.

53. By letters of 24 June 2004, the first and second interveners contested the confidentiality of various passages which were obscured in the non-confidential versions of the procedural documents.

54. On 14 July 2004, the second intervener lodged its statement in intervention; the first intervener did likewise on 2 August 2004. The main parties submitted their observations on the statements in intervention.

55. By letter of 20 December 2004, the applicant lodged observations on the objections of the first and second interveners concerning the request for confidentiality.

56. By order of 15 June 2006, the President of the Fifth Chamber partly granted the applicant’s request for confidentiality.

57. By letter of 14 September 2006, the second intervener informed the Court that the first intervener had become the legal successor to ISIS Multimedia Net GmbH & Co. KG. By the same letter, it informed the Court, in accordance with Article 99 of the Rules of Procedure of the Court of First Instance, that, to avoid duplication of interveners, it was withdrawing the intervention of ISIS Multimedia Net GmbH & Co. KG, which had become Arcor AG & Co. KG.

58. By order of the President of the Fifth Chamber of the Court of First Instance of 30 November 2006, Arcor AG & Co. KG, formerly ISIS Multimedia Net GmbH & Co. KG, was removed from the case as second intervener.

59. On 11 December 2006, after hearing the parties, the Court decided to refer the present case to the Fifth Chamber, Extended Composition, of the Court of First Instance.

60. Upon hearing the Judge-Rapporteur, the Court of First Instance (Fifth Chamber) decided to open the oral procedure and, by way of measures of organisation of procedure under Article 64 of the Rules of Procedure, put written questions to the applicant and to the Commission and requested them to produce certain documents. The main parties complied with those requests within the prescribed period.

61. By letter of 21 March 2007, the applicant sent the Court a request for confidential treatment of various matters in the Commission’s statement of 5 March 2007 containing the replies to the Court’s written questions. The first and second interveners did not raise any objections to that request for confidentiality, and a non-confidential version of the Commission’s statement, which was prepared by the applicant, was sent to the first and second interveners.

62. As Judge Dehousse was unable to sit in the present case, the President of the Court of First Instance designated Judge Wahl to complete the Chamber pursuant to Article 32(3) of the Rules of Procedure on 29 March 2007.

63. The parties presented oral argument and their answers to the questions put by the Court at the hearing on 3 May 2007.

Forms of order sought by the parties

64. The applicant claims that the Court of First Instance should:

– annul the contested decision or, in the alternative, reduce the fine imposed by the Commission in Article 3 of the contested decision at the Court’s discretion;

– order the Commission to pay the costs, including extra-judicial costs.

65. The Commission contends that the Court should:

– dismiss the action;

– order the applicant to pay the costs.

66. The first intervener contends that the Court should:

– dismiss the action;

– order the applicant to pay the costs, including those of the first intervener.

67. The second intervener contends that the Court should:

– dismiss the applicant’s application;

– order the applicant to pay the costs, and to pay the extra-judicial costs of the second intervener.

Law

I – Principal form of order sought: annulment of the contested decision

68. The applicant raises three pleas in law alleging, first, an infringement of Article 82 EC; second, that the operative part of the contested decision is defective; and third, misuse of powers and infringement of the principles of proportionality, legal certainty and protection of legitimate expectations.

A – First plea in law: infringement of Article 82 EC

69. The first plea in law is in four parts. The first part alleges the absence of an abuse as the applicant did not have sufficient scope to avoid a margin squeeze. The second complains of the unlawfulness of the method used by the Commission to establish the margin squeeze. The third alleges an error by the Commission in calculating the margin squeeze, and the fourth alleges the lack of any effect on the market of the margin squeeze identified.

1. First part: absence of an abuse as the applicant did not have sufficient scope to avoid a margin squeeze

(a) Arguments of the parties

70. The applicant submits that it did not have sufficient scope to avoid the margin squeeze alleged in the contested decision. First, it notes that the Commission itself found that the applicant did not have scope to fix charges for wholesale access. Charges for wholesale access, which are fixed by RegTP, ought to correspond t o the cost of efficient service provision. Therefore, they do not necessarily correspond to the applicant’s costs.

71. Second, the applicant did not have scope to fix its charges for retail access either. As regards the period from 1998 to 2001, any abuse by the applicant is precluded by the fact that RegTP alone – and previously the BMPT – is responsible for the applicant’s charges for narrowband connections (see paragraphs 73 to 79 below).

72. As to the period after January 2002, it is only the applicant’s conduct in fixing charges for broadband connections that could be abusive, since the Commission itself acknowledged in the contested decision that the applicant has not had any scope to fix charges for narrowband connections since 2002. However, as regards the period after January 2002, any scope the applicant may have had to fix charges for broadband connections (assuming that was established), would in any event have no bearing on the margin squeeze alleged (see paragraphs 80 to 83 below).

73. First, as far as narrowband connections are concerned (analogue and ISDN lines), the applicant explains that, under German law, all its retail prices had to be examined and approved in advance by RegTP or, before 1998, by the BMPT. The applicant – who, under Paragraph 29(1) of the TKG, could not depart from the charges thus authorised without incurring a fine – cannot therefore be regarded as having infringed Article 82 EC by applying those charges.

74. As to the setting of charges, the applicant observes that, under the price cap system, RegTP initially defines the basket of services and the targets for the movement of prices which limit basket price adjustments (‘price indices’ or ‘price caps’). Next, RegTP examines the individual price adjustments proposed by the applicant. Accordingly, under Paragraphs 24 and 27 of the TKG, RegTP should ascertain – irrespective of compliance with the ceiling fixed for the basket in question – whether the charges requested have been set (without any justification) below the cost of efficient service provision or whether they contravene other legal provisions, particularly Article 82 EC. RegTP should therefore refuse a retail price adjustment sought by the applicant if the prices contravene Article 82 EC, particularly because of an anti-competitive margin squeeze.

75. The applicant maintains that, before 1 May 2002 – in accordance with Paragraph 97(3) of the TKG, under which authorisations for the applicant’s charges granted ‘before 1 January 1998 … remain[ed] in force until 31 December 2002 at the latest’ – it was bound by the mandatory tariffs for analogue lines which were based on an authorisation that was granted by the BMPT without any time-limit.

76. The applicant also notes that its application of 31 October 2002 for an increase in its retail access charges was only partly accepted by RegTP, within the limit of the price cap, by decision of 19 December 2002. Moreover, since 1 January 2002, charges for end-user lines are in a separate basket for which a specific reference value has been set. Telephone call charges have no bearing on compliance with those values. The Commission itself recognises that the applicant has not had any opportunity to increase its charges for narrowband access since 2002. The fact that the applicant did not make any further applications to increase authorised charges between 1998 and 2001 does not mean that the applicant can be held responsible for the level of charges set by RegTP and, therefore, for an alleged margin squeeze. The mere right to submit applications for price adjustment cannot be regarded as an autonomous price-fixing power. RegTP’s procedure for examining and authorising charges on a case by case basis was put in place precisely to ensure through advance regulation that the incumbent operator does not apply abusive pricing, in accordance with the obligation imposed on the Member States by Article 17 of Directive 98/10/EC of the European Parliament and of the Council of 26 February 1998 on the application of open network provision (ONP) to voice telephony and on universal service for telecommunications in a competitive environment (OJ 1998 L 101, p. 24). Where an application is examined and determined in accordance with that procedure and satisfies the procedural requirements of the Community legal framework for telecommunications law, an undertaking which applies charges set after such an examination cannot be accused of any abuse. Charges which are checked and authorised cannot be described as an abuse on the part of the undertaking which applies them.

77. Furthermore, the applicant explains that the advance regulation exercised by RegTP serves to establish the structure of the market through administrative intervention and – in the areas subject to advance regulation – transfers responsibility for maintaining the structure of the market from the regulated undertaking to the regulatory authority. Accordingly, the applicant is obliged to request price adjustments from RegTP only in the event of a change in the underlying circumstances.

78. In any event, even on the assumption that the applicant can be held responsible for a certain tariff level on the basis of its right to request a price adjustment, there was no change of circumstances such as to require the applicant to make further applications to increase its retail prices. On the contrary, since 1998, the costs of providing connections have remained almost unchanged, and wholesale access charges have even been considerably reduced. Furthermore, in the same period, RegTP concluded in its decisions of 8 February 1999, 23 December 1999, 30 March 2001, 21 December 2001, 11 April 2002 and 29 April 2003 that no margin squeeze existed to the detriment of competitors. In addition, by judgment of 16 January 2002, the Oberlandesgericht Düsseldorf (Higher Regional Court of Düsseldorf, Germany) held that the applicant’s authorised charges did not contravene Article 82 EC.

79. As regards the judgment of the Bundesgerichtshof (Federal Court of Justice, Germany) of 10 February 2004, setting aside the judgment of the Oberlandesgericht Düsseldorf of 16 January 2002, the applicant submits that that judgment confirms that RegTP checks whether a charge to which a request for authorisation relates is compatible with Article 82 EC and that responsibility for any infringement of Article 82 EC can only exceptionally be ascribed to the undertaking which applied for the charge to be authorised. The applicant observes that RegTP itself has concluded on several occasions since 1998 that there is no margin squeeze to the detriment of the applicant’s competitors. Furthermore, the Bundesgerichtshof expressly left open the question of the applicant’s responsibility under competition law on account of the regulated charges.

80. Second, the applicant submits that any abuse in the period beginning in 2002 which is based solely on the alleged scope for increases in T‑DSL (ADSL) charges cannot be ascribed to the applicant. The Commission cannot consider that discretion in isolation, since the margin squeeze was not calculated on the basis of the T‑DSL (ADSL) charges alone, but on the basis of all the retail prices. Moreover, contrary to the Commission’s contention, the applicant could not increase its charges indefinitely. Thus, the applicant claims that the basic component of the charge, namely the price of the basic subscription (analogue or ISDN connection), requires the prior authorisation of RegTP. In addition, the surcharge for switching from an analogue or ISDN connection to an ADSL connection is subject to subsequent review by RegTP. The applicant refers in that regard to the decisions of RegTP of 30 March 2001 and 25 January 2002. In those circumstances, the applicant – whose charges had to be fixed, in accordance with Paragraph 24 of the TKG, on the basis of the cost of efficient service provision – certainly did not have unlimited scope to increase its ADSL charges. In its decision of 25 January 2002, RegTP closed the proceeding initiated against the applicant concerning predatory pricing in relation to ADSL. The applicant observes further that the Commission refers only to the figures taken from RegTP’s decision of 30 March 2001 in order to show that the applicant has had scope to increase its ADSL charges since 2002.

81. In addition, the applicant submits that, on the basis of the Commission’s calculations, with the exception of the start-up phase, its retail prices for ADSL services (analogue lines since 2001 and ISDN lines since 2002) were higher than those of its wholesale access, having been increased by specific costs associated with retail access. There was therefore no margin squeeze on that market. Moreover, the real cause of the alleged margin squeeze was RegTP’s setting of low charges for analogue lines. Therefore since, according to the Commission itself, there are separate markets for broadband connections (ADSL) and narrowband connections (analogue and ISDN lines), the applicant maintains that even if it had any scope on the broadband connections market to enable it to increase its charges for ADSL lines, neither an increase in or a reduction of ADSL charges would have any repercussions on the continued existence of an anti-competitive margin squeeze on the narrowband connections market. Correction of ADSL charges could not eliminate the alleged dysfunctioning of the narrowband connections market, any more than fixing ADSL charges would provoke that dysfunctioning. In its reply, the applicant submits further that, although a single wholesale service provides access to a number of downstream markets, each of those downstream markets must be investigated as to the existence of a margin squeeze.

82. The applicant also challenges the Commission’s argument that the wholesale market for local network access is a unified market. Full access to the local network can provide end-users only with either broadband connections or narrowband connections. Moreover, broadband connections can be marketed separately from narrowband connections on the basis of line sharing. Full access to the local network is therefore not necessary for ADSL services. If the Commission had taken account of the charges for line sharing – which are significantly lower than the charges for wholesale access – in assessing the margin squeeze, the result would have been more favourable for the applicant.

83. Lastly, the applicant submits that the Commission failed to show in the contested decision how the applicant could have reduced the alleged margin squeeze by increasing ADSL charges. In view of the cross-price elasticity between ADSL and traditional connections and between the different ADSL variants (over analogue connections and ISDN), which the Commission accepts, a more thorough investigation would have been appropriate to determine whether an increase in ADSL charges would actually have resulted in an increase in weighted retail prices. The applicant notes in that regard that there is cross-price elasticity between ADSL and narrowband connections. If it had demanded higher ADSL charges in the past than those which it applies, the number of ADSL customers would have been lower. There is also considerable cross-price elasticity even within the ADSL sector. The applicant explains in that regard that ADSL connections are offered over both analogue and ISDN lines. An increase in ADSL charges on the basis of ISDN connections would shift demand towards the analogue variant.

84. The Commission and the first and second interveners contend that the first part of the first plea in law should be dismissed.

(b) Findings of the Court

(i) Preliminary observations

85. It follows from the case-law that Articles 81 EC and 82 EC apply only to anti-competitive conduct engaged in by undertakings on their own initiative. If anti-competitive conduct is required of undertakings by national legislation or if the latter creates a legal framework which itself eliminates any possibility of competitive activity on their part, Articles 81 EC and 82 EC do not apply. In such a situation, the restriction of competition is not attributable, as those provisions implicitly require, to the autonomous conduct of the undertakings (see Joined Cases C‑359/95 P and C‑379/95 P Commission and France v Ladbroke Racing [1997] ECR I‑6265, paragraph 33, and the case-law cited).

86. In that regard it must nevertheless be observed that the possibility of excluding particular anti-competitive conduct from the scope of Articles 81 EC and 82 EC, on the ground that it has been required of the undertakings in question by existing national legislation or that the legislation has eliminated any possibility of competitive conduct on their part, has been only partially accepted by the Court of Justice (Joined Cases 209/78 to 215/78 and 218/78 van Landewyck and Others v Commission [1980] ECR 3125, paragraphs 130 to 134; Case 41/83 Italy v Commission [1985] ECR 873, paragraph 19; Joined Cases 240/82 to 242/82, 261/82, 262/82, 268/82 and 269/82 Stichting Sigarettenindustrie and Others v Commission [1985] ECR 3831, paragraphs 27 to 29; and Case C‑198/01 CIF [2003] ECR I‑8055, paragraph 67).

87. For the national legal framework to have the effect of making Articles 81 EC and 82 EC inapplicable to the anti-competitive activities of undertakings, the restrictive effects on competition must originate solely in the national law (Case T‑513/93 Consiglio nazionale degli spedizionieri doganali v Commission [2000] ECR II‑1807, paragraph 61).

88. Articles 81 EC and 82 EC may apply, however, if it is found that the national legislation leaves open the possibility of competition which may be prevented, restricted or distorted by the autonomous conduct of undertakings ( van Landewyck and Others v Commission , cited in paragraph 86 above, paragraphs 126 and 130 to 134; Stichting Sigarettenindustrie and Others v Commission , cited in paragraph 86 above, paragraphs 12 to 37; Case C‑219/95 P Ferriere Nord v Commission [1997] ECR I‑4411, paragraphs 23 to 25; and Commission and France v Ladbroke Racing , cited in paragraph 85 above, paragraph 34).

89. Thus, if a national law merely encourages or makes it easier for undertakings to engage in autonomous anti-competitive conduct, those undertakings remain subject to Articles 81 EC and 82 EC (Joined Cases 40/73 to 48/73, 50/73, 54/73 to 56/73, 111/73, 113/73 and 114/73 Suiker Unie and Others v Commission [1975] ECR 1663, paragraphs 36 to 73, and CIF , cited in paragraph 86 above, paragraph 56; see, to that effect, Case T‑387/94 Asia Motor France and Others v Commission [1996] ECR II‑961, paragraph 60).

90. It is in the light of the principles set out above that the Court must examine the German legal framework – in particular the TKG, the Charges Order and the decisions taken by RegTP during the period covered by the contested decision – in order to establish whether it eliminated any possibility of competitive activity by the applicant or whether it allowed the applicant sufficient scope to fix its charges at a level which would have enabled it to end or reduce the margin squeeze identified in the contested decision.

(ii) The contested decision

91. In the contested decision, the Commission examines the charges for wholesale access and the retail charges and finds an ‘abuse by [the applicant] in the form of a margin squeeze generated by a disproportion between [those two charges]’ (recital 57).

92. The Commission goes on to indicate in the contested decision that ‘there is an abusive margin squeeze if the difference between the retail prices charged by a dominant undertaking and the wholesale prices it charges its competitors for comparable services is negative, or insufficient to cover the product-specific costs to the dominant operator of providing its own retail services on the downstream market’ (recital 107).

93. Although the Commission does not, in the contested decision, exclude the possibility of the applicant reducing its charges for wholesale access (recitals 17, 163 and 206), it confines its analysis in that decision to the question whether the applicant had genuine scope to increase its retail prices (recitals 164 to 175). To that end it distinguishes between two periods.

94. The Commission takes the view first of all that, ‘[i]n the period from the beginning of 1998 to the end of 2001, [the applicant] was in a position to end the margin squeeze entirely by adjusting its retail charges’ (recital 199). The Commission explains that the applicant ‘could have avoided the margin squeeze by increasing retail charges for analogue and ISDN connections’ (recital 164).

95. Next, for the period from 1 January 2002 to the adoption of the contested decision, the Commission also finds that the applicant had scope to increase its retail charges. However, that scope applies only to retail prices for ADSL access. The Commission observes in the contested decision that, ‘[s]ince the beginning of 2002, [the applicant] could in any event have reduced the margin squeeze, by increasing the ADSL retail access charges’ (recital 199). It explains that, ‘since 1 January 2002, [the applicant’s] only legal means of reducing the margin squeeze has been limited to increases in the T‑DSL charges’ (recital 206).

96. In those circumstances, it is necessary to consider whether the Commission was correct to find in the contested decision that the applicant had sufficient scope during the two periods identified in paragraphs 94 and 95 above to increase its retail prices, so as to end or reduce the margin squeeze identified in the contested decision.

(iii) Absence of an abuse because the applicant had insufficient scope to avoid a margin squeeze by increasing its retail prices in the period from 1 January 1998 to 31 December 2001

97. According to the contested decision (recitals 164 and 199), the applicant had sufficient scope to end the margin squeeze in the period from 1 January 1998 to 31 December 2001 by increasing its retail charges for access to analogue and ISDN lines.

98. In order to assess the merits of that finding it is necessary, in the first place, to consider the German legislative framework applicable.

99. In that respect, it must be observed that, under the second sentence of Paragraph 27(1) and Paragraph 25(1) of the TKG, and Paragraphs 4 and 5 of the Charges Order, the applicant’s retail prices for access to analogue and ISDN lines had to be approved by RegTP in the context of a price cap system. The price cap applied to two baskets (residential services and business services) which, for the period from 1 January 1998 to 31 December 2001, consisted of both access services and telephone calls, in particular, local, regional, long-distance and international calls. In view of the cap imposed by the decision of the BMPT of 17 December 1997, the applicant had to reduce the aggregate price for each of the two baskets by 4.3% in the period from 1 January 1998 to 31 December 1999 and, following the decision of RegTP of 23 December 1999, by 5.6% in the period from 1 January 2000 to 31 December 2001.

100. However, it must be held that, within that framework, the applicant was able to adjust its prices after obtaining the prior authorisation of RegTP. The applicant does not dispute the statement in recitals 37 and 166 to the contested decision that, in the period from 1 January 1998 to 31 December 2001, it lowered its telephone call charges by much more than the 4.3% and 5.6% reductions required by RegTP for the baskets as a whole. RegTP’s reply of 3 April 2002 to the request for information of 23 March 2002 referred to in recital 37 to the contested decision thus confirms that ‘the char ges for telephone services regulated under the price cap system were reduced by DEM [ confidential ] (1) [or approximately EUR [ confidential ]] over and above the price cap requirements’.

101. That tariff reduction gave the applicant scope to increase its retail prices for access to its analogue and ISDN lines.

102. As stated in recital 167 to the contested decision, the applicant also admitted in its reply to the statement of objections that there was scope for it to be able to increase the monthly charge per residential line by EUR [ confidential ] during the 1998 and 1999 price cap period.

103. The fact that the applicant did have scope to increase its retail charges is also apparent from remarks made by the German Government in its communication to the Commission of 8 June 2000, in which the German Government stated:

‘The … complaint that, by its retail price cap decisions, RegTP limited the [applicant’s] discretion to such an extent that an increase in the basic charge would not have been possible is unfounded. … [In fact the applicant] had the scope to raise the basic charge for analogue connections (DEM 21.39) so as better to align the basic charge with the charge of DEM 25.40 authorised on 8 February 1999 for local network access.’

104. Furthermore, RegTP’s decision of 8 February 1999 – to which the applicant refers in its application and in its reply to support its argument that it cannot be held responsible for an infringement of Article 82 EC – confirms that ‘the applicant retains a discretion as regards the adjustment of the various retail prices, subject to the limits applicable to the basket established in the price cap procedure’.

105. The Commission was correct therefore to find in recitals 166 and 167 to the contested decision that, having regard to the six applications for reductions in call charges between 1 January 1998 and 31 December 2001, the applicant had scope during that period to apply for increases in the prices of its access services for analogue and ISDN lines, while respecting the overall ceilings for baskets of residential and business services. Moreover, the applicant admitted at the hearing that it had such scope.

106. In the second place, it is necessary to consider whether, notwithstanding the discretion noted in paragraph 105 above, the applicant is no longer subject to Article 82 EC as a result of RegTP’s intervention in fixing the applicant’s charges.

107. In that respect, it must be borne in mind at the outset that the fact that the applicant’s charges had to be approved by RegTP does not absolve it from responsibility under Article 82 EC (see, to that effect, Case 123/83 BNIC [1985] ECR 391, paragraphs 21 to 23). Since the applicant (as it also admits in its reply) influences the level of its retail charges through applications to RegTP for authorisation pursuant to Paragraph 28(1) of the TKG, the restrictive effects on competition associated with the margin squeeze found in the contested decision did not originate solely in the applicable national legal framework ( Consiglio nazionale degli spedizionieri doganali v Commission , cited in paragraph 87 above, paragraph 61).

108. The applicant nevertheless maintains that it did not have any responsibility under Article 82 EC, as RegTP had checked the compatibility of its charges with Article 82 EC beforehand.

109. In that respect, first, it must be noted that the retail charges for access to analogue lines which applied throughout the period from 1 January 1998 to 31 December 2001 had not been authorised by RegTP, but were based on decisions taken under the legislation in force before the adoption of the TKG. In response to a written question of the Court, the applicant thus confirmed that its retail charges for analogue lines in relation to the period from 1 January 1998 to 31 December 2001 were based on an open-ended authorisation granted by the Federal Ministry of Post and Telecommunications in 1990 on the basis of the Telecommunications Code (Telekommunikationsordnung).

110. However, neither in its application nor in its reply did the applicant claim that the charges fixed under the legislation in force in 1990 had been authorised after the competent authority had considered them as to their conformity with Article 82 EC.

111. Second, it must be noted that the provisions of the TKG in force since 1 August 1996 do not indicate that RegTP considers whether applications for the adjustment of retail charges for access to analogue or ISDN lines are compatible with Article 82 EC.

112. In support of its argument, the applicant refers however to Paragraph 27(3) of the TKG, under which RegTP is to examine the conformity of the requested adjustment of charges ‘with … other legal provisions’ (said by the applicant to include Article 82 EC) and to the various decisions of RegTP mentioned in paragraph 78 above in which the existence of a margin squeeze was investigated.

113. In that respect it must be stated, first, that even though RegTP is obliged, like all organs of the State, to respect the provisions of the EC Treaty (see, to that effect, CIF , cited in paragraph 86 above, paragraph 49), it was, at the material time, the German body responsible for regulating the telecommunications sector, rather than the competition authority of the Member State concerned. However, the national regulatory authorities operate under national law which may, as regards telecommunications policy, have objectives which differ from those of Community competition policy (see the Commission’s Notice of 22 August 1998 on the application of the competition rules to access agreements in the telecommunications sector — framework, relevant markets and principles (OJ 1998 C 265, p. 2), paragraph 13).

114. Next, it must be noted that the various decisions of RegTP to which the applicant refers in support of its case do not include any reference to Article 82 EC.

115. It is true that RegTP examined the issue of the margin squeeze in a number of its decisions, particularly those of 8 February 1999, 30 March 2001, 21 December 2001, 11 April 2002 and 29 April 2003.

116. However, in those decisions, having found a negative spread between the applicant’s wholesale and retail prices, RegTP took the view in each case that other operators should be able to offer their end-users competitive prices by resorting to cross-subsidised charges for access services and call charges.

117. Thus, RegTP finds in its decision of 29 April 2003 that:

‘[C]ompetitors are not so prejudiced with regard to their competitive opportunities in the local network by the slight difference between retail and wholesale prices as to make it economically impossible for them to enter the market successfully or even to remain in the market. ... [That difference] was not so significant as to deprive competitors of any opportunity themselves to cross-subsidise their retail prices in order to be able to offer their end-users connections at a price as attractive as that offered by the applicant, or even at a lower price. That applies particularly to the higher-value and costlier ISDN and ADSL connections, which have increased markedly in number on account of the significant expansion of internet penetration, as well as of the marketing of faster and better access to the internet.’

118. RegTP follows a similar reasoning in its decisions of 8 February 1999, 30 March 2001, 21 December 2001 and 11 April 2002.

119. However, the fact that RegTP does not object to the charges requested by the applicant, after finding that the applicant’s competitors must resort to cross-subsidisation in order to be able to offer their end-users competitive prices for access, shows that RegTP did not consider the compatibility of the charges in question with Article 82 EC or, at any rate, that it applied Article 82 EC incorrectly (see paragraphs 198 to 202 and 238 below).

120. In any event, even on the assumption that RegTP is obliged to consider whether retail charges proposed by the applicant are compatible with Article 82 EC, the Commission would not thereby be precluded from finding that the applicant was responsible for an infringement. The Commission cannot be bound by a decision taken by a national body pursuant to Article 82 EC (see, to that effect, Case C‑344/98 Masterfoods and HB [2000] ECR I‑11369, paragraph 48).

121. Third, it must be noted that attribution of any infringement to the applicant in the present case depends on whether the applicant had sufficient scope at the material time to fix its charges at a level that would have enabled it to end or reduce the margin squeeze at issue.

122. It has already been held that the applicant was able to influence the level of its retail charges through applications to RegTP for authorisation (see paragraphs 98 to 105 above). In the context of the applicant’s special responsibility as an undertaking in a dominant position (Case 322/81 NBIM v Commission [1983] ECR 3461, paragraph 57; Case T‑228/97 Irish Sugar v Commission [1999] ECR II‑2969, paragraph 112; and Case T‑203/01 Michelin v Commission [2003] ECR II‑4071, paragraph 97), the applicant was therefore obliged to submit applications for adjustment of its charges at a time when those charges had the effect of impairing genuine undistorted competition on the common market.

123. Furthermore, in its judgment of 10 February 2004 (paragraph 79 above), the Bundesgerichtshof expressly confirmed the applicant’s responsibility to make applications for the adjustment of its charges. In addition, it noted that the German legal framework did not preclude RegTP from authorising proposed charges which are contrary to Article 82 EC. The Bundesgerichtshof held, in fact, that, ‘[u]nlike those cases in which the conduct of the undertaking in a dominant position is directly determined by national legal provisions, the authorisation of charges that is prescribed by telecommunications law is nevertheless based on the application for authorisation made by the provider’, and that, ‘[e]ven if the administrative examination procedure is intended not to authorise tariffs which prove to constitute an abuse of a dominant position …, that does not preclude the possibility in practice of an undertaking submitting a charge by which it abuses its dominant position and obtains authorisation for it because the abuse is not revealed during the examination procedure’.

124. It follows from all the foregoing that, notwithstanding RegTP’s intervention in the setting of the applicant’s charges, the applicant had sufficient discretion during the period from 1 January 1998 to 31 December 2001 for its pricing policy to fall within the scope of Article 82 EC.

125. In the third place, it is necessary to consider whether the applicant used the discretion which it had in relation to its retail prices in order to avoid the margin squeeze identified in the contested decision in the period from 1 January 1998 to 31 December 2001.

126. In the present case, first of all, as regards retail prices for analogue lines, the applicant does not deny that it made no application to RegTP for authorisation for an increase in one-off charges and/or monthly charges. Thus, it is common ground that ‘the monthly and one-off access charges for standard analogue telephone connections remained unchanged throughout the entire time from 1998 to the end of 2001’ (recital 38 to the contested decision).

127. The applicant nevertheless maintains that, before 1 May 2002, it was bound in accordance with Paragraph 97(3) of the TKG by the mandatory charges for analogue lines that had been set in 1990 by the Federal Minister for Post and Telecommunications.

128. However, Paragraph 97(3) of the TKG, containing a transitional provision, provided only that the applicant’s charges approved before the entry into force of the TKG would remain in effect until 31 December 2002 at the latest. That provision in no way therefore prevented the applicant from intervening in retail prices by making applications for price changes to RegTP before that date or, in particular, during the entire period from 1 January 1998 to 31 December 2001.

129. Second, as regards retail prices for ISDN lines, it is undisputed that, following the applicant’s application, RegTP authorised a reduction in the basic monthly charges by decision of 16 February 2000 (recital 40 to the contested decision).

130. Furthermore, throughout the period from 1 January 1998 to 31 December 2001, the applicant made no application for price adjustment in respect of its one-off charges for the provision of ISDN lines. Those charges, which, according to the applicant, are based on a 1996 decision of the BMPT and which remained valid in accordance with Paragraph 97(3) of the TKG after the entry into force of the TKG, were not therefore adjusted during the period from 1 January 1998 to 31 December 2001 (recital 41 to the contested decision).

131. It follows that the applicant did not use the discretion available to it in order to secure an increase in its retail prices, which would have helped to reduce the margin squeeze in the period from 1 January 1998 to 31 December 2001. On the contrary, it even used that discretion to lower its retail prices in respect of ISDN lines during that period.

132. Finally, in the fourth place, it is necessary to consider whether the Commission has established to the requisite legal standard in the contested decision that the applicant had sufficient scope in the period from 1 January 1998 to 31 December 2001 to ‘[avoid] the margin squeeze’ (recital 164). In that respect, the Commission states in the contested decision that the applicant ‘was in a position [during that period] to end the margin squeeze entirely by adjusting its retail charges’ (recital 199).

133. It must be noted in that regard that the margin squeeze identified in the contested decision for that period amounted to EUR [ confidential ] up to 31 December 1998, EUR [ confidential ] up to 31 December 1999, EUR [ confidential ] up to 31 December 2000 and EUR [ confidential ] up to 31 December 2001 (recitals 152 and 153 to the contested decision, and Table 10).

134. However, as the Commission contends in its reply to a written question of the Court, it follows from the findings in recital 167 to the contested decision, which have not been challenged by the applicant, that the applicant actually lowered its call charges by a total of EUR [ confidential ] during the period 1998 and 1999. However, that amount – distributed over [ confidential ] lines (Table 7 of the contested decision) and 24 months – would have enabled the applicant to raise the average price of its retail charges to EUR [ confidential ] per month.

135. It follows that the reduction in call charges would have created sufficient scope to end entirely the margin squeeze identified in the contested decision. For if, by exercising its discretion, the applicant had ended the margin squeeze as from 1998, it would have sufficed for the applicant to maintain the balance between its charges for wholesale access and its retail charges in order to avoid the margin squeeze identified in the contested decision throughout the period from 1 January 1998 to 31 December 2001. In addition, as the Commission also points out in the contested decision (recital 167), it is common ground that the applicant reduced its call charges further during the 2000 and 2001 period to EUR [ confidential ], and that the effect of that reduction was to increase further the applicant’s scope to raise its retail prices.

136. At the hearing the applicant pointed out that, during the period from 1 January 1998 to 31 December 2001, RegTP had to investigate compliance with the price ceilings separately in respect of business and private customers. The applicant maintains that it had little scope to increase retail prices for individuals, and that it could not use its greater discretion to increase retail access prices for its business customers because that would have resulted in discrimination against those customers, contrary to point 3 of Paragraph 24(2) of the TKG.

137. However, in its application, the applicant has not disputed the finding in recital 167 to the contested decision that the amount released by the reductions in call charges could have been redirected to ‘connections for residential and business customers’ and could have been used entirely to increase retail access charges. Nor, in its application, has the applicant disputed the Commission’s statement in recital 132 to the contested decision that ‘no distinction [should be made] between residential and business customers … because no sufficiently precise demarcation between them is possible’.

138. The line of argument referred to in paragraph 136, which was raised for the first time at the hearing, must therefore be declared inadmissible, in accordance with Article 48(2) of the Rules of Procedure.

139. Finally, it must be noted that the applicant does not dispute the finding in recital 168 to the contested decision that, during the period from 1 January 1998 to 31 December 2001, it could have ‘[undertaken] further reductions in call charges … and thereby … [obtained additional] leeway for price increases in the monthly and one-off charges for analogue and ISD N connections’.

140. It follows from all the foregoing that the Commission was entitled to find in the contested decision (recitals 164 and 199) that the applicant had sufficient scope during the period from 1 January 1998 to 31 December 2001 to end entirely the margin squeeze complained of in that decision.

(iv) Absence of an abuse because the applicant had insufficient scope to reduce the margin squeeze by increasing its ADSL retail access charges from 1 January 2002

141. It must be borne in mind that a new price cap system in Germany, approved by RegTP by decision of 21 December 2001, has been in force since 1 January 2002. Under the terms of that decision, ‘end-user lines’ are in a separate basket. Within that basket, the increase in retail prices for analogue and ISDN connections was capped at 4.1% per annum.

142. It is not disputed that, following an application to RegTP on 15 January 2002, the applicant was authorised to increase its monthly charges for analogue and ISDN lines by EUR 0.56, which represented an increase in the average level of charges for all the services in the basket concerned of 4.04% (recital 44 to the contested decision). Nor is it disputed that the applicant’s application of 31 October 2002 for an increase in its retail prices – in relation to the monthly rental charge for a T‑Net analogue telephone line and the one-off takeover charges for T‑Net and T‑ISDN lines – was largely rejected by RegTP, because the increase would no longer have been consistent with the current price cap index figures (recital 45 to the contested decision).

143. Accordingly, the Commission finds in the contested decision (recital 206) that ‘since 1 January 2002, [the applicant’s] only legal means of reducing the margin squeeze has been limited to increases in the T‑DSL charges’. According to the Commission, from that date, the applicant’s discretion covered only ADSL retail access charges (see also recitals 174 and 199 to the contested decision).

144. In the first place, it must be noted in that regard that the applicant does not deny that it could have increased its ADSL charges from 1 January 2002. It maintains, however, that it did not have unlimited leeway because its charges had to be set on the basis of the cost of efficient service provision and could be reviewed subsequently by RegTP.

145. However, since the applicant fixes its ADSL charges at its own discretion, within the limits imposed under German law, its pricing practices in that area are capable of being caught by Article 82 EC (see paragraphs 87 and 88 above).

146. The fact that the Commission referred in the contested decision only to charges deriving from a decision of RegTP of 30 March 2001 in order to assess the extent of the applicant’s discretion from 1 January 2002 alters nothing in that respect. The applicant does not deny that it had a limited discretion to increase its charges for ADSL access services from 1 January 2002.

147. In the second place, it is necessary to consider whether, as the Commission contends in the contested decision (recital 199), the applicant could have ‘reduced the margin squeeze’ by increasing its charges for ADSL access services from 1 January 2002. The applicant submits in that respect that, for end-users, the markets for narrowband and ADSL access services are separate markets. In those circumstances, an increase by the applicant in ADSL retail charges would have had no effect on the alleged margin squeeze identified in the markets for analogue and ISDN access services.

148. It must be noted in that regard that since wholesale access services can provide end-users with the whole range of analogue, ISDN and ADSL access services, the applicant’s scope to increase its ADSL charges is capable of reducing the margin squeeze between wholesale prices, on the one hand, and retail prices for the whole range of analogue, ISDN and ADSL access services, on the other. A combined analysis, at end-user level, of analogue, ISDN and ADSL access services is required not only because they amount to a single supply of services at wholesale level, but also because, as the Commission explained in the contested decision (recital 26) without having been challenged by the applicant on that point, ADSL cannot be offered to end-users on its own because, for technical reasons, it always involves an upgrading of analogue or ISDN narrowband connections.

149. The applicant’s observations concerning the purported cross-price elasticity between ADSL and narrowband connections and between the different ADSL variants must be rejected. First, those observations do not preclude the existence of scope for the applicant to increase its ADSL charges. Second, a limited increase in ADSL charges would have led to a higher average retail price for narrowband and associated broadband access services, and would thus have reduced the margin squeeze identified. In view, in particular, of the advantages of broadband as regards data transmission, end-users of broadband access services would not automatically choose to revert to a narrowband connection when ADSL retail access charges are increased.

150. The applicant’s argument that broadband connections can be marketed separately from narrowband connections on the basis of line sharing at the wholesale level cannot be accepted either. If, by that argument, the applicant seeks to distinguish two separate wholesale markets relating to narrowband services and broadband services respectively, that argument must be declared inadmissible in accordance with Article 48(2) of the Rules of Procedure because, in its application, the applicant has not challenged the definition of the relevant markets that was applied in the contested decision, which identifies a single wholesale market, namely the market for fully unbundled access to the local network (recitals 64 to 67 to the contested decision). If, by that argument, the applicant claims that the Commission should have taken account of the line sharing charges for the purpose of calculating charges for wholesale access, that argument cannot be accepted either. The applicant has failed to show that, if the Commission had taken the line sharing charges into account, that would have affected its findings as to the existence of a margin squeeze or of the applicant’s scope to reduce the margin squeeze by increasing its ADSL retail access charges.

151. It follows from all the foregoing that the Commission was entitled to find in the contested decision that the applicant had sufficient scope from 1 January 2002 to reduce the margin squeeze identified in that decision by increasing its charges for ADSL access services.

152. Accordingly, the first part of the plea in law must be rejected.

2. Second part: unlawfulness of the method used by the Commission to establish a margin squeeze

(a) Arguments of the parties

153. The applicant submits that the abusive nature of a margin squeeze can arise only from the abusive nature of retail prices alone, since the Commission does not deny that the prices of wholesale access are mandatorily set by the official authorities. However, the Commission has not demonstrated that the applicant’s retail prices would lead to price dumping and as such are abusive. The applicant refers in that regard to Lexecon’s expert opinion. The contested decision is thus erroneous because the Commission applied a test which does not relate to the abusive nature of the retail prices as such, but to the relationship between those prices and the prices of wholesale access.

154. The applicant also claims that the finding of a margin squeeze is based on a number of errors relating to the method used.

155. In the first place, the applicant observes that, as far as retail prices are concerned, the Commission took account only of revenue from the provision of telephone lines to end-users. In order to be able to find a margin squeeze and in view of the narrow definition of the market used in the contested decision, the Commission should have taken account of additional revenue from the applicant’s competitors for connection and higher-value services (see, to that effect, Case T‑342/99 Airtours v Commission [2002] ECR II‑2585, paragraph 276). The revenue in question is generated by local or long-distance calls, call termination and call sending, as well as other higher-value services. Although the Commission found that ‘[t]he fixed-network connections are in reality a prerequisite for the provision of a variety of telecommunications services to end-users’, and that those services enable considerable additional revenue to be generated (recital 205 to the contested decision), it nevertheless contradicted itself in refusing to take the charges for those telecommunications services into account in its analysis of the margin squeeze. From an economic standpoint, however, it would be necessary to take those charges into account in order to assess the actual opportunities for a competitor of the applicant to enter the market.

156. Thus, first, the applicant submits that its competitors are not obliged to offer their customers preselection and call-by-call services in respect of local, long-distance or international calls. Its competitors are therefore able to predict their revenue from telephone calls with far greater certainty than the applicant. As far as long-distance calls are concerned, the applicant maintains in its reply that it has been required to provide preselection and call-by-call (together: ‘(pre)selection’) services since 1998.

157. In addition the applicant submits in its reply that carrier (pre)selection is not automatically excluded for its competitors’ customers. However, almost all of the applicant’s competitors avail themselves of the possibility (which is not open to the applicant) of excluding (pre)selection where it is to their advantage to do so. The applicant’s competitors are thus assured of receiving the revenue connected with telephone calls by virtue of the voluntary exclusion of carrier (pre)selection. None of the complainants in the administrative procedure took the view, moreover, that the exclusion of (pre)selection rendered its service provision less attractive or that a lower initial connection charge should have been offered by way of compensation. Furthermore, their call charges are almost all higher than the costs of establishing the call.

158. Second, the applicant submits that its competitors could offer innovative products on the basis of unbundled access to the local network, which are not offered by the applicant itself. In calculating the margin squeeze, the Commission should therefore also have taken into account the additional revenue generated by such products.

159. Third, the applicant maintains that its charges for retail access services (one-off and monthly charges) cannot be isolated from call charges. Competition for telecommunications services is for bundles of services. The applicant refers in that regard to a market study. Accordingly, the telecommunications companies offer a choice of connection variants and call options which are marketed as a combined product: mixed price packages in which rising monthly charges are set against falling call charges. In considering in its decision of 29 April 2003 whether the applicant’s charges were leading to a margin squeeze that would distort competition, RegTP also regarded as decisive the fact that the applicant’s competitors are in a position to obtain additional revenue from call services. The same or similar explanations are also given in the other decisions taken by RegTP between 1999 and 2003, cited in paragraph 78 above. The applicant refers moreover to the practice of the United States’ Federal Communications Commission (FCC) and the British Office of Telecommunications (Oftel), and to the opinion expressed by the German Government in its observations of 8 June 2000 in proceedings for failure to fulfil obligations, which confirm that other revenue available to competitors must be taken into account in the analysis of a margin squeeze.

160. In its reply, the applicant submits further that an analysis of the margin squeeze must be undertaken from the point of view of different levels of aggregation where wholesale access serves as the basis for a variety of services to end-users. Thus, at each level, only those costs of wholesale access which are exclusively linked to the corresponding final product or group of final products concerned should be taken into account. Consequently, if wholesale products WP1 and WP2 are required for the production of final product FP1, but if, at the same time, final product FP2 is produced on the basis of WP2 and WP3, a margin squeeze occurs either where the price of FP1 or of FP2 is lower than the price of WP1 or of WP3, or where the aggregate price of FP1 and FP2 is lower than the aggregate price of WP1, WP2 and WP3. However, the price of WP2 should not be taken into account for the purpose of determining whether there is a margin squeeze at the first level of aggregation. The analysis should be conducted at a higher level of aggregation where products FP1 and FP2 constitute a whole from the customer’s point of view, or where products FP1 and FP2 are bundled for technical or legal reasons (by wholesale product WP2), with the result that the dominant undertaking would necessarily lose the revenues from the two final products FP1 and FP2 when transferring wholesale product WP2. Unbundled access to the local network is a wholesale product in respect of at least two final products, namely calls and connections, which constitute a ‘cluster’ for customers. The costs of the wholesale product should not be attributed to just one of the two final products but to both of them. It follows that charges for retail line-rental and for calls and higher-value services should be compared with the charges relating to that combined offer of services when analysing the margin squeeze.

161. Furthermore, the applicant challenges the Commission’s arguments concerning the principle of tariff rebalancing (recitals 120 to 123 to the contested decision). Thus, according to the applicant, tariff rebalancing – the purpose of which is to reduce the connection deficit which traditionally exists in the majority of the Member States, by means of an increase in connection charges and a parallel decrease in call charges – concerns incumbent operators only. By contrast, the analysis of the margin squeeze concerns the entry to the market of the applicant’s competitors. In the context of Article 82 EC, it is important to establish only whether, taking into account the actual situation on the market, it is possible for competitors to provide retail services without impediment on the basis of the applicant’s charges for wholesale access. In that respect, the applicant observes that its competitors are not obliged to offer (pre)selection. The legal framework thus allows the applicant’s competitors to enjoy legally guaranteed revenues from call services, completely independently of any tariff rebalancing. The applicant submits further that it is subject to regulation by RegTP, which aims to achieve progressive tariff rebalancing.

162. In the second place, the applicant claims that the method used by the Commission to identify a margin squeeze is defective, because it relies on the proposition that it should be possible for the applicant’s competitors to replicate its customer pattern entirely (recitals 120 to 127 to the contested decision). However, no competitor would have an interest in replicating a customer pattern which, owing to the obligation to provide universal services, is characterised by a disporportionately high and unprofitable share of low-income end-users with analogue lines, who generate only a small turnover and who are not prepared to switch to higher-value connections. The fall in the applicant’s competitors’ share of analogue connections from 21% to 10% between 1999 and 2002 (recital 182 to the contested decision) is explained by the fact that customers of the applicant’s competitors have increasingly been switching to higher-value connections.

163. The applicant claims that, contrary to the Commission’s contention (recital 133 to the contested decision), there is no margin squeeze in the highest-value market sectors which are of interest to the applicant’s competitors (ISDN connections and ADSL connections over analogue or ISDN lines). Both the applicant’s own charges and those of its competitors in respect of lines in the highest-value segments are sufficient to cover costs.

164. In the third place, the applicant is critical of the fact that the Commission takes the discontinuance charge into account when calculating the prices of wholesale services. The discontinuance of an end-user’s connection by a competitor of the applicant involves both connection work to restore to the applicant the local loop rented, and administrative tasks, which are not necessary in the case of an end-user’s discontinuance where the applicant uses the local loop itself. These costs are specific inefficiency costs which arise as a result of entry to the market, which the incumbent operator in a dominant position necessarily does not incur. Any such costs which are generated solely as a result of technical or administrative measures associated with entry to a market should be disregarded in the analysis of a margin squeeze. In fact, Article 82 EC does not require a dominant undertaking to remove all barriers to entry, but prohibits the creation of artificial barriers to entry.

165. The Commission and the first and second interveners contend that the second part of the first plea in law should be rejected.

(b) Findings of the Court

(i) Whether the Commission should have demonstrated in the contested decision that the applicant’s retail prices were, as such, abusive

166. In the present case, according to the contested decision (recital 201), ‘[t]he abuse committed by [the applicant] consists in the imposition of unfair prices in the form of a margin squeeze to the detriment of [the applicant’s] competitors’. The Commission takes the view that there is ‘an abusive margin squeeze if the difference between the retail prices charged by a dominant undertaking and the wholesale prices it charges its competitors for comparable services is negative, or insufficient to cover the product-specific costs to the dominant operator of providing its own retail services on the downstream market’ (recital 107 to the contested decision).

167. It is true that, in the contested decision, the Commission establishes only that the applicant has scope to adjust its retail prices. However, the abusive nature of the applicant’s conduct is connected with the unfairness of the spread between its prices for wholesale access and its retail prices, which takes the form of a margin squeeze. Therefore, in view of the abuse found in the contested decision, the Commission was not required to demonstrate in that decision that the applicant’s retail prices were, as such, abusive.

168. The applicant’s argument that the abusive nature of a margin squeeze can arise only from the abusive nature of its retail prices must therefore be rejected.

(ii) The method used by the Commission to calculate the margin squeeze

Contested decision

169. In recitals 106 to 139 to the contested decision, the Commission sets out the method which it used to calculate the margin squeeze.

170. It submits first of all th at the basis for establishing an abusive margin squeeze is the comparison between ‘the retail prices charged by a dominant undertaking and the wholesale prices it charges its competitors for comparable services’ (recital 107 to the contested decision).

171. The Commission adds that ‘[i]n order to establish the existence of a margin squeeze it is essential that the wholesale and retail access services be comparable’ (recital 109 to the contested decision). According to the Commission, ‘[the] established operator and its competitors as a rule provide retail services of all kinds. It has therefore to be considered whether the etablished operator’s retail and wholesale services are comparable, in the sense that their technical features are the same or at least similar and that they allow the same or at least similar services to be provided’ (recital 109 to the contested decision).

172. The Commission finds that the wholesale charges for unbundled access to local loops can indeed be compared with retail access charges, and that wholesale access enables the applicant’s competitors to offer their end-users a range of different retail access services, namely analogue narrowband access, digital narrowband access (ISDN) and broadband access in the form of ADSL services (recitals 110 and 112 to the contested decision).

173. According to the Commission, there is an abusive margin squeeze if the difference between the retail prices charged by a dominant undertaking and the wholesale prices it charges its competitors for comparable services ‘is negative, or insufficient to cover the product-specific costs to the dominant operator of providing its own retail services on the downstream market’ (recital 107 to the contested decision). The Commission therefore relies on the applicant’s charges and costs as a basis for assessing whether the applicant’s pricing practices are abusive.

174. In order to determine whether the difference between the applicant’s retail prices and the prices of its wholesale access leads to an abusive margin squeeze, the Commission compares the price of a single wholesale service (local loop access) with the price of a plurality of retail services (access to analogue, ISDN and ADSL connections) (recital 113 to the contested decision).

175. The Commission does not take revenues from telephone calls into account at the retail price level. It only examines the charges for access to the network, which it compares to the charges of wholesale access (recital 119 to the contested decision).

176. Since RegTP has applied single wholesale tariffs, irrespective of the downstream services which competitors provide over the line supplied to them by the applicant (recital 113 to the contested decision), it is necessary, according to the Commission, to compare charges for wholesale access with average prices for all retail access services, taking account of each variant of retail access service actually marketed by the applicant and the respective prices of those lines (recital 116 to the contested decision).

177. It must therefore be borne in mind that the retail prices (for each variant offered by the applicant) and the prices for wholesale access are composed of two items, namely an initial one-off charge and a monthly subscription charge (recitals 142 and 149 to the contested decision).

178. To calculate the ‘monthly price’ of the one-off charges, these were divided by [ confidential ], representing the average period (in months) for which end-users keep a telephone subscription (recitals 148 and 151 to the contested decision).

179. Thus, the average total monthly retail price is the sum of the price of the average monthly charge (taking into account all retail access services) and the average one-off charges (taking into account all retail access services and the average duration of a subscription) (recital 148 to the contested decision).

180. The average total monthly price of wholesale services is the sum of the price of the monthly charge and the price of the average one-off charges (taking into account the average duration of a subscription) (recital 151 to the contested decision). According to the Commission, the one-off charges for wholesale access also include discontinuance charges. The Commission notes that ‘[t]he discontinuance charge is payable for re-connecting an unbundled line to [the applicant’s] network and is imposed only on competitors at wholesale level’, and adds that ‘[t]he discontinuance charge and the charge for access provision are the only one-off wholesale charges which competitors must pay to [the applicant]’ (recital 151 to the contested decision).

181. On the basis of that calculation of monthly prices, the Commission finds that the spread between the applicant’s wholesale and retail prices was negative between 1998 and 2001 (recital 153 to the contested decision). In view of that finding, it is not necessary, according to the Commission, ‘to determine whether this spread was sufficient to cover [the applicant’s] downstream costs for customer relations’ (recital 153 to the contested decision). By contrast, since the spread was positive from 2002 onwards, the Commission calculated ‘[the applicant’s] product-specific costs [for providing retail services], in order to assess whether this positive spread [was] sufficient [for the applicant] to cover [those] product-specific costs’ (recital 154 to the contested decision).

182. The Commission concludes that the margin squeeze in access to the local network still existed at the time of the adoption of the contested decision (recital 161 to the contested decision), since the applicant’s product-specific costs for providing retail services still exceeded the positive spread between retail and wholesale prices (recital 160 to the contested decision).

Lawfulness of the method used by the Commission

– Preliminary observations

183. It must be noted that the applicant puts forward three complaints concerning the method used to calculate the margin squeeze. First of all, the applicant submits that, as far as retail prices are concerned, the Commission should not have taken into consideration only revenues from the provision of telephone lines to end-users, but also revenues from other services such as call services. Second, the applicant criticises the method used by the Commission to demonstrate the existence of a margin squeeze based on the proposition that the applicant’s competitors would have an interest in entirely replicating its customer pattern. Third, the method used is defective because the Commission inflates the prices of wholesale access by taking discontinuance charges into account in the calculation of those prices.

184. The various arguments put forward in relation to the first two complaints all relate to one or other of the two essential features of the method used by the Commission. The first concerns the margin squeeze calculation based on the charges and costs of a vertically integrated dominant undertaking, disregarding the particular situation of competitors on the market. The second concerns the taking into account of revenues from all access services, excluding revenues from other services which may be supplied via access to a fixed network.

185. Before considering those various complaints and arguments, it must be borne in mind that, although as a general rule the Community judicature undertakes a comprehensive review of the question whether the conditions for applying the competition provisions of the EC Treaty are met, its review of complex economic appraisals made by the Commission is necessarily limited to verifying whether the relevant rules on procedure and on the statement of reasons have been complied with, whether the facts have been accurately stated and whether there has been any manifest error of appraisal or misuse of powers (Case 42/84 Remia and Others v Commission [1985] ECR 2545, paragraph 34; Joined Cases 142/84 and 156/84 BAT and Reynolds v Commission [1987] ECR 4487, paragraph 62; and Case C‑194/99 P Thyssen Stahl v Commission [2003] ECR I‑10821, paragraph 78).

– The alleged unlawfulness of the method of calculating the margin squeeze on the basis of the charges and costs of a vertically integrated dominant undertaking, disregarding the particular situation of competitors on the market

186. It must be observed first of all that the Commission considered in the contested decision whether the pricing practices of the dominant undertaking could have the effect of removing from the market an economic operator that was just as efficient as the dominant undertaking. The Commission therefore relied exclusively on the applicant’s charges and costs, instead of on the particular situation of the applicant’s actual or potential competitors, in order to assess whether the applicant’s pricing practices were abusive.

187. According to the Commission, ‘there is an abusive margin squeeze if the difference between the retail prices charged by a dominant undertaking and the wholesale prices it charges its competitors for comparable services is negative, or insufficient to cover the product-specific costs to the dominant operator of providing its own retail services on the downstream market’ (recital 107 to the contested decision). In the present case, the margin squeeze is said to be abusive because the applicant itself ‘would have been unable to offer its own retail services without incurring a loss if … it had had to pay the wholesale access price as an internal transfer price for its own retail operations’ (recital 140 to the contested decision). In those circumstances, ‘competitors [who] are just as efficient’ as the applicant cannot ‘offer retail access services at a competitive price unless they find additional efficiency gains’ (recital 141 to the contested decision; see also recital 108 to the contested decision).

188. Next, it must be noted that, although the Community judicature has not yet explicitly ruled on the method to be applied in determining the existence of a margin squeeze, it nevertheless follows clearly from the case-law that the abusive nature of a dominant undertaking’s pricing practices is determined in principle on the basis of its own situation, and therefore on the basis of its own charges and costs, rather than on the basis of the situation of actual or potential competitors.

189. Thus, in its judgment in Case C‑62/86 AKZO v Commission [1991] ECR I‑3359, paragraph 74, the Court of Justice took into consideration only the charges and costs of the dominant undertaking, AKZO, in order to assess whether AKZO’s pricing practices were abusive. The approach suggested by Advocate General Lenz, according to which it was ‘necessary to analyse the cost structure of all three oligopolists [namely AKZO and its two competitors], so that a reliable picture [could] be obtained of the price level that was in fact economically justified’ (point 34 of his Opinion), was not therefore followed by the Court.

190. Similarly, the Court of First Instance held in Case T‑5/97 Industrie des poudres sphériques v Commission [2000] ECR II‑3755 that the fact that the applicant, which had complained of an alleged practice of margin squeezing, ‘cannot, seemingly because of its higher processing costs, remain competitive in the sale of the derived product cannot justify characterising [the dominant undertaking’s] pricing policy as abusive’ (paragraph 179).

191. Finally, in its Decision 88/518/EEC of 18 July 1988 relating to a proceeding under Article [82 EC] (Case No IV/30.178 Napier Brown – British Sugar) (OJ 1988 L 284, p. 41; ‘the Napier Brown/British Sugar decision’), the Commission also took the view that a margin squeeze should be calculated on the basis of the charges and costs of the vertically integrated dominant operator (recital 66). It finds in that decision that ‘[t]he maintaining, by a dominant company, which is dominant in the markets for both a raw material and a corresponding derived product, of a margin between the price which it charges for a raw material to the companies which compete with the dominant company in the production of the derived product [on the one hand] and the price which it charges for the derived product [on the other], which is insufficient to reflect that dominant company’s own costs of transformation (in this case the margin maintained by British Sugar between its industrial and retail sugar prices compared to its own repackaging costs) with the result that competition in the derived product is restricted, is an abuse of dominant position’ (recital 66).

192. It must be added that any other approach could be contrary to the general principle of legal certainty. If the lawfulness of the pricing practices of a dominant undertaking depended on the particular situation of competing undertakings, particularly their cost structure – information which is generally not known to the dominant undertaking – the latter would not be in a position to assess the lawfulness of its own activities.

193. The Commission was therefore correct to analyse the abusive nature of the applicant’s pricing practices solely on the basis of the applicant’s particular situation and therefore on the basis of the applicant’s charges and costs.

194. Since it is necessary to consider whether the applicant itself, or an undertaking just as efficient as the applicant, would have been in a position to offer retail services otherwise than at a loss if it had first been obliged to pay wholesale access charges as an internal transfer price, the applicant’s argument that its competitors are not seeking to replicate its own customer pattern and can acquire additional revenue from innovative products which they alone supply on the market (as to which the applicant provides no details however) is ineffective. For the same reasons, the argument that competitors can exclude the possibility of (pre)selecti