2003/707/EC: Commission Decision of 21 May 2003 relating to a proceeding under Article 82 of the EC Treaty (Case COMP/C-1/37.451, 37.578, 37.579 — Deutsche Telekom AG) (Text with EEA relevance.)(notified under document number C(2003) 1536)
Date: 2003-05-21
Institutions: European Commission
Subjects: Germany, competition law, dominant position, infringement of EU law, telecommunications

14.10.2003

EN

Official Journal of the European Union

L 263/9

COMMISSION DECISION

of 21 May 2003

relating to a proceeding under Article 82 of the EC Treaty
(Case COMP/C-1/37.451, 37.578, 37.579 — Deutsche Telekom AG)
(notified under document number C(2003) 1536)

(Only the German text is authentic)

(Text with EEA relevance)

(2003/707/EC)

THE COMMISSION OF THE EUROPEAN COMMUNITIES,

Having regard to the Treaty establishing the European Commu-
nity,

Having regard to Council Regulation No 17 of 6 February
1962, the first Regulation implementing Articles 85 and 86 of
the Treaty (1), as last amended by Regulation (EC) No 1216/
1999 (2), and in particular Articles 3 and 15(2) thereof,

Having regard to the complaints lodged on 18 March 1999,
19 July 1999 and 20 July 1999 by Mannesmann Arcor AG &
Co. and 14 German regional fixed-network operators, alleging
infringement of Article 82 of
the EC Treaty by Deutsche
Telekom AG and asking the Commission to put an end to
that infringement,

Having regard to the Commission decision of 2 May 2002 to
initiate proceedings in this case,

Having heard the undertakings concerned in accordance with
Article 19(1) of Council Regulation No 17 and Commission
Regulation (EC) No 2842/98 of 22 December 1998 on the
hearing of parties in certain proceedings under Articles 81 and
82 of the EC Treaty (3),

communications networks

the European Parliament and of

In accordance with Article 2(e) of Directive 2002/19/EC
of
the Council of
7 March 2002 on access to, and interconnection of,
and associated
electronic
facilities
the
loop is
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.

(Access Directive) (4),

the local

(2)

(3)

On 18 March 1999, Mannesmann Arcor AG & Co.
lodged a complaint against DT under Article 82 of the
EC Treaty and against Germany under Article 86 of the
EC Treaty.

The Commission received two further complaints in
respect of the same facts, one on 19 July 1999, from
TeleBeL GmbH and seven other companies (see recital 9)
(Case COMP/C-1/37.37.58) and one on 20 July 1999,
from EWE TEL GmbH and five other companies (see
recital 10) (Case COMP/C-1/37.579). All of these addi-
tional 14 complainants are German local and regional
telecommunications operators active in different German
towns or cities.

Having consulted the Advisory Committee on Restrictive Prac-
tices and Dominant Positions,

(4)

Having regard to the report by the Hearing Officer,

Whereas:

I. THE FACTS

(1)

This decision concerns unfair pricing contrary to
Article 82(a) of the EC Treaty. The prices in question
are charged to competitors and end-users by Deutsche
Telekom AG (‘DT’) for access to its local networks. DT's
local networks each consist of a number of local loops.

(5)

for access

it charges end-users

The main contention in all three complaints is that the
margin between the prices DT charges its competitors
for unbundled access to local loops in Germany and the
prices
fixed
network is not sufficient to enable its competitors to
compete with it to provide end-user access over local
networks. The main accusation made against Germany
is that the German regulatory authority for telecommu-
nications and posts (Regulierungsbehörde fur Telekommuni-
kation und Post, abbreviated to RegTP and hereinafter
referred to as ‘the regulatory authority’) has fixed the
wholesale charges at a level exceeding the retail charges.

to its

the

regulatory

Charges for access to local networks are partly regulated
this decision is
authority, but
by
concerned with unfair prices which have been set by
DT itself in the exercise of its own commercial freedom,
and for which it is directly responsible.

(1) OJ 13, 21.2.1962, p. 204/62.
(2) OJ L 148, 15.6.1999, p. 5.
(3) OJ L 354, 30.12.1998, p. 18.

(4) OJ L 108, 24.4.2002, p. 7.

L 263/10

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Official Journal of the European Union

14.10.2003

II. THE UNDERTAKINGS

GmbH (Münster), HTN GmbH (Hanover), Hamcom
GmbH (Hamm), KomTel GmbH (Flensburg), DOKOM
GmbH (Dortmund) and KielNet GmbH (Kiel).

(6)

(7)

(8)

A. THE PARTY AGAINST WHOM THE COMPLAINTS ARE

MADE

private

package

investors:

amounted

DT is the incumbent
telecommunications operator in
Germany. It operates the fixed telephone network origin-
ally built using public resources. DT was at one time
wholly owned by the German State. On 18 November
1996, 25 % of the equity was sold on the open market
to
to
this
714 million shares known as ‘T’ shares, and was sold
for DEM 20,1 billion. Following a capital
increase in
June 1999, the percentage of shares owned by private
investors rose to 33 %. At that time a 65 % stake was
still held by the German State (43 % direct and 22 %
through the German recovery bank Kreditanstalt
für
Wiederaufbau, or ‘KfW’), while 2 % was held by France
Télécom. When DT took over the United States mobile
in 2000, the State and
operator VoiceStream/Powertel
their holdings. France Télécom
KfW gave up part of
sold its shares back to DT. Currently, 30,92 % of the
shares are held by the State, 12,13 % by KfW, and
56,95 % by institutional and private investors.

the

full

fixed-line

liberalisation of

telecommunications

Before
telecommunications
markets, DT enjoyed a legal monopoly in the retail
provision of
services.
Since 1 August 1996, when the Telecommunications
Act (‘the Act’) (5) entered into force, the German markets
in the provision of infrastructure and in the provision of
telephone services have been liberalised. DT now faces
varying degrees of competition from alternative opera-
tors on the two markets.

B. THE COMPLAINANTS

over

telephone services.

by Vodafone Airtouch

The complainant in Case COMP/C-1/37.451 is Mannes-
mann Arcor AG & Co., one of Germany's largest fixed-
network operators, which offers end-users a wide range
In 2000 Mannesmann AG was
of
taken
Since
April 2001 the complainant has
the
‘Arcor’). On
name Arcor AG & Co.
30 September 1998 Arcor concluded an outline agree-
ment with DT for local
in which
charges were agreed only provisionally, pending author-
isation by the regulatory authority, as required by the
German rules on price regulation.

plc (6).
traded under

loop unbundling,

(hereinafter

(10)

(11)

(12)

The complainants in Case COMP/C-1/37.579 are EWE
TEL GmbH (Oldenburg), HanseNet GmbH (Hamburg),
ISIS Multimedia Net GmbH (Düsseldorf), NetCologne
GmbH (Cologne), tesion Communikationsnetze Südwest
GmbH & Co. KG (Stuttgart) and VEW TELNET GmbH
(Dortmund).

All 14 complainants in Cases COMP/C-1/37.578 and
COMP/C-1/37.579 are local and regional fixed-network
operators with geographically restricted licences, who
connect end-users to their own networks within their
licensed territory, in so far as their networks are within
reach and operational. To connect customers that they
cannot reach with their own networks these complai-
nants need unbundled access to DT's local
loops (see
recital 64 et seq.). All 14 have concluded agreements
with DT concerning local loop unbundling.

III. FACTS AND FIGURES

to compete with DT, competitors

In order
secure
network access either by using their own infrastructure
(optical fibre, cable television, power lines, etc.), or by
using DT's local network on the basis of unbundled
access to local
loops. The latter option is less cost-
intensive, and gives even financially weaker competitors,
who are unable to build complete infrastructures of
their own, direct access to the German retail market.
Countrywide providers of
telecommunications services
also depend on shared use of existing infrastructure.
But in the case of telephone calls, as a result of network
interconnection, alternative operators wishing to provide
countrywide services in Germany no longer face any
comparable bottleneck.

(13) New entrants do not have network infrastructures of
their own that are as extensive as those of DT, and with
traditional
technologies they are unable to match the
economies of scale and the coverage of the incumbent
operator, which rolled out its local network over a long
period under
the protection of exclusive rights, and
funded its investment out of monopoly rents (7).

(9)

The complainants in Case COMP/C-1/37.578 are TeleBeL
GmbH (Wuppertal), CNB GmbH (Bremen), Citykom

(14) DT offers access to its local networks to other telecom-
munications operators and to end-users. The rules
governing telecommunications in Germany regulate the
two types of access in different ways.

(5) Telekommunikationsgesetz (TKG), 25 July 1996, publication reference

BGBl. I, p. 1120.

(6) Case COMP/M.1795 — Vodafone Airtouch/Mannesmann (OJ L 141,

19.5.2000, p. 19).

(7) Regulation (EC) No 2887/2000 of the European Parliament and of
the Council of 18 December 2000 on unbundled access to the local
loop (OJ L 336, 30.12.2000, p. 4, recital 3).

14.10.2003

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Official Journal of the European Union

L 263/11

A. WHOLESALE ACCESS: FULL UNBUNDLING

do not confer anticompetitive advantages on some
operators only (16).

(15) At local

level a distinction can be made between two
different forms of access to incumbents' fixed telephone
networks: one is full
loop unbundling, and the
other is line sharing, or shared use of local loops. The
charges for the two forms of access are different. This
decision relates only to fully unbundled access to DT's
local loops.

local

(18)

of

and

Posts

Telecommunications

(16) With effect from June 1997 DT was required to offer its
competitors fully unbundled access to the local loop (8).
The requirement was imposed by decision of the Federal
Ministry
in
May 1997 (9); at that time no such obligation yet existed
under Community law (10). DT challenged the decision
before the administrative courts (11); DT's application
was
finally dismissed by the Federal Administrative
Court in 2001. On 30 August 1998, on the basis of
this unbundling requirement, an outline agreement on
unbundled access
reached
between DT and Mannesmann Arcor.

loops was

to DT's

local

for

the

the

first

regulatory

acting under

these provisions

in
In March 1998,
response to an application made by DT on 23 December
1997,
time
authority
authorised monthly net charges for unbundled access
to DT's local loop (all charges specified in this decision
are net charges) (17). DT had requested authorisation for
a monthly charge of EUR 14,73 for the rental of a basic
analogue local loop (18). DT had also applied for one-off
charges of EUR 309,84 for opening a new connection,
no additional work being needed (19), and EUR 135,49
for taking over an existing serviceable connection (20).
On 9 March 1998 the regulatory authority rejected part
of
the costing submitted by DT, and authorised a
monthly charge of EUR 10,56 for the rental of a local
loop. It authorised the one-off charges requested for the
time being. DT did not at that time charge its compe-
titors separately for discontinuing access to local
loop;
the cost of discontinuance was included in the charges
for access provision.

(17)

law, charges

Under German telecommunications
for
access to the local network must be cost-oriented (12)
and must be authorised in advance by the regulatory
authority (13). When deciding whether to authorise the
wholesale prices that DT charges other operators, the
regulatory authority has to satisfy itself that they corre-
service provision (14),
spond to the cost of efficient
contain no special extra charges or discounts (15), and

(8) Following a complaint

lodged by Mannesmann Arcor under
section 33(2)(2) of the Act, which came after unsuccessful negotia-
tions with DT between November 1996 and March 1997.

(9) Ministry Decision 223a of 28 May 1997.
(10) Since 1 January 2001, when Regulation (EC) No 2887/2000
entered into force, local loop unbundling has also been mandatory
under Community law.

(11) An application for an interim injunction was dismissed on
18 August 1997 by the Administrative Court of Cologne, and that
dismissal was upheld on 29 September 1997 by the Higher Admin-
istrative Court of Münster.

(12) Section 24(1) of the Act.
(13) Sections 25(1) and 24 of the Act.
(14) Section 24 of the Act.
(15) Section 29(1) of the Act.

(19) While granting this partial authorisation, the regulatory
authority also ordered DT to submit a more detailed
cost calculation, by the middle of 1998, using the cost
accounting system DT had recently introduced (INTRA).
It
to bring the
charges finally sought for unbundled access for compe-
titors to well below EUR 10.

the corrections ought

told DT that

(18)

(16) Section 28(1) and (2) of the Act.
(17) Regulatory authority division (Beschlusskammer) 4, file reference BK
4a 1130/E23.12.97; in DT's application, costs were calculated using
DT's traditional cost accounting system.
‘CuDa 2Dr’, a copper pair circuit. Many higher-performance local
loops also exist.

(19) There is a ‘new connection’ where a local loop access product is
ordered without discontinuing a DT product at the same time, or
where the technical set-up or use of the local loop is changed, or
where there is no longer any serviceable connection to the end-user
for the desired product variant (DT local
loop contract, version
current at 18 November 2002, Annex 1, definitions). The basic
charge is due where no additional work is needed on DT's cable
distribution frame or at the customer's premises (such a connection
is hereinafter referred to as a ‘straightforward’ new connection);
otherwise higher one-off charges are payable.

(20) There is a ‘takeover’ of an existing connection where a local loop
access product is ordered and an existing DT product is discon-
tinued at the same time, and there is no change in the technical set-
up or use of the local loop (DT local loop contract, version current
at 18 November 2002, Annex 1, definitions). The basic charge is
due where no additional work is needed on DT's cable distribution
frame or at the customer's premises (such a connection is herein-
after referred to as a ‘straightforward’ takeover); otherwise higher
one-off charges are payable.

L 263/12

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Official Journal of the European Union

14.10.2003

for

charge

a monthly

authorisation

(20) On 5 June 1998, contrary to these guidelines, DT
submitted a fresh application to the regulatory authority
seeking
of
EUR 24,16.
It also applied for one-off charges of
EUR 384,58 for a straightforward new connection and
EUR 323,67 for a straightforward takeover. Under the
terms of the Act, the regulatory authority was required
to decide on the application within 10 weeks, which
meant that the deadline was 30 November (21). But on
27 November 1998, DT, having learnt that the regula-
tory authority intended to increase the monthly charge
to EUR 11,86, withdrew its application, on the recom-
mendation of the Federal Minister for Economic Affairs.
The same day the regulatory authority decided to
suspend the proceedings and to extend the validity of
its provisional authorisation of 9 March 1998, which
was now to continue until 30 April 1999 (22).

(24)

(21) On 20 January 1999 the Administrative Court of
interim measures
Cologne, on an application for
brought by Mannesmann Arcor, held that the regulatory
authority was entitled to reach a decision on the level of
charges of its own motion, and that in this particular
case it was bound to do so (23). However, DT immedi-
ately lodged a new application with the regulatory
authority, seeking authorisation for a monthly charge of
EUR 19,07 and one-off charges of EUR 224,26 for a
straightforward new connection and EUR 186,44 for a
straightforward takeover.

(22) On 10 February 1999 the

regulatory

authority
loop access charge of
authorised a monthly local
EUR 12,99 for a basic line (24).
It authorised one-off
charges of EUR 100,50 for a straightforward new
connection and EUR 97,99 for a straightforward take-
over. It also authorised a one-off discontinuance charge
of EUR 55,07, which DT now showed separately from
the charges for access provision. In so far as the charges
the regulatory
applied for were higher
authority rejected DT's application. The authorisation
was valid until 31 December 2001.

than these,

a

takeover,

straightforward

of EUR 17,40 for a basic line and one-off charges of
EUR 119,51 for a straightforward new connection,
EUR 127,04 for
and
EUR 104,41 for discontinuance of access to the local
loop (25)
in the case of a basic line. Along with the
the costs of
application DT submitted calculations of
these services based on its own internal cost accounting
system; it expressly stated that under the relevant rules
of German law these were the only calculations that
could be considered for purposes of the authorisation of
charges (26).

a

for

takeover

straightforward

line (28), and one-off
straightforward
a

The regulatory authority decided on the application on
30 March 2001, (27); with effect from 1 April 2001 it
the
authorised a monthly charge of EUR 12,48 for
rental of a basic
charges of
EUR 92,59
and
for
EUR 86,51 for a straightforward new connection (29).
The same decision authorised discontinuance charges of
EUR 38,06
and
EUR 59,24 for a new connection requiring work on
DT's cable distribution frame. In so far as the charges
the regulatory
applied for were higher
authority
regulatory
rejected DT's
authority based this partial authorisation essentially on
the system of analytical cost accounting developed by
the consultant WIK (30), which set out to identify the
long-run incremental costs of unbundling in a more
theoretically rigorous way (31), as DT's own cost calcula-
tions did not meet
requirements in every
the legal
respect.

than these,
application. The

takeover

(25) On 11 April 2002 (32),

the

regulatory

authority
approved DT's application to reduce one-off charges
with effect from 1 April 2002, bringing the charge for
a straightforward new basic connection to EUR 81,12,
for a straightforward takeover to EUR 70,56, and for
discontinuance
to EUR 34,94 (with simultaneous
transfer of the customer) or EUR 50,71 (without simul-
taneous transfer) (33). By decision of 30 April 2003, the
regulatory authority (34) reduced the monthly charge to
EUR 11,80 with effect from 1 May 2003.

(23) On 19 January 2001, DT lodged a new tariff application
with the regulatory authority seeking a monthly charge

(21) DT withdrew its application on 17 July 1998, and submitted it
afresh on 21 September 1998, seeking the same charges, but
providing more detailed cost accounting.

(22) Ministry press release of 27 November 1998 (Annex 7 to complaint
in Case COMP/C-1/37.451); regulatory authority press release of
27 November 1998 (Annex 7A to complaint in Case COMP/C-1/
37.451).

(23) File reference L 3890/98.
(24) Division 4, file reference BK 4e-98-024/E 21.09.98.

(25) There is a description of this service in Annex 4 to the local loop
charges application of 19 January 2001, p. 6 (Annex ZZ to DT's
reply of 24 September 2001 to the request for information of
29 August 2001).

(26) Grounds of application set out in Annex 2 to the local loop charges

application of 19 January 2001, p. 3 (see footnote 25).

(27) Division 4, file reference BK 4a-01/001/E 19.1.2001.
(28)

It authorised monthly charges for 13 different types of line, the
highest being EUR 65,70.
It authorised one-off charges for more than 80 different types of
case, the highest being over EUR 400.

(29)

(30) Wissenschaftliches
Honnef, Germany.

Institut

für

Kommunikationsdienste,

Bad

(31) Using the LRIC (long-run incremental cost) method.
(32) Division 4, file reference BK 4a-02/004/E 31.1.2002.
(33)

It authorised access provision charges for more than 70 different
types of case, and discontinuance charges for more than 30; some
of these were substantially higher than the amounts cited here.

(34) Division 4, file reference BK 4a-03-010/E, 19.2.2003.

14.10.2003

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Official Journal of the European Union

L 263/13

B. RETAIL ACCESS

Table 2

(26) DT offers its end-users two basic variants of access to
the fixed network. These are the traditional analogue
connection (marketed under the brand name ‘T-Net’)
and the digital narrowband connection (integrated
ISDN, brand name ‘T-
services digital network, or
ISDN’). Both these variants of end-user access can be
provided over DT's existing copper pair network. DT
also offers end-users a broadband connection allowing
broadband services such as faster Internet access (asym-
metrical digital subscriber line, or ADSL, brand name ‘T-
DSL’), which it provides by upgrading an existing T-Net
or T-ISDN line.

(27) According to information provided by DT (35),
number of DT's analogue (T-Net) and digital
retail
developed as follows between 1998 and 2002:

the
(T-ISDN)
lines with an ADSL upgrade,

including all

lines,

Table 1

T-Net

T-ISDN

Total

31.12.1998

[…] (*)

[…]

31.12.1999

[…]

31.12.2000

[…]

31.12.2001

[…]

31.12.2002

[…]

[…]

[…]

[…]

[…]

[…]

[…]

[…]

[…]

[…]

(28) Of

local

the total number of

loops, an increasing
proportion is being equipped with ADSL technology,
allowing faster transmission of larger volumes of data.
According to information provided by DT, the roll-out
of ADSL (T-DSL) end-user connections developed as
follows between 1998 and 2002 (36):

[...] = business secret.

(*)
(35) DT's reply of 23 July 2001 to the request for information of
22 June 2001 and DT's reply of 4 February 2002 to the request
for information of 17 January 2002 in Case COMP/C-1/37.451;
DT's letters of 17 January 2003 and 22 January 2003: primary rate
access connections are not included, and nor are ‘other’ connec-
tions, because they are numerically insignificant, or because their
prices cannot be apportioned with sufficient accuracy.

(36) DT's reply of 23 July 2001 to the request for information of
22 June 2001 and DT's reply of 4 February 2002 to the request
for information of 17 January 2002 in Case COMP/C-1/37.451;
DT's letters of 17 January 2003 and 22 January 2003.

T-DSL/T-Net

T-DSL/T-ISDN

Total

31.12.1998

[…]

31.12.1999

[…]

31.12.2000

[…]

31.12.2001

[…]

31.12.2002

[…]

[…]

[…]

[…]

[…]

[…]

0

3 000

149 000

2 000 000

3 100 000

(29) DT's retail tariffs 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 (37).

(30) DT's

retail prices

for analogue and ISDN lines are
regulated under the German price cap system, in which
a price adjustment guideline is set
for a basket of
services, whereas retail tariffs for T-DSL are not subject
to any advance regulation.

(a) CHARGES FOR ANALOGUE AND ISDN LINES (T-NET

AND T-ISDN)

(31)

Unlike the prices that DT charges its competitors for
access to the local network (see recital 15 et seq.),
its
retail tariffs for analogue and ISDN lines are not regu-
lated individually in line with cost-orientation principles,
but instead fall under what is known as the price cap
system. Prices for retail subscription to DT's fixed tele-
phone network and for telephone calls made are not
regulated for each service separately, depending on the
individual cost of that service: they are regulated for a
block of services at a time, with different services being
grouped together in what is called a ‘basket’ (38).

(37) DT's current retail tariffs are published on the Internet at www.te-
‘Anhang 2 zur Mitteilung
(RegTP) No 3/1999,

lekom.de. See also regulatory authority,
68/1999’, publication reference Amtsblatt
p. 540.

(38) Sections 27(1)2 and 25(1) of the Act; Sections 4 and 5 of the
telecommunications charges order (Telekommunikations-Entgeltregu-
lierungsverordnung (TEntgV, hereinafter ‘the order’), 1 October 1996,
publication reference BGBl. I, p. 1492).

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Official Journal of the European Union

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(32) Under the German telecommunications charges order,
the price cap method is the preferred tariff regulation
tool: strict cost orientation is applied to an individual
retail service only if that service cannot be allocated to
one of the predetermined baskets (39). This means that
the firm whose charges are regulated has some discre-
tion to fix its prices on a commercial basis. The price
cap system is made up of one price cap decision, laying
the price
down the division of services into baskets,
adjustment guideline and other general
terms for a
specified period, and other decisions reached on indivi-
dual applications for adjustments to charges during that
price cap period.

that

price for each basket by 4,3 % in the first price cap
period,
is to say the two years running from
1 January 1998 to 31 December 1999. When the first
price cap period ended, on 31 December 1999,
the
regulatory authority decided essentially to maintain the
the baskets and to lower the basket
composition of
prices by a further 5,6 % in the second price cap
period, which ran from 1 January 2000 to 31 December
2001 (45).
In each price cap period the average price
index (46) was to be smaller or no bigger than the price
cap index (47). These index figures are intended to reflect
productivity and efficiency gains on DT's part and the
rate of price increases in the economy as a whole, as a
result of
inflation for example, during the particular
price cap period.

is

first determined for all

(33) A basket is to be composed of services which are in a
comparable situation with respect to competition (40). A
starting charge level
the
services grouped in a basket (41), and a target, known
as the price cap index, is set for the movement of the
basket price over a specified period (42). Price adjustment
guidelines have to be arrived at taking account of the
general rate of price increases, the anticipated produc-
tivity gains of DT, and the relationship between the
starting charge level and the long run incremental cost
of efficient service provision (43).

(aa) Price cap periods 1998/1999 and 2000/2001

(34)

and

retail

Posts

Telecommunications

cap mechanism for

introduced by decision of

The price
fixed-network
charges was
the Federal
in
of
Ministry
December 1997 (44), and was taken over by the regula-
tory authority from 1 January 1998. Two baskets were
established, one for services to residential customers and
the other for services to business customers. Each basket
contained access services (standard analogue and ISDN
telephone products
subscriptions),
the full
offered by DT, such as local, regional,
long-distance
and international calls, and also satellite calls and
optional tariffs.

range of

(35) Under

dated
17 December 1997, DT was to reduce the aggregate

the Ministry's

decision,

original

(39) Section 1(1) of the order.
(40) Section 1(2) of the order.
(41) Section 4(1) of the order.
(42) Section 4(2) of the order.
(43) Section 4(2) and (3) of the order.
(44) Ministry decision of 17 December 1997,

‘Mitteilung 202/1997’,

(36) Within this framework of binding price reductions, DT
could modify the charges for individual components of
the basket as it wished. In formal terms, though, any
adjustment of the charges needed authorisation by the
regulatory authority. DT was entitled to take the initia-
tive and to apply for authorisation at any time; there
was no restriction on the number of adjustments that
could be made in any one price cap period. In the price
cap system, planned adjustments to charges can as a
rule be authorised if the average price of a basket does
not exceed the imposed price cap index (48), and there
are clearly no discounts or discriminatory terms (49).
Thus DT was free to increase the charges for one or
more components of
the
overall ceiling for the basket was not exceeded. This
meant that an increase that exceeded the price ceiling
for a basket was possible only if at the same time the
prices of other components of
the same basket were
reduced. But the price cap system made no provision
for mandatory minimum basket prices, and there was
nothing to prevent DT from reducing all of the charges
reduction
grouped in a basket beyond the rates of
imposed.

the basket provided that

(37)

In the first two price cap periods, DT reduced the retail
prices in both baskets substantially, going far beyond

(45) Regulatory authority decision of 23 December 1999, Division 2,

file reference BK 2c 99/050.

(46) The average price index incorporates the imposed aggregate price
movement in each basket from one price cap period to the next. In
1997 it was set at a reference value of 100, and then adjusted for
each of the two price cap periods, taking account of general price
changes and the share of turnover accounted for by each service in
the basket in each price cap period.

(47) The price cap index shows the required aggregate price reduction
per price cap period, taking account of the level of prices after the
reductions required in the preceding price cap period.

(48) Section 27(2), second sentence, of the act, and section 5(3) of the

order.

publication reference Amtsblatt (BMPT) 34/97, p. 1891.

(49) Section 27(3) of the act.

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Official Journal of the European Union

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the

the mandatory reductions (50).
In terms of volume of
in the first price cap period, running from
turnover,
reductions
January 1998 to December 1999,
amounted to EUR [...]
for the residential basket and
EUR [...] for the business basket. Taking out the manda-
the additional, unimposed
tory reduction of 4,3 %,
reductions for the two baskets together amounted to
EUR [...] (51).
In the second price cap period, running
from January 2000 to December 2001, the additional,
unimposed reductions, after the mandatory reduction of
5,6 % is taken out, amounted to a further EUR [...] in
the residential customers basket, and EUR [...] in the
business customers basket (52). This means that over a
period of
four years, DT undertook voluntary price
reductions that went beyond what was required by a
total of EUR [...] (53).

(38)

The reductions applied to call charges only: the monthly
and one-off access charges for standard analogue tele-
phone connections remained unchanged throughout the
entire time from 1998 to the end of 2001.

(39)

In that period DT's basic monthly charge for
retail
access to a standard analogue telephone line (‘T-Net
standard’) was always EUR 10,93. DT claims that this
charge does not cover the cost to DT of providing end-
users with analogue access to the telephone network.
it has not yet fully eliminated the
DT contends that
revenue
fixed
on retail
shortfall
network (54). DT's predecessor, Deutsche Bundespost,
had permitted this
essentially on social
shortfall
grounds: Deutsche Bundespost offered users access to
the telephone network below cost, and made up its
losses on access out of above-average revenue from
calls, and especially its charges for international calls.

access

the

to

(40) Until 31 March 2000 the basic monthly charge for an
ISDN connection was EUR 19,56 for T-ISDN multi-
device mode (Mehrgeräteanschluss), simple; EUR 20,45
for T-ISDN multi-device mode, standard; EUR 22,67 for
T-ISDN, multi-device mode, comfort; EUR 26,23 for T-
simple;
ISDN point-to-point mode (Anlagenanschluss),

(50) Since the beginning of 1998 the regulatory authority has authorised
seven price reductions within the price cap system: on 30 January
1998, on 11 December 1998, on 16 March 1999, on 16 April
1999, on 21 January, on 16 February 2000, and on 13 March
2002.

(51) Regulatory authority's reply of 3 April 2002 to the request for

EUR 28,45 for T-ISDN point-to-point mode, standard;
and EUR 30,68 for T-ISDN point-to-point mode,
comfort (55). On 17 December 1999, DT applied for
authorisation to reduce these prices to EUR 19,78 for
T-ISDN multi-device mode, standard, EUR 21,99 for
T-ISDN multi-device mode, comfort, EUR 25,56 for
T-ISDN point-to-point mode, simple and standard, and
EUR 28,12 for T-ISDN point-to-point mode, comfort,
and on 16 February 2000 the regulatory authority
granted the authorisation applied for with effect from
1 April 2000 (56). These are therefore the prices that
applied until the end of the original price cap scheme.

(41)

Throughout the whole price cap period 1998 to 2001
DT's one-off retail charges for analogue and ISDN lines
of all kinds amounted to EUR 22,22 for a takeover of a
serviceable connection and to EUR 44,45 for the provi-
sion of a new serviceable connection with no special
work required. There were no discontinuance charges
for DT customers.

(bb) Price cap period 2002

(42) A new price cap system was approved by the regulatory
authority on 21 December 2001 and has been in force
since 1 January 2002 (57). On 23 May 2001, the regula-
tory authority published preliminary guidelines for new
price cap arrangements to apply from 2002 (58), and in
October 2001 it announced its intention of adjusting
the composition of the baskets and the imposed reduc-
tions in the basket prices, known as ‘X factors’ (59). The
decision of 21 December 2001 was in line with what
the two baskets for
In place of
had been proposed.
residential and business customers, the new system uses
four baskets,
local calls
(basket B), domestic long-distance calls (basket C), and
international calls (basket D) (60).

for end-user lines (basket A),

(43)

End-user lines are now in a separate basket with a
negative X factor; this obliges DT to increase charges,
restructuring its tariffs further in order to put an end to

(55) For precise descriptions of these ISDN variants see DT's letter of

17 January 2003 and Annex DT St 29.

(56) A regulatory authority decision of 28 February 2001 extended that

authorisation to 31 March 2002.

information of 23 March 2002.

(57) Decision of 21 December 2001, file reference BK2c 01/009, publi-

(52) Regulatory authority's reply of 3 April 2002 to the request for

cation reference Amtsblatt (RegTP) 2/2002, 6.2.2002, p. 75.

information of 23 March 2002.

(53) Regulatory authority's reply of 3 April 2002 to the request for

information of 23 March 2002.
(54) DT's observations on the complaint

in Case COMP/C-1/37.451,
14 May 1999, p. 17; DT's reply of 24 September 2001 to the
request for information of 28 August 2001 in Case COMP/C-1/
37.451, p. 5.

(58) http://www.regtp.de/reg_tele/start/fs_05.html.
(59)

‘Mitteilung 580/2001’, publication reference Amtsblatt (RegTP) 20/
2001, 17.10.2001, p. 3087.

(60) X factors: basket A, - 1 %; basket B, 5 %; basket C, 2 %; and
basket D, 1 %. The reference values for these price adjustment
guidelines are the average price index and the price cap index at the
end of the second price cap period.

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the existing shortfall on subscriber lines (61). With the
imposed X factor of – 1, and an inflation rate of
3,1 % (62), DT is entitled under the new price cap system
to increase charges for end-user lines by 4,1 % a year, or
12,3 % over the three-year period covered by the new
price cap procedure (63).

(b) CHARGES FOR ADSL LINES (‘T-DSL’)

(46) Unlike the tariffs for analogue and ISDN lines, T-DSL
tariffs are not subject to advance regulation under the
price cap system. The prices of T-DSL services are set by
DT at
its own discretion, but may be reviewed ex
post (67).

(44) On 15 January 2002, DT informed the regulatory
it proposed to increase its monthly
authority that
charges
for analogue and ISDN lines by an initial
EUR 0,56 each (64). By a decision of 13 March 2002,
the regulatory authority made a finding that DT had
complied with all the values laid down for increases in
the various end-user line charges in basket A, as the
average level of charges for all the services in basket A
had risen by 4,04 % (65). From 1 May 2002 the monthly
charge for an analogue line (T-Net) became EUR 11,49,
and the monthly charge for T-ISDN became EUR 20,34
for multi-device mode, standard, and EUR 22,55 for
multi-device mode, comfort. The prices of the other T-
ISDN variants remained unchanged.

(47)

2001

a month.

From January

From July 1999 to July 2000, DT offered T-DSL only
over T-ISDN lines, at a price of EUR 22,74 monthly and
a one-off EUR 100,93 for installation. Between August
and December 2000, it offered T-DSL over T-Net lines
at EUR 13,17 a month, and over T-ISDN lines at
EUR 6,56
to
February 2002,the monthly charge for a T-DSL upgrade
on a T-Net line was EUR 17,59, and on any variant of
T-ISDN line EUR 8,77 (68). This meant that until 31 July
2000 the total price for T-DSL/T-ISDN multi-device
mode, standard, was EUR 43,19, and for T-DSL/T-ISDN
multi-device mode, comfort, EUR 45,41. From 1 August
2000 to 31 December 2000, the total price for T-DSL/
T-Net was EUR 24,10,
for T-DSL/T-ISDN multi-device
mode,
standard, EUR 26,34, and for T-DSL/T-ISDN
multi-device mode, comfort, EUR 28,55. From 1 January
2001 to 24 February 2002, the total price of T-DSL/T-
Net was EUR 28,52,
for T-DSL/T-ISDN multi-device
mode,
standard, EUR 28,55, and for T-DSL/T-ISDN
multi-device mode, comfort, EUR 30,76.

(48) On 2 February 2001, following a number of complaints
from competitors, the regulatory authority initiated an
investigation of DT's ADSL prices, on the
ex post
ground that there might be anticompetitive below-cost
selling. The regulatory authority came to the conclusion
that DT's monthly charge for T-DSL services over a T-
ISDN standard line covered only [...] % of costs. In the
same decision the regulatory authority also found that
DT's one-off
installation charge for T-DSL services
covered only [...] % of costs (69).

(67) Under section 30 of the Act.
(68) Written information from DT, 5 March 2002; all prices are for the
T-DSL upgrade only, and come on top of the T-Net or T-ISDN
charges, see recitals 40 and 41.

(69) Division 3, file reference BK3b-00/032, decision of 30 March 2001,
p. 31. (The decision found that only the monthly charge for T-DSL/
T-Net covered its cost.)

(45)

Lastly, on 31 October 2002 DT submitted an applica-
tion to the regulatory authority for authorisation to
increase the monthly rental charge for a T-Net analogue
telephone line by EUR 0,99 to EUR 12,48, and to
increase the one-off takeover charge for T-Net and T-
ISDN lines by EUR 13,40 to EUR 35,62, with effect
from 1 February 2003. But in its decision, adopted on
19 December 2002, the regulatory authority authorised
only an increase of EUR 0,33 in the monthly charges,
bringing them to EUR 11,82, and otherwise refused the
application. Thus it did not authorise the increase in the
one-off takeover charge that DT had applied for (66). In
support of
these
its decision, RegTP specifies
increases would not have been consistent with the
current price cap index figures anymore. DT's one-off
charges for all variants of T-Net and T-ISDN continue to
stand at EUR 22,22 for a takeover and EUR 44,46 for a
new connection. DT still collects no discontinuance
charges from its own end-users.

that

(61) Decision of 21 December 2001 (see footnote 57), pp. 17 and 19.
(62) German Statistical Office (Statistisches Bundesamt), price index for

cost of living for a private household on 30 June 2001.

(63) On the assumption that the inflation rate remains unchanged in
2002 to 2004.
In its decision of 21 December 2001 (see
footnote 57), the regulatory authority forecasts that over the three
years DT will have scope to increase charges for all
lines by an
average of 10 %, and for analogue lines by 14 %.

(64) DT press release, 15 January 2002.
(65) Division 2, file reference BK2a 02/001.
(66) Division 2, file reference BK2a 02/028; regulatory authority press

release, 20 December 2002.

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Official Journal of the European Union

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(49)

to sell on to other customers

The regulatory authority nevertheless decided to take no
action against these prices, and to close its investigation,
because in two further decisions taken on 30 March
2001, it ordered DT to make it possible for its compe-
titors
local network
wholesale services for connections and local and urban
calls (‘resale’), and to make joint use of the local
loop
(‘line-sharing’) (70). But DT did not comply with these
orders as expected, and on 18 December 2001 the
regulatory
abuse
proceedings and to investigate the T-DSL tariffs once
again.

authority decided to reopen the

for

T-DSL/T-ISDN from EUR

(50) On 15 January 2002, DT announced that it would be
reducing the monthly charge for T-DSL/T-Net
from
EUR 17,59 to EUR 17,23, and increasing the monthly
charge
to
EUR 11,20 (71). DT has been applying these charges
since 25 February 2002. On this basis the current total
monthly retail prices are EUR 28,72 for T-DSL/T-Net,
EUR 31,54 for T-DSL/T-ISDN multi-device mode, stan-
dard, and EUR 33,75 for T-DSL/T-ISDN multi-device
mode, comfort (72). As a result of an increase in the T-
Net price on 1 February 2003, T-DSL/T-Net now costs
EUR 29,05.

8,78

(51)

From 1 August 2000, DT customers had to pay a one-
off charge of EUR 44,46 for the provision of a T-DSL
upgrade on a T-Net line or any variant of T-ISDN line.
On 15 January 2002, DT announced that it would be
increasing this one-off charge to EUR 64,61 with effect
from 1 July 2002, and to EUR 86,16 with effect from
1 January 2003. On 22 January 2002, the regulatory
authority terminated its abuse proceedings on the
ground that the price situation did not now give any
cause to suspect that there might be ‘price dumping’
within the meaning of the Act (73).

IV. ASSESSMENT

A. APPLICABILITY OF ARTICLE 82 OF THE EC TREATY

(52) Operators of

fixed telecommunications networks and
telecommunications services are subject to Articles 81
and 82 of the EC Treaty, because by providing access to
fixed networks and services over such networks on a

(70)

‘Resale’ was ordered by Division 3, file reference BK 3a-00/025;
‘line-sharing’ was likewise ordered by Division 3, file reference BK
3c-00/029.

(53)

(54)

commercial basis they are carrying out an economic
activity (74). DT is a registered business undertaking that
operates a fixed telecommunications network accessible
to the public and provides related services. It therefore
constitutes an ‘undertaking’ within the meaning of
Articles 81 and 82 of the EC Treaty.

subject

For the provision of network access and related services,
DT is
regulation under
to sector-specific
Community legislation and the national laws and regu-
lations that implement the Community legislation. DT
contends that the Commission is not entitled to proceed
against charges which have previously been the subject
of regulatory decisions at national
level, owing to the
division of responsibility between the Commission and
the German regulatory authority (75). DT argues that all
of the charges at issue were imposed by the regulatory
authority, so that DT was left no scope for independent
commercial
competition
proceedings might be brought at Community level (76).
If
the
there is any infringement of Community law,
Commission should not be acting against an under-
taking whose charges are regulated; its proper course is
rather
against
Germany under Article 226 of the EC Treaty (77).

against which

infringement

proceedings

decisions

bring

to

Contrary to DT's view, however, the Court of Justice of
the European Communities and the Court of First
Instance of the European Communities have consistently
held that the competition rules may apply where the
sector-specific legislation does not preclude the under-
from engaging in autonomous
takings
restricts or distorts competi-
conduct
tion (78). This is particularly so in the case of complaints
submitted to the Commission regarding possible viola-
tions of
In such cases the
Commission has a duty to investigate, and if necessary
to order appropriate remedies.

it governs
that prevents,

the EU competition rules.

(55) Accordingly the Commission stated in the notice on the
the competition rules to access agree-
application of
framework,
ments
relevant markets and principles
that
cases might be subject both to the competition rules
and to national or European sector-specific measures,

in the telecommunications

(access notice),

sector:

(74) Court of Justice in Case 41/83 Italy v Commission [1985] ECR 873,

paragraphs 17 to 20.

(75) DT's observations on the Statement of Objections, 29 July 2002,

pp. 18 ff.; DT's letter of 25 October 2002, pp. 2 ff.

(76) DT's observations on the Statement of Objections, 29 July 2002,

pp. 20 ff.

(77) DT's observations on the Statement of Objections, 29 July 2002,

(71) DT press release, 15 January 2002 (the prices quoted are for T-DSL

pp. 32 ff.

only, not including the T-Net or T-ISDN line).

(72) T-DSL is also offered via the other T-ISDN variants, but

this
happens so rarely that the prices can be ignored in this proceeding;
see DT's letter of 31 January 2003.

(73) Division 3, file reference BK3b-01/039, regulatory authority press

release, 22 January 2002.

(78) Court of Justice in Joined Cases C-359/95 and C-379/95 P Commis-
sion and France v Ladbroke Racing [1997] ECR I-6225, paragraph 34,
with further references; Court of First Instance in Case T-228/97
Irish Sugar v Commission [1999] ECR II-296, paragraph 130; Court
of First Instance in Case T-513/93 Consiglio Nazionale degli Spedizio-
nieri Doganali [2000] II-1807, paragraphs 59 et seq.

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most notably internal market measures. The Commis-
‘In the telecommunications sector,
sion had this to say:
the ONP Directives aim at establishing a regulatory
regime for access agreements. Given the detailed nature
of ONP rules and the fact that they may go beyond the
requirements of Article 86 (now Article 82), undertak-
ings operating in the telecommunications sector should
be aware that compliance with the Community compe-
tition rules does not absolve them of their duty to abide
by obligations imposed in the ONP context, and vice
versa’ (79).

‘Articles 85 and 86 of the Treaty
The notice goes on:
(now Articles 81 and 82) apply in the normal manner
to agreements or practices which have been approved or
authorised by a national
the
national authority has required the inclusion of terms
in an agreement at the request of one or more of the
parties involved’ (80).

authority, or where

This decision concerns abuse by DT in the form of a
margin squeeze generated by a disproportion between
wholesale charges and retail charges for access to the
local network. The charges in both cases are subject to
sector-specific regulation (see recitals 17 et seq. and 31
et seq.), but DT has a commercial discretion which
would allow it to restructure its tariffs further so as to
reduce or indeed to put an end to the margin squeeze
(see recital 163 et seq.). The margin squeeze therefore
constitutes the imposition of unfair selling prices within
the meaning Article 82(a) of the Treaty.

(56)

(57)

B. DOMINANT POSITION

(58) DT enjoys a dominant position on the German markets
in access to local fixed networks, both wholesale and
retail; in the case of retail access, the market has to be
further divided into narrowband and broadband access.
DT does not dispute this definition of the markets, nor
the fact that it has a dominant position on the markets
thus defined.

(a) RELEVANT PRODUCT OR SERVICE MARKETS

(59)

The relevant product or service markets are markets in
local access to fixed telecommunica-
the provision of
tions networks. According to the Commission guidelines

(79) OJ C 265, 22.8.1998, p. 2, paragraph 22.
(80)

Ibid., paragraph 60, which refers to the Commission decision of
15 December 1982, AROW/BNIC (OJ L 379, 31.12.1982, p. 19).

electronic

on market analysis and the assessment of significant
market power under the Community regulatory frame-
work for
and
services (81), Markets in access are to be distinguished
from markets in the services provided to end-users over
for
the networks,
example.

communications networks

telephone

such as

services

call

(60) As a result of

the liberalisation of voice telephony
services in Germany, a number of competitors have
entered the market in recent years and now offer tele-
phone services to end-users. The service offerings of
new entrants have developed quickly, particularly for
international calls, and to a lesser extent also for
domestic long-distance and local calls. Given the high
cost of building an alternative local access infrastructure,
and the resulting dependence of the new entrants on
the service offerings of
the incumbent, competitors
provide a far smaller proportion of access services to
end-users in Germany. Whilst DT's share of the market
in international and domestic long-distance call markets
has fallen substantially, DT still delivers the bulk of local
calls and of access services to end-users. Thus competi-
tion between new entrants and the incumbent operator
continues to be concentrated on business customers and
urban areas.

(61)

Two separate markets in access to the local network
have to be distinguished: the wholesale market, which is
the upstream market in local network access offered by
infrastructure owners to their competitors, and the retail
in access
market, which is
services offered by telecommunications operators
to
their own end-users (82).

the downstream market

(62)

in wholesale and retail access, are
The two markets,
closely linked to each other.
Infrastructure owners
provide access services both to their end-users, either
directly or through an associated undertaking, and to
other operators who have no networks of their own or
whose networks are geographically restricted. These
competing operators need network access as an input
to their business, in order to be able to offer access and
services to their own end-users.

(81) OJ C 165, 11.7.2002, p. 6, paragraph 65.
(82) Commission decision in Telia/Telenor, OJ L 40, 9.2.2001, p. 1,
recital 79 et seq.; Commission decision in Cégétel + 4, OJ L 218,
(see
18.8.1999, p. 14,
footnote 81), paragraph 64.

recital 22; Commission guidelines

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Official Journal of the European Union

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(63) According to the guidelines mentioned in recital 59, on
the retail access market a further segmentation has to be
made between narrowband access over analogue copper
lines and ISDN lines, on the one hand (see recital 74 et
seq.), and broadband access to local
loops for high-
such as ADSL, on the other
speed data transfer,
seq.) (83). This additional
(recital 78 et
segmentation
does not apply to wholesale markets, because so far it
is only to a very limited extent
that DT offers its
competitors narrowband
and broadband wholesale
access separately (recital 64 et seq.).

(aa) Upstream market in wholesale access

(64)

The local loop can be rented to competitors as an input
to their business.
loop unbundling
In Germany local
now requires the incumbent operator to allow access to
its network, and since the beginning of 1998, a new
market in wholesale local network access has developed,
upstream from the retail access market. So far DT has
concluded about 100 local loop transfer contracts with
other providers. The competitor pays DT a charge for
this wholesale service.

(67)

local

such as

authorities

some of which are

infrastructure,
carriers,

(65) None of the other owners of local telecommunications
and
access
regional
among the
complainants in the present proceedings, has yet been
able to build up local networks equivalent to those of
DT. They have established local access networks only in
geographically restricted areas, mainly in and around
individual towns and cities. From the point of view of
competitors seeking entry to the German market, the
density of DT's fixed network, together with the techno-
logical facilities it offers, make wholesale access to that
network the only commercially viable option.

their basic

operator number portability and carrier pre-selection,
telephone users must have the possibility, while main-
taining
subscription with the original
to switch to another operator either with
operator,
each individual telephone call
(carrier selection) or for
all calls (carrier preselection) (84). Carrier selection and
carrier preselection do not give competitors access to
comparable infrastructure, because they enable them
only to provide narrowband services. Furthermore,
carrier selection and preselection were so far possible
in Germany only for long-distance calls, for which there
is now some degree of competition, but not for local
calls, contrary to the obligations
laid down in the
Community directives on open network provision (85).
Economically, carrier selection and preselection differ
from local network access in that selection and preselec-
tion charges are based on the duration of calls, whereas
for local network access there are one-off and monthly
charges.

The wholesale local access market cannot at present be
further
subdivided into narrowband and broadband
services. Until recently DT granted local network access
only for the entire bandwidth spectrum, so that compe-
titors at the wholesale level had to rent all bandwidths
in the local loop; they then freely decided whether they
wanted to offer end-users narrowband or broadband
services or both. A division between bandwidths has
the end of 2001
been possible only since DT at
concluded an agreement with a competitor, QSC AG,
providing for line sharing, and the regulatory authority
determined the charges for line sharing on 15 March
2002. So far only three line-sharing agreements have
been concluded (86). Thus in practice line sharing is not
yet used to an extent sufficient to make it a separate
wholesale access market in Germany.

(bb) Downstream markets in retail access

(66) According to the provisions of Directive 97/33/EC of
the European Parliament and of the Council of 30 June
1997 on interconnection in telecommunications with
regard ensuring universal service and interoperability
through application of the principles of open network
provision (ONP)
the
European Parliament and of the Council of 24 September
1998 amending Directive 97/33/EC with regard to

and Directive 98/61/EC of

(83) Commission Guidelines (see footnote 81), paragraph 65.

(68)

Local
loops are primarily a form of infrastructure that
allows access to and the delivery of retail telecommuni-
cations services. In Germany, interconnection and carrier
selection and preselection have produced an opening to
competition only on the long-distance and international

(84) OJ L 199, 26.7.1997, p. 32 and OJ L 268 3.10.1998, p. 37.
(85) These new services were only introduced on 25 April 2003 (press
release by RegTP of 21 February 2003) after infringement proceed-
ings brought by the Commission against Germany.

(86) Eighth report from the Commission on the implementation of the
telecommunications regulatory package (COM(2002) 695 final,
3.12.2001), Annex 1, p. 55.

(69)

(70)

(71)

(72)

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calls markets; indeed despite an amendment to the Act
on 1 December 2002 carrier selection and preselection
until
recently did not allow alternative operators to
deliver local call services (call origination).

(73)

the retail access market
The further segmentation of
into one market for narrowband services and another
for broadband services is based on the finding that
those are the two main categories of retail services
offered over the local loop, with different features from
the point of view both of demand and of supply.

Local networks are therefore the key infrastructure for
providing local access services to end-users, that is to
say the initial connection and long-term rental of local
telephone calls. Local networks
loops, and for
local
remain largely within the control of
the respective
network owner.

1. Narrowband access services

loop form two separate relevant markets,

The provision of access for end-users to the local loop
and the provision of services delivered to end-users over
in
the local
services which are not substitutable. On the demand
side, customers are not in a position to switch from
one market to the other, either because of an increase in
price or for any other reason: they cannot replace retail
services, because the two
network access by retail
products do not perform the same functions. The price
structures of access and services are also very different.
Access prices have remained relatively stable since local
loop unbundling was made mandatory in Germany, but
the prices of telephone services have fallen substantially.
Access and services markets are different on the supply
side too, because given the different functions the mere
fact
telecommunications
services will not under any foreseeable circumstances
put
them in a position to compete with DT in the
provision of local access.

that new entrants provide

amending Directive

The finding that a separate access market exists is in
accordance with the practice followed by the Commis-
sion in its decisions (87) and with Commission Directive
96/19/EC (88)
of
28 June 1990 with regard to the implementation of
full competition in telecommunications markets (89),
in
which the Commission distinguishes the following fixed
telephony retail services: the initial connection of a local
loop, the monthly line rental,
local calls, regional calls
and long-distance calls.

90/388/EEC

in its communication,

‘Unbundled
In the same vein,
access to the local loop: enabling the competitive provi-
sion of a full
communication
range of electronic
including broadband multimedia and high-
services,
speed Internet’ (90) the Commission stated that network
access and individual services delivered over the network
were not currently substitutable for one another, and
would therefore be considered as
forming different
relevant markets.

(87) Commission guidelines (see footnote 81), with further references.
(88) OJ L 192, 24.7.1990, p. 10.
(89) OJ L 74, 22.3.1996, p. 13, recital 20.
(90) OJ C 272, 23.9.2000, p. 55,

(74)

Narrowband access services to end-users form a market
separate from the market in broadband access services.
In Germany, the market in narrowband access services is
already extensively developed and mature, with a
number of alternative operators in place offering similar
services over
the new
entrants
regional access
services, and have already secured a substantial number
of end-users in the areas in which they operate; as well
as the traditional analogue connections, most of them
offer their customers ISDN connections too.

their own networks. Most of

in Germany offer

local or

(75) Narrowband access services include access to analogue
lines as well as to traditional digital lines (ISDN) offering
bi-directional transmission capacities up to 64 kilobits
per second (kbit/s). Such capacities are sufficient
for
transmitting voice communications, but too limited for
the large volumes of data in video files for example.
Internet access is possible over narrowband lines, but
only in the form of dial-up access with metered tariffs,
no flat-rate offer for narrowband Internet access being
currently available.

(76) Narrowband access services are usually offered to resi-
dential customers who make no demands or only
limited demands on Internet access in terms of trans-
mission quality, quantity, and speed. These services are
less suitable for business customers, and are not offered
to them to any appreciable extent. Their prices are
therefore significantly lower than those for broadband
access services.

(77) A growing number of

end-users

are having their
connections upgraded from analogue or ISDN lines to
broadband ADSL lines in order to improve the speed
and quality of
the contrary form of
consumer behaviour, a downgrading from broadband to
narrowband connections, does not occur to any appre-
ciable extent, so that substitutability between the two
categories of service can be said to be one-way.

transfer. But

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2. Broadband access services

in narrowband retail access

Broadband retail access services, delivered in the form of
ADSL connections over the local network or via other
access technologies, allow high-speed communication to
be provided, and form a market separate from the
market
services. ADSL
services are network access services provided over an
asymmetrical digital subscriber line, with transmission
capacities of 128 kbit/s upstream (from the user to the
outside world) and of 512 kbit/s downstream (from
outside to the user). Some services, such as video on
demand, can be provided to a satisfactory quality only
over broadband connections (91).

Intensive Internet users with high demands in terms of
transmission capacity, quality, security, and speed, and
who also attach importance to permanent connectivity,
the most part make use of ADSL services. The
for
special demand structure for broadband connections, as
compared with narrowband, also derives from flat-rate
pricing, which for intensive Internet users of this kind is
cheaper than the traditional charges for metered connec-
tions. The only comparable alternative access technology
available to residential customers in Germany is cable,
but cable is available only in very restricted geographic
areas.

Business customers likewise for
the most part want
ADSL broadband services. But
these customers,
for
loops
fibre-optic networks,
leased lines, wireless local
and satellite connections are also attractive options,
because although their costs are higher they are better
adapted in certain cases to business customers' particular
requirements.

is therefore confined to
This end-user access market
ADSL broadband access services provided to residential
customers.
in narrowband
access services, this market has grown very unevenly in
Germany. In particular, it has developed later (92).

to the market

In contrast

(78)

(79)

(80)

(81)

(82) Narrowband and broadband markets need to be clearly
distinguished on the supply side too. An operator
wishing to convert
from narrowband to broadband
access services must be prepared to incur substantial
additional costs. Along with heavy investment in plant,

(91) The regulatory authority has accepted that DSL broadband access
services form a separate market: decision of 30 March 2001,
division 3, file reference BK 3b-00/032, p. 26.

(92) The market in retail access to broadband services does not include
high-speed Internet-access services, which are provided not by DT
itself but by its subsidiary T-Online.

terminal equipment such as
most notably for special
digital subscriber line access multiplexers or DSLAMs,
substantial spending on marketing and advertising will
be needed in order to secure customers for these new
services.

(b) LACK OF ALTERNATIVE INFRASTRUCTURE

(83) DT's local networks are not the only technical

above

described

infra-
structure allowing access services to be provided to
other operators or to end-users. The main conceivable
alternatives to the local networks on all three of the
relevant markets
fibre-optic
are
networks, wireless local
loops, satellites and upgraded
cable TV networks. However, none of these alternatives
can yet be considered equivalent to the local network in
Germany, because they are not sufficiently developed in
order
to be substitutable. DT currently has about
19 000 broadband Internet connections to end-users
working on the basis of alternative technologies, and
its competitors about 86 000 (93).

(84)

Fibre-optic networks are currently competitive only on
upstream interfaces,
retail distribution
and in the
network in special niches, such as networks connecting
office buildings or
in narrowly defined geographical
areas.

(85)

(86)

Local network access via wireless local loops will in the
short and medium term most probably be useful
to
professional clients and small firms, or meet the parti-
cular requirements of
individual residential customers;
for the great majority of residential customers wireless
local loops are likely to remain uneconomical.

Satellites are an alternative mainly for commercial users.
At present there are few offers of bi-directional services
(send and receive by satellite), which would make satel-
lites completely independent of the local networks. The
necessary reservation of bandwidth on satellite transpon-
ders and the need to build additional plant in bi-direc-
tional ground stations make satellite communication
very expensive, and practically out of the question for
residential use. For this reason satellite operators have
not yet succeeded in penetrating the market in public
telecommunications services.

(93) Eighth report from the Commission (see footnote 86), Annex 1, fig.

63, and report on Germany, p. 30.

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(87)

Cable networks were designed for one-way television
transmission, and require costly and time-consuming
upgrades for the provision of two-way telecommunica-
tion services. This has so far been done in only two of
the nine German ‘cable regions’, namely in Hessen
is named ‘iesy’) and in North
(where the provider
Rhine-Westphalia (where the provider, named ‘ish’, has
total of
since
30 000 households connected (94).
In the remaining
seven regions, the television cable so far remains entirely
unused for telecommunication services (95).

insolvent), with a

been declared

(88) On the supply side, broadband cable services are not a
substitute for ADSL access services, because the cable
distribution network is still extremely fragmented. The
network is divided into four hierarchical
levels. The
lowest level, level-4, comprises the connection between
in the network and the private
the last relay point
household. There are over 100 commercial
level-4
operators active in Germany at present, so that an
Internet service provider would have to conclude a great
number of distribution agreements with these operators
in order to achieve a coverage comparable to that of
DT's network.

(89) Other innovative technologies, such as the use of elec-
tric power networks, are not yet technically or econom-
ically mature or reliable enough to be an alternative to
DT's local network. The provision of telephone services
over existing power lines is still being tested, and is not
yet ready to be offered to the public on a commercial
basis. Currently only 2 000 households in Germany
lines,
have broadband Internet
provided by three different providers (96).

access over power

(90) While the situation may change over time, these alter-
native networks, alone or in combination, cannot at
present be regarded as alternatives to DT's copper pair
network for the provision of narrowband and broad-
band telecommunications
in
Germany.

to end-users

services

(91)

The relevant product or service markets for purposes of
this decision, therefore, are the market in local network
access for competitors at the wholesale level, and the
markets
to narrowband and broadband
in access
connections at the retail level.

(c) RELEVANT GEOGRAPHIC MARKET

(92)

The relevant geographic market is the German market,
because the local network to which access is sought at
wholesale and at
the
territory of Germany.

level extends only over

retail

(93) DT's

local networks were developed countrywide.
Competitors have been given licences by the national
authorities, and can be expected to compete on national
markets. In those cases where their licences to operate
their own networks are restricted to specified parts of
Germany, access to DT's local networks is indispensable
in order to provide communication with the whole of
the country. Access to the local networks is also impor-
tant to those operators who have not got a network of
their own and depend entirely on the incumbent's
network.

(94)

The bottlenecks in access,
local calls and high-speed
services do not prevent new competitors from devel-
oping local networks in more restricted areas, in densely
populated urban areas for example. But as a rule these
networks do not enable them to compete on an equal
footing across the country with DT.

(95)

The geographic market in which competition would take
place if
there were no bottlenecks is the whole of
Germany.

(94) Regulatory authority annual report for 2001, p. 15.
(95) DT proposed selling all of its cable network in six German cable
regions to Liberty Media, but that transaction was prohibited by the
Federal Cartels Office (Bundeskartellamt) on 25 February 2002. On
29 January 2003 DT announced the sale of the remainder of the
cable network to a consortium grouped around the investment
bank Goldman Sachs; but this does not fundamentally change the
situation, as it is still impossible to see when and in what way the
cable network may be put to use in interactive communications
services.

(96) Regulatory authority annual report for 2001, p. 16.

(d) DT'S DOMINANT POSITION

(96) DT holds a dominant position on all

the relevant
markets, namely the wholesale market in access services
for competitors and the retail markets in narrowband
and broadband access services for residential and busi-
ness customers.

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Official Journal of the European Union

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(aa) Wholesale access

while its competitors had 86 000 customers with cable
connections (100).

(97) As regards the provision of wholesale access services,
DT is the only German telephone network operator
having local networks with countrywide retail coverage.
DT grants access to this network to its competitors on a
wholesale basis. At present there is no economic alter-
native to DT's local networks, and it can therefore be
accepted that since unbundling began in 1998 DT has
had a 100 % share of the market in wholesale access for
narrowband and broadband services.

(bb) Narrowband retail access

(98) At the end of 2002 there were about 53,72 million
telephone channels in Germany. Of these DT possessed
51,37 million analogue and ISDN channels, while DT's
64 competitors possessed a total of 2,35 million such
channels, either in their own networks or on the basis
of contracts for unbundled access to the local loop. DT's
share of
in narrowband retail access was
therefore 95,6 %. In 2001 its share of this market was
97 %; in 2000 98,3 %; in 1999 99,2 %; and in 1998
99,7 % (97).

the market

(dd) Potential competition

is a barrier

(101) Given the size of the investment required, the cost to a
competitor of building a network reaching as large a
the population as DT's existing local
proportion of
networks
to entry. The building of a
comparable infrastructure is uneconomic using existing
technologies, and to extend one over the whole country
will
the foreseeable future. This
prevents competitors from competing with DT on an
equal footing, and confines them to building networks
of their own covering regional or local markets only. It
is highly improbable that the alternative networks taken
together will be able to match DT's countrywide local
networks and reach a comparable clientele within the
foreseeable future.

remain difficult

for

C. THE ABUSE

(a) MARGIN SQUEEZE

(cc) Broadband retail access

(99)

in broadband
The situation on the German market
access services is comparable with that on the narrow-
band access market. DT has been offering ADSL services
(T-DSL) as a mass product only since August 2000, and
in October 2002 already had 2 580 000 customers,
whereas its 34 competitors together,
including Arcor,
QSC and Freenet, had no more than 161 000 DSL
connections (98). This gives DT a market share of about
94 % of DSL connections (99).

(100) Even if the alternative broadband access technologies are
In
included, DT still has a market share of 90 %.
October 2002, DT had 19 000 customers connected by
optical fibre, wireless local loop, satellite or leased line,

(97) Regulatory authority annual report for 2002, p. 18; see also eighth
report (footnote 86), p. 28; of DT's total 39 million local loops,
only 855 000 lines were unbundled until the end of 2002.

(98) Eighth report (see footnote 86), p. 32.
(99) This also explains the [...] % share of the market in Internet access
services to end-users in Germany held by T-Online, a wholly owned
subsidiary of DT.

(102) A margin squeeze exists if the charges to be paid to DT
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 DT charges its own end-users for similar
than retail
services.
charges, DT's competitors, even if they are at least as
efficient as DT, can never make a profit, because on top
of the wholesale charges they pay to DT they also have
other costs such as marketing, billing, debt collection,
etc.

If wholesale charges are higher

(103)

If DT charges its competitors prices for wholesale access
to the local loop that are higher than its own prices for
it prevents its competitors
retail
local network access,
from offering access via the local
loop in addition to
If a competitor might be interested in
call services.
ordering unbundled local loops in order to offer access
services to its customers, DT forces it to offset its losses
on access services out of higher revenue on telephone
calls, as DT itself does. But in recent years call charges
have fallen substantially in Germany (101), so that compe-
titors often have no realistic possibility of offsetting one
price against another.

(100) Eighth report (footnote 86), p. 32.
(101) Regulatory authority annual report for 2001, p. 18.

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Official Journal of the European Union

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(104) DT 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 (102). A margin squeeze, DT 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 regula-
so that DT controls only the retail
tory authority,
charges, and those are subject
to review only for
compatibility with the principles of abusive below-cost
selling or predation (103).

(105) Contrary to DT'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 estab-
lished 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 initia-
tive. If it has that discretion, as it has in the present case
(see recital 163 et seq.), 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.

itself charges end-users on a downstream market are in
a proportion such that competition on the wholesale or
retail market is restricted (104).

(107)

In the case of the local network access at issue here,
there is an abusive margin squeeze if
the difference
between the retail prices charged by a dominant under-
taking and the wholesale prices it charges its competi-
tors for comparable services is negative, or insufficient
the product-specific costs to the dominant
to cover
operator of providing its own retail services on the
downstream market.

(108)

In such a situation, anticompetitive pressure is exerted
on competitors' trading margins, which are non-existent
or too narrow to enable them to compete with the
established operator on retail access markets. An insuffi-
cient spread between a vertically integrated dominant
operator's wholesale and retail charges constitutes antic-
ompetitive conduct especially where other providers are
excluded from competition on the downstream market
even if they are at least as efficient as the established
operator (105).

(109)

(b) METHODOLOGY OF THE MARGIN SQUEEZE TEST

that

is essential

In order to establish the existence of a margin squeeze
the wholesale and retail access
it
services be comparable. The established operator and
its competitors as a rule provide retail services of all
kinds.
It has therefore to be considered whether the
established 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 (106).

(106) The Commission's practice in previous decisions has
been to hold that
there is an abuse of a dominant
position where the wholesale prices that an integrated
dominant undertaking charges for services provided to
its competitors on an upstream market and the prices it

(110) The wholesale charges for unbundled access to local
loops can indeed be compared with retail access charges.
Wholesale access enables competitors to offer their end-
users a range of retail access services (ISDN and ADSL)
which goes beyond the basic analogue access.

(104) Decision 88/518/EEC (Napier Brown — British Sugar) (OJ L 284,

(102) DT's observations on the Statement of Objections, 29 July 2002,

19.10.1988, p. 41), recital 66.

p. 82.

(103) Annex DT St 5 (Lexecon opinion), point 33 et seq.

(105) Access notice (see footnote 79), paragraphs 118 and 119.
(106) ONP Committee document ONPCOM 01-17, 25.6.2001.

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Official Journal of the European Union

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(111)

that

loop access and retail access in all

In order to compare wholesale and retail services, this
decision uses a weighted approach to prices and costs.
All forms of retail access (analogue, ISDN and ADSL)
are aggregated on the basis of
the number of each
variant
the established operator has marketed to
its own end-users (see recitals 112 to 137). The compar-
able wholesale and retail services are found to be fully
unbundled local
its
variants,
i.e. analogue, ISDN and ADSL. If the average
retail prices are below the level of the wholesale charges,
it can be concluded that there is a margin squeeze. The
established
for
providing its own retail services (see recitals 138 and
139) need to be considered only if the average retail
prices are above the level of the wholesale charges. In
the product-
that case there is a margin squeeze if
specific costs exceed the positive spread between the
retail prices and the wholesale prices.

product-specific

operator's

costs

(aa) Weighting of retail prices

(112) With full access to DT's local

loops, competitors are
their end-users on the downstream
enabled to offer
market a range of different
services, namely
analogue narrowband access, digital narrowband access
(ISDN), and broadband access in the form of ADSL
services.

retail

including the

telecommunications access services over

the
competitors have unrestricted control of
The
customer relationship for the provision of a full range
of
the local
loop,
establishment of ADSL digital
connections for high-speed data applications. In such a
imposing an
situation, DT must be considered as
abusive margin squeeze upon its competitors if
the
charge for full unbundling, allocated as an input cost
between the various retail access services which whole-
sale access makes possible,
together with the specific
downstream costs, does not allow competitors to offer
their own retail access services without suffering a loss.

the full

range of

(115) The tariffs to be taken into account for the comparison
of wholesale and retail access services therefore must
cover
retail access services which
competitors can offer. These tariffs are on the one
hand the tariffs for full unbundling of an analogue
copper pair (wholesale access service) and on the other
the tariffs for a straightforward telephone line,
ISDN,
and ADSL (retail access service). Extending the compar-
ison of tariffs beyond the straightforward analogue line
takes due account of the fact that wholesale access to
the local
loop allows competitors to offer their custo-
mers a range of retail access services wider than the
simple analogue subscription.

(113)

In the present case, a single wholesale service (local loop
access) has to be compared to a plurality of different
retail services (access to analogue,
ISDN and ADSL
connections). The easiest way to ensure comparability
between the different access services at wholesale and
retail level is to set a different wholesale charge for each
retail
service, determining the wholesale charge by
subtracting a reasonable margin from the comparable
retail charge (the retail-minus approach) (107). Such differ-
in
entiated wholesale tariffs do not exist in Germany:
setting the monthly charge for local
the
regulatory authority has applied a single wholesale tariff,
the downstream service the competitor
irrespective of
provides over the line.

loop rental,

(116)

services,

the individual

In order to determine DT's total revenue from retail
access
services have to be
weighted. An average price has to be calculated for all
retail access services, taking account of the number of
each variant of retail access service actually marketed by
DT and the respective prices of those lines.

(114)

In the case of
loops, DT rents
fully unbundled local
copper pairs to its competitors for their exclusive use.

(107) This is currently done in Belgium, Italy, Luxembourg, the Nether-
lands, Portugal, Finland (two different monthly wholesale fees, for
analogue+ISDN and ADSL), and in Sweden and Norway (three
different monthly wholesale fees, for analogue, ISDN and ADSL);
see ONP Committee working paper ONPCOM 01-27 REV2,
18.2.2002.

(117) DT contends that it is not right to compare wholesale
access charges and retail access charges by this method.
The decisive consideration, according to DT, is the point
of view of the end-user, and seen from that point of
view access to the local network and the calls carried on
that network form a single bundle of products. For
competitors, access to the local loop is only a necessary
prerequisite for the provision of further telecommunica-
tions services, and so revenue from those telecommuni-
cations services, and especially from telephone calls,

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Official Journal of the European Union

14.10.2003

must be included in the calculation of DT's revenue on
the retail side. DT argues that it takes account of this
aspect by offsetting revenues
retail
charges. In DT's view the wholesale costs for the local
loop are overheads both for
retail
access and for telephone calls, so that any attempt to
allocate costs to individual services in order to investi-
gate the possibility of below-cost
selling makes no
economic sense and is consequently arbitrary (108).

the provision of

to arrive at

its

(118) DT further contends that the comparison between the
two charges is incomplete, because the calculation of the
the optional
average retail price takes no account of
tariffs and DT's various ISDN tariff variants (109). Lastly,
the margin squeeze test applied by the Commission
groups all regions and categories of customer together,
which renders it unsuitable for assessing the overall
scope for market entry by competitors (110).

(119) Contrary to the view taken by DT, however, revenue
from telephone calls should not be included in the
the margin squeeze. This is clear both
calculation of
from the requirements
imposed by the Community
directives and from economic considerations.

(120) Separate consideration of access charges and call charges
is in fact required by the Community-law principle of
tariff rebalancing. For purposes of cost-oriented pricing,
access to local network lines and the offer of different
categories of call are clearly separate services.

for

services,

telecommunications

(121) Article 4c(3) of Directive 90/388/EEC on competition in
the markets
as
amended by Directive 96/19/EC (see recital 71) with
full competition in
regard to the implementation of
‘Member States
telecommunications markets, states that:
shall allow their telecommunications organisations to re-
balance tariffs taking account of specific market condi-
tions and of the need to ensure the affordability of a
universal service, and, in particular, Member States shall
allow them to adapt current rates which are not in line
with costs and which increase the burden of universal
service provision,
in order to achieve tariffs based on
real costs.’

(122) The reasoning behind this provision is explained in
recital 20 to Directive 96/19/EC. It says: ‘As regards the
cost structure of voice telephony, a distinction must be

made between the initial connection, the monthly rental,
local calls, regional calls and long distance calls. The
tariff structure of voice telephony provided by the tele-
communications organisations in certain Member States
is currently still out of line with cost. Certain categories
of calls are provided at a loss and are cross-subsidised
out of the profits from other categories. Artificially low
prices, however,
impede competition since potential
competitors have no incentive to enter into the relevant
segment of the voice telephony market ... Member States
should phase out as rapidly as possible all unjustified
restrictions on tariff rebalancing by the telecommunica-
tions organisations.’

(123) The concept of tariff rebalancing was clarified by the
Commission in its Decisions on requests by Ireland (111),
Portugal (112),
and
Greece (115) for additional time to implement the Direc-
‘cost orientation of
tives. The Commission said therein:
tariffs means as a general rule that prices are adjusted
such that revenues are rebalanced with costs, i.e.:

Luxembourg (113),

Spain (114)

— connection and rental

revenues cover

fixed costs

(plus a standard margin),

— local call

revenues cover

local call costs (plus a

standard margin),

— trunk call revenues cover trunk calls (plus a standard

margin),

— international call revenues cover
costs (plus a standard margin).

international call

Consequently telecommunications organisations must
raise bi-monthly rental and local calls (or at least not
long
decrease these charges) and reduce tariffs
distance calls.’

for

(124) Article 17(2) of Directive 98/10/EC of

the European
Parliament and the Council of 26 February 1998 on
the application of open network provision (ONP)
to
voice telephony and on universal service for telecommu-
nications
states:
‘Tariffs for use of the fixed public telephone network
and fixed public telephone services shall follow the basic
principles of cost orientation set out
to
Directive 90/387/EEC.’

environment (116)

in Annex II

competitive

in a

(108) DT's observations on the Statement of Objections, 29 July 2002,
p. 74 et seq., and especially Annex DT St 5 (Lexecon opinion),
points 19 et seq.

(109) DT's observations on the Statement of Objections, 29 July 2002,

p. 78 et seq.

(110) DT's observations on the Statement of Objections, 29 July 2002,

p. 80 et seq.

(111) OJ L 41, 12.2.1997, p. 8, point 24.
(112) OJ L 133, 24.5.1997, p. 19, point 30.
(113) OJ L 234, 26.8.1997, p. 7, point 16.
(114) OJ L 243, 5.9.1997, p. 48, point 13.
(115) OJ L 245, 9.9.1997, p. 6, point 41.
(116) OJ L 101, 1.4.1998, p. 24.

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(125) Annex II

for

telecommunications

to Directive 90/387/EEC of

the Council of
the internal
28 June 1990 on the establishment of
through the
market
services
implementation of open network provision (117),
as
‘tariffs must
amended by Directive 97/51/EC (118), states:
be based on objective criteria and, until such time as
competition becomes effective in keeping down prices
for users, must in principle be cost oriented, on the
understanding that the fixing of the actual tariff
level
will continue to be the province of national legislation
the subject of open network provision
and is not
conditions ...
in order to leave users a choice between
the individual service elements and where technology so
permits, tariffs must be sufficiently unbundled in accor-
dance with the competition rules of
In
introduced to provide
features
particular, additional
certain specific extra services must, as a general rule,
be charged independently of the inclusive features and
transportation as such ... tariffs must be non-discrimina-
for
tory and guarantee equality of
restrictions which are compatible with Community law.
Any charge for access to network resources or services
must comply with the principles set out above and with
the competition rules of the Treaty and must also take
into account the principle of fair-sharing in the global
cost of the resources used, the need for a reasonable
level of return on investment and, where appropriate,
the financing of universal service in accordance with the
interconnection Directive.’

treatment, except

the Treaty.

(126) But on economic grounds too it

is reasonable and
legitimate to apply the margin squeeze test by looking
at DT's revenue from access charges in isolation, and to
exclude revenue from call
traffic. When the margin
squeeze test is applied to the case, the question is not
how costs should be allocated in order
to establish
whether or not the costs of an individual service are
being covered;
if that were the objective, the revenue
from call charges might indeed be relevant. The margin
squeeze test seeks to compare charges for two particular
services at different commercial
levels. The comparison
would be distorted if revenue from call traffic were to
be included, because call services, which are additional
services, cannot also be included in the
to access
calculation on the wholesale side. The question of cost
allocation and cost cover will become relevant only at a
second stage,
there is a positive
is found that
margin between retail prices and wholesale prices. But
there too a comparison between the two levels can be
made without including telephone calls, provided both
the spread between charges and the product-specific
costs are treated the same way.

it

if

(127) The method used to determine whether

there is a
margin squeeze in this case is based on the principle
structure must
that

the established operator's

tariff

(117) OJ L 192, 24.7.1990, p. 1.
(118) OJ L 295, 29.10.1997, p. 23.

It must not be assumed that

enable competitors to compete with that operator effec-
tively, and at least to replicate the established operator's
customer pattern.
the
competitors' customer structure and range of services
will necessarily be more profitable than those of
the
incumbent. The primary consideration here is the effect
on market entry by competitors, and not the question
whether the end-user regards access services and calls as
a single bundle of products

the comparison method.

(128) Thus DT cannot invoke a calculation offsetting access
and call charges against one another in order to chal-
It
lenge the admissibility of
cannot be assumed that all competitors have the same
revenue structure as the established operator, and thus
the same scope for offsetting one source of revenue
against another. Nor should revenue from interconnec-
tion (for call termination, for example) be included in
the calculation of the margin squeeze, because in accor-
dance with Directive 97/33/EC on interconnection (119) it
is required to be cost-oriented, so that with the excep-
tion of the permissible return on capital it has only an
the local
insignificant
access network operator.

impact on the net revenue of

(129) There is still a revenue shortfall on connections in
Germany, and the use of call charges to finance that
shortfall has been facilitated by the fact that competition
in the local network continues to be very limited. For
that reason the regulatory authority takes the view that
more cost-oriented pricing is needed at the local
level,
and can be expected to result from the introduction of
carrier
local
selection and carrier preselection for
calls (120). Similarly, DT itself, applying for authorisation
of charges on 31 October 2002, invoked the organisa-
tional necessity of further rebalancing of access and call
charges in order to justify the increase in the basic
charge it was applying for (121).

(130) Contrary to the view taken by DT, the higher monthly
retail charges applying under the optional tariffs should
not be included in the calculation of the margin squeeze

(119) See footnote 84.
(120) Decision of 21 December 2001,

file reference BK2c 01/009;

publication reference Amtsblatt (RegTP) 2/2002, 6.2.2002, p. 14.

(121) DT's letter of 13 November 2002.

L 263/28

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Official Journal of the European Union

14.10.2003

customers

either, even if the optional tariffs are increasingly being
too (122). An
requested by DT's private
increase of this kind in the monthly charges does not
reflect any increased value of the line connected, which
might be the case if there were technical improvements,
if more sophisticated services were
for example, or
made available. The options tariffs are merely a method
by which DT offers
the possibility of
paying a higher monthly charge in order to enjoy lower
call charges (123).

its end-users

applied under DT's

(131) The optional tariffs represent a bundled offer of access
and call services. But for competitors wishing to enter
the market in retail access, the decisive consideration is
the margin left them between the wholesale and retail
charges
standard tariffs. The
increased access charges in DT's optional tariffs are a
component in a contractual formula that offsets access
charges and call charges;
they cannot be calculated
separately. Given their more limited financial resources,
competitors are not usually able to do the same thing.
This also makes it impossible to allocate costs to the
individual components in the service offered, which is
why the regulatory authority decided with effect from
1 January 2002 to take the optional tariffs out of the
price cap mechanism and in future to regulate them by
individual authorisation (124).

distinction is made here between residential and busi-
ness customers, either at wholesale or
level,
because no sufficiently precise demarcation between
them is possible.

retail

(133) DT argues that

its competitors are not

interested in
connecting and serving analogue customers, but instead
target only ISDN and ADSL users (127);
this argument
too must be rejected, especially if it can be shown that
there would be a margin squeeze even on the supposi-
tion that the competitors were using every unbundled
the highest-value services, such as
customer line for
ADSL services provided over
ISDN lines. On that
assumption there was in fact always a margin squeeze
under DT's local network access tariff structure from the
entry into force of
the unbundling obligation in
Germany at the beginning of 1998 at least until the
tariff changes on 1 May 2002 (128).

least

the most promising, of

(134) Competitors have aimed to win over subscribers on the
basis of their specific needs, and to offer them services
of all kinds. Digital broadband may indeed be the most
profitable, or at
the
markets to which access is being offered via the local
loop, but it is not the only market competitors would
like to enter. Apart
from a few operators who have
specialised from the outset in DSL services to frequent
users and business customers, most competitors have
tried to gain customers not only for digital broadband
connections, but
for analogue and ISDN connections
too (129).

it

regions

includes

(132) DT also argues that the margin squeeze test is incorrect
and categories of
all
because
customer alike, without further differentiation (125); this
argument too must be rejected. The approach taken is
in line with the principle that there should be equal and
effective competition throughout
It
competitors
cannot be
compete with the established operator only in a defined
region, and want to deal only with customers in the
most attractive market segment,
in big cities or urban
areas for example. Some competitors, such as Arcor, do
intend to compete with DT on a countrywide basis, but
have so far been considerably hindered in their efforts
to do so by the pricing policy applied by DT. And no

the country (126).

supposed that

all of DT's

(122) DT's observations on the Statement of Objections, 29 July 2002,

p. 78.

(123) Even if we were to follow the modelling in Annex 10 to DT's
observations of 29 July 2002 on the Statement of Objections,
which according to DT increases the average retail price by EUR 1
per connection, there would currently still be a margin squeeze;
see recital 160, Table 12.

(124) Decision of 21 December 2001,

file reference BK2c 01/009,

publication reference Amtsblatt (RegTP) 2/2001, 6.2.2002, p. 15.

(125) DT's observations on the Statement of Objections, 29 July 2002,

p. 80.

(126) Section 2(2) (2) and (3) of the Act.

(135)

the

In adopting this business strategy, since 1998, when
competitors'
unbundling was made mandatory,
main objective has been to enter the mass market of
telephone customers with analogue lines. In 1998, the
great majority of subscribers in Germany were still
connected by
ISDN lines
accounted for only a small percentage, and ADSL-
upgraded lines started to be offered commercially only
in July 1999.
still
lines in Germany, and the
accounted for 75 % of all
competitors had a share of only 0,5 % of
that
market (130).

In April 2001 analogue

lines. Digital

analogue

lines

(127) DT's observations on the complaint in Case COMP/C-1/37.451,
14 May 1999, p. 20; DT's observations on the complaint in Case
COMP/C-1/37.579, 10 September 1999, p. 12.

(128) See footnote 148.
(129) Complaint in Case COMP/C-1/37.451, p. 15; complaint in Case
COMP/C-1/37.578, p. 45; complaint in Case COMP/C-1/37.579,
p. 14.

(130) Special opinion (Sondergutachten) of
Commission, 2001, pp. 40 and 41.

the German Monopolies

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Official Journal of the European Union

L 263/29

(136) The reason competitors did not enter the market

access

in
greater numbers is that many were deterred by the
high wholesale
charges. Even when digital
services started to be rolled out more broadly, competi-
tors continued to be interested in analogue lines: they
were attracted by the prospect of being able to equip
their own customers, over time, with higher-value lines
and services (131). In addition, until the European require-
ments with regard to carrier selection and carrier prese-
lection have finally been implemented in practice in the
local network in Germany, operators continue to offer
local calls to their own subscribers only.

(137) DT's wholesale tariffs are the same for all varieties of
subscriber line, so that it is not necessary to calculate a
weighted average wholesale price. For the calculation of
the spread by reference to retail prices, these wholesale
prices constitute DT's revenues.

(bb) Product-specific costs

(c) EXTEND OF THE MARGIN SQUEEZE

(140) Where wholesale and retail services are comparable, as
described above, a margin squeeze occurs if the spread
between DT's retail and wholesale prices is either nega-
tive or at least insufficient to cover DT's own down-
stream costs. This would mean that DT would have
been unable to offer its own retail services without
incurring a loss if, during the period under investiga-
tion,
it had had to pay the wholesale
access price as an internal transfer price for its own
retail operations.

i.e. since 1998,

(141) As a consequence the profit margins of competitors are
squeezed, even if they are just as efficient as DT. This
means that they cannot offer retail access services at a
competitive price unless they find additional efficiency
gains. A margin squeeze imposes on competitors addi-
tional efficiency constraints which the incumbent does
not have to support in providing its own retail services.

(aa) Calculation of the average retail price for local

network access

(138) The spread between the historic operator's retail and
If
wholesale tariffs can be negative, positive or zero.
the wholesale charges are higher than the retail charges
there is a negative spread; in that case there is a margin
squeeze in any event, irrespective of the product-specific
costs. If the wholesale charges are lower than the retail
charges there is a positive spread; in that case there is a
price squeeze if the spread is not sufficient to enable the
historic operator to cover the product-specific costs of
providing its services to end-users.

(142) DT's average retail price at the end of each year since
the unbundling of local loops began must be calculated
on the basis of the number of lines marketed by DT to
its end-users in that year (see recitals 27 and 28) and
the corresponding retail prices (see recital 31 et seq.).
These average prices are composed of two items, the
monthly subscription charge and the one-off charge for
a new connection, a takeover or a discontinuance.

the total cost

(139) The point of departure for determining DT's product-
specific costs is the total cost of providing end-user
access. But
includes a network cost
component, for such things as the copper cable, which
is not to be taken into account in the calculation. The
product-specific
costs of
providing those additional services which are needed to
give DT's end-users access to T-Net and T-ISDN connec-
tions
including billing,
customer care, etc.

(with or without T-DSL),

comprise only

costs

the

(131) Letters from Arcor, 4 July 2001, p. 5, and 4 March 2002, p. 2, in
letter from the other 14 complainants,
letter from COLT Telecom GmbH,

Case COMP/C-1/37.451;
12 September 2002, p. 23;
15 October 2002.

(143) On 31 December 2002, DT had a total of [...] end-user
lines, of which [...] were analogue lines (T-Net) provided
at a monthly charge of EUR 11,49 and [...] were ISDN
charge of between
lines provided at
a monthly
EUR 19,56 and EUR 28,12. These figures
include
3 100 000 DT lines equipped with ADSL, of which [...]
were provided over T-Net at a monthly charge of
EUR 28,72 and [...] were provided over T-ISDN multi-
device mode (standard and comfort) at a monthly
charge of EUR 31,54 or EUR 33,75 (132).

(132) See also footnote 72; the resulting average value for T-DSL/T-ISDN
was EUR 32,65 at 31 December 2002; using the same method of
calculation, the average value came to EUR 29,66 at 31 December
2001, EUR 27,45 at 31 December 2000 and EUR 44,30 at
31 December 1999; the T-DSL services provided over other ISDN
variants are so few in number that their prices can be left out of
this calculation, cf. DT's letter of 31 January 2003.

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Official Journal of the European Union

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(144) As can be seen from the calculations below, at the end
of 2002 the average retail price for all services provided
by DT over local loops came to EUR 15,17 per month
and per line.

Table 3

(31 December 2002)

— [...] T-Net
— [...] T-ISDN multi-device

mode, simple

— [...] T-ISDN multi-device

mode, standard

— [...] T-ISDN multi-device

mode, comfort

— [...] T-ISDN point-to-point

mode, simple

— [...] T-ISDN point-to-point

mode, standard

— [...] T-ISDN point-to-point

mode, comfort
— [...] T-DSL/T-Net
— [...] T-DSL/T-ISDN

× EUR 11,49 = […]

× EUR 19,56 = […]

× EUR 20,34 = […]

× EUR 22,55 = […]

× EUR 25,56 = […]

× EUR 25,56 = […]

× EUR 28,12 = […]
× EUR 28,72 = […]
× EUR 32,65 = […]

Total = […]

divided by [...] lines = EUR 15,17

(145) Using the same model, the average monthly retail prices
the end of 2001, 2000, 1999 and 1998 can be

at
calculated as follows:

Table 4

(31 December 2001)

— [...] T-Net
— [...] T-ISDN multi-device

mode, simple

— [...] T-ISDN multi-device

mode, standard

— [...] T-ISDN multi-device

mode comfort

— [...] T-ISDN point-to-point

mode, simple

— [...] T-ISDN point-to-point

mode, standard

— [...] T-ISDN point-to-point

mode, comfort
— [...] T-DSL/T-Net
— [...] T-DSL/T-ISDN

× EUR 10,93 = […]

× EUR 19,56 = […]

× EUR 19,78 = […]

× EUR 21,99 = […]

× EUR 25,56 = […]

× EUR 25,56 = […]

× EUR 28,12 = […]
× EUR 28,52 = […]
× EUR 29,66 = […]

Total = […]

divided by [...] lines = EUR 13,82

Table 5

(146)

(31 December 2000)

— [...] T-Net
— [...] T-ISDN multi-device

mode, simple

— [...] T-ISDN multi-device

mode, standard

— [...] T-ISDN multi-device

mode, comfort

— [...] T-ISDN point-to-point

mode, simple

× EUR 10,93 = […]

× EUR 19,56 = […]

× EUR 19,78 = […]

× EUR 21,99 = […]

× EUR 25,56 = […]

— [...] T-ISDN point-to-point

mode, standard

— [...] T-ISDN point-to-point

mode, comfort
— [...] T-DSL/T-Net
— [...] T-DSL/T-ISDN

× EUR 25,56 = […]

× EUR 28,12 = […]
× EUR 24,10 = […]
× EUR 27,45 = […]

Total = […]

divided by [...] lines = EUR 12,88

Table 6

(31 December 1999)

— [...] T-Net
— [...] T-ISDN multi-device

mode, simple

— [...] T-ISDN multi-device

mode, standard

— [...] T-ISDN multi-device

mode, comfort

— [...] T-ISDN point-to-point

mode, simple

— [...] T-ISDN point-to-point

mode, standard

— [...] T-ISDN point-to-point

mode, comfort
— [...] T-DSL/T-ISDN

× EUR 10,93 = […]

× EUR 19,56 = […]

× EUR 20,45 = […]

× EUR 22,67 = […]

× EUR 26,23 = […]

× EUR 28,45 = […]

× EUR 30,68 = […]
× EUR 44,30 = […]

Total = […]

divided by [...] lines = EUR 12,48

Table 7

(31 December 1998)

— [...] T-Net
— [...] T-ISDN multi-device

mode simple

— [...] T-ISDN multi-device

mode standard

— [...] T-ISDN multi-device

mode comfort

— [...] T-ISDN point-to-point

mode, simple

— [...] T-ISDN point-to-point

mode, standard

— [...] T-ISDN point-to-point

mode, comfort

× EUR 10,93 = […]

× EUR 19,56 = […]

× EUR 20,45 = […]

× EUR 22,67 = […]

× EUR 26,23 = […]

× EUR 28,45 = […]

× EUR 30,68 = […]

Total = […]

divided by [...] lines = EUR 12,04

In addition to the monthly fees, DT also charges its
customers a one-off fee for taking over an existing line
or opening a new one. From 1998 to the present, the
one-off charge for taking over a serviceable T-Net or T-
ISDN connection has been EUR 22,22 and the charge
for provision of a serviceable connection EUR 44,45.
New connections are more frequent
than takeovers
([...] % of cases compared with [...] %) (133). The average
one-off charge to end-users for T-Net and T-ISDN there-
fore comes EUR [...] (134).

(133) DT's letter of 6 February 2003.
(134)

([...] x EUR 22,22) + ([...] x EUR 44,45) / 100 = EUR [...].

14.10.2003

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Official Journal of the European Union

L 263/31

(147) When the market was opened up to competition in
2000, DT initially charged a one-off fee of EUR 44,45
for providing T-DSL.
then raised this charge to
EUR 64,61 from 1 July 2002 and to EUR 86,16 from
1 January 2003. So the average one-off charge for all
DT end-user lines was EUR [...] from 1 July 2002 and
EUR [...] from 1 January 2003 (135).

It

(148) Assuming that

the average end-user keeps the same
telephone subscription for a period of
[...] months,
allowing in particular for changes of residence (136), these
average one-off charges should be divided by [...]. The
result must then be added to the monthly charge in
to obtain an average monthly retail price for
order
access to the local network. Using this method, DT's
average total retail prices are as follows:

Table 8

31.12.2002/
1.1.2003

31.12.2001

31.12.2000

31.12.1999

31.12.1998

EUR 15,17 EUR 13,82 EUR 12,88 EUR 12,48 EUR 12,04

EUR […]

EUR […]

EUR […]

EUR […]

EUR […]

Average
monthly
charge

Pro rata
weighted
one-off
charges

Average total
retail price

EUR […]

EUR […]

EUR […]

EUR […]

EUR […]

(bb) Calculation of
network access

the wholesale price

for

local

(149) Like the retail price, DT's wholesale price for local loop
access is also composed of two items — the monthly
rental charge payable periodically and the one-off charge
for opening a new connection or taking over or discon-
tinuing an existing connection.

(150) From 1 April 2001 the monthly charge for DT's
competitors was EUR 12,48 and it has been reduced to

(135) At present around [...] % of all DT's end-user connections are T-
DSL (3,1 million lines compared with [...] million analogue and
ISDN lines); see recitals 27 and 28.

(136) DT's letter of 14 March 2003 and of 18 March 2003; a shorter
period, f. e. 40 months, as proposed in the complaint in Case
COMP/C-1/37.579, p. 11, or 20 months, as proposed in the Case
COMP/C-1/37.451, p. 17, would be a less favourable basis for
calculation, as the one-off retail charges have always been and still
are lower than the one-off wholesale charges.

EUR 11,80 as of 1 May 2003. From 1 April 2001, the
one-off charges were EUR 92,59 for a straightforward
takeover, EUR 86,51 for a straightforward new connec-
tion and EUR 38,06 or EUR 59,24 for discontinuing a
connection with or without transferring the customer.
Since 1 April 2002 the one-off charges have been in the
first place EUR 70,56 for a straightforward takeover,
EUR 81,12 for a straightforward new connection and
EUR 34,94 or EUR 50,71 for discontinuance with or
without transfer (137).

(151) The discontinuance charge is payable for re-connecting
an unbundled line to DT's network and is imposed only
on competitors at wholesale level (138). The discontinu-
ance charge and the charge for access provision are the
only one-off wholesale charges which competitors must
pay to DT. In practice, takeovers of lines that are still
activated are more frequent
than the reopening of
deactivated lines (139). This can be used to work out the
average one-off wholesale price charged to competitors.
As with the one-off retail prices (see recital 148), these
average total one-off charges must be divided by [...]
and the result added to the monthly charge in order to
calculate DT's average prices for providing its competi-
tors with wholesale access services. DT's total wholesale
prices calculated in this manner are set out below.

Table 9

31.12.2002

31.12.2001

31.12.2000

31.12.1999

31.12.1998

EUR 12,48 EUR 12,48 EUR 12,99 EUR 12,99 EUR 10,56

EUR […]

EUR […]

EUR […]

EUR […]

EUR […]

EUR […]

EUR […]

EUR […]

EUR […]

EUR […]

Monthly
charge

Pro rata one-
off charges:

— takeover/
Installa-
tion

— discon-
tinuance

(137) For more details on developments in these charges since 1998, see

paragraphs 18 seq. above.

(138) See footnote 25.
(139)

In [...] % of all cases the existing line is taken over without
customer transfer; in [...] % of cases a new connection is installed
without customer transfer; cf. complainants' letter of 12 September
2002 in Cases COMP/C-1/37.578 and 37.579, p. 21, footnotes 1
and 2; complainants' letter of 18 September 2002 in Case COMP/
C-1/37.451, p. 23, footnotes 58 and 59; the same applies for the
discontinuance with customer transfer in relation the discontinu-
ance without customer transfer; see DT's letter of 18 March 2003.

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Official Journal of the European Union

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31.12.2002

31.12.2001

31.12.2000

31.12.1999

31.12.1998

Total whole-
sale price

EUR […]

EUR […]

EUR […]

EUR […]

EUR […]

in order to prove that a margin
2002. Consequently,
squeeze exists for 2002 and at the present time, DT's
product-specific costs must be determined in order to
assess whether this positive spread is sufficient to cover
DT's product-specific costs for providing retail services.

(cc) Spread between retail and wholesale prices

(152) As can be seen from the calculations below, the spread
between DT's average retail access price and its average
wholesale access price was always negative from the
time when local loop unbundling became a legal obliga-
tion in Germany in 1998 up to the end of 2001.

Table 10

31.12.2002/
1.1.2003

31.12.2001

31.12.2000

31.12.1999

31.12.1998

EUR […]

EUR […]

EUR […]

EUR […]

EUR […]

EUR […]

EUR […]

EUR […]

EUR […]

EUR […]

Average total
retail price

Total whole-
sale price

Spread

EUR […]

EUR […]

EUR […]

EUR […]

EUR […]

(153) Since the spread between DT's retail and wholesale
prices was always negative between 1998 and 2001,
there is not even any need, for the purposes of proving
the existence of a margin squeeze over that period, to
determine whether this spread was sufficient to cover
DT's downstream costs for customer relations. These
negative spreads per month and per line are a direct
measure of the margin squeeze between the beginning
of 1998 and the end of 2001.

(dd) Product-specific costs

(155) To determine DT's product-specific costs for providing
is necessary to
it
retail access to the local network,
deduct the overheads,
i.e. the cost of merely providing
the network infrastructure, from the total costs. Product-
specific costs would arise from any special equipment
required to provide analogue, ISDN and ASDL services
and from DT's customer relations.

(156) No extra equipment is needed to provide local network
access for end-users over analogue lines, so that here the
product-specific costs derive simply from the customer
relations services such as marketing, maintenance and
is required to
invoicing. However, specific equipment
provide simple local network access over digital narrow-
band lines (ISDN), generating separate costs. Here too
there are product-specific costs arising out of customer
relations.

(157) Extra equipment

located at

important cost

is also needed to provide ADSL
services, pushing up further the product-specific costs.
factors for ADSL services
The most
include technical devices at both ends of
the copper
pair (i.e. a modem and a splitter at
the consumer's
premises and at the local exchange), multiplexing equip-
the exchange to manage the data
ment
streams from several hundreds of ADSL connections,
known as a digital subscriber line access multiplexer
(DSLAM), and a broadband access server (BAS) located
upstream in the network, to organise the traffic gener-
into a backhaul
ated by several DSLAMs and sent
transmission network, so as to manage the IP layer of
the service.

(158) According to DT,

the total monthly cost of

retail
services per analogue line comes to EUR [...] (140), the
monthly retail cost per ISDN line comes to EUR [...] (141)
and the monthly retail cost per ADSL line comes to
EUR [...] (142). These amounts may however
include

(154) After DT had increased certain monthly and one-off
charges in 2002 (see recitals 44, 50 and 51), there was
a positive spread between its retail and wholesale prices,
which amounted to EUR [...] per month and per line at
31 December 2002 or 1 January 2003 and rose to EUR
[...] on 1 February 2003 as a result of the EUR 0,33
for T-Net connections
increase in monthly charges
approved by the regulatory authority on 19 December

(140) Annex U to DT's reply of 24 September 2001 to the request for
information of 29 August 2001 in Case COMP/C-1/37.451: sum of
individual costs [...] per year (= [...] per month).

(141) Annex W to DT's reply of 24 September 2001 to the request for
information of 29 August 2001 in Case COMP/C-1/37.451: sum of
individual costs [...] per year (= [...] per month).

(142) DT's reply of 20 November 2001 to the request for information of
30 October 2001 in Case COMP/C-1/37.451, pp. 3 and 4: [...].

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L 263/33

(i.e.

the cost of

the
components of network costs
copper pair) and product-specific costs (other service-
specific costs of connecting up to the final customer)
and should therefore be broken down further in order
to determine DT's product-specific costs for providing
retail access to its local loop network.

(159)

It can be concluded from DT's data for 2001 that the
monthly product-specific costs for providing lines are
EUR [...] per analogue line (143), EUR [...] per
ISDN
line (144) and EUR [...] per ADSL connection (145). These
costs produce a weighted average product-specific cost
of EUR [...] per line, as shown in the calculation set out
below:

Table 11

(31 December 2001)

— [...] T-Net

× EUR […]

= […]

— [...] T-ISDN multi-device

mode, simple

— [...] T-ISDN multi-device

mode, standard

— [...] T-ISDN multi-device

mode, comfort

— [...] T-ISDN point-to-point

mode, simple

— [...] T-ISDN point-to-point

mode, standard

— [...] T-ISDN point-to-point

mode, comfort

× EUR […]

= […]

× EUR […]

= […]

× EUR […]

= […]

× EUR […]

= […]

× EUR […]

= […]

× EUR […]

= […]

— [...] T-DSL/T-Net

× EUR […]

= […]

— [...] T-DSL/T-ISDN

× EUR […]

= […]

Total = […]

divided by [...] lines = EUR […]

(ee) Result

(160) The average cost calculation shows that, even after DT's
price increases in May and July 2002 and January and

(143) Annex to DT's reply of 20 November 2001 to the request for
information of 30 October 2001 in Case COMP/C-1/37.451, Table
TelAs: total cost [...] - network infrastructure cost [...] = [...].
(144) DT's letter of 17 January 2003, p. 5 (for exact breakdown, see

table 11).

(145) DT's reply of 20 November 2001 to the request for information of
30 October 2001 in Case COMP/C-1/37.451, p. 3: total cost [...] -
network infrastructure cost [...] = [...].

February 2003, the margin squeeze still exists, as the
product-specific costs still exceed the positive spread
between retail and wholesale prices (146). Moreover, DT's
rise considerably with
average product-specific costs
each new T-DSL customer it gains. The size of
the
margin squeeze after DT's latest price adjustments is
shown below:

Table 12

5/2002

7/2002

1/2003

2/2003

5/2003

EUR […]

EUR […]

EUR […]

EUR […]

EUR […]

EUR […]

EUR […]

EUR […]

EUR […]

EUR […]

Spread between
retail and
wholesale price

Average
product-specific
cost per line

Margin squeeze

EUR […]

EUR […]

EUR […]

EUR […]

EUR […]

(161) These calculations show that a margin squeeze still
exists in access to the local network, even though it
may be decreasing slightly over time. To prove that DT
the margin squeeze
is abusing its dominant position,
affecting competitors under the present tariff structure
can be quantified — using a weighted approach — at
EUR [...] per line and per month (see recitals 111 and
112). Although DT's price changes in 2002 produced a
positive spread between the average retail and wholesale
prices, under the calculation method used in this Deci-
sion, this spread has hitherto been insufficient to cover
DT's product-specific costs for providing retail services.

(146) From 1 May 2002: average monthly charge EUR 15,17 + pro rata
one-off charge [...] = [...] - [...] wholesale charge = EUR [...] positive
spread; from 1 July 2002: average monthly charge EUR 15,17 +
pro rata one-off charge [...] = [...] - [...] wholesale charge = EUR [...]
positive spread; from 1 January 2003: average monthly charge
EUR 15,17 + pro rata one-off charge [...] = [...] - [...] wholesale
charge = EUR [...] positive spread; from 1 February 2003: average
monthly charge EUR 15,41 + pro rata one-off charge [...] = [...] -
[...] wholesale charge = EUR [...] positive spread; from 1 May 2003:
average monthly charge EUR 15,41 + pro rata one-off charge [...] =
[...] - [...] wholesale charge = EUR [...] positive spread.

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local

(162) DT argues that, leaving aside analogue access, no margin
squeeze has been applied either in the past or in the
present in the higher-value variants of local access (147).
However, to examine individual
loop variants on
their own would from the outset be inconsistent with
the approach followed here, which is to look at average
retail access prices
in relation to wholesale prices,
thereby obtaining a picture of DT's customer structure
(see recital 112 et seq.). But even if every unbundled line
were to be used by competitors for the highest-value
retail service (DSL over ISDN connections), there would
still have been a margin squeeze up to 30 April
2002 (148). The weighted approach is therefore more
advantageous to DT than its own.

(d) SCOPE FOR AVOIDING THE MARGIN SQUEEZE

(163) The facts and figures set out in this decision prove that
since 1 January 1998 DT could have avoided the margin
squeeze in access to the local network, for example by
increasing the existing retail charges for analogue, ISDN
and ADSL connections. The fact that such scope does
exist is evidenced by the retail price increases so far
introduced by DT since the local loop in Germany was
unbundled and by reductions
in wholesale charges.
These are steps in the right direction, but insufficient
in volume to rectify the unfair pricing abuse.

the average
customers, provided that
and business
basket price did not exceed the prescribed price cap
index.

and the

and Telecommunications

(165) The price cap system set up by the Federal Ministry of
Posts
regulatory
authority thus gave DT sufficient scope, during the
period between 1998 and 2001, to restructure entirely
its tariff system on the basis of the specific costs of the
individual services forming part of the baskets. Increases
in retail access charges could be offset within the price
cap system by reducing call charges within the baskets
for residential and business customers. The original price
cap system laid down no limits on reductions in tariffs
for individual services, so that DT was free to reduce
certain individual charges while increasing others by a
corresponding amount and hence complying with its
obligations for the basket in question. As a lower limit
on reductions in call charges, the regulatory authority
merely applied the rule that such charges must always
be at least 25 % higher than the respective interconnec-
tion charges. Accordingly, each time DT submitted appli-
cations for the approval of adjustments to charges under
the price cap system, the regulatory authority made only
a rough assessment to check that the applicable index
figures were respected and that the proposed charges
did not manifestly breach the requirements of the Tele-
In the majority of all six tariff
communications Act.
adjustment applications between 1998 and 2001 this
was the case (149).

(aa) Price cap periods 1998/99 and 2000/01

(164) During the first two price cap periods DT could have
avoided the margin squeeze by increasing retail charges
for analogue and ISDN connections, because it was
entitled to apply to the regulatory authority at any
time asking for adjustments to charges (see recital 36).
By reducing call charges it could secure an increase in
access charges within baskets of services for residential

(147) DT's observations on the Statement of Objections in Cases COMP/

C-1/37.451, 37.578 and 37.579, 29 July 2002, p. 92.

(148) Cf. the following hypothetical calculation based on the charges

(weighted

applicable up to 30 April 2002:
Retail T-DSL/T-ISDN: EUR 28,56/month + EUR [...]
one-off charges) = EUR [...]
Wholesale ULL: EUR 12,48/month + EUR [...] (weighted one-off
charges) = EUR [...]
Spread between retail and wholesale charges = EUR + [...]
Product-specific costs for retail T-DSL/T-ISDN services = EUR
- [...]
Margin squeeze = EUR [...] Under this hypothetical calculation,
the margin squeeze ceased to exist only after the new retail
charges came into effect on 1 May 2002.

(166) During the first price cap period from 1 January 1998
to 31 December 1999, DT reduced the tariffs for calls
by more than 20 %, i.e. by much more than the 4,3 %
mandatory reduction (150). This meant that, after only a
the tariffs lay well below the mandatory
short
levels. Since then DT has further reduced call charges.

time,

(149)

In the first decision of 30 January 1998 the regulatory authority
has approved all of DT's requested tariff changes except the tariffs
‘City Plus 2’ and ‘City Plus 3’ which did not fall under the price cap
regime. In the second decision of 11 December 1998 the regula-
tory authority approved all of DT's requested tariff changes. In the
third decision of 16 March 1999 the regulatory authority approved
all of DT's requested tariff changes except the tariff for local calls
with a time measure length of 60 seconds on working days,
Saturdays, Sundays and official holidays and from 24 December
until 1 January in the time between 9 p.m. and 6 a.m. because this
tariff contained obviously unjustified discounts. In its fourth deci-
sion of 16 April 1999 the regulatory authority approved all of
DT's requested tariff changes except those for connection to the
Faeroe Islands, Greece, San Marino, Turkey, Portugal and Gibraltar.
In the fifth decision of 21 January 2000 and in the sixth decision
of 16 February 2000 the regulatory authority approved all of DT's
requested tariff changes.

(150) Regulatory authority decision of 23 December 1999, p. 13 (see

footnote 45).

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for

call

charges

reductions

All in all, the regulatory authority approved six applica-
tions
between
in
January 1998 and February 2000 (151). The considerable
drop in call
charges undertaken by DT between
1998 and 2000 meant that an increase in its monthly
and/or one-off charges for retail access was not only
economically feasible but,
the margin
squeeze, a legal requirement, provided that there was
no breach of the price cap provisions in force.

in view of

(167) More specifically, during the first price cap period
between 1 January 1998 and 31 December 1999, DT
released turnover of EUR [...] million over and above the
mandatory 4,3 % price reduction. During the second
cap period between 1 January 2000 and
price
31 December 2001, the volume of
turnover released,
after taking away the reduction laid down by the price
these
cap system, came to an additional EUR [...].
amounts had been redirected to connections for residen-
tial and business customers, they could have been used
entirely to increase retail access charges — either the
monthly or the one-off charges (152).

If

(168)

Furthermore, these amounts should merely be regarded
as a minimum, as DT was very much in a position to
undertake further reductions in call charges at any time
within the baskets of services for residential and busi-
ness customers,
in particular tariffs for local calls, and
thereby to obtain more leeway for price increases in the
monthly and one-off charges for analogue and ISDN
connections. The wholesale prices for interconnection
between fixed networks, which in accordance with
Article 7(2) of Directive 97/33/EC must be
cost-
oriented, can be used as an indication of the cost of
individual
the
reduction in tariffs in May 2002, all DT's retail call
charges remained considerably higher than the corre-
sponding interconnection charges, indeed up to 570 %
higher, depending on the type of call (153). This margin
provided scope for DT to end the margin squeeze
level
between access charges at wholesale and retail

telephone calls. However, even after

(151) See footnote 149.
(152) DT concedes that

(153) Local

call

it could have increased the monthly access
charge per residential customer during the first price cap period
by EUR [...] (DT's observations on the Statement of Objections,
29 July 2002, p. 66).
level:

compared with
charge EUR 0,0345/min.
EUR 0,0065/min. for local interconnection (peak times) = 530 %
and EUR 0,0172/min. compared with EUR 0,0044/min. (off-peak)
= 390 % /national
level: call charge EUR 0,106/min. compared
with EUR 0,0186/min. double transit interconnection (peak times)
= 570 % and EUR 0,0267/min. compared with EUR 0,0122/min.
(off-peak) = 220 % (all prices net,
interconnection charges laid
down by the regulatory authority decision of October 2001, see
regulatory authority press release of 15 October 2001).

through more cost-oriented pricing of
included in the baskets.

the services

the

is certainly true that

(169) DT argues that under the price cap mechanism all retail
charges are fixed by law and no deviations from the
approved charges are admissible (154). However, this argu-
ment overlooks
system for approving
two-tier
charges under the price cap mechanism (see recital 36).
It
the regulatory authority also
investigates and approves adjustments to charges under-
taken within the price cap to ensure they comply with
the mandatory index figures (155). However,
there is
nothing to prevent DT exerting a constant influence on
retail charges by submitting further applications
for
adjustments to charges, provided that these adjustments
Indeed DT has explicitly
stay within the price cap.
recognised that within the price cap system it enjoys
legal scope to restructure further its charges for local
network access on the basis of
the relevant specific
costs (156).

(170) DT also concedes that it took steps in that direction,
applying ‘soft’ restructuring measures in the form of
tariffs with higher access charges and lower
optional
call charges (157). However,
to be taken
into consideration in this Decision (see recital 130 and
131). DT undertook no such price increases in standard
access tariffs, which are the only ones relevant here: it
refrained from raising retail access charges over
the
entire four-year period.

these are not

(bb) Price cap period 2002

(171) Under the present price cap system, which has been in
force since 1 January 2002, there is explicit scope for
the restructuring of
tariffs through the negative price
cap index for the access basket. Since the price cap sets
no minimum access price but a price ceiling, it was left
to DT to decide whether and how to exploit the 1 %
margin available for increasing prices in the basket.

(154) DT's observations on the Statement of Objections, 29 July 2002,

p. 38 et seq.

(155) Under Section 27(2), second sentence, of the Act.
(156) DT's reply of 14 May 1999 to the complaint in Case COMP/C-1/
37.451, p. 21; DT's reply of 16 September 1999 to the complaint
in Case COMP/C-1/37.578, p. 20.

(157) DT's reply of 23 July 2001 to the request for information of

22 June 2001 in Case COMP/C-1/37.451.

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(172) At first DT argued that the restructuring of tariffs with
higher retail access charges would have been unaccep-
table to customers, was unfeasible because of
the
competition situation in Germany and would be rejected
by politicians on social grounds (158). On 15 January
2002, DT announced a first voluntary increase in
monthly access charges. The new tariffs came into force
on 1 May 2002, but even after this increase, the margin
squeeze is still EUR [...] per month and per line (159).

(173) DT now claims that the margin it enjoyed for increasing
prices in basket A for 2002 was entirely exhausted by
the increase made on 1 May 2002 (160). But DT's
commercial freedom to avoid the margin squeeze did
not arise only from the access charges for analogue and
ISDN connections regulated under the price cap system:
the retail access charges for ASDL connections, which
were not regulated by the price cap, must also enter
into consideration.

(174)

Irrespective of the regulatory conditions of the price cap
system, DT is free at any time to raise access charges for
ADSL broadband access (see recital 46 et seq.), thereby
further reducing the margin squeeze. In March 2001 the
the T-DSL
regulatory authority noted that most of
services offered by DT did not
(see
costs
cover
recitals 48 and 49) (161). This situation was not funda-
mentally altered by the adjustments to DT's charges in
2002 (see recitals 51 and 160) (162).

(175) DT is not required to seek approval from the regulatory
authority before increasing T-DSL charges, so it has had
considerable leeway to reduce the margin squeeze since
T-DSL services were introduced onto the market
in
2000. This applies above all to the present price cap
period, during which DT has generally complied with
the regulatory conditions for access charges, which are
regulated by the price cap, but has left its T-DSL charges
unchanged — save for the one-off charge for access
provision. Even if it is assumed that DT would not have
been able to use the legally unlimited possibility for
increasing T-DSL charges due to a limited elasticity in
demand, there is no question that DT could have at
least partially closed the margin squeeze.

(158) DT's reply of 14 May 1999 to the complaint in Case COMP/C-1/
37.451, p. 21; DT's reply of 24 September 2001 to the request for
information of 29 August 2001 in Case COMP/C-1/37.451, p. 14.

(159) See table 12.
(160) DT's observations on the Statement of Objections, 29 July 2002,

p. 41.

(161) See also footnote 69; the regulatory authority determined in its
‘The tariffs for T-DSL connections
decision of 30 March 2001:
include discounts below the costs of an effective service provision.’
(p. 31) and ‘The determined discounts from the costs of an
effective service provision are resulting in an objectively unjustified
restriction of the competitive chances of the concurrents.’ (S. 44).
the regulatory
authority of 25 January 2002 to close the reopened proceeding
with regard to T-DSL charges (decision of 18 December 2001)
contains now new calculations about the degree of cost covering.

(162) See table 12;

the decision of

in this respect

(e) EFFECT ON THE MARKET

(176) DT argues that, in order to establish abuse of a domi-
nant market position within the meaning of Article 82
of the EC Treaty, the Commission must not only prove
there is a margin squeeze, but also demonstrate that this
margin squeeze has negative effects on the market, for
example by hindering competitors or restricting compe-
tition downstream in the form of barriers to market
entry for competitors (163).

(177) What DT fails to realise here is that the question of
barriers to market entry for competitors is significant
only for the purposes of establishing the existence of a
dominant position and not
for determining possible
abuse.

the degree of

(178) The concept of abuse is an objective concept relating to
the behaviour of an undertaking in a dominant position
which is such as to influence the structure of a market
where, as a result of the very presence of the under-
taking in question,
competition is
weakened and which,
through recourse to methods
different from those which condition normal competi-
tion in products or services on the basis of the transac-
tions of
effect of
hindering the maintenance of the degree of competition
still existing in the market or
that
competition (164). An undertaking in a dominant market
to allow its
position has a special responsibility not
conduct to impair genuine undistorted competition on
the common market (165).

commercial operators, has

the growth of

the

(179) Contrary to the view taken by DT, the Court of Justice
of the European Communities has found that there is
abuse of a dominant market position where a dominant
undertaking uses
its pricing policy to eliminate its
competitors and hence strengthen its own position (166).
This is the case for example where a dominant under-
taking supplies both a primary product and the end
product manufactured from that primary product, and

(163) DT's observations on the Statement of Objections, 29 July 2002,

pp. 83 ff.; DT's letter of 25 October 2002, p. 27 et seq.

(164) Court of Justice in Case 85/76 Hoffmann-La Roche [1979] ECR 461,

paragraph 91.

(165) Court of First Instance in Case T-83/91 Tetra Pak II [1994] ECR II-

755, paragraph 114.

(166) Court of

Justice in Case C-62/86 AKZO [1991] ECR I-3359,

paragraph 70.

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its end product prices lie below the variable unit costs
or overall costs of that product and are set as part of a
plan aimed at eliminating a competitor (167). There is
also sufficient evidence of abuse where a dominant
undertaking continually and deliberately bears
sales
losses which, by their scale and very nature, reflect an
economic rationale of ousting other competitors from a
common market, or where a dominant undertaking
to ensure that a
fidelity rebates
unilaterally grants
customer obtains
exclusively from
its
it (168). Finally, the Commission also considers that there
is an abusive pricing policy where an undertaking is
dominant in the markets for both a raw material and a
product derived therefrom and maintains a margin
between the price it charges for the raw material to the
undertakings competing with it to produce the derived
product and the price it charges for the derived product
itself which is insufficient to reflect its own costs for the
derived product, thereby restricting competition in the
derived product (169).

requirements

(180) By proving the existence of a margin squeeze,

the
Commission has therefore done enough to establish the
existence of an abuse of a dominant market position.

is

to the market entry of competitors,

(181) But even if evidence of abuse could be furnished only
by establishing that DT restricted competition by raising
barriers
such
barriers do exist, as competitors, including the complai-
nants, are still unable to connect end-users to their own
illustrated in
networks at competitive rates. This
particular by the fact that the competitors have so far
achieved market shares of only 4,4 % in narrowband
access and 10 % in broadband access. At the end of
2002 all 64 competitors together held only 2,35 million
the total of 53,72 million telephone channels in
of
Germany. At the end of 2001, they held 1,59 million
channels and at the end of 2000 only 0,86 million (170).
These figures alone illustrate the sluggish development
of competition in this field. The number of telephone
channels held by the competitors consist of their own
networks and unbundled local
loops rented from DT.
The total number of local loops rented to competitors is
still
the rate of quarterly growth has
remained unchanged since the beginning of 2001 (171),
so that here too there is no discernible improvement in
the situation as regards competition.

increasing, but

Ibid., paragraphs 71 et seq.

(167)
(168) Court of

Justice

in Hoffmann-La Roche

paragraph 89; Court of First
footnote 165), paragraph 221, with further references.
(169) Commission Decision in Napier Brown — British Sugar,

Instance in Tetra Pak II

(see footnote 164),
(see

(182) The negative effects of DT's restriction of competition
on the development of
the market are particularly
obvious in the number of analogue connections, which
still account for 75 % of all connections in Germany
and hence play a crucial role for
the mass market.
Admittedly, some of the competitors offered their end-
users analogue connections
the existing
margin squeeze. However, they did so mainly in order
to offer customers a full
to
encourage them to take up higher-value services (172).
the overwhelming majority of
Right
complainants have refrained from taking up the offer
of analogue local
loops. And even in the case of the
remaining competitors the share of analogue connec-
tions has fallen from 21 % in 1999 to 10 % in
2002 (173).

range of products or

from the outset

in spite of

(183) Lastly, since the complainants form a heterogeneous
group whose members apply different business models,
one cannot be convinced by DT's sweeping argument
that market entry is open to competitors because access
and call services can be offset against each other (174), as
such offsetting has clearly not allowed the majority of
the complainants to cover their costs or offered them
the prospect of profits. It is true that in the meantime
some competitors have been able to gain a larger
number of telephony customers in limited areas as for
example big cities or areas of industrial concentration
because of unbundling and have partially gained market
shares of more than 20 %. But out of this cannot be
concluded that DT's tariff structure does not create
barriers to entry. Because with DT's tariff structure a
geographically extended competition as aimed at by
some competitors like Arcor cannot or only to a limited
degree be achieved.

D. EFFECT ON TRADE BETWEEN MEMBER STATES

(184) Trade between Member States is generally affected by
the conditions governing access to the telecommunica-
tions infrastructure and wholesale services of the domi-
nant network operators,
the
historical operators of fixed and mobile networks, who
formerly enjoyed a State monopoly in national markets
that were defined geographically and segregated. This is

in particular

those of

footnote 104.

(170) Regulatory authority annual report for 2002, p. 18.
(171) Regulatory authority annual report for 2002, p. 19.

37.578 and COMP/C-1/37.579, pp. 23 and 24.

(173) See footnote 170.
(174) DT's letter of 25 October 2002, pp. 31 and 32.

see

(172) Complainants' letter of 12 September 2002 in Cases COMP/C-1/

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because the services provided over telecommunications
networks can be traded within the Community and the
conditions governing access to infrastructure and whole-
sale services determine the capabilities of competitors,
who require such access in order to offer their own
services (175).

(188)

(a) DT'S STATUS

It is doubtful whether DT is ‘entrusted’ with the opera-
tion of services of general economic interest on the
basis of the universal service arrangements in force in
Germany. To be exempt from the competition rules, an
undertaking must be entrusted with providing services
the public
of general economic interest by an act of
authority (180). Under consistent case-law the require-
ments for entrustment are defined narrowly,
in order
to ensure that exemptions from the application of the
competition rules
cannot be obtained simply by
invoking measures that are taken by the State but are
not binding (181).

(189) Up to now the services classified under universal service
provision have been provided predominantly by DT.
Relying on section 97(1) of
the Act, DT therefore
it has been entrusted with services of
assumes that
general economic interest (182). Under
this transitional
measure, DT must inform the regulatory authority in
advance that it is planning not to offer in their entirety
the services described as universal in the order adopted
pursuant to section 17(2) of the Act, or is planning to
offer them on less favourable terms. Accordingly, under
section 97(1) of the Act, DT may at any time, giving
one year's notice, end the task it has assumed of
ensuring blanket basic provision of the services declared
as universal. To date DT has addressed no such notifica-
tion to the regulatory authority.

(190) However, the provisions of section 97(1) of the Act do
not as such mean that DT is entrusted with providing
universal services (183), as they provide no leverage for
forcing DT to perform the universal service against its
will.

is

provided with

(191) Nevertheless, the Federal Republic of Germany is obliged
by Community rules to ensure that the entire German
population
telephony
service (184). The Community rules also require that the
the undertakings
Commission be specially notified of
which provide universal services. This had been done in
the case of DT, so that it may be possible to infer for
purposes of
the present proceedings that it has been
entrusted with services of general economic interest.

voice

a

(185)

In the present case,
trade between Member States is
affected because the pricing policy described above
relates to the access services of the dominant operator,
which extend over the entire territory of
the Federal
Republic of Germany, and that territory constitutes a
substantial part of the internal market. These practices
affect market structure by raising the barriers to entry to
telecommunications markets in Germany, particularly for
operators such as Arcor, which forms part of a group of
undertakings
services
throughout the EU. DT has made no specific observa-
tions on this point during the proceedings.

telecommunications

providing

E. NO EXCEPTION UNDER ARTICLE 86(2) OF THE EC

TREATY

(186) DT takes the view that,

in any event, pursuant

to
the EC Treaty, no objection can be
Article 86(2) of
raised concerning a possible abuse of a dominant
market position, as DT is entrusted with the operation
of services of general economic interest in the field of
from
telephony,
voice
performing that particular
the tariff structure
were different (176).

and would

prevented

task if

be

(187) Universal

to

are

and

services

networks

communications

telecommunications

be
regarded as services of general economic interest (177).
In accordance with the Directives 97/33/EC and
98/10/EC and with Directive 2002/22/EC of
the
the Council of 7 March
European Parliament and of
2002 on universal service and users´ rights relating to
electronic
services
(Universal service directive) (178) the European Commu-
nity therefore demands
impose
universal service obligations on Member States in order
to ensure the wide-ranging basic provision of voice
telephony. The rules on universal service stipulate that
all users, irrespective of their location, must be offered a
defined minimum set of services of a certain standard at
an affordable price. The rules lay down which services
are covered by the universal service obligation, which
procedure should be used to select the operators who
will carry special obligations and how the net costs of
these obligations are to be passed on to market partici-
pants (179).

that Member States

(175) Access notice (see footnote 79), paragraphs 144 to 148.
(176) DT's observations on the Statement of Objections, 29 July 2002,

p. 119 et seq.

(177) Regulated in Germany by section 17 et seq. of the Act and by the
Telecommunications universal service order (Telekommunikations-
Universaldienstleistungsverordnung (TUDLV)).

(178) OJ L 108, 26.4.2002, p. 51.
(179) Communication from the Commission: ‘Services of general interest

in Europe’, 20 September 2000, OJ C 17, 19.1.2001, p. 4.

(180) Court of Justice in Case 127/73 BRT v SABAM [1974] ECR 313,

paragraph 20.

(181) See footnote 180, paragraph 22 et seq.; most recently Case C-242/

95 GT-Link v DSB [1997] ECR I-4449, paragraph 50.

(182) DT's observations on the Statement of Objections, 29 July 2002,
p. 120, with references to similar regulations for the postal sector.
(183) Unlike in the postal sector, where Deutsche Post AG has an
exclusive licence entrusting it with handling letters in the reserved
sector.

(184) See footnote 178.

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(b) NO OBSTRUCTION TO THE PERFORMANCE OF PARTI-

CULAR TASKS

the extent identified here cannot be justified in law on
the basis of the definition of affordable universal service,
as the very objective of the price cap system is to allow
tariffs to be continually restructured.

(192) But even assuming that DT is entrusted with performing
universal services, this does not mean in the present
case that it is exempt from the competition rules of the
EC Treaty. For in any event DT is not obstructed in law
or in fact in the performance of its particular task by
the application of the competition rules, and in parti-
cular Article 82 of the EC Treaty.

(193) DT assumes that the charges for analogue connections
form the core of the universal service and that a drastic
increase in these charges with the aim of ending the
margin squeeze would run counter
to its universal
service obligation (185). However, the offsetting of access
and call charges and the resulting margin squeeze
between wholesale and retail prices in order to fulfil
the universal service obligation is neither required by
law nor proportionate.

(194) DT's charges for wholesale and retail services must in
theory be oriented to the cost of efficient service provi-
sion (186). The principle of uniform tariffs also requires
that access charges be at the same level throughout the
country (187). Added to this is the requirement that all
users of universal
services must have access at an
irrespective of where they live or do
affordable price,
business (188). Affordability is determined according to
the
services
the average
demanded by a private household outside towns with
100 000 inhabitants at 31 December 1997 (189).

real prices

telephone

for

(195)

In accordance with Community rules, Germany intro-
duced a price cap system with a maximum price for
retail services in order to apply the principle of afford-
ability (190). Under this price cap system, DT has set
retail charges in such a way that analogue connections
are still offered at less than cost price and the resulting
revenue shortfall on connections is funded from higher
revenue from the charges for call services, even though
it has at all times enjoyed scope for deciding on more
extensive restructuring.

(196) However, under the price cap system, privileged treat-
ment of access charges compared with call charges to

(185) DT's observations on the Statement of Objections, 29 July 2002,

p. 120.

(186) Section 24(1), first sentence, of the Act.
(187) Under Section 24(2)(3) of the Act; cf. DT's observations on the

Statement of Objections, 29 July 2002, p. 120.

any

sectors

profitable

in economically

service presupposes

(197) Nor has DT proved that ensuring provision of a
universal
such offsetting
between profitable and less profitable sectors of activity.
For only then could the restriction of competition be
justified
under
Article 86(2) of the EC Treaty (191). The European Court
of Justice does in theory acknowledge the possibility of
protecting a reserved sector against selective market
entry in the case of economically profitable sectors of
activity (192). However, since 1 January 1998, voice tele-
phony is no longer a reserved sector, in which DT could
have undertaken an adjustment of its tariff structure in
a legally admissible manner and without
incurring
financial
98/10/EC and
2002/22/EC, given the Member States' obligation to
ensure that individual charges are cost-oriented, offset-
ting in this sector would in fact be against the law.

losses. Under Directives

(198) DT's argument that offsetting in the local network is
necessary to ensure that customers are attainable at a
favourable cost cannot be accepted (193), as it is irrele-
vant to the legal assessment. The provisions on universal
service do not prescribe privileged treatment for access
charges compared with call charges. Nor is DT forced
into such offsetting by the price cap system. On the
in force allow DT enough
contrary,
leeway
in
Article 86(2) does not therefore apply in the present
case.

the provisions
tariff

adjustments. The

exception

for

V. CONCLUSION

(199) The Commission concludes

to its

that DT is abusing its
dominant position on the relevant markets for direct
fixed telephone network. Such abuse
access
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

(188) Section 17(1) first sentence, and section 24(1), first sentence, of the

(191) Court of Justice in Case C-320/91 Corbeau [1993] ECR I-2533,

Act.

(189) Section 2(1) of the Telecommunications universal service order.
(190) Schütz in Beck'scher TKG-Kommentar, § 2 TUDLV, Anhang zu § 17,

Rn. 1.

paragraph 17.
Ibid., paragraph 18.

(192)
(193) DT's observations on the Statement of Objections, 29 July 2002,

p. 120 and Annex DT St. 12.

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the end of 2001, DT was in a position to end the
margin squeeze entirely by adjusting its retail charges.
Since the beginning of 2002, DT could in any event
have reduced the margin squeeze, by increasing the
ADSL retail access charges not subject to the price cap
system.

VI. CONSEQUENCES

access to the local network in Germany are seriously
impeded. DT has accordingly been able, since full liber-
alisation following the unbundling requirement on
1 January 1998 and for a period of more than five
years, to maintain a market share of more than 95 %
on the German market for local network access and to
prevent further market entry by competitors, particularly
those with customer connections throughout Germany.
This is made particularly clear by the large number of
complainants (15) lodging the three complaints leading
to this decision.

(200) Article 15(2) of Regulation No 17 empowers

the
Commission to impose a fine of from EUR 1 000 to
EUR 1 million, or a sum in excess thereof but not
exceeding 10 % of the previous year's turnover of the
undertaking which has infringed the EC Treaty. In fixing
the amount of
the Commission is to have
regard in particular to the gravity and duration of the
infringement.

the fine,

(205) The relevant markets for the purposes of this decision
are markets of considerable economic importance. The
rental of
fixed-network connections provides DT not
only with direct income but with a considerable amount
of other indirect income. The fixed-network connections
are in reality a prerequisite for the provision of a variety
of telecommunications services to end-users. All
in all,
DT achieved a total turnover of EUR 30,2 billion from
its fixed-network business in financial year 2002 (196).

A. GRAVITY

(201) The abuse committed by DT consists in the imposition
of unfair prices in the form of a margin squeeze to the
detriment of DT's competitors. A similar abuse has
already been the subject of a Commission decision
pursuant to Article 82 of the EC Treaty (194).

(202) The abuse involves the whole territory of the Federal
Republic of Germany and jeopardises the proper func-
tioning of the common market by raising barriers to
effective
telecommunications
markets in Germany, thus impeding the establishment
of transnational markets.

relevant

to the

entry

that

the fact

infringement

(206) However, an argument against ranking this as a very
serious
the weighted
is
method applied in this decision to determine the margin
squeeze has not previously been the subject of a formal
Commission decision. This having been said, the margin
squeeze test as such forms part of the well-established
decision making practice of the Commission, and the
new element is the weighted approach which had to be
used in this case to take into account the fact that in
loop
Germany,
the
unbundling has been fixed, while the tariffs for
corresponding
between
ISDN and ADSL lines. A second argument
analogue,
for ranking the infringement as serious and not very
serious is that through tariff adjustments at retail and
wholesale level, DT has steadily reduced the margin
squeeze, since 1999 at least. Lastly, for the period since
1 January 2002, DT's only legal means of reducing the
margin squeeze has been limited to increases in the T-
DSL charges.

single wholesale

differentiate

services

retail

tariff

local

for

a

(203) Through this abuse, DT is jeopardising the objective of
achieving EU-wide establishment of an internal market
for
telecommunications networks and services with
undistorted competition.

(204) This type of abusive pricing strategy by a dominant
undertaking could certainly be ranked as a very serious
infringement under the guidelines on the method of
setting fines imposed pursuant to Article 15(2) of Regu-
lation No 17 (195). The result of DT's abusive pricing
strategy was and is that competitors on the market for

(207)

In view of these particular circumstances, the infringe-
ment of Article 82 of the EC Treaty in this case must
be assessed as being only a serious infringement for the
period from the beginning of 1998 to the end of 2001
and as only a minor infringement for the period since
the beginning of 2002. The amount of the fine to take
account of the gravity of the infringement is therefore
set at a total of EUR 10 million, reflecting the nature,
scale and impact of the infringement.

(194) See footnote 104.
(195) OJ C 9, 14.1.1998, p. 3, point 1(A).

(196) http://www.telekom3.de/de-p/konz/2-st/4-t-/star/030310-t-com-

kurzprofil-ar.html.

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B. DURATION

HAS ADOPTED THIS DECISION:

(208) Because of the charge structure applicable the margin
squeeze on access to the local network to the detriment
of DT's competitors already existed on 1 January 1998,
loop in
when the unbundling of access to the local
Germany and the complete restructuring of charges in
the light of the relevant costs of the individual services
throughout the EU were prescribed. Since competitors
lodged the complaints underlying this proceeding in
the
April and August 1999, DT was also aware of
accusation of possible abuse in the charge structure for
access to the local network.

(209) Despite the various changes in the access charges at
in recent years and the
wholesale and retail
level
increase in the use of broadband services, nothing has
changed in this situation since that time.

(210) Even the increases introduced by DT in 2002/2003 in
the monthly retail access charges and the monthly and
one-off T-DSL charges are insufficient to eliminate the
margin
of
identified. DT's
Article 82 of the EC Treaty has thus existed for more
than five years and has not yet been terminated.

infringement

squeeze

(211) The infringement is therefore of

long duration. Under
the guidelines on the method of setting fines, infringe-
ments of long duration can entail an increase of up to
10 % per year in the amount determined for gravity (197).
For the period from January 1998 to December 2001,
the Commission considers an increase of 10 % per year
the period from January 2002 to
appropriate. For
the regulatory restrictions on
May 2003,
the Commission
tariffs,
scope
DT's
it appropriate to dispense with a further
considers
increase
thus
in the
EUR 14 million.

fine. The basic

in view of

adjusting

amount

for

is

Article 1

Deutsche Telekom AG 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,
significantly impeding competition on the
market for access to the local network.

thus

Article 2

Deutsche Telekom AG 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

the infringement

For
referred to in Article 1, a fine of
EUR 12,6 million is hereby imposed on Deutsche Telekom AG.

this decision,
the Commission of

The fine shall be paid, within three months of the date of
into bank account No 001-
notification of
3953713-69 of
the European Commu-
nities, FORTIS Banque, IBAN BE 71 0013 9537 1369, SWIFT
GEBABEBB, Rue Montagne du Parc 3, B-1000 Brussels. After
expiry of that period, interest shall automatically be payable at
the interest rate applied by the European Central Bank to its
main refinancing operations on the first working day of the
month in which this decision was adopted, plus 3,5 percentage
points, namely 6 %.

Article 4

This decision is addressed to:

Deutsche Telekom AG
Friedrich-Ebert-Allee 140
D-53113 Bonn.

Article 5

C. AGGRAVATING AND MITIGATING CIRCUMSTANCES

(212) There are no aggravating circumstances. As a mitigating
to be taken into consideration in
circumstance has
favour of DT that the retail and wholesale charges in
to
question in the current proceeding were subject
sector specific regulation since 1988 on national
level
until today. Therefore in the present case a 10 % reduc-
tion from the basic amount mentioned in recital 211 is
to be made, which leads
to the final amount of
EUR 12,6 million.

This decision shall be enforceable pursuant to the first para-
graph of Article 256 of the EC Treaty.

Done at Brussels, 21 May 2003.

For the Commission

Mario MONTI

Member of the Commission

(197) See footnote 195, point 1(B).