Source: EURLEX
Language: en
Format: md

**COMMISSION OF THE EUROPEAN COMMUNITIES**

##### Brussels, 10.12.1996

COM(96) 649 final

##### **_DRAFT_** COMMUNICATION FROM THE COMMISSION

_**ON THE APPLICATION**_ _**OF THE COMPETITION**_ _**RULES**_

_**TO ACCESS AGREEMENTS**_

_**IN THE TELECOMMUNICATIONS**_ _**SECTOR**_

##### _Framework, Relevant Markets and Principles_

##### **Notice by the Commission concerning a draft Notice on the application of the** **competition rules to access agreements in the telecommunications sector** The Commission approved a draft Notice on the application of the competition rules to access agreements in the telecommunications sector. The Commission intends to adopt the Notice after having heard any comments from interested parties. The Commission invites interested parties to submit their possible observations they may have on the draft Notice published hereunder. Observations must reach the Commission not later than two months following the date of this publication. Observations may be sent to the Commission by fax (No (32 2) 296 98 19) or by mail to the following address: European Commission Directorate-General for Competition (DG IV) Directorate C Office 3/48 150 Avenue de Cortenberg/Kortenberglaan 150 B-1049 Brussels email: access.notice@dg4.cec.be

**Draft**

**TABLE OF CONTENTS**

INTRODUCTION 1

PART I : FRAMEWORK 4

1. Competition Rules and Sector Specific Regulation 4
2 Commission Action in Relation to Access Agreements 8
3. Complaints 8
3.1 Use of national and ONP procedures
3.2 Safeguarding complainant's rights
3.3 Interim measures
4. Own-Initiative Investigation and Sector Inquiries 11
5. Fines 11

Part II: Relevant Markets 13
1. Relevant product market 13
1.1. Services market

1.2 Access to facilities
2. Relevant geographic market 15

Part III: Principles 17
1. Dominance (Article 86) 18
1.1. Services market

1.2 Access to facilities

1.3 Joint dominance

2. Abuses of Dominance 23
2.1 Refusal to grant access to essential facilities and application of
unfavourable terms

2.2 Other forms of abuse
2.3 Abuses of joint dominance
3. Access agreements (Article 85) 31
4. Effect on trade between Member States 34

Conclusions 35

Wdr-cons.wpd ii _ky._

##### **Draft** **INTRODUCTION**

1. The timetable for full liberalization in the telecommunications sector has now been

established, and Member States are to remove the last barriers to the provision of
telecommunications services in a competitive environment to consumers by 1 January
1998 [1] . As a result of this liberalization a second set of related products or services
will emerge as well as the need for access to facilities necessary to provide these
services. In this sector, interconnection to the public switched telecommunications
network is a typical example of such access. The Commission has stated that it will
define the treatment of access agreements under the competition rules". This Notice,
therefore, addresses the issue of how competition rules and procedures apply to access
agreements in the context of harmonised EU and national regulation in the
telecommunications sector.

2. The regulatory framework for the liberalization of telecommunications consists of the
liberalization directives issued under Article 90 EC and the Open Network Provision
(ONP) framework. The ONP framework provides harmonised rules for access and
interconnection to the telecommunications networks and the voice telephony services.
The legal framework provided by the liberalization and harmonization legislation is
the background to any action taken by the Commission in its application of the
competition rules. Both the liberalization legislation and the harmonization
legislation are aimed at ensuring the attainment of the objectives of the Community

According to Directive 96/19/EC and 96/2/EC, certain Member States may request a derogation
from full liberalisation for certain limited periods. See: Commission Decision of 27 November
1996 concerning the additional implementation periods requested by Ireland for the
implementation of Commission Directives 90/388/EEC and 96/2/EC as regards full competition
in the telecommunications markets. This Notice is without prejudice to such derogations, and
the Commission will take account of the existence of any such derogation when applying the
competition rules to access agreements, as described in this Notice.

Communication by the Commission to the European Parliament and the Council,
Consultation on the Green Paper on the liberalisation of telecommunications
infrastructure and cable television networks, COM (95) 158 final, 3 May 1995.

Commission Directive 88/301/EEC, on competition in the markets in
telecommunications terminal equipment, OJ L131/73 (1988);
Commission Directive 90/388/EEC, on competition in the markets for
telecommunications services, OJ L 192/10 (1990);
Commission Directive 94/46/EC, amending Directive 88/301/EEC and Directive
90/388/EEC in particular with regard to satellite communications, OJ L 268/15 (1994);
Commission Directive 95/51/EC, amending Directive 90/388/EEC with regard to the
abolition of the restrictions on the use of cable television networks for the provision of
already liberalised telecommunications services, OJ L 256/49 (1995);
Commission Directive 96/2/EC, amending Directive 90/388/EEC with regard to mobile
and personal communications, OJ L 20/59 (1996);
Commission Directive 96/19/EC, amending Directive 90/388/EEC with regard to the
implementation of full competition in the telecommunications markets, OJ L 74/13
(1996).

Interconnection agreements are the most significant form of access agreement in the

(continued...)

Wdr-cons.wpd 1 _r_

**Draft**

as laid out in Article 3 EC, and specifically, the establishment of "a _system ensuring_
_that competition in the internal market is not_ _distorted"_ and "an internal market
characterised by the abolition, as between Member States, of obstacles to the free
movement of goods, persons, services and capital".

The Commission has published Guidelines on the application of EEC competition
rules in the telecommunications sector, OJ C 233/2 (1991). The present Notice is
intended to build on those Guidelines, which do not deal explicitly with access issues.

In the telecommunications sector, liberalization and harmonization legislation permit
and simplify the task of Community firms in embarking on new activities in new
markets and consequently allow users to benefit from increased competition. These
advantages must not be jeopardised by restrictive or abusive practices of undertakings:
the Community's competition rules are therefore essential to ensure the completion of
this development. New entrants must in the initial stages be ensured the right to have
access to the networks of incumbent telecommunications operators (TOs). Several
authorities, at the regional, national and Community levels, have a role in regulating
this sector. If the competition process is to work well in the Internal Market, effective
coordination between these institutions must be ensured.

Part I of the Notice sets out the legal framework and details how the Commission
intends to achieve its intention of avoiding unnecessary duplication of procedures
while safeguarding the rights of undertakings and users under the competition rules.
In this context, the Commission's efforts to encourage decentralised application of the
competition rules by national courts and national authorities aim at achieving remedies
at a national level, unless a significant Community interest is involved in a particular
case. In the telecommunications sector, specific procedures in the ONP framework
likewise aim at resolving access problems in the first place at a decentralised, national
level, with a further possibility for conciliation at Community level. Part II defines the
Commission's approach to market definition in this sector. Part III details the
principles that the Commission will follow in the application of the competition rules:

(...continued)

telecommunications sector. A basic framework for interconnection agreements is set

up by the rules on Open Network Provision (ONP), and the application of competition
rules must be seen against this background:
Council Directive 90/387/EEC, on the establishment of the internal market for
telecommunications services through the implementation of open network provision,
OJ L 192/1 (1990)
Council Directive 92/44/EEC, on the application of open network provision to leased
lines, OJL 165/27(1992);
European Parliament and Council Directive 95/62/EC, on the application of open
network provision to voice telephony, OJ L 321/6 (1995);
Common Position for a European Parliament and Council Directive on interconnection
in telecommunications with regard to ensuring universal service and interoperability
through application of the principles of open network provision (ONP), OJ C220/13, 29
July 1996.
Proposal for a European Parliament and Council Directive amending Council Directives
90/387/EEC and 92/44/EEC for the purpose of adaptation to a competitive environment
in telecommunications, Com(95) 543 final, 14.11.1995.

Wdr-cons.wpd

**Draft**

##### it aims to help telecommunications market participants shape their access agreements by explaining the competition law requirements. 6. The Notice is based on the Commission's experience in several cases, [5] and certain studies into this area carried out on behalf of the Commission . 7. This Notice does not in any way restrict the rights conferred on individuals or undertakings by Community law, and is without prejudice to any interpretation of the Community competition rules that may be given by the Court of First Instance or the European Court of Justice.

**In the telecommunications area, notably Commission decision of 18 October 1991,**
**Eirpaqe,** **OJ L 306/22 (1991), and Commission decisions of 17 July 1996, Atlas and**
**Phoenix, OJ L 239/23 and 57 (1996). There are also a number of pending cases**
**involving access issues.**

**Competition aspects of interconnection agreements in the telecommunications sector,**
**June 1995; Competition aspects of access by service providers to the resources of**
**telecommunications operators, December 1995. See also Competition Aspects of**
**Access Pricing, December 1995.**

Wdr-cons.wpd 3

##### **Draft** **PART I : FRAMEWORK**

**1.** **Competition Rules and Sector Specific Regulation**

Access problems in the broadest sense of the word (e.g. provision of leased lines,
interconnection to networks, access to data concerning subscribers to voice telephone
services) can be dealt with at different levels and on the basis of a range of legislative
provisions, of both national and Community origin. A service provider faced with an
access problem such as a TO's unjustified refusal to supply (or on reasonable terms)
a leased line needed by the applicant to provide services to its customers could
therefore contemplate a number of routes to seek a remedy. Generally speaking,
aggrieved parties will experience a number of benefits, at least in an initial stage, in
seeking redress at a national level. At a national level, the applicant has two main
choices, namely (1) specific national regulatory procedures now established in
accordance with Community law and harmonised under Open Network Provision (see
footnote 4) and (2) an action under national and/or Community law before a national
court or national competition authority .

Complaints made to the Commission under the competition rules in the place of or in
addition to national courts, national competition authorities and/or to national
regulatory authorities under ONP procedures will be dealt with according to the
priority which they deserve in view of the urgency, novelty and transnational nature
of the problem involved and taking into account the need to avoid duplicate
proceeding (see below, points 13 et seq.).

In the case of the ONP leased line directive, ONP foresees the first stage which allows
the aggrieved user to appeal to the National Regulatory Authority. This can offer a
number of advantages. In the telecommunications areas where experience has shown
that companies are often hesitant to be seen as complainants against the TO on
which they heavily depend not only with respect to the specific point of conflict but also
a much broader and far-reaching sense, the procedures foreseen under ONP are an
attractive option. ONP procedures furthermore can cover a broader range of access
problems than could be approached on the basis of the competition rules. Finally,
these procedures can offer users the advantage of proximity and familiarity with
national administrative procedures; language is also a factor to be taken into account.

Under ONP procedures, if matters cannot be resolved at the national level, a second
stage is organised at the European level (conciliation procedure). Pursuant to the ONP
leased line directive, an agreement between the parties involved must then be reached
within two months, with a possible extension of one month if the parties agree.

It should be noted that in the Proposed ONP interconnection directive, as opposed to
the leased line directive, a conciliation procedure is foreseen for transfrontier cases
only, that is interconnection disputes in which more than one National Regulatory
Authority is involved. If the National Regulatory Authorities dealing with an
interconnection problem do not reach a solution to the problem, then one of them may
notify the Commission thereof and invoke the conciliation procedure (Article 17 of the
Proposed directive).

Wclr-cons.wpcl

**Draft**

9. The Commission recognises that National Regulatory Authorities have different tasks,
and operate in a different legal framework to the Commission. First, the NRAs
operate under national law, albeit often implementing European law. Secondly, that
law, based as it is on considerations of telecommunications policy has objectives
different to, but consistent with, the objectives of Community competition policy. The
Commission cooperates as far as possible with the National Regulatory Authorities,
and invites the National Regulatory Authorities to cooperate as far as possible between
themselves. Under Community law, national authorities, including regulatory
authorities and competition authorities, have a duty not to approve a practice or
agreement contrary to Community competition law.

10. Community competition rules are not sufficient to remedy the various problems in the
telecommunications sector. NRAs therefore have a significantly wider ambit and a
significant and far-reaching role in the regulation of the sector. It should also be
noted that as a matter of Community law, the NRAs must be independent.

11. It is also important to note that the ONP framework imposes certain obligations on
national telecommunications operators that go beyond those that would normally be
imposed by Article 86 EC. NRAs may require strict standards relating to
transparency, obligations to supply and pricing practices. These obligations can be
enforced by the National Regulatory Authorities, which also have jurisdiction to take
steps to ensure effective competition °.

12. This Notice is written, for convenience, in most respects as if the law was conceived
with only one telecommunications operator controlling the only nation-wide public
switched telecommunications network in each Member States. This will not

necessarily be the case: new telecommunications networks offering increasingly wide
coverage will develop progressively. These alternative telecommunications networks
may ultimately be large and extensive enough to be partly or even wholly substitutable
for the existing national networks, and this should be kept in mind.

13. Given the Commission's responsibility for the Community's competition policy, the
Commission must serve the Community's general interest. The administrative
resources at the Commission's disposal to perform its task are necessarily limited and
cannot be used to deal with all the cases brought to its attention. The Commission

National Regulatory Authority is a sector specific national telecommunications
regulatory created by a Member State in the context of the services directive as
amended, and the ONP framework.

Article 7 of the services directive (Commission Directive 90/388/EEC, referred to above
in footnote 3), and the Commission's Communication 95/C 275/02 to the European
Parliament and the Council on the status and implementation of Directive 90/388/EEC
on competition in the markets for telecommunications services, OJ C 275, 20.10.1995,
at p. 9 et seq. See also Case C-91/94, Thierry Tranchant and Telephones Stores
SARL, Judgment of the Court of Justice, 9 November 1995, not yet reported.

Proposed ONP interconnection Directive cited in footnote 4, Article 9(3).

Wdr-cons.wpd

**Draft**

is therefore obliged, in general, to take all organisational measures necessary for the
performance of its task and, in particular, to establish priorities".

14. The Commission has therefore indicated that it intends, in using its decision-making
powers, to concentrate on notifications, complaints and own-initiative proceedings
having particular political, economic or legal significance for the Community .
Where these features are absent in a particular case, notifications will not normally be
dealt with by means of a formal decision, but rather a comfort letter (subject to the
consent of the parties), and complaints should, as a rule, be handled by national courts
or other relevant authorities. In this context, it should be noted that the competition
rules are directly effective' ' so that EC competition law is enforceable in the national
courts. Even where other Community legislation has been respected, this does not
remove the need to comply with the Community competition rules.

15. Other national authorities, in particular National Regulatory Authorities acting within
the ONP framework, have jurisdiction over certain access agreements (which must be
notified to them). However, notification of an agreement to an NRA does not make
notification of an agreement to the Commission unnecessary. The National Regulation
Authorities must ensure that actions taken by them are consistent with EC competition
law [15], this duty requires them to refrain from action that would undermine the
effective protection of Community law rights under the competition rules .
Therefore, they may not approve arrangements which are contrary to the competition
rules [ 7] . If the national authorities act so as to undermine those rights, the Member

11 Case T-24/90, Automec v Commission, 1992 ECR II-2223, at paragraph 77; and Case
T-114/92, BEMIM v Commission, 1995 ECR II 147.

12 Notice on cooperation between national courts and the Commission in applying Articles
85 and 86 of the EEC Treaty, OJ C 39/6 (1993), at paragraph 14.
Draft Notice on cooperation between national competition authorities and the
Commission, OJ C 262/5, 10 September 1996.

13 Case 127/73, BRT v SABAM, 1974 ECR 51.

14 Case 66/86, Ahmed Saeed, 1989 ECR 838.

15 They must not, for example, encourage or reinforce or approve the results of anticompetitive behaviour: Ahmed Saeed, above at footnote 14; Case 153/93, Federal
Republic of Germany v Delta Schiffahrts, 1994 ECR-I 2517; Case 267/86, Van Eycke,
1988 ECR 4769.

16 Case 13/77, GB-lnno-BM/ATAB, 1977 ECR 2115, at paragraph 33: _"while it_ _is_ _true that_
_Article 86 is directed at undertakings, nonetheless it is also true that the Treaty_
_imposes a duty on Member States not to adopt or maintain in force any measure which_
_could deprive the provision of its effectiveness."_

17 For further duties of national authorities see Case 103/88, Fratelli Costanzo SpA, 1989
ECR 1839.
See Ahmed Saeed, above at footnote 14: _"Articles 5 and 90 of the EEC Treaty must_
_be interpreted as ( i ) prohibiting the national authorities from encouraging the_
_conclusion of agreements on tariffs contrary to Article_ _85(1_ _) or Article 86 of the Treaty,_

(continued...)

Wdr-cons.wpd 6

##### Draft

State may itself be liable in damages to those harmed by this action [18] . In addition,
National Regulatory Authorities have jurisdiction under the ONP directives to take
steps to ensure effective competition. '

16. Access agreements in principle regulate the provision of certain services between
independent undertakings and do not result in the creation of an autonomous entity
which would be distinct from the parties to the agreements. Access agreements are
thus generally outside the scope of the Merger Regulation" .

17. Under Regulation 17", the Commission could be seised of an issue relating to access
agreements by way of a notification of an access agreement by one or more of the
parties involved", by way of a complaint against a restrictive access agreement or
against the behaviour of a dominant company in granting or refusing access"" [5], by way
of a Commission own-initiative procedure into such a grant or refusal, or by way of
a sector inquiry" . In addition, a complainant may request that the Commission take
interim measures in circumstances where there is an urgent risk of serious and
irreparable harm to the complainant or to the public interest". It should however, be
noted in cases of great urgency that procedures before national courts can usually
result more quickly in an order to end the infringements than procedures before the
Commission. [26 ]

17 (...continued)

_as the case may_ _be;_ _( ii) precluding the approval by those authorities of tariffs resulting_
_from such agreements"_

**18**

**19**

**20**

**21**

**22**

**23**

**24**

Joined Cases C-6 and 9/90, Francovich, 1990-1 ECR 5357; Joined Cases C-46/93,
Brasserie de Pêcheur SA v Germany and Case C-48/93, R v Secretary of State for
Transport ex parte Factortame Ltd and others, judgment of 5 March 1996, not yet
reported.

For example, recital 18 of the leased line directive referred to in footnote 4 and Article
9(3) of the draft ONP interconnection directive.

Council Regulation No 4064/89 of 21 December 1989 on the control of concentrations
between undertakings, OJ L 395/1 (1989).

Council Regulation No 17 of 6 February 1962, first Regulation implementing Articles
85 and 86 of the Treaty, OJ 13/204 (1962), as amended.

Articles 2 and 4(1) of Regulation 17.

Article 3 of Regulation 17.

Articles 3 and 12 of Regulation 17.

25 Case 792/79R, Camera Care v Commission, 1980 ECR 119.
See also Case T-44/90, La Cinq v Commission, 1992 ECR 11-1.

26 See point 16 of the Notice on cooperation between national courts and the
Commission cited above in footnote 12.

Wdr-cons.wpd 7

Draft

: 8. There are a number of areas w here agreements will be subject to both the competition
rules and national or European sector specific regulation, most notably Internal Market
regulation. In the telecommunications sector, the ONP Directives aims at establishing
a regulatory regime for access agreements. Given the detailed nature of ONP rules
and the fact that the}' may go beyond the requirements _of_ Article 86, undertakings
operating in the telecommunications sector should be aware that compliance with the
Community competition rules does not absolve them _of_ their duty to abide by
obligations imposed in the ONP context, and vice versa.

**Commission Action in** **Relation** **to Access Agreements** **27**

19. Access agreements taken as a whole are _of_ great significance, and it is therefore
appropriate for the Commission to spell out as clearly as possible the Community
legal framework within which these agreements should be concluded. Access
agreements having restrictive clauses will involve issues under Article 85.
Agreements which involve dominant, or monopolist, undertakings involve Article 86
issues: concerns arising from the dominance _of_ one or more of the parties will
generally be of greater significance in the context of a particular agreement than those
under Article 85.

20. In applying the competition rules, the Commission will build on the ONP framework,
and the National Regulatory Authorities acts within that framework. Where
agreements fall within Article 85(1). they must be notified to the Commis^Scft. if they
are to benefit from an exemption under Article 85(3). Where agreements are notified,
the Commission intends to deal with one or more notifications by way of formal
decisions, following appropriate publicity in the Official Journal, and in accordance
with the principles set out below. Once the legal principles have been clearly
established, the Commission then proposes to deal by way of comfort letter with other
notifications raising the same issues.

**3.** **Complaints**

21. Natural or legal persons with a legitimate interest may, under certain circumstances,
submit a complaint to the Commission, requesting that the Commission by decision
require that an infringement of Article 85 or Article 86 EC be brought to an end. A
complainant may additionally request that the Commission take interim measures
where there is an urgent risk of serious and irreparable harm" [1] '. A prospective
complainant has other equally or even more effective options, such as an action before
a national court. In this context, it should be noted that procedures before the national

27 Article 2 or 4(1) of Regulation 17.

28 Article 3(2) of Regulation 17.

29 Camera Care and La Cinq, referred to above at footnote 25.

Wdr-cons.wpd 8

**Draft**

courts can offer considerable advantages for individuals and companies, such as in
particular "":

national courts can deal with and award a claim for damages resulting from an
infringement of the competition rules;
national courts can usually adopt interim measures and order the termination
of an infringement more quickly than the Commission is able to do;
before national courts, it is possible to combine a claim under Community law
will a claim under national law;
legal costs can be awarded to the successful applicant before a national court

Furthermore, the specific national regulatory principles as harmonized under ONP
principles can offer recourse both at the national and if necessary at Community level.

_3.1_ _Use of national and ONP procedures_

22. As referred to above' the Commission will take into account the Community interest
of each case brought to its attention. In evaluating the Community interest, the
Commission examines:

_"...the significance of_ _the alleged_ _infringement as regards the functioning of_ _the_
_common market, the probability_ _of_ _establishing the existence_ _of_ _the_
_infringement and the scope_ _of_ _the investigation required in order to fulfil,_
_under the best possible conditions, its task of ensuring that Articles 85 and 86_
_are complied_ _with._ .. "''"

Another essential element in this evaluation is the extent to which a national judge is
in a position to provide an effective remedy for an infringement of Article 85 or 86.
This may prove difficult, for example, in cases involving extra-territorial elements.

23. Article 85(1) and Article 86 EC produce direct effects in relations between individuals
which must be safeguarded by national courts . As regards actions before the
National Regulatory Authority, the ONP Directive provides that such an authority has
power to intervene and order changes in relation to both the existence and content of
access agreements. National Regulatory Authorities must take into account, _"the_ _need_
_to stimulate_ _a_ _competitive marker_ and may impose conditions on one or more parties,
inter alia, _"to_ _ensure effective_ _competition""_ _._

**30**

Notice on cooperation between national courts and the Commission cited above in
footnote 12, point 16.

31 At paragraph 14.

32 See Automec, footnote 11 above, paragraph 86.

33 BRT v SABAM, footnote 13 above.

34 Articles 9(1) and 9(3) of the Proposed ONP interconnection Directive.

Wdr-cons.wpd 9

**Draft**

24. The Commission may itself be seized of a dispute either pursuant to the competition
rules, or pursuant to an ONP Conciliation Procedure. Multiple simultaneous
proceedings might lead to unnecessary duplication of investigative efforts by the
Commission and the national authorities. Where complaints are lodged with the
Commission under Article 3 of Regulation 17 while there are related actions before
a relevant national or European authority or court, the Directorate-General for
Competition will generally not initially pursue any investigation as to the existence of
an infringement under Article 85 or 86 of the EC Treaty. This is subject, however,
to the following points.

_3.2_ _Safeguarding_ _complainant's_ _rights_

25. Undertakings are entitled to effective protection of their Community law rights [J] ".
These rights would be undermined if national proceedings were allowed to lead to an
excessive delay of the Commission's action, without a satisfactory resolution of the
matter at a national level. In the telecommunications sector, innovation cycles are
relatively short, and any substantial delay in resolving an access dispute would in
practice be equivalent to a refusal of access, thus prejudging the proper determination
of the case.

26. The Commission therefore takes the view that an access dispute before a National
Regulatory Authority should be resolved within a reasonable period of time, normally
speaking not extending beyond six months of the matter first being drawn to the
attention of that authority or after initiation of ONP procedures, including the
conciliation procedures [ 6] . This resolution could take the form of either a final
determination of the action or another form of relief which would safeguard the rights
of the complainant. If the matter has not reached such a resolution then, prima facie,
the rights of the parties are not being effectively protected, and the Commission would
in principle, upon request by the complainant, begin its investigations into the case in
accordance with its normal procedures, after consultation and in cooperation with the
national authority in question.

_3.3_ _Interim measures_

27. As regards any request for interim measures, the existence of national proceedings is
relevant to the question of whether there is a risk of serious and irreparable harm.
Such proceedings should, prima facie, remove the risk of such harm and it would
therefore not be appropriate for the Commission to grant interim measures in the
absence of evidence that the risk would nevertheless remain.

28. The availability of and criteria for injunctive relief is an important factor which the
Commission must take into account in reaching this prima facie conclusion. If
injunctive relief were not available, or if such relief was not likely adequately to take
into account the complainant's rights under Community law, the Commission would

35 Case 14/83, Von Colson, 1984 ECR 1891.

36 Telecommunications: Open network provision (ONP) for leased lines; Conciliation
procedure; 94/C 214/04, OJ C 214/4 (1994).

Wdr-cons.wpd 1 ()

##### Draft

consider that the national proceedings did not remove the risk of harm, and would
therefore commence its investigation of the case.

**4.** **Own-Initiative Investigation and Sector Inquiries**

29. If it appears necessary, the Commission will open an own-initiative investigation. It
can also launch a sector inquiry, subject to consultation of the Advisory Committee
of Member State competition authorities.

**5.** **Fines**

30. The Commission may impose fines of up to 10% of the annual worldwide turnover
of undertakings which intentionally or negligently breach Article 85(1) or Article 86 [J] .
Where agreements have been notified pursuant to Regulation 17 for an exemption
under Article 85(3), no fine may be levied by the Commission in respect of activities
described in the notification'' for the period following notification. However, the
Commission may withdraw the immunity from fines by informing the undertakings
concerned that, after preliminary examination, it is of the opinion that Article 85(1)
of the Treaty applies and that application of Article 85(3) is not justified .

31. The ONP interconnection Directive has two particular provisions which should be
taken into account with respect to the question of fines under the competition rules.
First, it provides that interconnection agreements must be communicated to the
relevant National Regulatory Authorities and made available to interested third parties,
with the exception of those parts which deal with the commercial strategy of the
parties [411] . Secondly, it provides that the National Regulatory Authority must have a
number of powers which it can use to influence or amend the interconnection
agreements . These provisions ensure that appropriate publicity is given to the
agreements, and provide the National Regulatory Authority with the opportunity to
take steps, where appropriate, to ensure effective competition on the market.

32. Where an agreement has been notified to a National Regulatory Authority, but has not
been notified to the Commission, the Commission does not consider it would be
generally appropriate as a matter of policy to impose a fine in respect of the
agreement, even if the agreement ultimately proves to contain conditions in breach of
Article 85. A fine would, however, be appropriate in some cases, for example where:

Article 15(2) of Regulation 17.

Article 15(5) of Regulation 17.

Article 15(6) of Regulation 17.

**40**

**41**

Article 6(c) of the Proposed ONP interconnection Directive.

Inter alia, at Article 9 of the Proposed ONP interconnection Directive.

Wdr-cons.wpd I 1

**Draft**

a. the agreement proves to contain provisions in breach of Article 86; and / or

b. the breach of Article 85 is particularly serious.

The size of the fine will depend on the gravity and duration of the infringement.

Notification to the NRA is not a substitute for a notification to the Commission and

does not limit the possibility for interested parties to submit a complaint to the
Commission, or for the Commission to begin an own-initiative investigation into
access agreements. Nor does such notification limit the rights of a party to seek
damages before a national court for harm caused by anti-competitive agreements ".

**42** **See footnote 18 above.**

Wdr-cons.wpd 12

##### Draft **Part II: Relevant Markets**

34. In the course of investigating cases within the framework set out in Part I above, the
Commission will base itself on the following approach to the definition of relevant
markets in this sector.

35. Firms are subject to three main sources of competitive constraints; demand
substitutability, supply substitutability and potential competition, with the first
constituting the most immediate and effective disciplinary force on the suppliers of a
given product or service. Demand substitutability is therefore the main tool used to
define the relevant product market on which restrictions of competition for the
purposes of Articles 85(1) and 86 can be identified.

36. Supply substitutability is generally not used to define relevant markets. In practice
it cannot be clearly distinguished from potential competition. Supply side
substitutability and potential competition are used for the purpose of determining
whether the undertaking has a dominant position or whether the restriction of
competition is significant within the meaning of Article 85, or whether there is
elimination of competition.

37. In assessing relevant markets it is necessary to look at developments in the market in
the short term.

**1.** **Relevant product market**

38. Section 6 of form A/B defines the relevant product market as follows:

_"A_ _relevant product market comprises all those products and / or services_
_which are_ _regarded_ _as interchangeable or substitutable by the consumer, by_
_reason of_ _the_ _products' characteristics, their prices and their intended use"._

39. The ending of the legal monopolies in the telecommunications sector, whereby third
parties can provide services to end-users, will lead to the emergence of a second type
of market, related to the market for provision of services, that of access to facilities
which are currently necessary to provide these services. In this sector, interconnection
to the public switched telecommunications network would be a typical example of
such access. Without interconnection, it will not be commercially possible for third
parties to provide, for example, comprehensive voice telephony services.

40. It is clear, therefore, that in the telecommunications sector there are at least two types
of relevant product markets to consider - that of a service to be provided to end users
and that of access to those facilities necessary to provide that service to end users
(information, physical network, etc.). In the context of any particular case, it will be
necessary to define the relevant access and services markets, such as interconnection

Wdr-cons.wpd ] 3

**Draft**

to the public telecommunications network, and provision of public voice telephony
services, respectively.

41. When appropriate, the Commission will use the test of a relevant market which is
made by asking whether, if all the suppliers of the services in question raised their
prices by 5-10%, their collective profits would rise. According to this test, if their
profits would rise, the market considered is a separate relevant market.

42. The Commission considers that the principles under competition law governing these
markets remain the same regardless of the particular market in question. Given the
pace of technological change in this sector, any attempt to define particular product
markets in this Notice would run the risk of rapidly becoming inaccurate or irrelevant.
The definition of particular product markets is best done in the light of a detailed
examination of an individual case.

/. /. _Services market_

43. This can be broadly defined as the provision of any telecommunications service to a
user. Different telecommunications services will be considered substitutable if they
show a sufficient degree of interchangeability for the end-user, which would mean that
effective competition can take place between the different providers of these services.

_1.2_ _Access to_ _facilities_

44. For a service provider to provide services to end-users it will often require access to
one or more (upstream or downstream) facilities. For example, to deliver physically
the service to end-users, it needs access to the termination points of the
telecommunications network to which these end-users are connected. This access can

be achieved at the physical level through dedicated or shared local infrastructure,
either self provided or leased from a local infrastructure provider. It can also be
achieved either through a service provider who already has these end-users as
subscribers, or through an interconnection provider who has access directly or
indirectly to the relevant termination points.

45. In addition to physical access, a service provider may need access to other facilities
to enable it to market its service to end users: for example, a service provider must
be able to make end users aware of its services. Where, as is often the case, for
example, with directory information, the facility can only be obtained from the
telecommunications operator, similar concerns arise as with physical access issues.

46. In many cases, the Commission will be concerned with physical access issues, where
what is necessary is interconnection to the network of the telecommunications operator \

4,1 Interconnection is defined in Directive 96/19/EC as:
"... _the physical and logical linking of the telecommunications facilities of organisations_
_providing telecommunications networks_ _and/or_ _telecommunications services, in order_
_to allow the users of one organisation to communicate with the users of the same or_
_another organisation or to access services provided by third organisations."_

(continued...)

Wdr-cons.wpd 14

Draft

47. Some incumbent telecommunications operators may be tempted to resist providing
access to third party service providers or other network operators, particularly in areas
where the proposed service will be in competition with a service provided by the
telecommunications operator itself. This resistance will often manifest itself as a
reluctance to allow access or a willingness to allow it only under disadvantageous
conditions. It is the role of the competition rules to ensure that these prospective
access markets are allowed to develop, and that incumbent operators are not permitted
to use their control over access to stifle developments on the services markets.

It should be stressed that in the telecommunications sector, liberalisation can be
expected to lead to the development of new, alternative networks which will ultimately
have an impact on access market definition involving the incumbent
telecommunications operator.

**2.** **Relevant geographic market**

48. Relevant geographic markets are defined in Form A/B as follows:

_"The_ _relevant geographic market comprises the area in which the undertakings_
_concerned are involved in the supply and demand of products or services, in_
_which the conditions of competition are sufficiently homogeneous and which_
_can be distinguished from neighbouring areas because the conditions of_
_competition are appreciably different in those_ _areas."'_

49. As regards the provision of telecommunication services and access markets, the
relevant geographic market will be the area in which the objective conditions of
competition applying to service providers are similar. It will therefore be necessary
to examine the possibility for these service providers to access an end-user in any part
of this area, under equivalent and economically viable conditions. Regulatory
conditions such as the terms of licences, and any exclusive or special rights owned by
competing local access providers are particularly relevant .

..continued)

In the full liberalization Directive and ONP Directives, telecommunications services are
defined as:

_"services, whose provision consists wholly or partly in the transmission_ _and/or_ _routing_
_of signals on a telecommunications network."_
It therefore includes the transmission of broadcasting signals and CATV networks.
A telecommunications network is itself defined as:
"... _the transmission equipment_ _and,_ _where applicable, switching equipment and other_
_resources which permit the conveyance of signals between defined termination points_
_by wire, by radio, by optical or by other electromagnetic means"._

44 Eurotunnel, OJ L 354/66 (1994).

Wdr-cons.wpd 15

**Draft**

**Part III:** **Principles**

50. The Commission will apply the following principles in cases before it.

51. The Commission has recognised that:

_"Articles_ _85 and 86 ..._ _constitute law in force and enforceable throughout the_
_Community._ _Conflicts should not arise with other Community rules because_
_Community law forms_ _a_ _coherent regulatory framework..._ _it is obvious that_
_Community acts adopted in the telecommunications sector are to be interpreted in a_
_way consistent with competition_ _rules,_ _so as to ensure the_ _best_ _possible implementation_
_of all aspects of the Community telecommunications policy... This applies, inter alia,_
_to the relationship between competition rules applicable to undertakings and the ONP_
_rules."'_

52. Thus, competition rules continue to apply in circumstances where other Treaty
provisions or secondary legislation are applicable. In the context of access agreements
the Internal Market and competition provisions of Community law are both important
and mutually reinforcing for the proper functioning of the sector. Therefore in making
an assessment under the competition rules, the Commission will seek to build as far
as possible on the principles established in the harmonization legislation. It should
also be borne in mind that a number of the competition law principles set out below
are also covered by specific rules in the context of the ONP framework. Proper
application of these rules should often avoid the need for the application of the
competition rules.

53. As regards the telecommunications sector, attention should be paid to the cost of
universal service obligations. Article 90(2) EC may justify exceptions to the
principles of Articles 85 and 86 EC. The details of universal service obligations are
a regulatory matter. The field of application of Article 90(2) has been specified in the
Article 90 Directives in the telecommunications sector, and the Commission will apply
the competition rules in this context.

54. Articles 85 and 86 EC apply in the normal manner to agreements or practices which
have been approved or authorised by a national authority _[ (]_ _\_ or where the national
authority has required the inclusion of terms in an agreement at the request of one or
more of the parties involved.

55. However, if a national regulatory authority were to require terms which were contrary
to the competition rules, the undertakings involved would in practice not be fined,
although the Member State itself would be in breach of Articles 3(g) and 5 EC and
therefore subject to challenge by the Commission under Article 169 EC. Additionally,

Guidelines on the application of the competition rules in the telecommunications sector,
see point 3 above, at paragraphs 15 and 16.

**46** Commission Decision, BNIC/AROW, 82/896/EEC, OJ L 379/1 (1982).

47 See footnote 15 above.

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if an undertaking having special or exclusive rights within the meaning of Article 90,
or a state-owned undertaking, were required or authorised by a national regulator to
engage in behaviour constituting an abuse of its dominant position, the Member State
would also be in breach of Article 90( 1 ) and the Commission could adopt a decision
requiring termination of the infraction [48] .

56. National Regulatory Authorities may require strict standards of transparency,
obligations to supply and pricing practices on the market, particularly where this is
necessary in the early stages of liberalization. When appropriate, legislation such as
the ONP framework will be used as an aid in the interpretation of the competition
rules [49] . Given the duty resting on National Regulatory Authorities to ensure that
effective competition is possible, application of the competition rules is likewise
required for an appropriate interpretation _of_ the ONP principles. It should also be
noted that many of the issues set out below are also covered by rules under the Full
Competition Directive and the existing and proposed ONP, licensing and data
protection Directives: effective enforcement of this regulatory framework should
prevent many of the competition issues set out below from arising.

**1.** **Dominance (Article 86)**

57. In order for an undertaking to provide services in the telecommunications services
market, it will need to obtain access to various facilities. For the provision of
telecommunications services, for example, interconnection to the public switched
telecommunications network will usually be necessary. Access to this network will
almost always be in the hands of a dominant telecommunications operator. As regards
access agreements, dominance stemming from control on facilities will be the most
relevant to the Commission's appraisal.

58. Whether or not a company is dominant does not depend only on the legal rights
granted to that company. The mere ending of legal monopolies does not put an end
to dominance. Indeed, notwithstanding the liberalization Directives, the development
of effective competition from alternative network providers with adequate capacity and
geographic reach will take time.

59. In the telecommunications sector, the concept of "essential facilities" will in many
cases be of direct relevance in determining the duties of dominant telecommunications
operators. The phrase essential facility is used to describe a facility or infrastructure

**4X**

Joined Cases C-48 and 66/90, Netherlands and others v Commission, 1992 ECR I
565.

49 See Ahmed Saeed, footnote 14 above, where internal market legislation relating to
pricing was used as an aid in determining what level of prices should be regarded as
unfair for the purposes of Article 86.

Wdr-cons.wpd 17

**Draft**

which is essential for reaching customers and/or enabling competitors to carry on their
business, and which cannot be replicated by any reasonable means.

A company controlling the access to an essential facility enjoys a dominant position
within the meaning of Article 86. Conversely, a company may enjoy a dominant
position pursuant to Article 86 without controlling an essential facility.

The following facilities could at present be expected to constitute essential facilities
in the telecommunications sector: for example, the public telecommunications
networks for voice and/or data services, leased circuit or and related network
terminating equipment, basic data regarding subscribers to the public voice telephony
service, numbering schemes and other customer or technical information.

/. /. _Services market_

60. One of the factors used to measure the market power of an undertaking are the sales
attributable to that undertaking, expressed as a percentage of total sales in the market
for substitutable services in the relevant geographic area. As regards the services
market, the Commission will assess, inter alia, the turnover generated by the sale of
substitutable services, excluding the sale or internal usage of interconnection services
and the sale or internal usage of local infrastructure [51], taking into consideration the
competitive conditions and the structure of supply and demand on the market.

_1.2_ _Access to facilities_

61. The concept of "access" as referred to above in point 45 can relate to a range of
situations, including the availability of leased lines enabling a service provider to build
up its own network, and interconnection problem in the strict sense, i.e.
interconnecting two telecommunication networks, e.g. mobile and fixed. In relation to
access, incumbent operators often occupy a monopoly position, and even in areas
where liberalization of the legal framework has begun, it is probable that the
incumbent will remain dominant in the future. The incumbent operator, which
controls the facilities, is often also the largest service provider, and they have in the
past not needed to distinguish between the conveyance of telecommunications services
and the provision of these services to end-users. Today, an operator who is also a
service provider does not require its downstream operating arm to pay for access, and
therefore it is not easy to calculate the revenue to be allocated to the facility. In a

50 See also the definition included in the "Additional commitment on regulatory principles
by the European Communities and their Member States "used by the Group on basic
telecommunications in the context of the World Trade Organisation (WTO) negotiations

"Essential facilities mean facilitiesof a public telecommunications transport network and
service that
(a) are exclusively or predominantly provided by a single or limited number of
suppliers; and
(b) cannot feasibly be economically or technically substituted in order to provide
a service."

51 Case 6/72 Continental Can, 1973 ECR 215.

Wdr-cons.wpd 18

Draft

case where an operator is providing both access and services it is necessary to separate
so far as possible the revenues for the two markets before using revenues as the basis
for the calculation of the company's share of whichever market is involved. Article
8(2) of the proposed Interconnection Directive should be helpful in this context as it
calls for separate accounting for "activities related to interconnection - covering both
interconnection services provided internally and interconnection services provided to
others - and other activities".

62. The economic significance of obtaining access also depends on the coverage of the
network with which interconnection is sought. Therefore, in addition to using
turnover figures, the Commission will, where this is possible, also take into account
the number of customers who have subscribed to services comparable with those
which the service provider requesting access intends to provide. Accordingly, market
power for a given undertaking will be measured partly by the number of subscribers
who are connected to termination points of the telecommunications network of that
undertaking expressed as a percentage of the total number of subscribers connected
to termination points in the relevant geographic area.

Supply-side substitutability

63. As stated above (see point 37), supply-side substitutability is also relevant to the
question of dominance. A market share of over 50% " is usually sufficient to
demonstrate dominance although other factors will be examined. For example, the
Commission will examine the existence of other network providers, if any, in the
relevant geographic area to determine whether such alternative infrastructures are
sufficiently dense to provide competition to the incumbent's network and the extent
to which it would be possible for new access providers to enter the market.

Other relevant factors

64. In addition to market share data, and supply-side substitutability, in determining
whether an operator is dominant the Commission will also examine whether the
operator has privileged access to facilities which cannot be duplicated, either for legal
reasons or because it would cost too much.

65. As competing access providers appear and challenge the dominance of the incumbent,
the scope of the rights they receive from Member States' authorities, and notably their
territorial reach, will play an important part in the determination of market power.
The Commission will closely follow market evolution in relation to these issues and

**52** It should be noted in this context that under the ONP framework an organisation may
be notified as having significant market power. The determination of whether an
organisation does or does not have significant market power depends on a number of
factors, but the starting presumption is that an organisation with a market share of
more than 25% will normally be considered to have significant market power. The
Commission will take account of whether an undertaking has been notified as having
significant market power under the ONP rules in its appraisal under the competition
rules.

Wdr-cons.wpd 19

**Draft**

will take account of any altered market conditions in its assessment of access issues
under the competition rules.

_1.3_ _Joint dominance_

66. The wording of Article 86 makes it clear that the Article applies when more than one
company shares a dominant position. The circumstances in which a joint dominant
position exists, and in which it is abused, have not yet been fully clarified by the case
law of the Community Courts or the practice of the Commission, and the law is still
developing.

67. The words of Article 86 ("abuse by one or more undertakings") describe something
different from the prohibition on anti-competitive agreements or concerted practices
in Article 85. To hold otherwise would be contrary to the usual principles of
interpretation of the Treaty, and would render the words pointless and without
practical effect. This does not, however, exclude the parallel application of Articles
85 and 86 to the same agreement or practice, which has been upheld by the
Commission and the Court in a number of cases, nor is there anything to prevent the
Commission from taking action only under one of the provisions, when both apply.

68. Two companies, each dominant in a separate national market, are not the same as two
jointly dominant companies. National public voice telephony telecommunications
operators are not likely to become jointly dominant until after liberalization in the
Community. For two or more companies to be in a joint dominant position, they must
together have substantially the same position vis-à-vis their customers and competitors
as a single company has if it is in a dominant position. With specific reference to the
telecommunications sector, joint dominance could be attained by two
telecommunications infrastructure operators covering the same geographic market.

69. In addition, for two or more companies to be jointly dominant it is necessary, but not
sufficient, for there to be no effective competition between the companies on the
relevant market. This lack of competition may in practice be due to the fact that the
companies have links such as agreements for cooperation, interconnection or roaming
agreements. The Commission does not, however, consider that either economic theory
or Community law implies that such links are legally necessary for a joint dominant
position to exist [54] . It is a sufficient economic link if there is the kind of
interdependence which often comes about in oligopolistic situations. There does not
seem to be any reason in law or in economic theory to require any other economic
link between those companies. This having been said, in practice such links will
often exist in the telecommunications sector where national telecommunication

operators nearly inevitably have links of various kinds with one another.

70. To take as an example access to the local loop, in some Member States this could
well be controlled in the near future by two operators - the incumbent

**53**

**54**

Case 85/76 Hoffmann La Roche, 1979 ECR 461,
Racal Decca, Commission Decision of 21 December 1988, OJ L 43/27 (1989).

Nestlé / Perrier, Commission Decision of 22 July 1992, OJ L 356/1 (1992).

Wdr-cons.wpd 20

**Draft**

telecommunications operator and a cable operator. In order to provide particular
services to consumers, access to the local loop of either the telecommunications
operator or the cable television operator is necessary. Depending on the circumstances
of the case and in particular on the relationship between them, neither operator may
hold a dominant position: together, however, they may hold a joint monopoly of
access to these facilities.

Wdr-cons.wpd 21

##### Draft

2. Abuses of Dominance

_2.1_ _Refusal to grant access to essential facilities and application of_
_unfavourable terms_

71. A refusal to give access may be prohibited under Article 86 if the refusal is made by
a company which is dominant because of its control of facilities, as incumbent
telecommunications operators will usually be for the foreseeable future. A refusal
may have:

_"the effect of hindering the maintenance of the degree of competition_ _still_
_existing in the market or the growth of that_ _competition"_ _._

A refusal will only be abusive if it affects competition. Service markets in the
telecommunications sector will initially have few competitive players and refusals will
therefore generally affect competition on those markets. In all cases of refusal, any
justification will be closely examined to determine whether it is objective.

72. Broadly there are three relevant scenarios:

a. a refusal to grant access for the purposes of a service where another operator
has been given access by the access provider to operate on that services
market;

b. a refusal to grant access for the purposes of a service where no other operator
has been given access by the access provider to operate on that services
market;

c. a withdrawal of supply of access from an existing customer.

73. As to the first of the above scenarios, it is clear that a refusal to supply a new
customer in circumstances where a dominant facilities owner is already supplying one
or more customers operating in the same downstream market would constitute
discriminatory treatment which, if it would restrict competition on that downstream
market, would be an abuse. Where network operators offer the same, or similar, retail
services as the party requesting access, they may have both the incentive and the
opportunity to restrict competition and abuse their dominant position in this way.
There may, of course, be justifications for such refusal - for example, vis-à-vis
applicants which represent a potential credit risk. In the absence of any objective
justifications, a refusal would usually be an abuse of the dominant position on the
access market.

74. In general terms, the dominant company's duty is to provide access in such a way that
the goods and services offered to downstream companies are available on terms no

55 Case 85/76 Hoffmann La Roche, 1979 ECR 461

Wdr-cons.wpd 22

**Draft**

less favourable than those given to other parties, including its own corresponding
downstream operations.

75. As to the second of the above situations, the question arises as to whether the access
provider should be obliged to contract with the service provider in order to allow the
service provider to operate on a new service market. Where capacity constraints are
not an issue and where the company refusing to provide access to its facility has not
provided access to that facility, either to its downstream arm or to any other company
operating on that services market, then it is not clear what other objective justification
there could be.

76. If there were no commercially feasible alternatives to the access being requested, then
unless access is granted, the party requesting access would not be able to operate on
the service market. Refusal in this case would therefore limit the development of new
markets, or new products on those markets, contrary to Article 86(b). In the transport
field' [6], the Commission ruled that a firm controlling an essential facility must give
access in certain circumstances . The same principles apply to the
telecommunications sector.

77. The principle obliging dominant companies to contract in certain circumstances will
often be relevant in the telecommunications sector. Currently, there are monopolies
or virtual monopolies in the provision of network infrastructure for most telecom
services in the EU. Even where restrictions have already been, or will soon be, lifted,
competition in downstream markets will continue to depend upon the pricing and
conditions of access to upstream network services that will only gradually reflect
competitive market forces. Given the pace of technological change in the
telecommunications sector, it is possible to envisage situations where companies would
seek to offer new products or services which are not in competition with products or
services already offered by the dominant access operator, but for which this operator
is reluctant to provide access.

56 Commission decision, Sea Containers v Stena Sealink, 94/19/EC, OJ L15/8 (1994);
Commission decision, Re Access to Facilities of Port Rodby, 94/119/EC, OJ L55/52
(1994)

57 See also (among others):
Judgments of the Court Cases 6 and 7/73, Commercial Solvents v. Commission, 1974 ECR 223;
Case 311/84, Télémarketing, 1985 ECR 3261;
Case C-18/88 RTT v. GB-lnno, 1991 ECR 1-5941;
Case C-260/89, Elliniki Radiophonia Teleorassi, 1991 ECR I-2925;
Cases T-69, T-70 and T-76/89, RTE, BBC and ITP v. Commission, 1991 ECR II-485,
535, 575;
Case C-271/90, Spain v Commission, 1992 ECR I-5833;
Cases C-241 and 242/91P, RTE and ITP Ltd v Commission (Magill), 1995 ECR I-743

Commission Decisions 76/185/EEC        - National Carbonizing Company, OJ L 35/6 (1976);
88/589/EEC - London European - Sabena, OJ L 317/47 (1988);
92/213/EEC        - British Midland v. Aer Lingus, OJ L 96/34 (1992);
B& I v. Sealink, (1992) 5 CMLR 255; EC Bulletin, No 6 - 1992, point 1.3.30.

Wdr-cons.wpd 23

**Draft**

78. The Commission must ensure that the control over facilities enjoyed by incumbent
operators is not used to hamper the development of a competitive telecommunications
environment. A company which is dominant on a market for services and which
commits an abuse contrary to Article 86 on that market may be required, in order to
put an end to the abuse, to supply access to its facility to one or more competitors on
that market. In particular, a company may abuse its dominant position if by its
actions it prevents the emergence of a new product or service.

79. The starting point for the Commission's analysis will be the identification of an
existing or potential market for which access is being requested. In order to
determine whether access should be ordered under the competition rules, account will
be taken of a breach by the dominant company of its duty not to discriminate (see
below) or of the following elements, taken cumulatively:

a. access to the facility in question is generally essential in order for companies
to compete on that related market'' ;

The key issue here is therefore what is essential. It will not be sufficient that
the position of the company requesting access would be more advantageous if
access were granted - but refusal of access must lead to the proposed activities
being made either impossible or seriously and unavoidably uneconomic.

Although, for example, alternative infrastructure may as from 1 July 1996 be
used for liberalised services, it will be some time before this is in many cases
a satisfactory alternative to the facilities of the incumbent operator. Such
alternative infrastructure does not at present offer the same dense geographic
coverage as that of the incumbent telecommunications operator's network.

b. there is sufficient capacity available to provide access.

the facility owner fails to satisfy demand on an existing service or product
market, blocks the emergence of a potential new service or product, or
impedes competition on an existing or potential service or product market;

d. the company seeking access is prepared to pay the reasonable and non-discriminatory
price and will otherwise in all respects accept non-discriminatory access terms and
conditions.

e. there is no objective justification for refusing to provide access.

58 Community law protects competition and not competitors, and therefore it would be
insufficient to demonstrate that one competitor needed access to a facility in order to
compete in the downstream market. It would be necessary to demonstrate that access
is necessary for all except exceptional competitors in order for access to be made
compulsory.

Wdr-cons.wpd 24

**Draft**

Relevant justifications in this context could include an overriding difficulty of
providing access to the requesting company, or the need for a facility owner which
has undertaken investment aimed at the introduction of a new product or service to
have sufficient time and opportunity to use the facility in order to place that new
product or service on the market. However, although any justification will have to
be examined carefully on a case-by-case basis. It is particularly important in the
telecommunications sector that the benefits to end-users which will arise from a

competitive environment are not undermined by the actions of the former state
monopolists in preventing competition from emerging and developing.

In determining whether an infringement of Article 86 has been committed, account will be
taken both of the factual situation in that and other geographic areas, and, where relevant
the relationship between the access requested and the technical configuration of the facility.

80. The question of objective justification will require particularly close analysis in this area.
In addition to determining whether difficulties cited in any particular case are serious enough
to justify the refusal to grant access, the relevant authorities must also decide whether these
difficulties are sufficient to outweigh the damage done to competition if access is refused
or made more difficult and the downstream service markets are thus limited.

81. Three important elements relating to access which could be manipulated by the access
provider in order, in effect, to refuse to provide access are timing, technical configuration
and price.

82. Dominant telecommunications operators have a duty to deal with requests for access
efficiently: undue and unexplained delays in responding to a request for access may
constitute an abuse. In particular, however, the Commission will seek to compare the
response to a request for access with:

a. the usual time frame and conditions applicable when the responding party grants
access to its facilities to its own subsidiary or operating branch;

b. responses to requests for access to similar facilities in other Member States;

c. the explanations given for any delay in dealing with requests for access.

83. Issues of technical configuration will similarly be closely examined in order to determine
whether they are genuine. In principle, competition rules require that the party requesting
access must be granted access at the most suitable point for the requesting party, provided
that this point is technically feasible for the access provider. Questions of technical
feasibility may be objective justifications for refusing to supply - for example, the traffic for
which access is sought must satisfy the relevant technical standards for the

Wdr-cons.wpd 25

Draft

infrastructure - or questions of capacity restraints, where questions of rationing may
arise .

84. Excessive pricing for access, as well as being abusive in itself [10], may also amount to
an effective refusal to grant access.

85. There are a number of elements of these tests which require careful assessment.
Pricing questions in the telecommunications sector will be facilitated by the
obligations un ONP Directives to have transparent cost-accounting systems.

86. As to the third of the situations referred to in point 72 above, some previous
Commission decisions and the case law _of_ the Court have been concerned with the
withdrawal of supply from downstream competitors (the third case, above). In
Commercial Solvents, the Court held that:

_"an undertaking which has_ _a_ _dominant position on the market in raw materials_
_and which, with the_ _object_ _of reserving such raw material for_ _manufacturing_
_its own derivatives,_ _refuses to supply_ _a_ _customer,_ _which_ _is itself_ _a_
_manufacturer_ _of these_ _derivatives,_ _and therefore_ _risks_ _eliminating_ _all_
_competition_ _on the part of this customer, is abusing its dominant_ _position_
_within the meaning of Article 86._ '°

87. Although this case dealt with the withdrawal of a product, there is no difference in
principle between this case and the withdrawal of access. The unilateral termination
of access agreements raises substantially similar issues to those examined in relation
to refusals. Withdrawal of access from an existing customer will usually be abusive.
Again, objective reasons may be provided to justify the termination. Any such
reasons must be proportionate to the effects on competition of the withdrawal.

_2.2_ _Other forms of abuse_

88 Refusals to provide access are only one form of possible abuse in this area. Abuses
may also arise in the context of access having been granted. An abuse may occur
inter alia where the operator is behaving in a discriminatory manner or the operator's
actions otherwise limit markets or technical development. The following are nonexhaustive examples of abuses which can take place.

Network configuration

89. Network configuration by a dominant network operator which makes access
objectively more difficult for service providers [6] " could constitute an abuse unless it

59 As noted above at paragraph 80.

60 See paragraph 91 below.

61 Case 6 and 7/73, Commercial Solvents, 1974 ECR 223.

62 ie to use the network to reach their own customers

Wdr-cons.wpd 2 6

**Draft**

were objectively justifiable. One objective justification would be where the network
configuration improves the efficiency of the network generally.

Tying

90. This is of particular concern where it involves the tying of services for which the
telecommunications operator is dominant with those for which it is exposed to
competition". Where the vertically integrated dominant network operator obliges the
party requesting access to purchase one or more services [64] without adequate
justifications, this may exclude rivals of the dominant access provider from offering
these elements of the package independently. This requirement could thus constitute
an abuse under Article 86.

63 This is also dealt with under the ONP framework: see Art 7(4) of the Interconnection
Directive, Art 12(4) of the voice telephony Directive and Annex II of the ONP
Framework Directive.

64 ie including those which are superfluous to the latter, or indeed those which may
constitute services the access requester itself would like to provide for its customers

Wdr-cons.wpd 27

**Draft**

Pricing

91. Pricing problems in connection with access for service providers to a dominant
operator's (essential) facilities will often revolve around excessively high prices [6] : in
the absence of another viable alternative to the facility to which access is being sought
by service providers, the dominant or monopolistic operator may be inclined to charge
excessive prices.

Problem of unfairly low prices could arise in the context of competition between
different telecommunications infrastructure networks, where a dominant operator may
tend to charge unfairly low prices for access in order to eliminate competition from
other (emerging) infrastructure providers, in violation of Article 86(a). In general a
price is abusive if it is below the dominant company's average variable costs or if it
is below average total costs and part of an anti-competitive plan' [1] .

If a case arises, the ONP rules concerning accounting requirements and transparency
will help to ensure the effective application of Article 86 in this context.

92. Where the operator is dominant in the product or services market, the margin between
the price charged to all competitors on the downstream market (including the
dominant company's own downstream operations, if any) for access and the price
which the network operator charges in the downstream market must be large enough
to allow a reasonably efficient service provider in the downstream market to obtain
a normal profit unless the dominant company can show that its downstream operation
is exceptionally efficient. [(>] If this is not the case, competitors on the downstream
market are faced by a "price squeeze" which could force them out of the market.

**65** The Commission Communication on Assessment Criteria for National Schemes for the
Costing and Financing of Universal Service and Guidelines for the Operation of such
Schemes will be relevant for the determination of the extent to which the universal
service obligation can be used to justify the prices charged. See also the reference
to the universal service obligation at paragraph 53 above.

66 See AKZO, case C-62/86, [1991] ECR-3359

However, the average variable cost rule cannot be applied in many situations in the
telecommunications sector, since the variable costs of providing access to an already
existing network are almost zero. Accordingly, the test which the Commission
considers should be applied is whether whether a company charges a price for goods
and services - other than in the context of a new product or service -which, although
above the average variable cost of providing the specific goods or services for which
the price in question is paid is so low that the overall revenues for all the goods or
services in question would be less than its average total costs of providing them if it
sold the same proportion of its output at the same price on a continuing basis, even
where no intent to exclude a competitor is proved.

67 Commission Decision, Brown Napier/British Sugar, 88/518/EEC, OJ L 284/41 (1988):
the margin between industrial and retail prices was reduced to the point where the
wholesale purchaser with packaging operations as efficient as those of the wholesale
supplier could not profitably serve the retail market. See also National Carbonising,
footnote 57 above.

Wdr-cons.wpd 28

**Draft**

Discrimination

93. A dominant access provider may not discriminate between different access agreements
where such discrimination would restrict competition. Any differentiation based on
the use which is to be made of the access rather than differences between the

transactions for the access provider itself, if the discrimination is sufficiently likely to
restrict or distort actual or potential competition, would be contrary to Article 86.
This discrimination could take the form of imposing different conditions, including the
charging of different prices, or otherwise differentiating between access agreements,
except where such discrimination would be objectively justified, for example on the
basis of cost or technical considerations or the fact that the users are operating at
different levels. Such discrimination could be likely to restrict competition in the
downstream market on which the company requesting access was seeking to operate,
in that it might limit the possibility for that operator to enter the market or expand its
operations on that market' [1] .

94. With regard to price discrimination, Article 86(c) prohibits discrimination by a
dominant firm between customers of that firm [1], including discriminating between
customers on the basis of whether or not they agree to deal exclusively with that
dominant firm.

95. Discrimination without objective justification as regards any aspects or condition of
an access agreement may constitute an abuse. Discrimination may relate to elements
such as pricing, delays, technical access, routing, numbering, restrictions on network
use exceeding essential requirements and use of customer network data. However, the
existence of discrimination can only be determined on a case by case basis.
Discrimination is contrary to Article 86 whether or not it results from or is apparent
from the terms of a particular access agreement.

96. There is, in this context, a general duty on the network operator to treat independent
customers in the same way as its own subsidiary or downstream service arm. The
nature of the customer and its demands may play a significant role in determining
whether transactions are comparable. Different prices for customers at different levels
(eg wholesale and retail) do not necessarily constitute discrimination.

97. Discrimination issues may arise in respect of the technical configuration of the access,
given its importance in the context of access.

However, when infrastructure capacity is under-utilised, charging a different price for
access depending on the demand in the different downstream markets may be justified
to the extent that such differentiation permits a better utilisation of the infrastructure
and a better development of certain markets, and where such differentiation does not
restrict or distort competition. In such a case, the Commission will analyse the global
effects of such price differentiation on all of the downstream markets.

**69**

**70**

Case C-310/93 P, BPB Industries PLC and British Gypsum Ltd v Commission [1995]
ECR I-865, 904, applying to discrimination by BPB among customers in the related
market for dry plaster

ie to a preferred list of correspondent network operators

Wdr-cons.wpd 29

##### Draft

_The degree of_ _technical_ _sophistication of the access:_ restrictions on the type or 'level'
in the network hierarchy of exchange involved in the access or the technical
capabilities of this exchange are of direct competitive significance. These could be
the facilities available to support a connection or the type of interface and signalling
system used to determine the type of service available to the party requesting access
(e.g. intelligent network facilities).

_The number and/or location of connection points:_ the requirement to collect and
distribute traffic for particular areas at the switch which directly serves that area rather
than at a higher level of the network hierarchy may be important. The party
requesting access incurs additional expense by either providing links at a greater
distance from its own switching centre or being liable to pay higher conveyance
charges.

_lujual_ _access:_ the possibility for customers of the party requesting access to obtain the
services provided by the access provider using the same number of dialled digits as
are used by the customers of the latter is a crucial feature of competitive
telecommunications.

Objective justification

98. These could include factors relating to the actual operation of the network owned by
the access provider, or licensing restrictions consistent with, for example, the subject
matter of intellectual property rights.

_2.3_ _Abuses_ _of joint_ _dominance_

99. In the case of joint dominance (see above, points 65 et seq.) behaviour by one of
several jointly dominant companies may be abusive even if others are not behaving
in the same way.

100. In addition to remedies under the competition rules, if no operator was willing to grant
access, and if there was no technical or commercial justification for the refusal, one
would expect that the National Regulatory Authority would resolve the problem by
ordering one or more of the companies to offer access, under the terms of the ONP
Directive or under national law.

**3.** **Access agreements (Article 85)**

Restrictions of competition stemming from access agreements may have two distinct
effects: to restrict competition between the two parties to the access agreement, or to
restrict competition from third parties, for example through exclusivity for one or both
of the parties of the agreement. In addition, where one party is dominant, conditions
of the access agreement may lead to a strengthening of that dominant position, or to
an extension of that dominant position to a related market, or may constitute an
unlawful exploitation of the dominant position through the imposition of unfair terms.

Wdr-cons.wpd 30

**Draft**

02. Access agreements where access is in principle unlimited are not likely to be
restrictive of competition within the meaning of Article 85( 1 ). Exclusivity obligations
in contracts providing access to one company are likely to restrict competition because
they limit access to infrastructure for other companies. Since most networks have
more capacity than any single user is likely to need, this will normally be the case in
the telecommunications sector.

103. Access agreements can have significant pro-competitive effects as they can improve
access to the downstream market. Access agreements in the context of interconnection
are essential to interoperability of services and infrastructure, thus increasing
competition in the downstream market for services, which is likely to involve higher
added value than local infrastructure.

104. There is, however, obvious potential for anti-competitive effects of certain access
agreements or clauses therein. Access agreements may, for example:

(a) serve as a means of coordinating prices;
(b) or market sharing;
(c) have exclusionary effects on third parties .
(d) lead to an exchange of commercially sensitive information between the parties.

105. The risk of price coordination is particularly acute in the telecommunications sector
since interconnection charges often amount to 50% or more of the total cost of the
services provided, and where interconnection with a dominant operator will usually
be necessary. In these circumstances, the scope for price competition is limited and
the risk (and the seriousness) of price coordination correspondingly greater.

106. Furthermore, interconnection agreements between network operators may under certain
circumstances be an instrument of market sharing between the network operator
providing access and the network operator seeking access, instead of the emergence
of network competition between them.

107. In a liberalised telecommunications environment, the above types of restrictions of
competition will be monitored by the national authorities and the Commission under
the competition rules. The right of parties who suffer from any type of anticompetitive behaviour to complain to the Commission is unaffected by national
regulation.

Clauses falling within Article 85(1)

Commission Decision, Night Services, OJ L 259/20 (1994); Commission Decision,
Eurotunnel, OJ L 354/66 (1994).

Wdr-cons.wpd 31

Draft

108. The Commission has identified certain types of restriction which would potentially
infringe Article 85(1) _\iC_ and therefore require individual exemption. These clauses
will most commonly relate to the commercial framework of the access.

109. In the telecommunications sector, interconnecting parties may wish to exchange,
customer and traffic information. This exchange is likely to influence the competitive
behaviour of the undertakings concerned, and could easily be used by the parties for
collusive practices, such as market sharing ~. Safeguards will therefore be necessary
to ensure that either confidential information is only disclosed to those parts of the
companies involved in making the interconnection agreements, or to ensure that the
information is not used for anti-competitive purposes.

110. Kxelusivily arrangements, for example where traffic would be conveyed exclusively
through the telecommunications network of one or both parties rather than to the
network of other parties which whom access agreements have been concluded will
similarly require analysis under Article 85(3)- If no justification is provided for such
routing, such clauses will be prohibited.

111. Access agreement that have been concluded with an anti-competitive object are
extremely unlikely to fulfil the criteria for an individual exemption under Article
85(3).

112. Furthermore, access agreements may have an impact on the competitive structure of
the market. Local access charges will often account for a considerable portion of the
total cost of the services provided to end-users by the party requesting access, thus
leaving limited scope for price competition. Because _of_ the need to safeguard this
limited degree of competition, the Commission will therefore pay particular attention
to scrutinising access agreements in the context of their likely effects on the relevant
markets in order to ensure that such agreements do not serve as a hidden and indirect
means for fixing or co-ordinating end-prices for end-users, which constitutes one of
the most serious infringements of Article 85 FC \

In addition, clauses involving collective discrimination leading to the exclusion of
third parties are similarly restrictive of competition. The most important is
discrimination with regard to price, quality or other commercially significant aspects
of the access to the detriment of the party requesting access, which will generally aim
at unfairly favouring the operations of the access provider.

Case T-34/92, Fiatagri UK Ltd and New Holland Ford Ltd v Commission
Case T/35/92, John Deere Ltd v Commission
Both on appeal to the ECJ
Appealing against Commission decision, UK Agricultural Tractor Registration

Exchange, OJ L 68/19 (1992).

Case 8/72 _Vereniging_ _van_ _Cementhandelaaren v_ _Commission_ [1972] ECR 977;
Case 123/83 _Bureau National Interprofessionnel du Cognac v. Clair_ [1985] ECR 391;

Wdr-cons.wpd

_M_

**Draft**

**4.** **Effect on trade between Member States**

114. The application of both Article 85 and Article 86 requires an effect on trade between
Member States.

115. In order for an agreement to have an effect on trade between Member States,
it must be possible for the Commission to:

_"foresee with_ _a_ _sufficient degree of probability on the basis of_ _a_ _set of_
_objective_ _factors of law or of fact that the agreement in_ _cpiestion_ _may have an_
_influence, direct or indirect, actual or potential, on the pattern of trade_
_between Member_ _Stales.""_

It is not necessary for each of the restrictions of competition within the agreement to
be capable of affecting trade, provided the agreement as a whole does so.

116. As regards access agreements in the telecommunications sector, the Commission will
consider not only the direct effect of restrictions of competition on inter-state trade in
access markets, but also the effects on inter-state trade in downstream
telecommunications services. The Commission will also consider the potential of
these agreements to foreclose a given geographic market which could prevent
undertakings already established in other Member States from competing in this
geographic market.

117. Telecommunications access agreements will normally affect trade between Member
States as services provided over a network are traded throughout the EU and access
agreements may govern the ability of a service provider or an operator to provide any

                                   - 7/
given service . Even where markets are mainly national, as is generally the case at
present given the stage of development of liberalisation, abuses of dominance will
normally speaking affect market structure, leading to repercussions on trade between
Member States.

118. Cases in this area involving issues under Article 86 will relate either to abusive
clauses in access agreements, or a refusal to conclude an access agreement on
appropriate terms or at all. As such, the criteria listed above for determining whether
an access agreement is capable of affecting trade between Member States would be
equally relevant here.

74 Case 56/65, STM, 1966 ECR 235 at 249.

75 Case 193/83, Windsurfing International Inc v Commission, 1986 ECR 611.

76 See Telecommunications Guidelines, point 3 above.

Wdr-cons.wpd

**Draft**

**Conclusions**

119. The Commission considers that competition rules and sector specific regulation form
a coherent set of measures to ensure a liberalised and competitive market environment
for telecommunications markets in the ED.

120. In taking action in this sector, the Commission will aim to avoid unnecessary
duplication of procedures, in particular competition procedures and national / EU
regulatory procedures as set out under the ONP framework.

121. Where competition rules are invoked the Commission will consider which markets are
relevant and will apply Articles 85 and 86 in accordance with the principles set out
above.

Wdr-cons.wpd 34

#### ISSN 0254-1475

## COM(96) 649 final

# **DOCUMENTS**

### EN 08 15 10 Catalogue number : CB-C0-96-712-EN-C ISBN 92-78-13837-1

Office for Official Publications of the European Communities

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