Refusal to Supply and Margin Squeeze: A Discussion of Why the 'Telefonica Exceptions' are Wrong

Abstract

In its Guidance Paper on Article 102 of the Treaty on the Functioning of the European Union (the TFEU”), the Commission established three conditions that in its view must normally be satisfied before a “refusal to deal” or “margin squeeze” may be considered contrary to Article 102 TFEU. These conditions mirror those established by the European Court of Justice (the “ECJ”) in the Bronner case: The refusal relates to a product or service that is objectively necessary to be able to compete effectively on a downstream market; the refusal is likely to lead to the elimination of effective competition on the downstream market; and the refusal is likely to lead to consumer harm.

However, in its Telefónica decision, the Commission took the view that in the circumstances of that case it did not have to prove that these conditions were satisfied before concluding that there was an abusive margin squeeze. The Commission argued that the particular circumstances of the Telefónica case were fundamentally different from those in Bronner. These purportedly fundamental differences were that: Spanish and EU telecommunications law already imposed on Telefónica an obligation to supply and it was clear, from the considerations underlying such regulation, that the necessary balancing of incentives had already been made by the public authority when imposing such an obligation to supply; and Telefónica’s infrastructure was to a large extent the fruit of investments that were undertaken well before the advent of broadband in Spain and were undertaken in a context where Telefónica was benefiting from special or exclusive rights that shielded it from competition.

Against this background, this short paper seeks to demonstrate that what I will refer as the “Telefónica exceptions” do not make sense and are not justified from an EU law standpoint. On the contrary, their application could lead to negative consequences in particular by forcing a vertically-integrated dominant firm to give access to its infrastructure even when this access is not “essential” within the meaning of the refusal to deal case law of the ECJ. This paper is divided into four Parts. Part II reviews the Telefónica case and the exceptions to the conditions set in the Bronner case-law it contains. It also shows that these exceptions were taken on board by the Commission in its Guidance Paper on Article 102 TFEU, as well as referred to by Advocate General Mazák in its Opinion in the TeliaSonera case. Part III explains why these exceptions are fundamentally flawed. Part IV provides a short conclusion.

Keywords: Antitrust, Competition, Refusal to Supply, Margin Squeeze, Telecommunications, Abuse of Dominance, EU, European Commission, Foreclosure

JEL Classification: D42, K21, L2, L41, L42, L96