Summaries of judgments made in collaboration with the Portuguese judges and référendaire of the General Court (Maria José Costeira, Ricardo Silva Passos and Esperança Mealha)
Judgment of the General Court (First Chamber, Extended Composition) of 28 May 2020, T-399/16, CK Telecoms UK Investments/Commission
On 11 May 2016,[i] the Commission adopted a decision in which it blocked, under the Merger Regulation,[ii] the proposed acquisition of Telefónica UK (‘O2’) by Hutchison 3G UK3 (‘Three’).
According to the Commission, that acquisition would have removed an important competitor on the United Kingdom mobile telephony market and the merged entity would have faced competition only from two mobile network operators, Everything Everywhere (EE), belonging to British Telecom, and Vodafone. The Commission considered that the reduction from four to three competitors would probably have led to an increase in prices for mobile telephony services in the UK and a restriction of choice for consumers. The acquisition would also have been likely to have a negative influence on the quality of services for consumers, hindering the development of mobile network infrastructure in the UK. Lastly, it would have reduced the number of mobile network operators wishing to host other mobile operators on their networks.
Three brought an action before the General Court seeking annulment of the Commission’s Decision.
The General Court annuls the Commission’s decision to block the proposed acquisition of Telefónica UK by Hutchison 3G UK in the sector of the mobile telephony market.
A. The effects of the operation on prices and on the quality of services for consumers have not been proved to the requisite legal standard.
The Commission’s assessment was based on the consideration that the acquisition would have eliminated competition between two powerful players on the UK mobile telephony market, one of which, Three, is allegedly an important competitive force on the UK mobile telephony market and the other of which, O2, allegedly holds a strong position: together, the two would have been the market leader, with a share of approximately 40%. In particular, it seemed likely to the Commission that the merged entity would have been a less aggressive competitor, that it would have increased prices and that, moreover, the concentration would have been likely to have a negative impact on the ability of the other operators to compete on price and by means of other parameters (innovation, network quality).
After clarifying the scope of the change made by the Merger Regulation, as well as the burden of proof and the standard of proof in relation to concentrations, the General Court finds that the Commission’s application of the assessment criteria of the so-called ‘unilateral’ (or ‘noncoordinated’) effects – namely, the concept of ‘important competitive force’, the closeness of competition between Three and O2 and the quantitative analysis of the effects of the concentration on prices – is vitiated by several errors of law and of assessment.
The Court acknowledges that the Merger Regulation allows the Commission to prohibit, in certain circumstances, on oligopolistic markets concentrations which, although not giving rise to the creation or strengthening of an individual or collective dominant position, are liable to affect the competitive conditions on the market to an extent equivalent to that attributable to such positions, by conferring on the merged entity the power to enable it to determine, by itself, the parameters of competition and, in particular, to become a price maker instead of remaining a price taker. However, the mere effect of reducing competitive pressure on the remaining competitors is not, in principle, sufficient in itself to demonstrate a significant impediment to effective competition in the context of a theory of harm based on non-coordinated effects.
As regards the classification of Three as an ‘important competitive force’, the Court finds that the Commission erred in considering that an ‘important competitive force’ need not necessarily stand out from its competitors in terms of its impact on competition. If that were the case, that position would allow it to treat as an ‘important competitive force’ any undertaking in an oligopolistic market exerting competitive pressure.
In addition, as regards the assessment of the closeness of competition, the Court finds that, although the Commission established that Three and O2 are relatively close competitors in some of the segments of a market, that factor alone is not sufficient to prove the elimination of the important competitive constraints which the parties to the concentration exerted upon each other and therefore to establish a significant impediment to effective competition.
The Court also finds that the Commission’s quantitative analysis of the effects of the concentration on prices does not establish, with a sufficiently high degree of probability, that prices would increase significantly.
B. The Commission failed to show that the effects of the concentration on the network-sharing agreements and on the mobile network infrastructure in the UK would constitute a significant impediment to effective competition
The current four mobile network operators in the UK are parties to two network-sharing agreements: on the one hand, EE and Three have brought together their networks under the ‘Mobile Broadband Network Limited’ – MBNL joint venture; on the other hand, Vodafone and O2 have brought together their networks to create ‘Beacon’. That enables them to share the costs of rolling out their networks while continuing to compete at the retail level.
According to the Commission, the future development of the mobile network infrastructure in the UK would have been hindered to the extent that the merged entity would have been party to both network-sharing agreements, MBNL and Beacon. That entity would have been afforded an overview of the network plans of the two remaining competitors, Vodafone and EE, and the possibility of weakening them, thereby hindering the future development of the mobile network infrastructure in the country. In particular, according to the Commission, one of the ways of weakening the competitive position of one or other of the partners in the network-sharing agreements would be to degrade the network quality of that agreement. For the Commission, that seems particularly relevant for the partner in the network-sharing agreement that would not become the basis of the merged entity’s consolidated network.
The Court finds that a possible misalignment of the interests of the partners in a network-sharing agreement, a disruption of the pre-existing network-sharing agreements, or even the termination of those agreements do not constitute, as such, a significant impediment to effective competition in the context of a theory of harm based on non-coordinated effects.
In that regard, the Court notes, first, that the effects of the concentration in relation to a possible exercise of market power, in the form of a degradation of the services offered by the merged entity or of the quality of its own network, were not analysed in the contested decision, even though the assessment of a possible elimination of important competitive constraints between the parties to the concentration and a possible reduction of competitive pressure on the remaining competitors should lie at the heart of the assessment of the non-coordinated effects arising from a concentration.
The Court notes, second, that, even if the merged entity had favoured one of the two networksharing agreements and was induced in particular to reduce the costs associated with the other network, that could not have a disproportionate effect on the position of the other partner in the network-sharing agreement or constitute a significant impediment to effective competition, since the Commission has failed to make the case that the other party would have neither the ability nor the incentive to react following an increase in its costs and would simply cease to invest in the network.
C. The effects of the concentration on the wholesale market were not found to be sufficient to establish the existence of a significant impediment to effective competition
In addition to the four mobile network operators, there are also several ‘virtual’ operators on the UK mobile telephony retail market, such as Virgin Media, Talk Talk and Dixons Carphone which use the infrastructure of the ‘host’ mobile network operators to provide their services to consumers in the UK.
According to the Commission, the loss of Three as an ‘important competitive force’ and the ensuing reduction in the number of host mobile networks would have placed the virtual operators in a weaker negotiating position to obtain favourable wholesale access conditions.
The Court finds that neither Three’s wholesale market shares nor their recent increase justify its classification as an ‘important competitive force’. The mere fact that Three had more of an influence on competition than its market share would suggest is not sufficient to establish the existence of a significant impediment to effective competition, particularly as it was not disputed that Three’s market share was small.
[i] Commission Decision C(2016) 2796 of 11 May 2016 declaring the operation incompatible with the internal market (Case COMP/M.7612 — Hutchison 3G UK/Telefónica UK).
[ii] Council Regulation (EC) No 139/2004 of 20 January 2004 on the control of concentrations between undertakings (OJ 2004 L 24, p. 1), as implemented by Commission Regulation (EC) No 802/2004 of 7 April 2004 (OJ 2004 L 133, p. 1).
[iii] Hutchison 3G UK Investments Ltd, an indirect subsidiary of CK Hutchison Holdings Ltd, became the applicant, CK Telecoms UK Investments Ltd.
Judgments of the General Court (4th Chamber) of 12 March 2020, Cases T-732/16, Valencia Club de Fútbol v Commission and T-901/16 Elche Club de Fútbol v Commission
State aid — Aid granted by Spain to certain professional football clubs — Guarantee — Decision declaring the aid to be incompatible with the internal market — Advantage — Firm in difficulty — Private investor test — Guidelines on State aid for rescuing and restructuring firms in difficulty — Amount of the aid — Recipient of the aid — Principle of non-discrimination — Duty to state reasons
Between 2009 and 2010, the Instituto Valenciano de Finanzas (‘the IVF’) — the financial establishment of the Generalitat Valenciana (Regional Government of Valencia, Spain) — granted a number of guarantees to associations linked to three Spanish professional football clubs from the Autonomous Community of Valencia, Valencia CF, Hércules CF and Elche CF. Those guarantees were intended to cover the bank loans taken out by those associations in order to participate in the increase in the capital of the three clubs to which they were linked. In Valencia CF’s case, the guarantee granted was increased in 2010 in order to cover the increase of the underlying bank loan.
By decision of 4 July 2016, the Commission found that those measures constituted unlawful State aid incompatible with the internal market in favour of the three football clubs, and consequently it ordered their recovery.
The three clubs each brought an action before the General Court with a view to annulling the Commission’s decision.
By judgment of 20 March 2019, the Court annulled the Commission’s decision in relation to Hércules CF.
By judgments of 12 March 2020, the Court annuls the Commission’s decision in relation to Valencia CF and Elche CF.
Judgment T-732/16 Valencia Club de Fútbol v Commission
First of all, the Court examines the assessments relating to the guarantee given by the IVF to cover the bank loan granted to the association linked to Valencia CF, the Fundación Valencia. It considers that the Commission made a manifest error of assessment in that respect by finding that no equivalent guarantee premium could be found on the market. After correctly classifying Valencia CF as a ‘firm in difficulty’, the Commission wrongly assumed that no financial establishment would act as a guarantor for a firm in such a situation and, consequently, that no corresponding guarantee premium benchmark could be found on the market. Furthermore, it did not carry out an overall assessment taking into account all relevant evidence enabling it to determine whether Valencia CF would manifestly not have obtained comparable facilities from a private investor.
The Court also considers that the Commission did not sufficiently support the finding that there was no market price for a similar non-guaranteed loan ‘due to the limited number of observations of similar transactions on the market’.
Next, the Court examines the assessments relating to the increase in the guarantee decided in 2010. The Commission had, inter alia, concluded that the shares in Valencia CF acquired by the Fundación Valencia and pledged to the IVF as a counter-guarantee had a value ‘close to zero’ on the date that increase was granted, since Valencia CF, in particular, was in difficulty and was operating at a loss. The Court finds that the evidence on which the Commission’s conclusions on that point are based are partly incorrect, in that the financial year preceding that grant closed with a profit. It also considers that the Commission made a manifest error of assessment in that respect, because it did not take into account relevant factors, such as the existence of the club’s significant own equity and the generation of a profit before taxes in the fiscal year preceding the grant of the increase. Those errors vitiate the Commission’s assessment of the value of the counter-guarantees provided by the Fundación Valencia and, consequently, its calculation of the amount of the aid arising from the increase of the guarantee.
Judgment T-901/16 Elche Club de Fútbol v Commission
The Court finds that the Commission’s assessment of the existence of an advantage from which Elche CF benefits is vitiated by manifest errors of assessment.
In the first place, the Commission made a manifest error of assessment by not taking into account the economic and financial situation of the borrowing association linked to Elche CF, the Fundación Elche. The Court states that this is a relevant factor for the purposes of evaluating the risk taken by the State guarantor and, thereby, the guarantee premium which a private operator would claim in those circumstances. Although the Fundación Elche is not identified by the Commission as being the actual beneficiary of the loan, it did benefit from the guarantee at issue under the contract concluded with the IVF and was accountable to the IVF for the consequences, as the case may be, of activating the guarantee.
In the second place, the Court states that the Commission made a further manifest error of assessment by also failing to take into account, for the purposes of examining the existence of an advantage, the relevant fact of the mortgage on land which the Fundación Elche had granted to the IVF as a counter-guarantee.
In the third place, the Court considers that the Commission was wrong not to take into account the recapitalisation of Elche FC for the purposes of assessing the value of the shares in Elche FC, pledged to the IVF as a counter-guarantee, which the Commission found to be ‘close to zero’.
In the fourth place, the Court states, as it did in relation to Valencia CF, that the Commission, after finding that Elche CF was a firm in difficulty, wrongly assumed that no financial establishment would act as a guarantor for such a firm and therefore that that no corresponding guarantee premium benchmark could be found on the market. Similarly, the Court criticises the Commission for not sufficiently substantiating its conclusion relating to the lack of comparable transactions to establish the market price of a similar non-guaranteed loan.