Decision German 3G Mobile Network Sharing

28 July 2006

Wilko Van Weert

May 2006

The European Court of First Instance (the “CFI”) ruled that the Commission, in granting an exemption in respect of national arrangements on the German market for 3G mobile telephony, had carried out insufficient analysis as to the applicability of Article 81 EC to these arrangements. The ruling, made in O2 (Germany) GmbH & Co. OHG v Commission of the European Communities (Case T-328/03), resulted in the annulment of the part of the Commission’s decision that deemed that such arrangements fell within Article 81 EC.

The deal was originally notified in 2002 and concerned an agreement between the German operations of T-Mobile and O2 to share 3G site infrastructure and to roam on their respective 3G networks in Germany. The notification aimed at obtaining either negative clearance from Article 81(1) or, if this was not granted, an exemption under Article 81(3).

The Commission found that the site sharing aspects of the deal did not restrict competition but argued that national roaming, by definition, restricts mobile network-based competition with respect to the scope and speed of coverage, retail prices, network quality and transmission rates. These effects were found to be more serious in areas where there are good economic opportunities for the roll-out of parallel competitive networks, especially in urban areas.

The Commission therefore determined that the roaming arrangements came within Article 81 EC. However, the Commission considered that the benefits of the agreement in its promotion of market entry leading to better and quicker 3G services and increasing retail competition in Germany, meant that the criteria for exemption under Article 81(3) were satisfied.

As a result, in respect of roaming in urban areas, the Commission considered that the agreement could be exempted for a short start-up period until O2 had set up its own network. This exemption would be phased out in steps across specific cities and regions covering about 50 per cent of the population by the end of 2008. Roaming in rural areas (which will enable O2 to compete as a nationwide operator) will also be phased out by the end of 2008.

O2 challenged this decision before the CFI, claiming that there was no restriction of competition under Article 81(1) EC and that the Commission’s analysis of the actual effect of the agreement on competition was flawed.

The CFI held that the Commission had failed to analyse properly the impact of the agreement on competition. Instead it had presumed that, in the absence of the agreement, both parties would have been present and competing on the market. In the absence of any analysis, the CFI held that the Commission could not properly have assessed the extent to which the agreement was necessary in order for O2 to be able to enter the 3G market in Germany. Moreover, the Commission had failed to take into consideration the factual situation as presented by the parties, as well as the amendments they had made to their agreements.

The Commission's general assessment that national roaming restricts competition was not based on concrete evidence specific to the agreement and contained in the decision. In fact, the CFI agreed that O2's dependence on T-Mobile had been designed to be temporary and to diminish over the lifetime of the agreement. The Commission finding that the agreement has a restrictive effect on the roll-out of O2's own networks was based on broad, general statements about the restrictive nature of roaming agreements.

The Commission had also failed to demonstrate that any price dependence between the parties limited O2's freedom to set its prices on the market.

The CFI concluded that, in relation to the application of Article 81(1) EC, the Commission's decision contained no objective discussion of what the competitive situation would have been in the absence of the agreement, which distorted the assessment of the actual and potential effects of the agreement of competition. It had also failed to underpin in concrete terms, that the provisions of the agreement on roaming have restrictive effects on competition in the context of the emerging market concerned. The Commission's decision was, therefore, annulled insofar as it implies that national roaming falls within Article 81(1).

It is interesting to note that the CFI considered that it cannot be ruled out that such a roaming agreement, rather than restricting competition between network operators, may actually be capable of increasing competition by enabling the smallest operator to compete with the major players in certain circumstances. In the context of the specific characteristics of the relevant emerging market, O2’s competitive situation on the 3G market would probably not have been assured without the agreement, and might even have been put into jeopardy.

Source: Decision of the CFI:
http://curia.europa.eu/jurisp/cgi-bin/form.pl?lang=en&Submit=Submit&docrequire=alldocs&numaff=&datefs=&datefe=&nomusuel=&domaine=CONC&mots=&resmax=1000