Cellnet successfully argued that allegations of charging high prices to independent service providers and subsidising its own tied service providers could not amount to margin squeeze contrary to the rules against restrictive agreements, as there was no concurrence of wills between the two undertakings.
Unipart alleged that as an independent service provider (‘ISP’) purchasing airtime wholesale from Cellnet from 1996 to 1999, it suffered from a policy of margin squeeze on the part of Cellnet. However, the allegations were of infringement of Article 81 EC and Chapter 1 of the Competition Act 1998 (not Article 82 or Chapter 2). Cellnet also owned and controlled a number of ‘tied service providers’. It was alleged that Cellnet had a policy of charging service providers excessive prices for airtime and thereby, due to its market power, compelling ISPs to reduce or even to eliminate their retail margins, whilst subsidising its own tied service providers.
Cellnet denied any policy of margin squeeze, but also contended that Article 81(1) EC and Chapter 1 of the Competition Act 1998 would not be engaged anyway since such a policy would not be the subject of any agreement between undertakings and would be a purely unilateral act. Unipart appealed a similar finding by the trial judge, arguing that Cellnet at the time enjoyed substantial market power in the mobile market, though without being dominant, and that the agreements between undertakings relevant to the claim are the individual agreements for supply of airtime between Cellnet and Unipart and the bundle of agreements between Cellnet and those service providers that constituted undertakings.
The judgment of the Court of Appeal relied heavily on the decisions of the CFI and ECJ in Bayer/Adalat in establishing the scope and purpose of Article 81(1). Article 81(1) aims only to eliminate obstacles to competition set up as a result of concurrence of wills between at least two undertakings. Unipart was attempting to use Article 81(1) to penalise a supplier not in a dominant position for adopting a supply policy that it regarded as necessary to protect its commercial decision. Unilateral measures taken by private undertakings can, therefore, only be subject to restrictions if the undertaking occupies a dominant position on the market.
The case centred upon the question of whether there was a concurrence of wills between Cellnet and Unipart in Cellnet allegedly setting its prices at an excessively high level as part of a policy of margin squeeze. The Court of Appeal held that despite Cellnet’s strength in the marketplace, the fact that Cellnet’s standard conditions set the prices for its airtime did not amount to an agreement by Unipart to the adoption by Cellnet of the alleged policy of margin squeeze.
Furthermore, it could not be shown that Unipart tacitly accepted such a policy of margin squeeze. Margin squeeze is a unilateral policy on the part of one of the contracting parties which can be put into effect without the assistance of others. A network operator can, by reason of its power in the market and its ability to cross-subsidise its tied service providers, put pressure on ISPs without their assistance or co-operation. The court distinguished this case from Sandoz, where the repeated orders for products, and settlement of invoices containing the contract terms in issue, coupled with the lack of protest, constituted tacit acquiescence and a complicity in the anti-competitive policy. No such finding could be made with Unipart. The concurrence of wills needed to meet the Article 81(1) test was not present between the two parties.
The findings in this case reaffirm the principle on the meaning of an agreement within Article 81(1) EC, as set out in the Bayer/Adalat case. The judgment shows that the reasoning used in Bayer/Adalat can be applied to different restrictive practices, including margin squeeze, and not just the concept of export bans.
Source: Unipart Group Ltd v (1) O2 (UK) Ltd (formerly BT Cellnet Ltd) and (2) Call Connections Ltd  EWCA 1034