On July 31, 2017 the Spanish High Court (Audiencia Nacional) annulled a fine of €25.78 million imposed in October 2014 on Telefónica Móviles España (“TME”) by the Spanish National Commission for Markets and Competition (Comisión Nacional de los Mercados y la Competencia, or “CNMC”) for creating an allegedly anticompetitive network of parallel agreements with SMEs, which included certain term commitments.
Those term commitments were linked to discounts and had an initial duration of 12, 18 or 24 months. However, they were automatically renewed and one month’s notice was needed to terminate the contracts. In addition, customers wishing to terminate the agreements would be allegedly required to pay a penalty, which would increase as the contract approached the end of the term agreed to.
According to the CNMC, those term commitments “disproportionately” limited the customers’ ability to switch to another operator and increased the costs of competitors wishing to compete for those clients (especially for Mobile Virtual Network Operators or “MVNO”). Moreover, the CNMC considered that these contracts for SMEs amounted to vertical agreements between TME and its clients.
On that basis, the CNMC declared that TME’s behaviour constituted a single and continuous infringement of Article 1 of Law 15/2007, for the Defense of Competition and Article 1 of TFEU, and imposed a fine. In this regard, the CNMC pointed out that it was not each contract by itself what constituted an infringement, but the combination of thousands of them creating a network of parallel agreements with cumulative effects. (Interestingly, TME’s major competitors in Spain, Vodafone and Orange, had similar strategies and were also initially part of the investigation, but the CNMC concluded that they could benefit from the exemption established in Regulation (UE) 330/2010, as their market shares were below 30%.)
TME appealed the CNMC decision on the grounds that these commitments were linked to discounts and entailed advantages for its clients. In addition, it provided two expert reports that stated that those commitments did not intend to distort competition, did not constitute a vertical restraint and had no anticompetitive effects.
The Audiencia examined that evidence and ruled in favour of TME, stating that its SME contracts did not constitute a vertical agreement in an economic sense, since TME’s clients did not resell or transform the products acquired and were not located at any point in the production or distribution process, but were in fact consumers of the services.
The Court considered that TME’s contracts for SMEs did not distort competition, but instead benefited customers by offering them lower prices.
The Audiencia considered that the discounts in exchange for commitments were on balance pro-competitive, expressly finding that the penalty clauses appeared “the most proportional” way to link the discounts to the terms agreed. Moreover, the Audiencia found that the contracts affected a small part of the market and did not prevent customers from switching between operators or create barriers to entry for MVNOs.
The judgment, which may be further appealed before the Supreme Court, is just the latest in a series that have annulled CNMC decisions. In July 2017 alone, the Audiencia Nacional annulled fines which had been imposed on Repsol (€22.5 million), twenty producers of wooden pallets (€4.7 million), and Aena and a number of car rental companies (€3 million), and more recently and according to the press, fines imposed on Vodafone, Orange and Telefónica, (amounting to €43.42 million, €29.95 million and €46.49 million, respectively) for an alleged abuse of dominance in relation to SMS messages may also have been annulled (the Telefónica judgment has apparently not yet been notified to the company).
The judgment is available (in Spanish) at: http://www.poderjudicial.es/search/contenidos.action?action=contentpdf&databasematch=AN&reference=8135406&links=%22552%2F2014%22&optimize=20170908&publicinterface=true
Authors: Laura Pinilla y Marta Simón.