On June 8, 2017, the Spanish National Commission for Markets and Competition (Comisión Nacional de los Mercados y la Competencia, or CNMC) imposed a fine of €1.74 million on Nokia Solutions and Networks Spain, S.L. (Nokia).
Following a complaint by Kapsch Carriercom España, S.L.U. (Kapsch), the CNMC found that Nokia had abused its dominant position by engaging in margin squeeze practices in a tender by state-owned railway manager Administrador de Infraestructuras Ferroviarias (ADIF) regarding maintenance services for the GSM-R telecommunications network.
GSM-R (Global System for Mobile Communications – Railway) is a wireless digital communication system specific to the railroad network. It consists of equipment installed on-board and deployed along the rail tracks. GSM-R uses a separate frequency band, which avoids interference with other GSM networks and is specifically designed to allow mobile communication on trains running up to 500 km/h, making it particularly apt for high-speed trains.
By 2014, Nokia had deployed and installed 85% of the GSM-R network in Spain, and Kapsch the remaining 15%. Each company was encharged with the maintenance for the network it had installed until July 2014, when ADIF opened a tender for the maintenance services of the GSM-R network that allowed companies not owning the network to render maintenance services. As part of the tender, ADIF required the tenderers to demonstrate their technical capability to address any technical incident by means of a commitment letter from the technology manufacturer guaranteeing any necessary assistance. In the alternative, the awardee of the contract could substitute the equipment installed by other companies with its own equipment but at its own cost.
Nokia and Kapsch each participated in the tender and, despite each of them making a request, neither of them provided a commitment letter. Rather, they each provided commercial conditions with pricing for rendering technical assistance as subcontractors.
In October 2014, Kapsch informed ADIF of its decision to withdraw from the tender because it was unable to provide a competitive offer, among other reasons, due to the high price of the technical assistance from Nokia. As a result, ADIF awarded the contract to Nokia in December 2014.
In May 2015, Kapsch submitted a complaint before the CNMC alleging that Nokia had abused its dominant position by setting high and discriminatory wholesale prices for network maintenance services, excluding Kapsch from the tender.
In its decision, the CNMC defined separate affected product markets, namely, the markets for (i) the manufacture and commercialization of GSM-R network, (ii) the maintenance of GSM-R facilities; and (iii) the wholesale provision of technical assistance services and supply of spare parts for the maintenance of Nokia’s GSM-R facilities.
Based on the two-limbed analysis of the existence of an abuse of dominant position laid down by the Court of Justice of the EU, the CNMC considered that:
- Nokia enjoyed a dominant position in the vertically related markets for the maintenance of GSM-R facilities and for services for technical assistance. This conclusion derived from (i) Nokia’s market shares in the affected markets; (ii) ADIF’s low countervailing power, given Nokia’s extensive presence in the mentioned markets; and (iii) the existence of high technical barriers to entry together with the dependence on its manufacturer, given the necessary maintenance throughout the lifecycle of the equipment.
- Nokia engaged in margin squeeze practices by setting prices that impeded its rivals from effectively competing. The CNMC concluded that Nokia combined its retail prices in the market for the maintenance of GSM-R facilities with prices in the upstream market for the wholesale provision of technical assistance. As a result, considering the “as efficient competitor” test, Kapsch would have found it uneconomical to enter the tender process, since such combination of wholesale and retail prices would have led to a negative margin.
Overall, the CNMC considered that said abuse had excluded Nokia’s competitors from the bidding process, which resulted in an increase of the price of the service that ADIF had to face. In consequence, it decided to impose a fine on Nokia that represents 1% of its turnover in 2016.
The decision (in Spanish) is available at https://www.cnmc.es/sites/default/files/1688396_0.pdf.