A Two-Sided Coin: Regulation and Merger Control in the EU Telecommunications Sector

In Short

The Ruling: The Dutch competition authority's approval of KPN's acquisition of fiber operator Reggefiber was upheld by the Dutch Trade and Industry Appeals Tribunal in February 2018. In assessing the merger's competitive effects, the Tribunal notably considered regulatory measures adopted pursuant to sector-specific telecommunications regulation.

The Result: Telecommunications regulations are a relevant element in determining the market effects of a merger and may be a ground for clearance, even in the presence of a potential post-merger price increase or an incentive to exclude access.

Looking Ahead: This judgment affirms the ability of the Dutch competition authority (Netherlands Authority for Consumers and Markets) to take into account sector-specific regulation in its merger control analysis, and lends significant weight to price regulation in appraising the potential effects of a merger. The balance between regulation and competition law rules will remain of particular relevance in the face of a current revision of the EU regulatory framework and sector consolidation.

On February 14, 2018, the Dutch Trade and Industry Appeals Tribunal ("Tribunal") affirmed the Netherlands Authority for Consumers and Markets' ("ACM") 2014 clearance decision of KPN's acquisition of Reggefiber ("Decision"). The Tribunal's judgment upheld the Rotterdam District Court's ("District Court") 2016 judgment.

In 2014, KPN (historic Dutch telecom operator) and Reggefiber (a Dutch fiber operator) notified the ACM of KPN's planned acquisition of sole control of Reggefiber. Following an in-depth investigation, ACM unconditionally cleared the merger, despite finding that the proposed transaction gave KPN incentives to both charge higher prices and to exclude alternative providers from wholesale access to the local access network. ACM concluded that effective competition would nonetheless not be significantly impeded in the Dutch market, due to sector-specific telecommunications remedies in place.

The ACM's 2014 decision took into account the fact that KPN was regulated, pursuant to a decision by the Dutch telecoms regulator, based on the ex ante telecommunications framework established under European Union ("EU") law. As such, KPN was considered an operator with "significant market power" on the market for unbundled access and consequently subject to access remedies and a regulated price cap. Additionally, a draft revised decision by the Dutch telecoms regulator to maintain the mandatory access regime and the regulated price cap had also already been published and was set to enter into force in 2016. Thus, such a revised decision would ensure that KPN would continue to provide alternative providers with wholesale access to the local access network.

Vodafone appealed the clearance Decision, contending that, as a result of the merger, commercially agreed prices for unbundled access to the residential fiber access network would increase by 10-15 percent, up to the level of the regulated price cap under the applicable telecoms remedies.

In rejecting Vodafone's argument, the District Court ruled that sector-specific telecommunications regulation could be used to assess whether a proposed concentration would significantly impede effective competition. Thus, the ACM had appropriately considered both existing and proposed telecoms remedies (under the Dutch telecoms regulator's decision and draft revised decision) in its appraisal of the merger.

Following Vodafone's appeal, the Tribunal confirmed the District Court's finding that regulation is part of the relevant framework for assessing a merger's competitive effects. In this respect, the Tribunal undertook a detailed review of the applicable telecommunications regulation's method of price control. It then determined that the maximum tariffs set for KPN under the sector-specific regulation were based on costs that it must reasonably bear for the provision of unbundled access. Therefore, even if the proposed transaction opened the way for KPN to charge higher prices, these would remain within the boundaries of the regulated maximum tariffs.

Read the Tribunal's February 14, 2018 judgment.

The Tribunal's judgment makes clear that, in the EU and the Netherlands (and any other EU Member State), two main instruments currently guarantee effective competition in the electronic communications sector: competition law and sector-specific telecommunications regulation.

A key role of telecommunications regulation has been to create conditions for effective competition in the telecoms sector during the course of the long and ongoing transition from monopoly to full competition. Given this alignment between telecommunications regulation and competition law, the European Commission's merger reviews have weighed the ability of telecommunication regulatory measures to address the risk of abuse or undue leverage when deciding on the need for merger remedies. Similarly, the Tribunal's judgment allows the ACM to take into account sector-specific regulation for the purpose of merger control.

Nevertheless, this dual regulatory and competition scrutiny will be finding a new equilibrium in view of various regulatory and industrial trends:

• The European Commission recently proposed an overhaul of the existing telecommunications regulatory framework under a new European electronic telecommunications code, which is currently being considered by the EU legislator. This revamp could lead to the simplification of telecom rules and the repeal of regulatory obligations that overlap with horizontal competition rules.
• Continued industry consolidation will face close merger control scrutiny, as illustrated by recent mobile mergers that generally concerned nonregulated markets. If merger review leaves potential concerns unaddressed, regulators will (re)consider ex ante regulation, and competition authorities may even rely on such interventions in their reviews. Recent initiatives to expand regulation in fixed markets in Belgium and the Netherlands, which have undergone recent consolidation, are illustrative in this respect.

Key Takeaways

1. Competition law and telecommunications regulation work together to preserve effective competition in the telecoms industry.
2. A new European electronic telecommunications code and continued industry consolidation may change how sector-specific regulation interacts with merger control.

Lawyer Contacts

For more information, please contact your principal Jones Day representative or the lawyer below.

Yvan N. Desmedt
Amsterdam / Brussels
+31.20.305.4203 / +32.2.645.15.23
ydesmedt@jonesday.com

Kornel Olsthoorn, an associate in our Amsterdam Office, assisted with the preparation of this Commentary.

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