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The Icelandic Competition Authority imposes a fine of ISK 440 million on Síminn (Iceland Telecom) for a violation of the Competition Act

5/11/2012

  • Siminn hf logoA fine of ISK 390 million was imposed on Síminn for abusing its market-dominant position in the mobile telephone market.
  • A fine of ISK 50 million was imposed on Síminn for false and misleading information in the matter.

The Competition Authority has been investigating the complaint of the telephone company Nova, regarding pricing by Síminn in the mobile telephone market. With its decision, rendered today, the Competition Authority has concluded that Síminn has abused its market-dominant position and thereby violated article 11 of the Competition Act and article 54 of the EEA Agreement by applying a competition-impeding margin squeeze on its competitors.

Margin squeeze happens when a market-dominant company controls the margin between the wholesale and retail level, inter alia for the purpose of making it difficult for new competitors to gain a foothold in the retail market. In such an instance, the company concerned has a market-dominant position on the wholesale market and operates also in the related retail market. The company sells important products/services wholesale (in this case the mobile termination in the Síminn mobile telephone network) to other companies that use them in their operations in the retail market. It is on this retail market where the companies compete with the retail arm of the market-dominant company, in this case Síminn. The violation can consist of abnormally high pricing of the wholesale component that makes the operation of competitors in the retail market unprofitable or reduces their profit, thus hindering them in engaging in vigorous competition in the retail market for the benefit of the public.

In earlier years, Síminn had a monopoly in telecommunications and had therefore most mobile telephone users as customers. The competitors of Síminn cannot operate in the mobile telephone market unless their customers can call the customers of Síminn. In order for this to be possible, Nova, for instance, must pay Síminn a termination charge for telephone calls with origination in the Nova mobile network and termination in the Síminn mobile network. The mobile termination charge is therefore a part of the wholesale price of phone calls, whereas the retail price is the price charged by Nova to its customers. For the most of the period of violation, the wholesale price of Síminn to its competitors was higher than the retail price of Síminn for telephone calls between customers in its own mobile telephone network (on-net calls). This meant that if the retail department of Síminn would have had to pay its wholesale department the same wholesale price as its competitors, it would have made a loss on each telephone call.

It is therefore evident that the competitors of Síminn could not price telephone calls towards the mobile telephone network of Síminn in a comparable manner as to on-net calls of Síminn without incurring a loss, since most users were the customers of Síminn. This has inter alia forced Nova to provide free calls within its own mobile telephone network in order to enable it to attract customers, in competition with Síminn. This policy has not been sustainable, and Nova has been run at a heavy loss in its first years of operation.

This illegal pricing policy of Síminn tended to protect the market-dominant position of the company and led to an imbalance in the pricing of phone calls in the retail market, depending on whether they were within the same mobile telephone network or between mobile telephone networks. The transparency in the retail price of mobile calls is very limited, since it is not fully clear to customers whether a call is being made within a network or between networks, as the price per minute of phone calls can be more than double compared to on-net prices. It is evident that during the period of violation, telecommunications companies abandoned plans to enter into the mobile telephone market and the number of competitors has shrunk through merger following protracted losses in competition with Síminn in the relevant market.

These violations of Síminn took place in the years 2001 to the end of 2007 and are deemed to be very serious. Síminn has violated the Competition Act before and therefore the Competition Authority deems it appropriate to impose a fine of ISK 390 million on the company. This is the highest fine that has been imposed on a company in this country due to an abuse of a market-dominant position.

False and misleading supply of information

This case was initiated with the complaint of Nova in 2008. After having called for information from Síminn in the case, the Competition Authority presented a Notice of Objection late in 2008 with the preliminary assessment that Síminn had priced on-net calls below average variable cost. Following the Notice of Objection, Síminn provided new cost information that was materially inconsistent with previously provided information. This altered the fundamentals of the case and called for a new investigation. This led to a new Notice of Objection by the Competition Authority in 2010. The false and misleading supply of information of Síminn has therefore delayed the processing of the case.

A strict obligation under the law is imposed on companies to provide the Competition Authority with adequate and truthful information, and the Authority takes it seriously if such an obligation is violated. The Competition Authority therefore deems it necessary in its decision to impose a fine of ISK 50 million on Síminn for a false and misleading supply of information.

Background information:

As noted earlier, this case is concerned with the termination of mobile phone calls that are initiated in the phone networks of the competitors of Síminn and are completed in the mobile phone network of Síminn. The underlying cost of mobile phone calls in mobile phone networks consists mainly of two cost elements, i.e. the cost incurred by origination of the phone call on the one hand and the cost incurred by the termination of the phone call, on the other. The cost related to origination of the phone call is incurred when the customer concerned dials a telephone number and until the message is received in the telephone exchange. At the telephone exchange, it is identified whether the call recipient is in the same mobile phone network as the caller (on-net calls) or in the mobile phone network of another mobile phone company. The cost of the termination of the phone call is incurred when the signal is transferred from the telephone exchange concerned and connected with the number being called, so that a telephone call is established. Síminn sells this termination to its competitors as a wholesale input, without which their customers would be unable to call the customers of Síminn. The retail market provides retail mobile phone services to individuals and companies.

It is well known that market-dominant telecommunications companies can abuse their position by applying a margin squeeze. Such companies, which have often enjoyed a state monopoly in telecommunications, are usually in a position where competitors in the retail market are compelled to gain access on a wholesale basis in order to compete with a market-dominant company in the retail market. In such circumstances, a market-dominant company has both an incentive and the potential to apply a margin squeeze on competitors and thus reduce competition.

This has been shown in the enforcement of competition law abroad. On March 29th of this year, the General Court of the EU confirmed the decision of the EU Commission to impose a fine of 151 million euros on the Spanish telecommunications company Telefónica due to a margin squeeze in the internet market in the years 2001-2006. On December 5th 2011, the Stockholm District Court, upon the demand of the Swedish competition authorities, imposed a fine of 144 million Swedish kronor on the telecommunications company TeliaSonera due to a margin squeeze in the years 2000-2003.

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