Skipti Undertakes to Implement Substantial Changes in the Organisation of Siminn and Mila

3/26/2013

The Competition Authority and Skipti have entered into an overall settlement of the cases which the Authority has been investigating. Under the settlement, extensive changes will be made in the organisation and conduct of the Skipti group for the purpose of promoting competition. It also ensures that the competitors of Siminn will have equal access as Siminn itself to the basic telecommunication network of Skipti. This goes beyond what such a separation of a former monopoly in telecommunications generally involves in neighbouring countries. Skipti also agrees to pay ISK 300 m in administrative fines.

The Competition Authority has been processing various complaints by Siminn's competitors in which it has been maintained that Siminn has violated the Competition Act's ban on abuse of a market-dominant position. In addition rulings and judgments have been issued in recent years where it has been concluded that companies within the Siminn group have violated the provisions of the Competition Act.

The provisions of the Competition Act authorise the Competition Authority to wind up cases with a settlement with undertakings under investigation. Competitive improvements can in this manner be made earlier than otherwise. In September 2012, Siminn sent a request to the Competition Authority requesting discussions about  whether it would be possible to wind up the cases that had been under investigation by the Competition Authority with an overall settlement. The outcome of these discussions was a settlement which was signed on 8 March 2013. In the preparation of the settlement, the Competition Authority co-operated closely with The Post and Telecom Administration in Iceland (Póst og Fjarskiptastofnun, or PFS). The substance of this settlement is reflected in the decision of the Competition Authority which is published today.

The settlement builds on the lessons drawn from the cases which were being investigated as well as older cases and the competitive effects of the Skipti group's position in the telecommunications market. Under the settlement, substantial changes will be made in the group's organisation and thereby in the Icelandic telecommunications market.In this connection, it should be borne in mind that the predecessors of Skipti (Landssími Íslands/Póst- og símamálastofnun (Post- and telecommunications Administration)) had a monopoly position in telecommunications markets over a span of several decades and constructed an extensive and robust telecommunications network during that period. Competition in the telecommunications sector was fully authorised in the year 1998, and Síminn as a whole was privatised in the year 2005, i.e. the basic infrastructure was not separated from the undertaking.

Therefore, Skipti is the owner of a countrywide basic telecommunications network, which has provided the group with a substantial head start.In order to be able to compete in the telecommunications market, the competitors need access, in varying degrees, to the basic telecommunications network. For this reason, the competitors of Skipti cannot avoid being customers of Skipti group. This arrangement has created an on-going risk of serious competition restrictions and conflicts of interest, e.g. a risk that Siminn's retail sales would enjoy better terms, services or quality in terms of access to the basic telecommunications network than would the competitors. This also created the risk of abuse of confidential information and that Siminn's retail sales would enjoy a head start in terms of necessary information connected to the basic network. The Competition Authority considers that Skipti's actions in older cases which were contrary to the Competition Act can be traced, one way or another, to this organisation of the group both earlier as well as currently.

With the settlement, a clear and decisive separation is made, on the one hand, between the group's basic networks and services for a telecommunications company which is connected to these basic networks and, on the other hand, Siminn's retail operations. According to the settlement, Skipti and its subsidiaries are bound by detailed conditions which ensure this and thereby serve to prevent the utilisation of Skipti's position as the owner of the basic telecommunications network to create an abnormal competitive head start. Thus, the settlement is an attempt to ensure that Siminn and its competitors sit at the same table when it comes to access to basic telecommunications networks and the purchase of telecommunications services from the group at the wholesale stage.

The decision by the Competition Authority explains that in some of the countries of Europe (e.g. the United Kingdom and Sweden), measures have been taken to change the organisation of telecommunications companies which previously enjoyed a monopoly. The objective of these measures has been to promote competition, e.g. by ensuring equal access to basic networks. In the case of Skipti, it is necessary to go farther than in the neighbouring countries in respect of such separation.  The reason for this is not least the lesson which must be drawn from older cases where violations of the Competition Act have been committed.

The essence of the instructions which Skipti has undertaken to observe under the settlement may be summarised as follows:

• The settlement is meant to ensure full equality between buyers of all wholesale products (basic telecommunications services) sold by Mila. This implies that Siminn's competitors shall have the same access to those telecommunications facilities and services on the same terms, conditions and quality as enjoyed by Siminn itself at all times. The same applies to equality in the provision of all information.
• In order to ensure the above, Mila's independence is stipulated and the settlement involves a substantial separation of Mila from Siminn and other companies within the Skipti group. For this purpose, the following, among other things, is stipulated:
• • Mila's independence is ensured, among other things, through clear instructions concerning the company's business policy and field of operations. For example, Siminn and Mila may not utilise the same legal services.
  • Important telecommunications systems and tasks that were transferred from Mila to Siminn in 2012 will be transferred back to Mila. In addition, important telecommunications systems will be transferred from Siminn to Mila. Mila's operations will be increased considerably in this respect. This will promote competition at the retail level on the basis of equality and thereby enhance it.
• Despite the aforementioned changes, Siminn's wholesale division will sell specified services to the company's competitors, e.g. wholesale Internet services and call termination on mobile phone networks. Measures are stipulated in order to ensure the independence of Siminn's wholesale division in this respect and to ensure that Siminn's competitors will sit at the same table as Siminn itself in transactions with Siminn's wholesale division. This applies to pricing, quality and equality in all provision of information.
• The settlement contains provisions that are intended to ensure that in contracts and other actions engaged in by Skipti, no measures will be taken that are conducive to disrupting competition.  In this connection it is stipulated, among other things, that all existing business contracts will be reviewed and that all competitively restrictive provisions, if found therein, will be cancelled immediately.
• Skipti undertakes to introduce and maintain an extensive plan of action on the basis of the Competition Act. The plan would principally serve to ensure, through active measures and education, that the employees of Skipti will observe this settlement and other obligations that follow from the Competition Act.
• In order to ensure that the settlement will achieve its objective, on-going supervision will be carried out farther than has been the rule regarding competitive issues in this country. Skipti will establish a special supervisory committee which will operate within the group. It will consist of two independent members and one representative of Skipti. Its ability to operate independently will be guaranteed, and the committee is entrusted with diverse tasks in order to ensure implementation of the settlement. The appointment of the independent members of the committee is subject to the approval by the Competition Authority and PFS. If this committee becomes aware of a violation of the settlement by Skipti, it shall notify the Competition Authority, and violations of the settlement are subject to sanctions.
• In order to enhance the settlement's preventive effect and promote competition, Skipti and Siminn agree to pay an administrative fine of ISK 300 million.
• It is a part of the settlement that disputes regarding recent decisions of the Competition Appeals Committee will not be pursued further. This implies that Skipti will withdraw court cases and not commence court cases on account of, among other things, decisions of the Competition Appeals Committee in Cases Nos. 10/2011 and 1/2012. In those cases, the conclusion of the Competition Authority regarding Siminn's abuse of dominant market position was confirmed.

The assessment of the Competition Authority is that the settlement will serve to promote a considerably healthier competitive environment and enhance competition substantially, with resulting benefits for consumers and the countries' industries.  Efficient, effective and dependable telecommunications are of great importance to the community.

In the settlement, Skipti does not admit to any violations of the Competition Act. However, the Competition Authority considers that Siminn has abused its dominant market position. Therefore, it is necessary that Skipti pay a fine and take the aforementioned measures to enhance competition and work to prevent further violations. Since Skipti is prepared to do so, however, it is not necessary to take a final position in respect of the scope of Siminn's violations or their substance in other respects. The settlement provisions of the Competition Act authorise the Competition Authority to make a certain assessment of interests in this respect. The assessment of the Competition Authority which, among other things, is based on discussions with PFS and companies in the telecommunications market, is that most important for the competition in this case is to bring about the basic changes in the organisation of the telecommunications market which are envisaged by the settlement with Skipti.

Background information:

Skipti is the parent company of Siminn and Mila. The operations of Siminn consist mainly of offering telecommunications services which are sold at retail to households and companies.Mila handles the operation and development of the group's basic telecommunications network.

This figure sheds light on the instructions included in the settlement:

Parties to cases that are closed with the settlement are, in addition to Siminn, Nova, Vodafone, Tal, Hringidan and other companies that are members of Inter, an association of companies providing Internet services.Before substantive settlement discussions commenced, the Competition Authority held discussions with these parties to ensure that the settlement would bring about as much benefit as possible. After a draft of a final settlement had been prepared, its contents were presented to these companies and they were given an opportunity to comment on the draft. With this settlement, the processing of all seven cases comes to an end.

In the settlement, as stated before, lessons are drawn from older cases. In order to clarify the context, these recent cases may be pointed out:

• Unlawful price pressure by Siminn, cf. the ruling of the Competition Appeals Committee No. 1/2012. In that case, an ISK 390 million fine for Siminn's abuse of a dominant market position in the mobile phone market was confirmed.  Further information about the case can be found at http://www.samkeppni.is/utgafa/frettir/nr/2011. The settlement implies that the decision of the Competition Appeals Committee will represent a closure of this case.
• The adjudication of 6 December 2012 by the Supreme Court of Iceland which confirmed that Siminn had violated the decision of the Competition Authority and increased the fine imposed from ISK 30 million to ISK 50 million. For further details, see http://www.samkeppni.is/utgafa/frettir/nr/2069.
• Predatory pricing by Siminn, cf. the ruling of the Competition Appeals Committee No. 11/2011. In the case, a fine of ISK 60 million was confirmed for Siminn's abuse of a dominant market position in 3G data transmission services. Further information about that case can be accessed at http://www.samkeppni.is/utgafa/frettir/nr/1912. The settlement implies that the decision of the Competition Appeals Committee will represent a final closure of the case.