European Commission Hits Telecoms With Fines Of 70 Million Euros For Abusing Slovak Broadband Market

A View from Constantine Cannon’s London Office

By Yulia Tosheva and James Ashe-Taylor

The European Commission has signalled that it is not dialing down its scrutiny of the telecommunications sector by imposing fines totalling 70 million euros on Slovak Telekom and its parent company, Deutsche Telekom.

On October 15, 2014, the Commission imposed a fine of 38,838,000 euros on Slovak Telekom and Deutsche Telekom for pursuing an abusive strategy designed to exclude competitors from the Slovak market for broadband services for more than five years. Deutsche Telekom was held to be jointly and severally liable for the amount of the fine as it had exercised decisive influence over Slovak Telekom during the period of the infringements.

Deutsche Telekom also received an additional fine of 31,070,000 euros for its recidivist behaviour, based on its record of having been fined by the Commission in 2003 for a margin squeeze in the German broadband market.

Slovak Telekom is the owner of the only nation-wide telephone metallic access network, and the only supplier of wholesale access to its unbundled local loops (“ULL”), in the Slovak Republic. In 2005, the Slovak telecommunications regulator decided that because Slovak Telekom was a dominant company, it should grant alternative operators remunerated access to its network to allow for effective competition on the downstream markets. Building a new, additional local loop network is very costly and new market entrants will normally not have the resources to make such a large investment.

After an in-depth investigation, the Commission found that Slovak Telekom withheld from alternative operators network information necessary for the unbundling of the local loops. Slovak Telekom reserved for itself potential xDSL customers, and prescribed other unfair terms and conditions regarding qualification, forecasting, repairs and bank guarantees. This delayed or prevented the entry of alternative operators into the Slovak broadband market.

Furthermore, Slovak Telekom imposed a margin squeeze on alternative operators by setting the prices for access to its local loops and its retail prices at levels which made it infeasible for alternative operators to provide retail broadband services similar to those offered by Slovak Telekom without incurring a loss. Under such conditions, alternative operators could not viably enter the Slovak broadband market.

Deutsche Telekom has announced that it would appeal the decision and strongly criticised the Commission’s approach. It argued that the access to telecommunications infrastructure is a matter falling within the jurisdiction of the Slovak telecommunications regulator and the Commission has no legal power to intervene. Deutsche Telekom also criticised the Commission for a number of irregularities in the proceedings and the length of the investigation, which resulted in a decision of more than 500 pages.

Deutsche Telekom suggested that the Commission’s decision was “politically motivated” and the result of “outmoded regulatory concepts.” It also maintained that “it is regrettable that Commissioner Almunia has, from the very beginning, rejected Slovak Telekom’s proposals on settling the proceedings.”

The Commission has been closely watching the telecommunications sector over the past several years. In 2011, the Commission imposed a fine of 127 million euros on Telekomunikacja Polska, the Polish telecommunications operator, for refusing to grant alternative operators access to its wholesale products for more than four years. In 2007, the Commission found that Telefónica imposed unfair prices in the form of a margin squeeze in the Spanish broadband market. And, as mentioned above, in 2003 the Commission fined Deutsche Telekom for a margin squeeze in Germany.

– Edited by Gary J. Malone