Competition Authority finds the undertakings PT Group and ZON Group guilty of Abuse of a Dominant Position

I. The case

Following an investigation, the Competition Authority Council has ruled that there was an abuse of a dominant position by the undertakings Portugal Telecom SGPS SA (PT SGPS), PT Comunicações SA (PTC)In addition to its own responsibility in the present case, PTC is also held responsible for the behaviour of TELEPAC II – Comunicações Interactivas SA (TELEPAC II), later renamed PT.COM – Comunicações Interactivas SA (PT.COM), which, in turn, was incorporated into PTC on 10 March 2008., ZON – Multimédia, Serviços de Telecomunicações e Multimédia SGPS SA (ZON)Formerly PT – Multimédia, Serviços de Telecomunicações e Multimédia SGPS SA and ZON – TV CABO Portugal SA (TV CABO)Formerly CATVP – TV CABO Portugal SA in the wholesale and retail markets for broadband access. At the time of the facts, between 22 May 2002 and 30 June 2003, the defendant undertakings were part of the PT Group, which held a dominant position in the wholesale and retail markets for access to broadband. In the wholesale market, the PT Group was the sole supplier of services providing third parties with access to broadband. As a result, the wholesale supply of this Group's “PT ADSL Network” was inescapable for the provision of these and other electronic communication services by alternative operators to those of the PT Group. In the retail market for broadband access, the PT Group undertakings (TELEPAC II and TV CABO) held a market share of 70.7% in 2002 and 77.7% in 2003.

At the end of 2003, following various complaints to the Competition Authority by some of the PT Group's competitors (Clixgest Internet e Conteúdos SA; Novis Telecom SA; Onitelecom – Infocomunicações SA; and Media Capital Telecomunicações SA), an investigation was opened in which the defendants' abuse of a dominant position was considered proved. The existence of anti-competitive practices was demonstrated: they were reflected in artificial prices, discrimination, and the limitation of production, distribution, technical development, and investment. Throughout the case, the defendants were guaranteed the right of defence. They also lodged four interlocutory appeals against procedural decisions by the Competition Authority Council.

II. Abuse of a Dominant Position

The artificial and unfair fixing of prices, the systematic application of discriminatory conditions for equivalent services, and the limitation of production, distribution, technical development and investment by undertakings in a dominant position are prohibited and punished under national and EU competition legislationThis actual case resulted in the breach of Article 6 (1) and (2) and Article 4 (1) a), c) and e), applicable by force of Article 6 (3) a), of Law No. 18/2003 of 11 June (Competition Act), and also the breach of Article 82 a), b) and c) of the Treaty establishing the European Community (EC Treaty).. In this actual case, abuse of a dominant position was implemented in the definition and application of wholesale “PT ADSL Network” tariffs (versions 11 to 15.9) and “SAPO ADSL.PT – Standard”, “Netcabo Speed On 640”, “Netcabo Speed Use RC” and “Netcabo Speed On 128” tariffs, in the period between 22 May 2002 and 30 June 2003. By means of these tariffs, the defendants artificially and unfairly fixed prices for retail and wholesale broadband access services, artificially pushing the wholesale price up (in comparison to the retail price) and the retail price down (in comparison to the wholesale price). In this way, they prevented alternative operators – despite their manifesting the same efficiency as the PT Group's retail undertaking – from making a profit (a practice usually termed “margin squeezing”). Similarly, by means of the discount system incorporated into the “PT ADSL Network” wholesale tariff list (versions 11 to 15.9), the defendant PTC systematically applied unequal conditions for equivalent services, thus engaging in positive discrimination, in favour of another PT Group undertaking, TELEPAC II, and against competitors. The defendants' behaviour finally resulted in limitations on production, distribution, technical development and investment with regard to the services in question, to the detriment of competition and the consumer.

This behaviour by the defendants had exclusionary effects on the markets for broadband access, where the undertakings competing with the PT Group saw that they were prevented from competing on an equal footing, thus incurring losses and, in certain cases, seeing themselves forced to withdraw from the market.

As a consequence, the market share of PT Group's competitors was reduced from 36% (before the period of the practices)Average for the twelve months preceding the end of the first half year of 2002, on a quarterly basis. to 19% (during the period of the practices)Average for the twelve months preceding the end of the first half-year of 2003, on a quarterly basis. The PT Group benefited from a 193% rate of growth in the number of new broadband clients during the period of abusive behaviour. Following this behaviour, the undertaking Media Capital Telecomunicações SA abandoned the market for the supply of services for broadband Internet access and the undertaking Clixgest Internet e Conteúdos SA suspended its services for new customers. It was also demonstrated in the case that, with their abusive behaviour, the PT Group undertakings restricted competition in a group of markets related to broadband access. In particular, they damaged implementation of the unbundled supply of the local loop (at the end of the period of abusive behaviour, Portugal was the EU15 country with the second lowest percentage of unbundled local loops) and delayed broadband development (time and speed of access) in this country.

III. Penalties applied

The abuse of a dominant position is punished with a fine of up to 10% of the offending undertakings' turnover, in the last yearUnder Article 43 of the Competition Act. In the present case, involving an offence under administrative law, the value corresponding to 10% of the defendants' turnover corresponds to around EUR 265 million.. In determining the extent of the fine, the Competition Authority considered the criteria laid down by law and, also, took the fact into account that the defendants ceased to apply the wholesale tariff list following the ruling by the sectoral regulator, delivered on 25 June 2003, and, later, ceased to apply the retail tariff lists in question. As an aggravating circumstance, the Competition Authority considered the fact that intra-Community trade was liable to be affected.

With all examined and considered, the Competition Authority Council has sentenced the defendants belonging to the PT Group to a fine of EUR 45.016.000 and the defendants belonging to the ZON Group to a fine of EUR 8.046.000, which amounts to a total of EUR 53.062.000.

As an additional penalty, since the seriousness of the practice justifies itUnder Article 45 of the Competition Act, it has also been stipulated that the defendants have an extract of the ruling published in the II Series of the Diário da República (Government Gazette) and a national newspaper, within 20 days of the judgement becoming final.

IV. Consultation procedures

The Competition Authority consulted the European Commission and ICP-ANACOM (Communications Regulator) before making the ruling.

 

V. Appeals

Appeals against a Competition Authority ruling are heard by the Lisbon Commercial CourtUnder Article 50 (1) of the Competition Act.

VI. Additional information

For more detailed information on this topic, please consult:

Questions & AnswersPT and ZON Ruling/Broadband access, annexed and available at www.concorrencia.pt. For information on earlier cases of abuse of a dominant position in the electronic communications sector, please consult the following documents, available at the Competition Authority's web site:

a) Press Release No. 13/2007
b) Press Release No. 15/2008

(Nº: 16/2009)