Commission, June 22, 2011, No 39525

1. INTRODUCTION

(1) On 22 June 2011, the Commission adopted a Decision relating to a proceeding under Article 102 of the Treaty on the Functioning of the European Union addressed to Telekomunikacja Polska S.A. ('TP'), a telecommunications company belonging to the Telekomunikacja Polska Group. In accordance with the provisions of Article 30 of Council Regulation (EC) No 1/2003 (1), the Commission herewith publishes the name of the party concerned and the main content of the Decision, including any penalties imposed, having regard to the legitimate interest of undertakings in the protection of their business secrets.

2. CASE DESCRIPTION

2.1. Procedure

(2) On 17 April 2009, the Commission decided to initiate proceedings in the present case within the meaning of Article 2(1) of Council Regulation (EC) No 773/2004 and Article 11(6) of Council Regulation (EC) No 1/2003. During the investigation, DG Competition sent several requests for information pursuant to Article 18 of Regulation (EC) No 1/2003 to TP, to alternative operators ('AOs'), which either purchased or were interested in purchasing TP's wholesale broadband Internet access products and to the Polish regulator competent for telecommunications (Office of Electronic Communications - UKE).

(3) On 26 February 2010, the Commission adopted a statement of objections ('SO'). In the SO, the Commission took the preliminary view that TP held a dominant position in the relevant markets and had abused its dominant position by refusing to supply AOs with its wholesale broadband Internet access products, thereby inhibiting the development of competition on the retail broadband market in Poland. TP submitted its reply to the SO ('SO reply') on 2 June 2010.

(4) In accordance with Article 27(1) of Regulation (EC) No 1/2003, TP requested to be heard on the matters to which the Commission had taken objection. An oral hearing took place on 10 September 2010.

(5) On 28 January 2011, the Commission sent to TP a letter drawing TP's attention to a number of specific items of evidence relating to the Commission's existing objections, which the Commission indicated it might use in a potential final decision ('letter of facts'). On 7 March 2011, TP submitted its written reply to the letter of 28 January 2011 ('reply to the letter of facts').

(6) Access to file was granted to TP on 9 March 2010, following the SO. In addition, TP received access to all new documents in the case file on 28 January 2011, together with the letter of facts.

(7) The Advisory Committee on restrictive practices and dominant positions issued favourable opinions on 10 June 2011 and 20 June 2011.

2.2. The relevant markets

(8) On the basis of the analysis of demand and supply substitutability and competitive constraints the Commission has identified three relevant product markets:

- the market for wholesale broadband access ('the BSA market'),

- the market for wholesale (physical) network infrastructure access (including shared or fully unbundled access) at a fixed location ('the wholesale market for LLU'), and

- the retail mass market, which is the downstream market of standard broadband products offered at a fixed location by telecommunications operators to their own end-users, whether provided through DSL, cable modem, LAN/WLAN and other technologies such as FTTx, CDMA, WiMAX, FWA and satellite. The relevant retail market excludes mobile broadband services. TP did not contest the Commission's definition of the relevant products markets.

(9) The relevant geographic market covers the entire territory of Poland.

2.3. Dominance

(10) TP is the only wholesale supplier of LLU and BSA in Poland. Therefore TP has a market share of 100 % in the wholesale markets.

(11) In the period covered by the present Decision, TP also held high market shares in the retail market. In revenue terms, TP's market shares were within the range of 57 % to 46 %. In terms of number of lines, TP's market shares were within the range of 58 % to 40 %. In addition, the presence on the market of PTK (TP's subsidiary) adds to and strengthens the position of TP's Group in the retail market.

(12) Furthermore, there are significant barriers to entry and expansion in the relevant markets. They arise from the fact that duplicating TP's network is not economically viable. Other barriers include investment and sunk costs, limited product and price differentiation, and the absence of countervailing buying power. The high barriers to entry and expansion are consistent with the market structure observed, where all of TP's competitors are left with a small market share, which in the case of Netia - the biggest DSL competitor of TP - is up to 9 % (in terms of number of lines).

2.4. Summary of the infringement

(13) The Decision finds that TP has been abusing its dominant position in the Polish broadband access markets by refusing to give access to its network and supply BSA and LLU wholesale products. The infringement started on 3 August 2005, when the first access negotiations began, and continued at least until 22 October 2009, when, after the opening of proceedings by the Commission, an agreement between TP and UKE was signed and the market situation improved significantly.

(14) TP developed a strategy to limit competition on the markets at all stages of the process of accessing its wholesale products. Various internal documents of TP indicate the existence of such a strategy.

(15) TP's practices had a cumulative effect on the AOs, which encountered impediments at each stage of accessing TP's wholesale products. The evidence gathered illustrates that TP was:

- proposing unreasonable conditions governing AOs' access to the wholesale broadband products,

- delaying the negotiation process,

- limiting access to its network,

- limiting access to subscriber lines,

- refusing to provide reliable and accurate general information ('GI') indispensable for AOs.

2.4.1. Unreasonable conditions

(16) TP's standard contracts, which served as a basis for BSA and LLU negotiations, contained provisions which were disadvantageous to AOs and which did not even meet the minimum standards set in relevant reference offers ('ROs') imposed by UKE. Despite a number of revised drafts of TP's standard contracts, TP's subsequent proposals still did not meet the minimum requirements of the ROs. The fact that AOs had very limited bargaining power vis-à-vis TP aggravated their situation. AOs were either forced to accept TP's proposal or abandon the negotiations. As a result, UKE had to intervene on a regular basis imposing decisions on TP which removed the unfavourable contractual clauses.

2.4.2. Delaying tactics at the different stages of the negotiation process

(17) TP used various delaying tactics throughout the access negotiation process, which in 70 % of the cases resulted in very lengthy negotiations. Such delays include at least the following elements:

- delaying the start of the negotiations by sending draft contracts with significant delays,

- further delays at the stage of negotiating contractual clauses,

- TP's representatives lacked power to commit the incumbent, and

- delaying the signing of the contracts.

(18) In addition to the problems the AOs were facing at the different stages of the access negotiations, TP did not reply to the AOs' proposals in the negotiations but rather tried to impose its own conditions. The Decision demonstrates that there was limited room for negotiations. In a number of cases, AOs had either to accept TP's proposals, refer the case to UKE or abandon the idea of providing retail broadband services.

2.4.3. Limited access to TP's network

(19) TP also created impediments to the AOs at the stage of accessing TP's network for BSA and LLU. In particular, TP rejected a high number of AOs' orders on formal and technical grounds. Rejections were mainly caused by two factors: (i) unnecessary formal requirements imposed by TP for completing the orders; and (ii) unjustified rejections combined with a lack of alternative solutions at least until 2007.

(20) Furthermore, TP proposed exaggerated costs estimates for LLU collocation, which often resulted in a very high percentage of locations not being accessed by AOs despite the positive outcome of the technical verification. Moreover, TP delayed the implementation of orders and executed certain collocation works with delays.

(21) The Decision shows that TP applied better conditions to its subsidiary PTK and cooperated closely with PTK.

2.4.4. Limited access to subscriber lines

(22) TP also hindered AO's access to subscribers, in particular due to the high number of rejections of AOs' orders on formal and technical grounds. Only PTK, TP's subsidiary, enjoyed a lower rejection rate. Rejections were caused by two factors: (i) the use of outdated TP data to verify AOs' orders; and (ii) a faulty verification mechanism on TP's side.

(23) Furthermore, AOs faced the problem of limited availability of subscriber lines linked to the failure to provide BSA services on wholesale line rental lines and delays in the repair of faulty lines. In practice, TP prevented AOs from upgrading their narrowband clients to broadband, thus limiting the AOs' ability to expand and grow on the retail broadband market.

(24) Finally, TP significantly delayed the implementation of AOs' orders for subscriber lines. Such delays were mainly caused by a lack of resources dedicated to regulated services on TP's side, lack of experience, lack of a clear interpretation of how the process should be implemented, an unclear division of competences between TP's internal units, and an insufficient IT support. The delays in the implementation of orders occurred until the end of 2007 in the case of BSA orders and until the first quarter of 2008 in the case of LLU.

2.4.5. Refusal to provide reliable and accurate general information (GI) indispensable for AOs

(25) TP did not provide reliable GI to AOs which was necessary for them to make a sound decision regarding access to TP's wholesale broadband products at specific locations, or provided inaccurate information. AOs were faced with the following impediments on TP's side:

- GI provided by TP was often incorrect and incomplete,

- TP provided the data in a format (such as paper or scanned pdf.) which was difficult to process, and

- TP failed to provide an IT interface enabling AOs' efficient access to BSA and LLU-related information and the processing of orders.

(26) Such impediments on TP's side are part of the incumbent's strategy to block AOs' access to information. The incompleteness and unreliability of the GI provided by TP resulted in increased costs for AOs and the inability to implement their business plans.

(27) Additionally, the Decision shows that TP provided PTK with supplementary channels of information as well as with additional information which was not made available to other AOs. In this way, the process of obtaining the GI was quicker and cheaper for PTK and led for example to a reduced number of rejections of orders. This also indicates that TP could have improved the quality of GI and the information channels but that it refused to use such a possibility vis-à-vis AOs other than its subsidiary, PTK.

2.5. Likely impact on competition and consumers

(28) The decision Demonstrates that TP's abusive conduct in the wholesale market was capable of restricting competition in the retail market. There is empirical evidence that TP's refusal to supply was likely to reduce the rate of entry and expansion of competitors on the retail market for DSL services and that TP remains the largest DSL supplier on the retail market. The low number of unbundled local loops is a revealing indicator of the likely effect of TP's refusal to supply access to its wholesale products, delaying the growth of competition and thereby the development of alternative infrastructures.

(29) The Decision also demonstrates that TP's refusal to supply was likely to have a detrimental impact for end-users, which is reflected in low broadband penetration, high broadband prices and low average broadband connection speeds. In January 2010, broadband penetration in Poland was only 13,5 %, one of the lowest results in Europe and significantly below the EU average of 24,88 %.

2.6. Lack of objective justifications and efficiencies

(30) TP denied the existence of the abuse. It admitted certain difficulties in providing access to its wholesale broadband products, in particular in 2006 and 2007, but argued that they could be explained by the technical efforts which TP had to undergo in a very short time to adjust to the new regulatory environment. TP argued that it had to manage simultaneously several projects on various wholesale services and had difficulties in developing proper IT systems and in finding human resources to perform certain projects.

(31) The Decision explains why TP's arguments are not acceptable. The case file includes solid evidence of TP's exclusionary conduct. Contemporaneous internal documents of TP confirm that TP's strategy was designed to impede the access of AOs to TP's network. The incumbent had a lot of time to prepare its internal resources and IT systems for upcoming access obligations (imposed in 2005 for LLU and 2006 for BSA). TP has been aware of these obligations at least since 2003, when Polish telecommunication law identified TP as a SMP (significant market power) operator. The signature of the agreement with UKE in October 2009 and the improvement in the treatment of AOs that followed prove that TP could have applied effective access conditions earlier.

2.7. Fine calculation

(32) The fine was calculated on the basis of the average value of sales made by TP in the years between 2005 and 2009 to which the infringement directly or indirectly relates. In this case, the Commission considered that both the value of wholesale and retail sales of Internet products in Poland are directly related to the infringement.

(33) The Commission took into consideration the gravity and duration of the infringement. The Commission had regard to the fact that, inter alia, refusal to supply had already been condemned by the Commission and the European courts, the affected markets are of considerable economic importance, the alternative operators are dependent on TP's infrastructure and that TP was aware of the illegality of its behaviour. No mitigating or aggravating circumstances were identified in this case.

3. OPERATIONAL PART OF THE DECISION

(34) The Decision establishes that TP has committed a single and continuous infringement of Article 102 of the Treaty on the Functioning of the European Union from 3 August 2005 until at least 22 October 2009 by refusing to give access to its wholesale broadband products.

(35) A fine of EUR 127 554 194 has been imposed on TP for the infringement.

(36) TP is ordered to immediately bring to an end the infringement in so far as it has not already done so. TP must refrain from repeating any act or conduct having the same or equivalent object or effect.

FOOTNOTES :

(1) OJ L 1, 4.1.2003, p. 1.