Belgian competition council: Happy Time offer Belgacom does not involve margin squeeze even when taking into account costs of…

On 29 November 2012, the Belgian competition council ("BCC") decided that the Happy Time offer of Belgacom, the incumbent Belgian telecom operator, did not amount to an abuse of a dominant position.

Tele2 (now known as KPN) filed a complaint with the BCC against Belgacom alleging that Belgacom abused its dominant position by performing a margin squeeze through its Happy Time offer for fixed telephony. It claimed that due to the prices it had to pay to Belgacom for the wholesale terminating and collecting services, it was unable to match the Happy Time offer.

The BCC held that Belgacom was dominant on both relevant wholesale markets (i.e. the wholesale markets for collecting and terminating services). The BCC confirmed that margin squeeze is a specific form of abuse of dominance which does not require that the wholesale or retail prices are as such abusive (respectively excessive or predatory prices). Instead, margin squeeze occurs when a vertically integrated undertaking with a dominant position in the market of an essential upstream input, places its prices on the wholesale and retail markets in such a way that the difference between the prices for the end users of that undertaking and the prices charged for the intermediary product to its competitors is negative or insufficient to cover the costs on the downstream market (see TeliaSonera (Case C-52/09) and Deutsche Telekom (Case C-280/08)).

The BCC clarified that two methodological questions should be answered to determine the applicable test to determine the existence of a margin squeeze.

First, the BCC confirmed that in principle the costs of the dominant undertaking (the “equally efficient operator” (EEO) test) should be used, and not the costs of the competitors (the “reasonable efficient operator” (REO) test). In 2005, however, CPS-operators (like Tele2) had to bear unavoidable additional upstream costs compared to the dominant undertaking (i.e. the fixed interconnection costs) in order to enter the market. Therefore, the BCC considered that in casu a REO test should be applied. This approach differs from the approach the European Court of Justice ("ECJ") applied in TeliaSonera and Deutsche Telekom. In those judgments, the ECJ considered that a margin squeeze test should be conducted on the basis of the EEO-test.

Second, the BCC confirmed that in principle one should analyse the margin squeeze in relation with all the products offered by the dominant undertaking on the relevant downstream market. However, in specific circumstances (i.e. when the newly launched offer due to its high popularity could lead to a total negative margin in the future) margin squeeze should be determined on a product level, thus in relation with a specific offer (i.e. the Happy Time offer). As the Happy Time offer became rapidly popular, the Competition Council decided to apply both tests.

Based on the answers on the methodological questions, the BCC performed four different margin squeeze tests and concluded that Belgacom did not perform any margin squeeze