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Single network and antitrust law: a difficult marriage
By Avv. Francesca Sutti and Dr. Alessandra Staropoli
September 25, 2020
The creation of a single, ultra-fast broadband network intended to cover the entire national territory seems, at first glance, like a project capable of bringing great benefits to consumers. After all, coverage of less accessible areas, the so-called white areas, is not very attractive to potential private investors due to the low profitability of the investment. Concentrating the infrastructure in the hands of a single entity would also allow for the creation of economies of scale and thus efficiencies. The picture therefore seems to be that of a pro-competitive operation.
It is therefore learned that Telecom is completing the process of spinning off infrastructure-related activities in view of a merger with the current sole competitor, Open Fiber, and the creation of a new company to be called AccessCo. According to the press, the governance of the new company is designed so that, from an antitrust perspective, it will be jointly controlled by Telecom and Cassa Depositi e Prestiti. The latter currently holds 50% of Open Fiber, but aims to acquire the majority. Cassa in fact has a right of first refusal in the event of the sale of the other 50%, currently held by Enel, for which the Macquarie fund has made a binding offer.
Technically, we are dealing with a concentration operation. Art. 2 para. 2 of European Regulation 139/90 (but also Art. 6 of the Italian Antitrust Law, 287/90) prohibits concentrations that significantly impede effective competition in the common market or a substantial part of it, particularly due to the creation or strengthening of a dominant position. In this case, it would even result in the creation of a true monopoly.
It appears that the operation has already been notified to AGCOM and the Government under the new Golden Power regulations, while before the Commission we are in the pre-notification phase.
If the Italian Government has declared itself in favor, according to Bloomberg rumors, the Commission is inclined to prohibit the operation. European Commissioner Margrethe Vestager has indeed emphasized the need to ensure the independence of the wholesaler.
The Commission's concern is not so much related to the creation of a monopoly in the infrastructure market, but rather to the fact that one of the controlling entities of the wholesaler, Telecom, is also active in the downstream services market. Telecom would therefore be the only vertically integrated operator. There is thus a risk that AccessCo could engage in abusive margin squeeze practices with other telephone operators, that is, applying more favorable conditions to its own controlling entity.
However, even if Telecom were to act virtuously and apply fair and non-discriminatory conditions to all operators, the fact remains that Tim would enjoy a privileged position compared to its competitors. Not to mention the risk that, not having to take competitors into account, Telecom might have little incentive to pursue innovation objectives.
It should be noted that Telecom has invited other telephone operators to join the project and Fastweb, for example, has accepted. However, it does not appear that this operator will be able to exert decisive influence over the management of AccessCo. In other words, it will not have control powers. Incidentally, Mediaset and RAI are also reportedly interested in participating in the project as investors, but the line adopted by AccessCo's potential partners seems to be to limit access to telephone operators only.
A project destined to die, then? Not necessarily. Given that the Commission can impose remedies to ensure the maintenance of a competitive structure, European regulations provide that the parties may propose commitments aimed at eliminating the Commission's doubts regarding the legality of the notified operation. It can be assumed that the commitments to be requested by the Commission will be behavioral rather than structural in nature. Telecom might perhaps be required to reduce its shareholding and to renounce the right to appoint certain members of the Board of Directors, as was the case for the acquisition of Actelion by Johnson & Johnson (there was also an obligation to grant a license).
The proposal for commitments should then pass the so-called market test. The draft commitments would be published so that any interested party can submit their comments. At the same time, the Commission would on its own initiative contact competitors, customers, and suppliers to "test," precisely, whether the commitments offered are able to offset the creation of a monopoly. In this phase, the contribution of other telephone operators to the assessment of the adequacy of the commitments will certainly be decisive.
It is also said that AGCOM will launch a public consultation. In this case too, the observations of Tim's competitors will carry some weight.
The public consultation is also the tool used by the Commission to address the issue of financing Telecom as State Aid. This regulation, as is known, states that the State cannot support a single or a selection of companies with public money. However, in launching the consultation on State Aid and broadband, the Commission's aim is precisely to assess whether the current State Aid rules should be reviewed in light of recent technological development and market developments.
It should also be remembered that the emergency situation in which we find ourselves has meant that the criteria for assessing the legality of State Aid have been loosened to facilitate the recapitalization of companies.
In any case, the contribution of other operators will be (or at least should be) decisive.
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