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11 December 2018

Bulgaria: Competition authority penalises A1 Bulgaria EAD for cancelling agreement

With Decision No. 1308 of 22 November 2018, the Commission for the Protection of Competition (the "CPC") fined A1 Bulgaria EAD ("A1") BGN 840,340 for cancelling a partnership agreement with its main commercial representative. The CPC decided that the cancellation was effectively a violation of Article 37a (1) of the Protection of Competition Act (the "PCA"), which prohibits abuse of dominant position when contracting.

The proceedings were opened at the request of Handy-Tel EOOD ("Handy"), which, by way of an agreement from 2005, has conducted its business mainly as an exclusive commercial representative of A1 by offering various telecommunication services on its behalf, as well as selling a wide range of mobile and computer devices. A1, formerly Mtel, is part of A1 Telecom Austria Group, a telecommunication supplier in Central and Eastern Europe with more than 24 million customers. A1 is one of three mobile operators in Bulgaria.

The facts

According to Handy's submissions to the CPC, during a scheduled meeting between the two companies on 22 February 2018 aimed at renewing their ongoing relationship and reviewing its terms, A1 unexpectedly notified Handy that it was cancelling their partnership agreement. A1 cited Handy's inability to meet its annual and monthly targets for 2017 and some other activities that A1 believes were performed in bad faith.

Handy denied A1's claims, maintaining that it had met its annual targets every year throughout the agreement and that A1's cancellation was incompatible with good faith commercial practices. According to Handy, the cancellation shows a complete disregard for its interests and has the potential to damage the interests of consumers. Handy claimed that it has consistently acted as a loyal and correct commercial representative of A1 throughout their partnership.

Is it an abuse of dominant position?

To conclude that there was a violation of Article 37a (1) of the CPC prohibiting the abuse of dominant position when contracting, several requirements should be fulfilled. Firstly, one of the entities in the relevant agreement should have more market power than the other. In its economic analysis, the CPC found that A1 unquestionably possesses significantly more market power on the telecom market compared to Handy. In fact, A1 is the market leader in Bulgaria for telecommunication services, with a 38 % market share.

Secondly, it should be proven that the specific commercial actions or omissions of the dominant entity could adversely affect or could have the possibility to adversely affect the interests of the weaker party and possibly the interests of consumers. The CPC found no factual evidence that Handy has been unable to meet its annual targets for 2017. It acknowledged that the A1 notification cancelling the ongoing 13-year relationship without warning coupled with unsubstantiated statements that Handy failed to meet annual targets constitute an abuse of dominant position when contracting. The CPC also held that the cancellation of the agreement effectively ends Handy's activity on the market, since it was an exclusive commercial representative of A1 and thus relied heavily on that partnership for a long time. A1 therefore violated the provision of the PCA prohibiting abuse of dominant position when contracting.

Is cancelling an agreement an anticompetitive practice?

The CPC ruled in favour of Handy, fining A1 2 % of its annual turnover for 2017 (BGN 840,340). However, the significance of this case rests on whether the CPC will now require dominant undertakings to cancel partnership agreements only when this is strictly justifiable under the rules.

Co-authored by Rosen Manchev.


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Further reading:

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