Net & the City: Key takeaways for dominant companies and holders of essential facilities stemming from a recent fine imposed by the Romanian Competition Council

19 February 2020 | romania newsletters

A recent fine imposed by the Romanian Competition Council (the "RCC") set off the alarm bells for companies holding essential facilities (and enjoying a dominant position on the market) and local authorities interested or involved in developing infrastructure projects. Abuse cases are nothing new on the RCC's radar, as dominant companies holding infrastructures in mobile communications, gas distribution or essential port, railway and airport transport have been investigated and fined in the past.

Netcity

At the end of December 2019, the RCC decided to fine Netcity Telecom ("Netcity") for abuse of dominant position. Netcity currently owns the underground optical fibre infrastructure in Bucharest, as a result of the Municipality's plan to have the surface pillar-based optical fibre networks shifted to a fully underground network.

The RCC found that the Bucharest Municipality also breached competition rules, as it should have been actively involved in regulating access to Netcity's infrastructure. By failing to do so it facilitated Netcity's abuse of dominance.

When can these projects attract scrutiny from the competition authority?

Competition rules applicable to dominant companies are very strict and the RCC takes a firm approach to abuse cases. Unlike companies active on a competitive market, dominant companies are obliged to carefully plan their business models to make sure they do not distort the markets where they operate.

Companies holding essential facilities, consisting of technical solutions for communication infrastructures such as Netcity, electricity/gas networks or railway infrastructures, have an obligation to ensure transparent, non-discriminatory and reasonable (cost-based) access to their infrastructure. This requirement is vital to avoid potential discrimination or, in some cases, exploitation of the end users. The goal of these rules is to protect consumers and ensure sufficient options and fair prices.

If the business model of a company holding essential facilities causes unreasonable or discriminatory access it will likely attract scrutiny from the RCC, as it might ultimately be a case of abuse.

The abuse may translate into price-related issues, for instance applying discounts or prices which discriminate between large and small customers. Similarly, dominant companies that impose quantities or minimum duration periods may fall afoul of the RCC, as they may ultimately abuse customers' dependency and force them to acquire services they do not need.

The abuse scenario

In a first step towards a potential abuse scenario, as part of its continued monitoring of key sectors, the RCC may conduct sector inquiries focused on holders of essential facilities. Based on these inquiries, the authority may establish that there are no viable alternatives on the market other than the holder of the essential facility.

On the other hand, at the complaint of any interested party, the RCC may directly initiate an investigation targeting a potential abuse scenario.

Getting back to the case of Netcity, the RCC ultimately reached the conclusion that the company abused its dominant position by:

  • imposing prices based on occupancy (i.e. on the effectively rented physical space);
  • forcing customers to rent minimum lengths of support-infrastructure (i.e. imposing minimum quantities) even when the beneficiaries did not need them;
  • imposing additional services, irrespective of the beneficiaries' real option;
  • imposing a minimum rental period;
  • restricting the beneficiaries' right to install electronic communication cables (e.g. coaxial) other than optical fibres.

Key takeaways

First and foremost, companies holding essential facilities should be aware of their market position and what this means from a competition law perspective. To the extent the risk of holding a dominant position is real, such companies need to frequently assess their day-to-day practice and business models.

The competition compliance toolkit for dominant companies includes measures such as recurrent assessments (both legal and economic) of existing contracts and their real-life implementation (to avoid, in practical terms, applying discriminatory treatment to clients without an underlying objective reason to do so), setting up clear, transparent and objective criteria in business dealings, and dedicated trainings for employees on how to conduct themselves in their day-to-day activities.

Compliance should be the preferred route, especially when weighed against the risks and exposure triggered by a competition investigation, not limited to the turnover-based fine that the RCC ultimately may apply. Additional risks include the costs generated by the need to swiftly change the company's business model, reputational damages caused by such investigations and, not least, private damages claims. Such claims gradually have become more frequent after the transposition of Directive 2014/104/EU of the European Parliament and of the Council on certain rules governing actions for damages under national law for infringements of the competition law provisions of the Member States and of the European Union.

There is also one key takeaway for local authorities: they must become more aware of their role and play an active role in regulating access to essential facilities based on clear and transparent criteria (such as the cost-based model).