The Italian Competition Authority opens an Article 101 TFEU into a joint venture in the telecommunication sector

By a decision made on 1st February 2017 the Italian Competition Authority (ICA) has opened an Article 101 TFEU investigation into a joint venture agreement entered into by two major Italian telecommunication operators, Telecom Italia (TI) and Fastweb (FW) (Case I799, Reti in fibra ottico Telecom Italia-Fastweb). By this agreement, TI and FW agreed to set up a company, Flash Fiber (FF), to which entrust the task to develop and expand optical fiber networks, in accordance with the Fiber-to-the-home (FTTH) standard, in many Italian cities.
Some competitors of the parties, Wind Telecomunicazioni, Vodafone Italia and Enel, filed a number of complaints with the ICA voicing their concerns that the implementation of the joint venture agreement would result in a horizontal coordination between TI and FW in the retail and wholesale telecommunication markets. TI and FW, then, notified the contested joint venture agreement to the ICA and also provided it with further information.
The first legal issue dealt with by the ICA when it opened an enquiry against TI and FW was the qualification of the legal nature of the joint venture in order to establish by which set of rules, antitrust or merger control provisions, carry out the competition appraisal of the transaction. To start with, the ICA noted that TI and FW enjoyed a joint control over FF because FW had a veto power on the adoption by the FF corporate bodies of the resolutions concerning business plans and budgets. More importantly, the ICA ruled that FF was not a full-function joint venture, but rather a cooperative joint venture falling within the scope of application of antitrust provisions, more specifically Article 101 TFEU. The ICA grounded its findings on the statement of TI and FW that FF was not a fully operational joint venture but it had only an auxiliary role to their activities as well as on some terms of the joint venture agreement. Those terms prevented FF from make more than 20% of its turnover from sales to third parties and laid down that FF would subcontract the works for the expansion of the fibre optical network to the parties as it lacked the necessary means to autonomously carry out those activities.
The next stage for the ICA was to evaluate whether joint-venture agreement amounted to an anticompetitive agreement with the meaning of Article 101(1) TFEU. The ICA had concerns that that might be the case, bearing in mind that FW and TI were the two main vertically integrated telecommunication operators and the agreement might lead to a close coordination of the commercial policies of FW and TI regarding wide band and ultra wide band networks. The agreement may bring about a structural, exclusive and long-term cooperation between FW and TI in the market for the provision of wholesale access services. Indeed, through their FF joint venture, the parties might coordinate the investment decisions on fibre optical networks and jointly determine the conditions for access to these networks. They also committed to exclusively rely on the services provided by FF and to not conclude supply agreements with the FF’s competitors. Second, the agreement awarded to TI a 30-year Indefeasible Right of Use (IRU) over the FW’s fibre optical networks in 6 out the 29 cities covered by the agreement. TI, instead, committed to make available to FW its passive network in the same cities.
According to the preliminary findings of the ICA, the agreement may negatively affect competition in three ways. First, it may weaken the competition structure in market for fixed networks, stifling innovation concerning networks and services. Second, a coordination in the market for the provision of wholesale access services looked probable and possible. The parties might jointly agree on which conditions their competitors would be granted access to the network. FW and TI might have the capacity and the incentive to carry out foreclosing strategies targeting their rivals. Third, bearing the vertically integrated nature of the parties, the joint venture might make it easier for them to coordinate their commercial policies regarding the provision of services to final customers.

Considering that FF would have the task to make the facilities that the parent company would use in the provisions of their services in the downstream markets and that TI and FW mutually competed, the joint venture agreement appears likely to have anti-competitive spillover effects. As a defense, the parties may argue that the agreement would generate economic efficiencies within the meaning of Article 101 (3) TFEU. Indeed, the laudable objective of the FF joint agreement was to build a fibre optical network of new generation. It is upon the parties to establish that the expected efficiency from the FF joint venture would be of such magnitude to set off the resulting negative effects on competition, thereby qualifying for an Article 101 (3) TFEU exemption. Incidentally, in Optical Fibre ([1986] OJ L236/30) the European Commission granted an Article 101 (3) TFEU exemption to three joint ventures set up to develop, produce and sell optical fibres and optical cables after the parties agreed to amend the agreement so to ensure competition amongst them.

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