Turkey: The Board published its reasoned decision on the preliminary investigation conducted against Türk Telekomünikasyon A.Ş. and TTNET A.Ş.

Last Updated: 15 June 2017

The Board published its reasoned decision on the preliminary investigation conducted against Türk Telekomünikasyon A.Ş. and TTNET A.Ş. (09.02.2017, 17-06/53-20)

The Turkish Competition Board (“Board”) recently published its reasoned decision on the preliminary investigation conducted against Türk Telekomünikasyon A.Ş. (“Türk Telekom”) and TTNET A.Ş. (“TTNET”), based on Ankanet Ses Veri İletişim Ticaret Ltd. Şti.’s (“Ankanet”) allegations that TNNET has increased its subscribers’ effective subscription period to 48 months, by way of the campaigns it offers (especially through one campaign titled “Hafifleten Internet Kampanyası”) which gave rise to an increase in its competitor’s costs for gaining new subscribers and that the relevant campaigns constitute below cost prices.

Türk Telekom is an undertaking which offers fixed phone, mobile phone, data and internet related and value added services in Turkey. TTNET is established as the service provider of Türk Telekom Group and besides internet service provider (“ISP”) services, it is also authorized by the Information and Communication Technologies Authority (“ICTA”) within the fields of infrastructure operation services, cable TV services, fixes phone services, virtual mobile network services, satellite communication services and satellite platform services. In addition it is authorized by Radio and Television Supreme Council (“RTSC”) in the fields of cable broadcast platform operation and satellite broadcast platform operation. TTNET also provides pay TV services through OTT, IPTV and satellite technologies. Ankanet is an ISP which offers fixed broadband internet services in Ankara through fixed wireless broadband access infrastructure.

In its assessment, the Board firstly defined the relevant product markets related to wholesale and retail levels of the broadband internet services market. In this regard, by making reference to its decision dated 19.12.2013 and numbered 13-71/992-423, the Board indicated that even though the mobile internet speed and the related data consumption has increased by way of 4.5G, mobile network still cannot be considered substitutable with fixed broadband internet services and that the package characteristics of mobile and fixed broadband services are different from one another. In light of the above, the Board defined the retail level of the market as “retail fixed broadband internet access services market”, comprising DSL, cable and fiber technologies. Furthermore, by making reference to its decision dated 19.12.2013 and numbered 13-71/992-423 and its decision dated 05.02.2015 and numbered 15-06/74-31, the Board defined the relevant product market related to the wholesale level as “wholesale fixed broadband internet access services”. The Board defined the relevant geographical market as “Turkey”.

Subsequently, the Board evaluated the allegations in scope of the case file, and indicated that the relevant allegations should be assessed in scope of the paragraph (a) of the Article 6 (prohibiting abuse of dominance) of the Law No. 4054 on the Protection of Competition (“Law No. 4054”), which reads as follows: “Preventing, directly or indirectly, another undertaking from entering into the area of commercial activity, or actions aimed at complicating the activities of competitors in the market.” In this regard, the Board firstly assessed whether Türk Telekom and TTNET are in a dominant position in the “wholesale fixed broadband internet access services market” and “retail fixed broadband internet access services market”.

With regards to its assessment on the wholesale level, the Board made reference to its decision dated 19.12.2013 and numbered 13-71/992-423, where it was indicated that due to Türk Telekom’s significantly high level of market share and in addition to several factors such as (i) the investments made to the access networks are significantly high and constitute sunk investments, (ii) there are significant administrative and legal barriers before the network investments, (iii) the existence of high levels of economies of scope and scale, (iv) the lack of ISPs buyer power opposed to Türk Telekom and (v) Türk Telekom being deemed as the undertaking with efficient market power by ICTA; Türk Telekom was determined to be in a dominant position within the wholesale fixed broadband internet access services. The Board found that since the date of the decision indicated above, there has not been any development within the sector, which could alter the evaluations above. In this regard, the Board decided that Türk Telekom is in a dominant position within the “wholesale fixed broadband internet access services market”. With regards to the retail level, due to several factors such as (i) TTNET’s high market share that is disproportionate with its competitors, (ii) entry barriers within the market, (iii) low level of buyer power and (iv) the evaluations within the previous Board decisions dated 19.11.2008 and numbered 08-65/1055-411 and dated 19.12.2013 and numbered 13-71/992-423, the Board decided that TTNET is in a dominant position within the “retail fixed broadband internet access services market”.

Afterwards, the Board proceeded to its assessment regarding TTNET’s campaigns that comprise commitment periods. The Board firstly indicated that as ICTA did not declare that TTNET is an undertaking with efficient market power and TTNET’s campaigns similar to the campaign titled “Hafifleten Internet Kampanyası”, are not subject to ICTA’s regulative authorities; however, the content, commitment periods, and prices of the relevant campaigns are determined according the competitive conditions within the relevant market. In this respect, the Board indicated that even though TTNET’s competitors also offer similar kinds of campaigns with TTNET, as TTNET is in a dominant position within the “retail fixed broadband internet access services market”, it is entrusted with a set of obligations derived from its dominant position within the framework of competition law. The Board stated that, due to TTNET’s vertically integrated structure, it may have the opportunity to use the wholesale internet service it procures from the undertaking that it is vertically integrated within the upstream market, for the purpose of selling the relevant service in the downstream market below cost or subsidizing its damages in the downstream market from the upstream market (margin squeeze theory). In addition the Board evaluated that long commitment periods (such as the 48 month commitment period of TTNET’s campaign subject to the case file at hand) may give rise to competition law concerns by way of increasing the costs of the competitors for gaining new customers and therefore to market foreclosure. In this regard, the Board indicated that in line with the allegations subject to the case file, its dual assessment will consist of (i) TTNET increasing its campaign commitment period to 48 months and (ii) whether these campaigns give rise to below cost price applications in the retail internet services market.

With regards to the long commitment durations and exclusivity, the Board assessed the previous Commission decisions and the Guidelines on the Assessment of Abusive Conduct by Undertakings with Dominant Position (“Guidelines”) and came to the conclusion that the criteria indicated below are taken into consideration within both of the jurisdictions, for the purposes of the evaluation of long term exclusivity in terms of market foreclosure:

  1. The portion that is derived from exclusivity from the dominant undertakings’ sales amongst the total sales in the market.
  2. The duration of the exclusivity.
  3. The general outlook of the competition in the market; principally the entry barriers.
  4. The existence of efficiency justifications which contribute to the consumers’ welfare.

With regards to the analysis on whether TTNET’s campaigns in question gave rise to below cost price applications in the retail internet services market, the Board indicated that the relevant analysis can be evaluated in scope margin squeezing (that is a kind of below cost pricing), considering that TTNET, that is in a dominant position within the downstream market is in the same economic entity with Türk Telekom, that is in a dominant position within the upstream market. In this regard, the Board indicated that in its decisional practice and literature, the common competition law concern for evaluations related to long-term agreements with exclusivity and margin squeezing is whether a large portion of the market is foreclosed to the competitors due to the foreclosure effects on the customers. Therefore, in order to determine whether TTNET applied margin squeezing applications through the relevant campaigns, the Board conducted revenue-cost analysis for the campaign in question and assessed the effect of the relevant campaign on the relevant market.  As a result of the revenue-cost analysis, the Board found no evidence suggesting that TTNET applies below cost prices by way of its dominant position in the retail fixed broadband internet access services market or the advantage derived from the fact that it is within the same economic entity with Türk Telekom. The Board also found no evidence suggesting that it applies margin squeezing between the downstream and upstream markets that its competitors cannot match. As a result of its analysis on the effects of the relevant campaign towards the relevant market, the Board found that the number of subscribers that have switched to Hafifleten Internet Kampanyası and other proactive campaigns were limited during the period under review and the portion of the market that was closed to competition is not broad enough to give rise to competition law concerns. Therefore, the Board concluded that the commitment agreements do not lead to market foreclosure.

In light of the evaluations above, the Board did not initiate a full-fledged investigation.

This document is not intended to create an attorney-client relationship. You should not act or rely on any information in this document without first seeking legal advice. This material is intended for general information purposes only and does not constitute legal advice. If you have any specific questions on any legal matter, you should consult a professional legal services provider.

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