Turkey: Competition Quarterly Spring 2017

Last Updated: 2 June 2017
Article by Dr. Eren Gunay

Recent Investigations

Investigation Against Mercedes Benz

Turkish Competition Authority ("TCA") has concluded its preliminary inquiry launched against Mercedes-Benz Turk AS and determined that their findings yielded "sufficient" and "serious" evidence that merited a formal investigation.

The preliminary inquiry was initiated based on a third party complaint that claimed that Mercedes-Benz Turk AS abused its dominant position in the market for trucks to distort competition in the markets for standalone and truck-mounted concrete pumps, through agreements with manufacturer of concrete pumps, as well as discount plans offered for those manufacturers.

The investigation will attempt to determine whether the company has violated Article 6 of Act No. 4054 on the Protection of Competition, which prohibits abuses of dominant position in the market. Within the context of TCA's previous rulings, this decision hints at a more fine-grained definition of markets and may signal future regulatory stances.

Significant Investments in Turkey

Mercedes-Benz Turk AS has been producing trucks in Aksaray Turkey since 1986 and has been investing in production capacity, commencing exports in 2001 which currently account for a third of its output.

In the domestic market, it has been the market leader for the past 15 years in the medium (6-16 ton) and heavy (16 ton and above) truck markets, ending the years 2015 and 2016 with 50.6% and 41.3% market share, respectively. Mercedes-Benz Turk is 67% owned by Daimler AG.

Investigation Against Google

In response to Ankara District Administrative Court ruling, TCA revisited the complaint previously filed by Google's main competitor in Turkey, Yandex, and decided to launch an investigation into Google's practices and exclusive agreements in Turkey. Yandex's previous complaint alleged that Google (which includes the economic entity comprised of Google Inc, Google International LLC and Google Reklamcılık ve Pazarlama Ltd. Şti.) violated Articles 4 and 6 of Act No. 4054 with its restrictive practices in the mobile operation systems and mobile applications and services markets and the exclusive agreements concluded with original equipment manufacturers.

In the previous preliminary inquiry into the aforementioned complaint, Google's activities in Turkey were examined and the Board ruled that a further investigation was not necessary given that consumers are not prevented from downloading other applications of choice from application stores.

Yandex then filed a lawsuit and upon the appeal of the lawsuit rejecting Yandex's claims concerning the Board decision, Regional ( Ankara District) Administrative Court issued its decision dated 9 September 2016, suspending the execution Board's decision not to investigate Google's practices further.

After discussing the information and documents included in the file, the Board issued the decision launching an investigation against Google under Article 41 of Law No. 4054, in order to further investigate as to whether Articles 4 and 6 of Act No. 4054 were violated and Google engaged in anticompetitive agreements and concerted practices between undertakings or abused of dominant position (if any).

Investigation Against Two Electricity Distribution Companies

TCA has determined that in their concluded preliminary investigation, their findings yielded "sufficient" and "serious" evidence meriting a formal investigation against electricity transmission companies ADM Elektrik Dağıtım A.Ş. and GDZ Elektrik Dağıtım A.Ş. and the affliated, but legally independent electricity suppliers Aydem Elektrik Perakende Satış A.Ş. and Gediz Elektrik Perakende Satış A.Ş.

The preliminary inquiry was launched based on third party complaints allegating obstruction of the operation of electricity suppliers through various conduct and behavior, preventing the exercise of customers' right to choose their supplier. The companies named in the complaint are the incumbent players following the privatization of electricity production, transmission and supply markets, operating in the western Aegean region of Turkey. Beyond their high populations, economic activities in these provinces also represent significant shares of tourism and industrial output in Turkey.

A Bit of Hindsight

TCA had previously launched a preliminar y investigation against these companies in 2014, but had determined that a formal investigation was not warranted based on evidence gathered. Complaints against the companies included providing incomplete lists of "free consumers" to competitors, claiming long-term contracts to be mandatory to consumers and signing ineligible consumers as "free consumers" based on premises of meeting consumption targets in the future and employees of the transmission company conveying marketing messages on behalf of the supply company or casting doubt on reliability of competing suppliers.

TTNET Investigation

In its January 19 meeting, the Competition Board decided that the preliminary investigation launched against Türk Telekomünikasyon A.Ş. ("TT") and TTNET A.Ş. yielded "sufficient" and "serious" evidence and launched a full scope investigation to establish whether the company had violated Article 6 of Act No. 4054, prohibiting abuses of dominant position. The preliminary investigation was initiated in response to third party complaints that the two companies operating as a single economic entity abused their dominant position through bundling of fixed broadband and subscription television services.

As former state-owned monopoly, TT owns and operates 71% of backbone and 89% of local loop infrastructure. As of 2016 Q4, TT has 63.6% share of the f ix ed- broadband market by number of subscribers. In the subscription television services market, TT has acquired approximately a quarter share of the market by number of subscribers since its reentry into the market in 2010 with an IPTV offering. During the privatization of TT, its cable television services and satellite operations were left in public ownership, operating as Türksat.

Revisiting Exemption

TTNET A.Ş. had in 2014 sought an exemption from TCA regarding the bundling of its subscription TV services with broadband access and voice services. In its February 2015 decision, the board had recognized that TTNET was attempting to leverage its market share in the broadband access market to gain a strong entry into the subscription TV services market, but argued that TTNET was already discriminated against by Türk Telekom's wholesale pricing schedule for access to infrastructure and that the proposed price points for the bundles would not price squeeze an efficient competitor out of the market. TCA pointed out that the decision hinged on whether the bundles would be loss leaders, but recognized that it had to decide at an ex-ante stage where proof would not be available. Ultimately, the board unanimously decided to grant the exemption, conditional on ex-post analysis demonstrating that the bundles cover their costs.

Luxottica Turkey Fined

Turkish Competition Board concluded the investigation on as to whether Luxottica Gözlük Endüstri ve Ticaret A.Ş. (Luxottica Turkey) violated Article 6 of Law No. 4054 by its sales policies and other practices.

The investigation was initiated on 1 September 2015. In the Competition Board meeting of 23 February 2017, it was decided that Luxottica Turkey has a dominant position in the sun glasses whole-sale market. Upon review and evaluation of all evidences, information, documents, expert reports, written responses of the parties and conclusion of oral hearings, the Competition Board, by majority vote of its members, ruled that Luxottica Turkey abused its dominant position by way of hindering the activities of its competitors in the relevant market thus violated Article 6 of the Act no 4054. Consequently, the Board, based on Luxottica Turkey's 2015 revenues, imposed an administrative fine, in the amount of try 1.67 million equivalent to 0.75 per cent of its 2015 revenues per Article 16 of the same Act.

The company has the right to appeal the fine before Ankara District Administrative Courts within 60 days following the service of the Board decision.

Market Leader Across the Board

Luxottica Group is the global market leader in the design, production and distribution of fashion, luxury and sport sunglasses. The group, in its portfolio of sunglasses, owns Ray-Ban, Oakley, Vogue Eyewear, Persol, Oliver Peoples and Alain Mikli brands and the licensed products of Giorgio Armani, Burberry, Bulgari, Chanel and many more.

Luxottica also owns every major retail outlet that sells eyewear chains LensCrafters, Pearl Vision and Sunglasses Hut, which do not operate in Turkey.

Diageo's Turkey Unit Mey Icki Fined

The investigation to find out whether Mey İçki San. ve Tic. A.Ş. violated Articles 4 and 6 of Law No. 4054 by means of preventing the sale of competing products through creating pressure on points of sale, practicing exclusivity in favor of its own products and hindering its competitors' activities in the raki market was concluded.

The investigation was initiated as a result of the preliminary inquiry conducted upon a complaint. As a result of the discussion of the contents of the file by the Competition Board on 12 June 2014, it was decided that Mey İçki San. ve Tic. A.Ş. held dominant position the raki market and violated Article 6 of Law No. 4054 by means of abusing its dominant position through activities which had as their object or effect complicating its competitors' activities in the raki market.

Moreover, considering the facts that Mey İçki San. ve Tic. A.Ş. was dominant and its activities that constitute a violation were the result of unilateral conduct by the said undertaking, it was concluded that it was not necessary to impose administrative fines within the scope of article 4.

Troubles Are Not Over Yet

In 2011, Diageo acquired Mey Icki, Turkey's foremost producer of raki, the milky aniseed spirit which many Turks consider their national drink, for USD 2.1 billion. Two years after the deal, Turkey's government enforced a law forbidding advertisements and restricting sales of alcohol. In June 2014, the Competition Board also imposed a fine of USD 14.9 million for breaching competition rules.

Booking.com Fined, then Banned

The Competition Board has announced the conclusion of its formal investigation on whether Booking.com B.V. and its Turkish representative Bookingdotcom Destek Hizmetleri Limited Şirketi were in violation of Articles 4 and 6 of Law No. 4054 with 2.5 million TL (around USD 675.000) fine imposed on Booking.comB.V. by majority vote.

Price and allocation conditions in agreements entered into by Booking.com and the company's best price guarantee were found to be in violation of Article 4. entered into by Booking.com and the company's best price guarantee were found to be in violation of Article 4. Booking.com could not benefit from the Block Exemption Communiqué on Vertical Agreements (Communiqué No: 2002/2), due to its market share above the threshold set therein. TCA also decided that the company could not be granted exemption based on Article 5 of Law No. 4054, which allows exemption for new economic or technical improvements or developments which benefit consumers while not eliminating competition in a significant part of the market and not limiting competition beyond what is necessary.

In a further development, on March 29, the Association of Turkish Travel Agencies (TÜRSAB) obtained from the Istanbul Fifth Commercial Court of First Instance an injunction against Booking.com B.V., suspending reservations in Turkey for customers located in Turkey. The court will deliberate whether the company requires a license to resume its operations in Turkey. TÜRSAB intends to proceed with actions against similar service providers, naming Trivago and Tripadvisor as future targets.

However, this injunction was met with protest from hoteliers, whose association, TÜROB, in turn filed to lift the injunction. Following foreign relations crises, especially with Russia, hoteliers have increasingly counted on domestic travelers. Platforms like Booking.com are understood to be important sources of reservations for smaller establishments.

Compliance a Puzzle to be Solved

In the past few years, local presence of international web companies have been under the spotlight, with debates on how they should be taxed or where their servers and data storage should physically be located. Compliance with local rules and regulations is becoming a more important challenge as local governments and stakeholders recognize the missed tax opportunities and disruptive influence, respectively, caused by the entry of web services providers into the local market.

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