UK: SJ Berwin´s Community Week: A Weekly Summary Of Competition Law And Policy Developments

Last Updated: 29 June 2009
Article by SJ Berwin's EU & Competition Team

EU DEVELOPMENTS

Commission review: recast Merger Regulation has led to increased efficiency

The so called 'recast' EU Merger Regulation (Regulation 139/2004) ("Merger Regulation") came into force on 1 May 2004. One of the key objectives was to ensure that mergers are reviewed by the best placed authority. An improved system of pre and post-notification referrals was introduced to allow National Competition Authorities ("NCAs") and the European Commission ("Commission") to allocate and re-allocate cases between themselves as flexibly and as easily as possible. Five years on the European Commission has published a review of the Merger Regulations' effectiveness for the Council of Ministers, focusing on the jurisdictional thresholds and referral mechanisms.

The report indicates that many aspects of the Merger Regulation have led to increased efficiencies in EC Merger Control. In particular the 'two-thirds rule', which requires that a merger be assessed by the relevant NCA if more than two thirds of an undertakings' turnover is generated in that member state, has led to more undertakings filing merger referrals with the appropriate authority. Pre and post-notification referral mechanisms have also helped reduce potential parallel proceedings from an estimated 1,000 in 2004 to a mere 150 in 2008 (reducing the potential for inconsistent enforcement). The report also notes that over 40 cases have been re-allocated from the Commission to the member states since 2004.

There are however still instances in which mergers have not been dealt with by the best placed authority. In particular a number of mergers which have potential European cross border effects are still being handled by NCAs due to the application of the two-thirds rule. This has given rise to concerns that cross border issues may not be adequately dealt with and that non-competition policy considerations may be taken into account. The Commission considers that such cases would be better dealt with by it at a European level. On this basis the report acknowledges that there may be a need to review the efficacy of the two-thirds rule.

Also it was noted that in certain instances undertakings are notifying mergers to more than one member state, rather than utilising the referral system and making a single 'one-stop' notification to the Commission.

Although the report is extremely positive there is still considered to be room for improvement in certain areas. In particular the referral mechanisms have been deemed to be too lengthy and cumbersome (which may be turning parties away from using them). There is also considered to be a need to continue the convergence between national merger control rules and community rules in order to facilitate the review of complex merger filings. However both the Commission and practitioners appear to believe that the Merger Regulation has been a step in the right direction.

At this stage no proposals for reform have been put forward.

Electrical cables manufacturers appeal against dawn raids

On the 20 June 2009, details were published of appeals launched against the European Commission ("Commission) by two manufacturers of high-voltage under seas cables, Nexans France SAS and Nexans SAS ("Nexans"), Prysmian and Prysmian Cavi ("Prysmian"), in connection with dawn raids carried out at their premises.

The EC carried out unannounced inspections at the appellants' premises between 28 and 30 January 2009 in connection with an investigation into possible anti-competitive conduct in the electrical cable sector in breach of Article 81 of the EC Treaty. The parties are appealing both the decision ordering these inspections, and the way in which the inspections were conducted. Both appellants are asking the Court of First Instance to annul the Commission's decision ordering them to submit to the inspection. They are also challenging the Commission's actions with regards to the removal of DVD-ROMs and the copying of the whole of the hard drive of an employee's laptop which was taken away for inspection at the Commission's offices at a later date. Prysmian are arguing that, under Regulation 1/2003, no power exists which would allow the Commission to make and remove copies of complete electronic hard-disks and analyse the data contained at a separate location. They argue that the Commission's powers of inspection are specifically to be exercised at the premises of the undertaking.

In contesting the legality of the inspection the appellants have requested that the Commission return documents removed from their premises, in particular those which they argue have been obtained outside of the proper scope of the dawn raids, documents relating to projects outside the EEA and documents considered to be improperly seized from hard drives and DVD-ROMs. In addition, Nexans is arguing that the conduct of the dawn raid breached a number of its essential rights, including the right of defence, right to a fair legal process, privilege against self-incrimination and the presumption of innocence.

Prysmian has further accused the Commission of unduly prolonging the investigation by a month which they claim has created uncertainty as to the scope of the investigation and delayed the company from making a fully-informed assessment as to whether to apply for leniency.

This is one of a number of appeals that have been lodged against Commission dawn raids so far this year. The current appeal would however appear to be the first to directly challenge the Commission's powers to seize and remove from premises images of hard drives.

UK DEVELOPMENTS

Proposals for a competitive Digital Britain.

In a major statement of UK government policy, Lord Carter, ex-chief executive of Ofcom and now the Communications Minister, published the government's White Paper on Digital Britain (the "Report") on 16 June 2009.

Consultations for the Report began in October of last year with a remit to develop "an action plan to secure the UK's place at the forefront of innovation, investment and quality in the digital and communications industries." The final 238 page document details key recommendations for the modernisation of the UK's economy to compete in a global digital age, dealing with a range of policy issues, the most far reaching of which concern the telecommunications sector.

The centrepiece of the Report, as regards broadband, is a commitment to develop plans for a new digital Universal Service Commitment (the "USC"). The USC is to be effective by 2012 and seeks to ensure universal access to broadband technology for all in the UK - with competition for service provision as far as possible. The USC will be supported by public investment in high speed 'Next Generation Access' (NGA) networks. The government aims to deliver at least 90% coverage of NGA broadband for homes and businesses by 2017, at least two thirds of which is expected to be provided by the market, stimulated by market competition.

A range of technical changes are also expected to be introduced to make it easier and cheaper to build next-generation networks, including opening up infrastructure such as tunnels and ducts. Changes to the Communications Act 2003 will also amend Ofcom's remit to include encouraging investment (alongside the promotion of competition), which is hoped to assist in ensuring that regulation does not hinder the market's ability to develop next-generation networks.

The government also proposes to improve access to 3G mobile coverage. It plans to liberalise the allocation of the existing radio spectrum currently used for 2G networks, and to auction spectrum band that becomes available following the switch from analogue to digital - the so called "Digital Dividend". The government also proposes to extend existing 20 year 3G mobile operator licenses indefinitely to ensure the financial certainty necessary to encourage private investment.

Two main doubts have arisen since the publication of the Report. The first, inevitably, concerns funding. The government hopes to fund the UCS partly by diverting resources from under spend of the switchover from analogue to digital radio. It also hopes that a 50p monthly tax on all fixed copper lines (i.e. on households with a fixed-line telephone) from 2010 onwards will help fund its NGA commitments. But it is unclear how the government will deal with any future funding gaps. The second concerns the departure of Lord Carter in July and the impact of next year's general election on costly, long term policy plans.

Digital Britain sets out an ambitious roadmap of the UK's telecommunications future, however it remains to be seen to what extent these proposals become a reality.

Ofgem consults on amendment to proposed Energy Supply Probe proposals

On the 22 June, the Office of Gas and Electricity ("Ofgem") published for consultation an amendment to the package of remedies that it proposes to introduce to promote competition in the retail energy supply market. The proposed amendment replaces the prohibition on gas and electricity suppliers implementing automatic contract rollovers.

In February 2008 Ofgem deployed its general powers under the Enterprise Act 2002 to launch an investigation into the supply of gas and electricity for micro-business and household consumers (the "Energy Supply Probe"). The preliminary findings of the Energy Supply Probe revealed no evidence of cartel activity between energy supply companies. That said, Ofgem found that certain consumers had failed to engage with the market effectively. Accordingly, the final report on the Energy Supply Probe, published in April 2009, proposed a range of measures to further promote competition and consumer engagement. Key proposals included:

  • providing consumers with clear information on both the terms and conditions of their contract and their rights upon termination; and
  • prohibiting unfair practices in relation to the rolling over fixed term contracts.

Ofgem's remedies package was generally met with enthusiasm. Yet, the 'Big Six' suppliers, in addition to smaller non-domestic suppliers, expressed strong reservations in relation to the rollover prohibition. They argued that increasing uncertainty around customer demand would expose suppliers to increased costs associated with wholesale market risk, and make it more difficult for suppliers to obtain credit when purchasing energy. These added costs would ultimately be passed onto the consumer, affecting in particular those consumers who are not actively engaged in the market.

Ofgem took these criticisms into account by launching this month's consultation. Whilst the amended proposal still seeks to address the practice of automatically rolling over fixed term contracts, it no longer seeks to do so via a prohibition. Rather, suppliers would be obliged to give consumers at least 30 days notice to either transfer to an alternative contract or switch supplier before the contract is rolled-over. At the same time, consumers would also gain the right to give notice to of their intention to transfer to another contract at any time until the close of the regular notice period.

It is worth noting that Ofgem reserves the right to revisit the question of prohibiting the automatic rollover of contracts if its amended remedy fails to remedy the supplier's behavior. Comments on this proposal are to be submitted to Ofgem by 3 July 2009.

FRENCH DEVELOPMENTS

French Competition Authority clears the merger between Banque Populaire and Caisse d'Epargne

On 22 June 2009 the French Competition Authority (the "Authority") cleared the merger between two French banks, Banque Populaire and Caisse d'Epargne (the "Group"), albeit with commitments.

The Authority reviewed the potential anti-competitive effects of the merger in two separate sectors: banking services to individuals (retail banking); and banking services to companies (commercial banking).

Post-merger, the Group will be the second largest player on most relevant retail banking markets in France. However, the Authority noted that the market shares of the Group will not exceed 25% and thus considered that at national level the merger will not infringe competition law. The Authority also noted that at a local level competition will be maintained as the five competitors of the Group will remain present on the relevant local markets except in the French overseas territory La Réunion where 50% of the banking agencies will be owned by the Group.

In relation to the commercial banking sector, the Group will be the largest market player in some markets and the second largest player in others. However, as in the retail banking sector, the Authority believes that the merger will not infringe competition at national level since several competitors remain present on the market. The same is true of the situation at the local level, except in La Réunion where the Group will maintain a strong position through three networks (Banque de la Réunion, Caisse d'Epargne and BRED).

To remedy the anticompetitive effects in La Réunion, the Group made commitments to maintain the legal independence and the managerial autonomy of the three aforementioned networks for a period of five years. During this period, the Authority will regularly review the competitive situation of the Group to ensure that the commitments are sufficient to meet any concerns regarding a potential lessening of competition.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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