Fines totalling 390 million krónur have been imposed on Síminn for abusing its dominant market position in the mobile phone market.
The Competition Authority has been investigating a complaint from Nova regarding Télís pricing in the mobile phone market. In its decision, which is published today, the authority concludes that Síminn has abused its dominant market position and thereby breached Article 11 of the Competition Act and Article 54 of the EEA Agreement by applying competitively restrictive price pressure to its competitors.
Price pressure essentially consists of a dominant firm controlling the margin between the wholesale and retail levels, amongst other things in order to make it more difficult for new competitors to gain a foothold in the retail market. In such a case, the company concerned is dominant at the wholesale level and also operates in a related retail market. The company sells an essential product/service (which in this case is call termination in Síminn's mobile network) wholesale to other companies that use it in their operations in the retail market. There, the companies compete with the retail arm of the dominant firm, in this case Síminn. The infringement can consist of setting an unreasonably high price for the wholesale input, which makes it unprofitable for competitors to operate in the retail market or reduces their profits, thereby preventing them from competing effectively in the retail market for the benefit of the public.
The company had a monopoly on telecommunications in years gone by and, partly as a result, has retained the vast majority of mobile phone customers. The company's competitors cannot operate in the mobile phone market unless their customers can call the company's customers. For this to be possible, for example, Nova must pay Síminn for the termination of calls that start in Nova's network but end in Síminn's network. The termination fee is therefore part of the wholesale price of the call, while the retail price is the price that Nova charges its customers. For the vast majority of the infringement period, this wholesale price charged by Síman to its competitors was higher than Síman's retail price for calls between its own customers on its mobile network (on-net calls). This meant that if the retail division of Síma had had to pay the wholesale division the same wholesale price as its competitors, it would have lost money on every call.
It is therefore clear that Siman's competitors could not price calls on Siman's mobile network in a comparable way to Siman's internal network calls without incurring a loss, as the vast majority of users were customers of Siman. This has, among other things, led to the fact that New has been forced to offer free on-net calls on its mobile network in order to attract customers in competition with Síminn. This strategy has not been sustainable, as Nova has operated at a significant loss during its first years of operation.
This unlawful pricing policy by Síminn was designed to protect the company's dominant market position and had the effect of creating a pricing imbalance for calls on the retail market, depending on whether they were made within the same mobile network or between different mobile networks. Transparency in the retail pricing of calls is very limited, as consumers are not fully aware whether they are calling on-net or between mobile networks, where the per-minute price for calls can be more than double that for on-net calls. It is clear that during the breach period, telecommunications companies have both abandoned plans to start operating in the mobile market, and the number of competitors has also decreased through mergers following their sustained loss-making operations in competition with Síminn in the relevant market.
The aforementioned breaches by Síminn took place between 2001 and the end of 2007 and are considered very serious. Síminn has previously breached competition law, and the Competition Authority considers it appropriate to impose a fine of 390 million krónur on the company. This is the highest fine ever imposed on a company in Iceland for abusing a dominant market position.
This case began with a submission from Nova in 2008. After requesting information from Síminn in the matter, the Competition Authority issued a statement of objections to Síminn later in 2008, concluding that Síminn had undercut its own internal calls. Following the issuance of the statement of objections, however, Síminn submitted new cost information which was in significant conflict with the information that had previously been presented. This changed the basis of the case and called for a new investigation. This led to the Competition Authority sending a new statement of objections to Síminn in 2010. Síminn's incorrect and misleading information has therefore delayed the proceedings.
Companies are under a legal obligation to provide the Competition Authority with complete and truthful information, and the Authority takes any breach of this obligation seriously. For this reason, the Competition Authority deems it necessary in its decision to impose a 50 million króna fine on Síminn for providing incorrect and misleading information.
As previously stated, this matter concerns the termination of calls that originate in the telephone networks of competitors to Síminn but end in Síminn's mobile network. The underlying cost of GSM calls in mobile networks consists essentially of two cost components, namely the cost incurred at the start of a call on the one hand, and the cost incurred at the end of a call on the other. The cost of call setup is incurred from when the user dials the telephone number until that message is received by the switch. In the relevant switch, it is determined whether the recipient of the call is on the same mobile network as the caller (intra-network calls) or on a mobile network belonging to another mobile operator. The cost of terminating the call is incurred when the signal is passed from the relevant exchange and connected to the called number, thereby establishing a call. Síminn sells this termination to its competitors, but without it their customers cannot call Síminn's customers. The retail market is the retail of mobile phone services to individuals and businesses.
It is well known that dominant telecommunications companies can abuse their position through margin squeeze. Such companies, which often enjoyed a state monopoly on telecommunications, invariably possess an infrastructure that competitors in the retail market must necessarily have wholesale access to in order to be able to compete with the dominant company in the retail market. In such circumstances, the dominant firm has both the incentive and the ability to apply price pressure on its competitors, thereby reducing competition.
This has been demonstrated in the application of competition law abroad. On 29 March, the EU General Court upheld the European Commission's decision to impose a €151 million fine on the Spanish telecommunications company Telefónica for price-pressuring on the internet market between 2001 and 2006. On 5 December 2011, the Stockholm District Court, at the request of the Swedish competition authorities, imposed a fine of 144 million Swedish kronor on the telecommunications company TeliaSonera for price-pressuring between 2000 and 2003.
Decision of the Competition Authority (127 pages) No. 7/2012.
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