At its meeting on 9 June, the Competition Council dealt with a complaint from Tal S.æ. regarding the GSM service of Landssími Íslands hf. (decision No. 17/1999) The Competition Council's decision involves, on the one hand, a special opinion being addressed to the Minister of Transport, and on the other, binding instructions being issued to Landssíminn.
- When the Postal and Telecommunications Administration was privatised on 1 January 1997, becoming Póstur og sími hf., the company was granted state aid amounting to at least 10 billion krónur.The state aid consisted of the undervaluation of the company's assets and the failure to value and capitalise its goodwill. In addition, the company's pension liabilities were reduced by 1.5 billion krónur.
- As a result of this state aid, Landssími Íslands now enjoys an illegal competitive advantage in the telecommunications market. Based on this state support, Landssíminn is in a position to lower the price of its services, without there being any sound commercial justification. As a result of this state aid, Landssíminn's competitors have been discriminated against and their competitive position seriously distorted.
- This state aid is contrary to the objectives of competition law and also contravenes the provisions of the Act on the establishment of a limited company for the operation of the Postal and Telecommunications Administration. Furthermore, the Competition Council considers that the state aid contravenes the provisions of the EEA Agreement.
- The Competition Council recommends that the Minister for Transport instructs an assessment of Landssíminn's fixed assets, liabilities and goodwill to be carried out as soon as possible. Upon its completion, the state aid to Landssíminn will be withdrawn.
- The Competition Council recommends to the Minister of Transport that he intervene to establish a separate subsidiary for Landssíminn's GSM service.
- From 1994, when Póstur og sími began offering GSM service, until 1 April 1997, the price of this service remained virtually unchanged. During this time, Póstur og sími had a monopoly on the market. On 1 April 1997, it was announced that Tal would begin operating in the mobile phone service market. Since that time, Landssíminn has reduced the price of its GSM service by 27-50%, and charges for special services have also been abolished.
- Part of Landsímans' price reductions is a volume discount that the company provides to large consumers. No operational justification has been provided for these discounts. However, minutes from meetings at Landsíminn indicate that the company's objective with them was to retain valuable customers and prevent Tal from winning their business.
- Taking into account the unique, dominant position of Landsíminn in the telecommunications market and the company's head start, including due to decades of a monopoly position, the Competition Council considers that the company's volume discount constitutes an abuse of a dominant market position, which goes against the purpose of the Competition Act and against the objectives of the Althingi for effective competition in the telecommunications market.
- The Competition Council therefore directs Landssíminn to abolish volume discounts on GSM services.
- Tal is both a competitor of Landsíminn in the GSM market and a customer of the company for general telecommunications services, due to Landsíminn's monopoly position in the general telephone service, leased lines, etc. Therefore, Landsíminn must maintain clear managerial separation within the company. Nevertheless, various committees have been established within Landssíminn, with representatives from all areas of the company, both from those that compete with Tal and those that sell services to Tal. The Competition Council considers this arrangement to create conditions likely to distort competition, in particular as confidential information from Tal could be passed on to managers of Landsímans' GSM division. The competition council's decision directs Landsíminn to abolish the aforementioned arrangement.
- Finally, the instructions direct Landsíminn to provide the Competition Authority annually with a statement from a certified auditor demonstrating that its GSM service is in fact financially separated from the company's other activities.
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