Skipti commit to making significant changes to the structure of Síminn and Míla

The Competition Authority and the Exchange have made comprehensive agreement on the conclusion of the matters that the supervisory authority has been investigating. The settlement provides for extensive changes to the structure and conduct of the Skipta Group with the aim of strengthening competition. The settlement also ensures that Telenor's competitors are on an equal footing with Telenor itself regarding access to Skipta's basic telecommunications networks. This goes further in separating a former telecommunications monopoly than is customary in neighbouring countries. Skipti also agrees to pay a government fine of 300 million króna.

The Competition Authority has been handling various complaints from competitors of Síminn, in which it has been alleged that Síminn has breached the competition law prohibition on the abuse of a dominant position. Furthermore, in recent years, rulings and judgments have been issued concluding that companies within the Skipta Group have breached provisions of the Competition Act.

Provisions of competition law allow the Competition Authority to conclude cases with a settlement with companies under investigation. This way, remedies for competition concerns can be implemented sooner than would otherwise be the case. In September 2012, Síminn submitted a request to the Competition Authority, asking for talks on whether it would be possible to conclude the cases then before the Authority with a global settlement. The negotiations led to a settlement, which was signed on 8 March 2013. In preparing the settlement, the Competition Authority had close cooperation with the Post and Telecommunications Authority (PFS). The terms of this settlement are set out in the Competition Authority's decision, which is published today.

Í the settlement Lessons are drawn from the cases under investigation, past cases, and the competitive effects of the Telecoms Group's position in the telecommunications market. The settlement entails significant changes to the structure of the Group, and thereby to the Icelandic telecommunications market. In this context, it should be borne in mind that fThe telecommunications operators of Skipta (Landssími Íslands/Póst- og símamálastofnun) had a monopoly on telecommunications operations for decades and, under the protection of that position, built a widespread and powerful telecommunications network. Competition in telecommunications was fully liberalised in 1998 and Landssíminn was privatised in one go in 2005, i.e. the basic network was not separated from the company.

Therefore, exchanges are owner of a nationwide basic telecommunications network, which has given the Group a significant advantage. In order to compete in the telecommunications market, competitors need access, to a greater or lesser extent, to the basic telecommunications network. As a result, competitors of Skipti are inevitably customers of the Group. This arrangement has created a persistent risk of serious anti-competitive effects and conflicts of interest, including the risk that Síminn's retail arm benefits from better terms, service or quality regarding access to the core network than its competitors. This also created a risk of misuse of confidential information and that Síminn's retail arm would gain an advantage regarding essential information related to the core network. The Competition Authority considers that the actions of Skipta in older cases that have contravened competition law have, in one way or another, many of their roots in the aforementioned structure of the group, both past and present.

The settlement establishes, for the first time, a clear and definitive separation between, on the one hand, the Group's core networks and the services provided to telecommunications operators in connection with these core networks, and on the other hand, Síminn's retail business. Under the settlement, Skipti and its subsidiaries are bound by detailed conditions that ensure this and thus prevent Skipti's position in basic telecommunications from being used to create an unfair competitive advantage for the company. The settlement therefore seeks to ensure that Síminn and its competitors are on an equal footing with regard to access to basic telecommunications networks and the purchase of telecommunications services from the group at a wholesale level.

The Competition Authority's decision notes that in various European countries (e.g. the UK and Sweden), measures have been taken to change the structure of telecommunications companies that previously enjoyed a monopoly. The aim of these measures has been to promote competition, inter alia by ensuring equal access to basic networks. In the case of Skipta, it is necessary to go further in such separation than in neighbouring countries. The reason for this is not least the lesson to be learnt from past cases where competition law has been breached.

The core of the instructions which the Parties have committed to comply with under the Agreement can be summarised as follows:

• The settlement is intended to ensure full equality for buyers of all wholesale products (basic telecommunications services) sold by Míla. This entails that Síminn's competitors shall be granted the same access to the telecommunications networks and services on the same terms, conditions and quality as Síminn itself enjoys at any given time. The same applies to equality in all information provision.
• To ensure the foregoing, the independence of Míla is provided for, and the agreement entails a substantial separation of Míla from Síman and other companies within the Skiptasamstæðan group. To this end, the following, among other things, is provided for:
• • Míla's independence is, among other things, guaranteed by clear directives on the company's commercial policy and scope of operations, an independent chairman of the board, managerial independence, separate premises, confidentiality obligations, and a ban on the co-use of existing services. For example, Síminn and Míla are not permitted to use the same legal services.
  • Important telecommunications systems and projects transferred from Míla to Síminn in 2012 will be transferred back to Míla. In addition, important telecommunications systems will be transferred from Síminn to Míla. Míla's operations will be significantly strengthened in this respect. This will contribute to retail competition taking place on a level playing field, thereby strengthening it.
• Despite the aforementioned changes, Síminn's wholesale division will sell certain services to the company's competitors, e.g. wholesale internet services and call termination in the mobile network. Provisions are made to ensure the independence of Síminn's wholesale arm in this regard and to ensure that Síminn's competitors are on an equal footing with Síminn itself in its dealings with the wholesale arm. This applies to pricing, quality and equality in all information provision.
• The settlement includes provisions intended to ensure that in contracts and other activities, Skipta does not take measures that are likely to distort competition. In this regard, it is stipulated, amongst other things, that all existing commercial agreements will be reviewed and any anti-competitive provisions, if found, will be nullified without delay.
• Skipti commit to implementing and maintaining a comprehensive competition compliance programme. This essentially involves ensuring, through active measures and training, that Skipti's employees comply with this agreement and other obligations arising from competition law.
• To ensure the settlement achieves its objective, a greater degree of ongoing monitoring is being implemented than has previously been customary in competition law matters in this country. Skipti will establish a special supervisory committee which will operate within the group. It will be composed of two independent members and one representative from Skipti. It will be ensured that it can operate independently, and the committee is tasked with a variety of duties to ensure the implementation of the settlement. The appointment of the independent members is subject to the approval of the Competition Authority and the PFS. Should the Committee become aware that Skipti has breached the settlement, it shall report this to the Competition Authority, and any breach of the settlement will be subject to penalties.
• In order to strengthen the deterrent effect and promote increased competition, Skipti and Síminn agree to pay an administrative fine of 300 million krónur.
• The settlement involves the withdrawal of disputes concerning recent rulings of the Competition Appeals Tribunal. This entails that Skipti will drop legal proceedings and will not initiate legal proceedings concerning, among other things, rulings by the Competition Appeals Board in cases no. 10/2011 and 1/2012. In those cases, the Competition Authority's finding on Síminn's abuse of its dominant market position was upheld.

According to the Competition Authority eThe settlement is designed to foster a much healthier competitive environment and significantly boost competition for the benefit of consumers and business. Affordable, efficient and reliable telecommunications are vital to society.

In the settlement, Skipti do not admit to a breach of competition law. The Competition Authority, however, considers that Síminn has abused its dominant market position. It is therefore necessary for Skipti to pay a fine and to implement the aforementioned measures to promote competition and prevent further breaches. However, as Skipti is prepared to do so, it is not necessary to take a final position on the extent of Símans's infringements or their substance in any other respect. The settlement provision of the Competition Act allows the Competition Authority a certain degree of discretion in this regard. The Competition Authority's assessment, based in part on discussions with the PFS and companies in the telecommunications market, is that the primary benefit to competition in this case is the fundamental structural changes to the telecommunications market achieved by the settlement with Skipti.

Background information:

Skipti is the parent company of Síminn and Míla. Síminn's operations consist mainly of providing telecommunications services, which are sold at retail to households and businesses. Míla manages the operation and development of the group's core telecommunications network.

This image sheds light on the provisions contained in the agreement:

The parties to the cases concluded by the settlement are, in addition to Síminn, Nova, Vodafone, Tal, Hringiðan and other companies that are members of Inter, an association of companies in internet services. Before substantive settlement negotiations began, the Competition Authority held discussions with these parties in order to ensure the settlement would achieve maximum effectiveness. Once the draft final settlement was available, its contents were presented to these companies and they were given an opportunity to make comments on the draft. The settlement concludes the handling of a total of seven cases.

As previously stated, the settlement also draws lessons from older cases. For context, the following recent cases may be noted:

• Illegal price pressure by Síminn, pursuant to the decision of the Competition Appeals Board no. 1/2012. The case upheld a 390 million króna fine for Télís's abuse of its dominant position in the mobile phone market. Further information about the case can be found here (http://www.samkeppni.is/utgafa/frettir/nr/2011. The settlement provides that the decision of the appeals board shall constitute a final resolution of this matter.
• The judgment of the Supreme Court of Iceland of 6 December 2012, which confirmed that Síminn had breached a decision by the competition authorities and increased the fine from 30 million to 50 million krónur. See more here (http://www.samkeppni.is/utgafa/frettir/nr/2069)
• Tele's underpricing, see the decision of the Competition Appeals Board no. 11/2011. In the case, a fine of 60 million krónur was upheld for Tele's abuse of its dominant market position in 3G data transmission services. Further information on the case can be found here (http://www.samkeppni.is/utgafa/frettir/nr/1912) The settlement entails that the decision of the appeal board constitutes a final resolution of this matter.