On 15 October 2014, the EU Commission handed down its decision finding that for more than five years (from 12 August 2005 to at least 31 December 2010) Slovak Telekom AS and its parent company Deutsche Telekom AG pursued a strategy, in breach of EU antitrust rules, to shut competitors out of the broadband services market in the Slovak Republic.

Slovak Telekom is the owner of the only nation-wide telephone metallic access network, which was put in place when it had a market monopoly. Its broadband service coverage reaches 75% of all Slovak households. Slovak Telekom is also the only supplier of wholesale access to its unbundled local loops in the Slovak Republic. Slovak Telekom’s local loops are extremely valuable and important to market participants. Building a new (separate) local loop network is often prohibitively costly as it requires the digging of trenches for new cables connecting each house to the network. In 2005, the Slovak telecoms regulator decided that to allow for effective competition, Slovak Telekom, as a dominant company, must grant its competitors access to its network.

However, following a five year investigation (assisted by the Slovak telecoms regulator), the EU Commission found that Slovak Telekom refused to supply unbundled access to its local loops to competitors on fair conditions and imposed a “margin squeeze” on competitors, making it impossible for competitors to use its legacy infrastructure without incurring a loss. Both types of conduct amount to an abuse of Slovak Telekom’s dominant position, prohibited by Article 102 of the Treaty on the Functioning of the European Union (“TFEU”).

The EU Commission imposed a fine of €38.8 million on Slovak Telekom and its parent, Deutsche Telekom, for which they are jointly and severally liable.

Deutsche Telekom is a majority shareholder of Slovak Telekom, holding 51% of its shares, and has a number of special rights such as the right to nominate the majority of the Board of Directors and to be informed about all management matters within Slovak Telekom, allowing it to exercise decisive influence over the company. The Commission’s investigation revealed that Deutsche Telekom did indeed exercise decisive influence notably through overlaps in senior management personnel and by influencing the decision-making process at Slovak Telekom. Under EU antitrust rules, parent companies exercising such decisive influence are liable for infringements committed by their subsidiaries. Therefore Deutsche Telekom shares liability on a joint and several basis for the infringement with Slovak Telekom.

In addition, the EU Commission imposed a further fine of €31 million on Deutsche Telekom alone. This additional fine was imposed to sanction Deutsche Telekom’s repeated abusive behaviour – Deutsche Telekom was fined in 2003 for a margin squeeze in the German market for access to its unbundled local loop in Germany. It was also imposed to ensure “sufficient deterrence”, in view of that in 2013 Deutsche Telekom had a global turnover of €60 billion.

The fines must be paid within three months of notification of the decision. Deutsche Telekom has reportedly indicated an intention to appeal the fines. Should it do so, the fines will be paid into a blocked bank account pending the final outcome of the appeal process.

In addition to the substantial EU Commission fines, Slovak Telekom and Deutsche Telekom could also face private enforcement litigation by victims of the anti-competitive conduct (so-called “follow-on” damages actions). Any person or company that has suffered loss and damage due to this anti-competitive conduct has a right to bring a claim for damages before EU national courts.

In such follow-on actions, the EU Commission’s finding of infringement is conclusive that illegal conduct has occurred, which means victims are only required to prove causation and that they suffered quantifiable loss. Follow-on actions are therefore substantially faster and cheaper than standalone proceedings. Injunctions can be obtained in a matter of days and damages can be very substantial – running into millions of Euros.

Recent years have seen a significant increase in private actions. Germany, the UK and the Netherlands have attracted most of these claims. It is notable that the UK’s taxpayer-funded National Health Service (“NHS”) has got into the action, bringing two separate lawsuits in the English High Court after separate EU Commission and UK Office of Fair Trading (“OFT”) findings of anti-competitive conduct by French pharmaceutical company, Servier, and a number of producers of generic medicine. It is also notable that rather than waiting for final decisions in the respective administrative proceedings, the NHS elected to launch both actions prior to final decisions being adopted.

As is clear from the EU Commission’s announcement of its decision, such private enforcement actions are actively encouraged by the EU. This is also reflected at the legislative level, with proposed EU and national legislative changes likely to make it even easier and more cost effective for victims to obtain such damages.

The text of the proposal and more information on antitrust damages actions is available at:

http://ec.europa.eu/comm/competition/antitrust/actionsdamages