On February 25, 2020, the Italian Competition Authority (the “ICA”) imposed on Telecom Italia

S.p.A. (“TIM”) a fine of approx. € 116.1 million for abusing the dominant position it held both in the national market for wholesale access services to, and in the national market for retail telecommunications services on, the broadband (“BB”) and ultra-broadband (“UBB”) fixed network, in violation of Article 102 of the Treaty on the Functioning of the European Union (the “TFEU”).[1]

The Italian Strategy for High-Speed BB and Infratel tenders

By way of background, on March 3, 2015, the Italian Government, in line with the Europe 2020 Agenda, approved the Italian Strategy for

High-Speed BB (the “Strategy”), intended to cover most of the territory of the country with infrastructure capable of offering services at high-speeds.

To implement the Strategy, the Government decided to intervene directly in the so-called white areas of market failure (i.e. those areas where, in the absence of public subsidies, private investment in innovative infrastructure would not take place). The direct public intervention consisted of building a network of public property to be made available to all operators wishing to activate services for citizens and businesses. In the white areas, it was considered necessary: to correct social and geographic inequalities generated by the absence of private initiatives from businesses; and to encourage investments for the spread of passive infrastructure enabling a next generation network access service.

Infratel Italia S.p.A. (“Infratel”) – an in-house company of the Italian Ministry of Economic Development, tasked with the implementation of the Strategy – carries out periodically a public consultation in order to: obtain updated information on the available high-speed BB connectivity offered by telecom operators; identify geographical areas where operators have not so far deployed their own infrastructures (or do not have an interest to do so within the next three years); and, thus, identify the areas eligible for public intervention, which will be affected by the aid measures referred to in the Strategy.

In 2015, Infratel carried out the public consultation for the periodic updating of the map related to the available connectivity and, in 2016, it launched the first two tenders for building an UBB network in the white areas using public funds. TIM actively participated in both tenders, at least in the first phase. In the first tender, it also submitted a bid, ranking second to Open Fiber S.p.A. (“Open Fiber”), a 50:50 joint venture between Enel S.p.A. (“Enel”) and Cassa Depositi e Prestiti Equity S.p.A. In the second tender, TIM, after being admitted to participate in the procedure, did not submit an offer. Taking a new strategic approach to infrastructure deployment in the white areas, TIM announced an autonomous coverage plan.

The opening of the investigation

On June 28, 2017, the ICA started its investigation under Article 102 TFEU into TIM’s conduct, which it argued was aimed at delaying fiber roll-out. The ICA took action on the basis of several complaints, notably including the following ones.

Infratel alleged that TIM abused its dominant position, with a view to unlawfully interfering with the tenders launched by Infratel, by: requesting a change, pending the outcome of those tenders, in its investment plan, contrary to what it had stated in the preliminary phase; publicly announcing its decision to withdraw from the subsequent phases and to invest in an autonomous coverage plan; and submitting numerous applications to national and European judicial and administrative authorities to instrumentally delay the Infratel tenders;

Enel and Open Fiber accused TIM of hindering Open Fiber’s investment plan throughout the country, both in and outside the white areas, by means of anticompetitive practices;

Vodafone Italia S.p.A. complained about TIM’s conduct in the market for retail BB and UBB telecom services including, among other things: the launch of commercial offers that competitors could non replicate; the transfer of privileged information from the Wholesale Division to the Retail Division of TIM; and lock-in clauses in the offers to end customers;

Wind Tre S.p.A. alleged, among other things, that TIM had engaged in the anticompetitive lock-in of its UBB customers.

On February 14, 2018, following the filing of further complaints by third parties, the ICA extended its investigation to conduct regarding TIM’s pricing strategy in the wholesale market for BB and UBB access services, and the use of privileged information regarding customers of alternative operators in the retail market for BB and UBB telecom services.

The ICA’s findings

In the Final Decision, the ICA established that TIM engaged in a single and complex exclusionary strategy qualifying as an abuse of rights, comprising several types of abusive conduct aimed at distorting competition in the wholesale and retail markets for BB and UBB telecom services in Italy. In the ICA’s view, TIM’s strategy, although it was carried out through conduct that was legitimate in principle, pursued an aim not worthy of protection, that is, to restrict and distort competition in a particularly strategic market for the development of the country, by attempting to hinder the entry of new operators into those markets and unjustifiably preserving its market power. Based on the premise that competition in the telecom sector no longer takes place only in terms of prices, but also in terms of service quality, investment and innovation, the ICA held that the goal of TIM’s strategy was to prevent both infrastructure-based competition and competition in the market for retail services.

TIM’s conduct in the wholesale market

According to the Final Decision, TIM’s anticompetitive conduct in the wholesale market included: raising obstacles to the Infratel tenders for coverage of the white areas with FTTH (Fiber-To-The-Home) networks, and initiating obstructive legal actions to preserve the historical monopoly of TIM in these territories and to prevent the entry of new competitors, like Open Fiber; and in non-white areas – throughout the rest of the country – repricing its wholesale offer, so as to pre-empt the contestable customer base.

Regulatory gaming and sham litigation against Infratel and Open Fiber

TIM’s strategy consisted of: informing Infratel of changes in the scope and mapping of its investments; withdrawing from the subsequent phases of the tenders and starting the unilateral implementation of its investment plan, pending the outcome of the Infratel tenders in the same areas; and, at the same time, initiating groundless and abusive legal proceedings with the aim of hindering the process of the Infratel tenders.

In the ICA’s view, TIM’s conduct created a situation of uncertainty surrounding the competitive procedures, which put the prospective investments in UBB networks in the white areas at serious risk. This raised serious doubts about the sustainability of the investments planned by its competitors, such as Open Fiber, which planned to build more innovative networks than those of TIM.

As a result, TIM’s strategy prevented the development of infrastructure-based competition in Italy, thereby preserving technologically inferior solutions. In fact, the change in TIM’s investments plan and the abusive legal proceedings brought by the company delayed the award of the Infratel tenders, whereas TIM achieved in a few months an alternative coverage of the white areas with technologically sub-optimal investments.

Repricing of TIM’s wholesale offer

TIM’s strategy in the wholesale market extended also to the non-white areas through a repricing policy concerning its wholesale offer, aimed at securing the maximum share of fixed lines to TIM’s network before the FTTH coverage announced by Open Fiber could become available.

In the ICA’s view, such conduct represented the other pillar of TIM’s exclusionary strategy in the wholesale market: TIM’s conduct aimed at causing the failure of the Infratel tenders, so as to prevent Open Fiber from entering the white areas dominated by TIM. Moreover, in the non-white areas TIM completely reformulated the terms of its wholesale offer to pre-empt the contestable customer base. In particular, TIM significantly reduced the FTTH Virtual Unbundled Local Access (VULA) prices, and started marketing a new version of its Easy Fiber offer, which notably included lock-in clauses.

TIM’s conduct in the retail market

As established in the Final Decision, TIM also engaged in abusive conduct aimed at securing new customers in the new UBB telecom services retail segment.

Lock-in clauses and retail prices non- replicable by competitors

In the ICA’s view, TIM launched retail offers aimed at pre-empting the relevant market’s contestable demand and, therefore, at unduly preserving its market share. In particular, by increasing switching costs, TIM secured the maximum share of contestable customers, in order to strengthen the pre-emption of and lock-in effects for customers that the company had already pursued in the wholesale market. To this end, TIM also set terms and conditions binding customers for an excessively long period of time.

The pre-emption of the most profitable demand segment, in the ICA’s view, pursued a twofold anticompetitive objective: to drain the residual demand available to Open Fiber, by maximizing the share of captive demand, compared to alternative wholesale access service providers; and to strengthen TIM’s dominant position also in the market for retail services, to the detriment of the alternative operators’ commercial offers.

Misuse of privileged information

The ICA also scrutinized the alleged abuse by TIM of the privileged information concerning the management of the network activities that was available to it, which was aimed at gaining customers of alternative operators in the retail market.

However, at the end of the investigation, the ICA held that, although the evidence in the casefile revealed a widespread use, for commercial purposes, of sensitive information concerning the network’s management activities, no elements proved TIM’s deliberately anticompetitive intent. On the contrary, TIM took several initiatives to counter these occurrences. In particular, it adopted specific measures to ensure the separation of the information systems, with the aim of limiting the risk of misuse of privileged information. According to the ICA, therefore, TIM could not be held liable even on the basis of its inaction.

The amount of the fine

The ICA imposed a fine of €116.1 million on TIM. In calculating the amount of the fine, the ICA considered the value of its sales in the wholesale and retail markets.

The basic amount

To determine the basic amount of the fine, the ICA, having characterized TIM’s conduct as a serious violation, applied a percentage in the 1-5% range to the relevant value of sales. Nevertheless, the ICA acknowledged that TIM, after the opening of the procedure, did not complete the implementation of its autonomous coverage plan drawn up for the white areas, and froze the marketing of the network infrastructure already in place before the investigation started.

Mitigating factors

After setting the basic amount of the fine, the ICA reduced by 5% the fine imposed on TIM in view of the fact that it had amended its already existing antitrust compliance program in the course of the investigation. In this respect, according to the ICA, the pre-existing programs did not serve their intended purpose (that is, preventing antitrust infringements), since top-level figures in TIM’s corporate management were involved in setting up the abusive strategy.

The ICA also reduced by 15% the fine imposed on TIM considering that, pending the investigation, it only marketed the new wholesale offer to a small number of lines, which were sold to a few small operators.

Specific circumstances of the case pursuant to paragraph 34 of the ICA’s Fining Guidelines

Finally, the ICA reduced by 70% the fine imposed on TIM pursuant to paragraph 34 of its Fining Guidelines, according to which the specific circumstances of the case or the need to achieve a particular deterrent effect may allow justified exceptions from application of the Guidelines, which must be expressly referred to in the statement of reasons of the decision finding the infringement being punished.

In this respect, the Final Decision took into account the initiatives undertaken by TIM to reduce the impact of its conduct in the retail market. In particular, TIM ensured that its promotional offers, in spite of the lock-in clauses, could be replicated by its competitors, and changed the terms and conditions of the offers that, in the ICA’s view, were affected by the most serious lock-in elements.

[1]              ICA Decision No. 28162, Case A514, Condotte fibra Telecom Italia (the “Final Decision”).