On September 15, 2021, the TAR Lazio annulled the ICA decision finding telecom operator Vodafone Italia S.p.A. (“Vodafone”) in breach of Article 102 TFEU for allegedly abusing its dominance in the market for Short Message Service (“SMS”) termination.[1]

Background – The ICA Decision

The ICA opened separate proceedings for alleged abuse of dominance by Vodafone and Telecom Italia S.p.A. (“Telecom”), respectively, following a complaint filed in April 2016 by Ubiquity S.r.l. (“Ubiquity”). Ubiquity claimed that Vodafone and Telecom were applying excessive tariffs in the (upstream) market for SMS termination on their respective networks, hindering the ability of rivals to provide services in the (downstream) market for bulk SMS services.[2]

In December 2017, the ICA decided that Telecom and Vodafone had abused their respective dominant position, in violation of Article 102 TFEU. [3]

According to the ICA, Vodafone abused its market power by putting in place internal-external technical and economic discrimination, resulting in margin squeeze for equally efficient competitors in the related market for bulk SMS services. Furthermore, the alleged abusive practice in question concerned the whole national territory, limiting production and foreclosing or limiting access to the national market for any economic players wishing to enter and/or operate on the Italian market for bulk SMS services.

The companies filed separate applications for annulment of the ICA decisions to the TAR Lazio[4]. Vodafone challenged, inter alia, the ICA’s assessment of the downstream market, with particular reference to the final retail price that could be charged by a competitor that was as efficient as the dominant undertaking.

The TAR Lazio Decision

In its ruling, the TAR Lazio recalled that bulk SMS services consist of packages of messages that are delivered on the entire networks of three Italian mobile operators – Vodafone, Telecom and Wind Tre S.p.A. (“Wind Tre”) – and sold to companies that want to send large amounts of messages to their customers.

The Court took the view that, in order to establish whether Vodafone had committed a margin squeeze, it had to take into account that the cost of the final product on the downstream market had been determined by the cost for SMS termination on all three networks. Moreover, the TAR Lazio acknowledged that the companies that buy the termination services to sell as bulk SMS packages (so-called “aggregators”) are intermediaries that do not purchase SMS termination in the same downstream market as the final customers.

The TAR Lazio ruled that the ICA wrongly determined the reference price by taking into account only the cost incurred by the operators that, being equipped with a numbering infrastructure, purchase from Vodafone only the right to terminate on the network (so-called “D43 operators”), excluding the costs faced by aggregators. In this regard, the TAR Lazio ruled that aggregators do not qualify as users of the bulk SMS service, but rather act as intermediaries, which take on the task of acquiring SMS services from various operators in order to combine them into a bundle suited to the needs of end users. For this reason, aggregators cannot be treated as end users in the downstream market, where they act as resellers and not as buyers. As a consequence, determining the threshold price before assessing the existence of a margin squeeze was considered as an error.

The TAR Lazio then found the alleged abuse of dominant position by margin squeezing incompatible with the dominant players’ intent to harm only part of their competitors by implementing differentiated and discriminatory strategies. According to the TAR Lazio, such conduct could have theoretically been challenged as external-external discrimination, i.e. according to a different approach. In particular, the ICA failed to demonstrate that the cost of terminating text messages on Vodafone’s networks had affected the price of bulk SMS services to such an extent as to lead to the exclusion of the D43 operators from the downstream market, since no assessment of the detrimental effects, if any, of the conduct at issue was made in the ICA decision. In addition, according to the TAR Lazio, the fact that rival companies had been harmed by the margin squeeze implemented by a vertically integrated operator – even if such margin squeeze had been proved to the required legal standard, which was not the case – would not require the ICA to necessarily intervene. Indeed, before taking action on the basis of Article 102 TFEU, the ICA would be bound to verify whether and which favorable or detrimental effects on competition have reverberated on the final product market.

In conclusion, the TAR Lazio stated that the allegation of a potential anticompetitive effect of the conduct at issue must be supported by at least a market analysis, explaining and demonstrating why non-vertical and integrated competitors run the risk of being excluded from the market as a result of an alleged margin squeeze.

For all these reasons, the TAR Lazio upheld Vodafone’s application in its entirety and, as a result, annulled the ICA’s decision.

[1]      ICA, Decision of December 13, 2017, No. 26901, Case A550A, Vodafone-SMS informativi aziendali, and TAR Lazio, Judgment of September 15, 2021, No. 9803.

[2]      The retail services of sending SMS bulk allow business customers to send text messages – containing advertisements and/or general information – to receiving users identified by the customers themselves. In the retail service market for sending SMS bulk, the origination of the text message that is routed is carried out, and then reaches the destination mobile operator that delivers it (termination). The destination operator is also the only one able to deliver SMSs to users of its own network. Accordingly, Vodafone and Telecom are the only entities able to deliver text messages to their respective customers, so that they have the ability to unilaterally impose prices and technical conditions of interconnection and to act independently.

[3]      ICA, Decision of December 13, 2017, No. 26902, A500B, Telecom Italia-SMS informativi aziendali.

[4]      At this stage, it does not appear that the appeal lodged by Telecom has been settled.