Introduction
On November 13, 2024, the General Court dismissed three appeals against the European Commission’s decision conditionally approving Vodafone’s acquisition of Liberty Global’s cable business assets in four EU Member States.[1] Deutsche Telekom, NetCologne, and Tele Columbus brought actions before the General Court seeking the annulment of the Commission’s clearance decision, arguing that the Commission should not have cleared Vodafone’s acquisition subject to behavioral commitments.
The General Court rejected all grounds of appeal and fully upheld the Commission’s conditional clearance decision. The General Court’s judgment addresses a number of key concepts in EU merger control, including: (i) direct and indirect actual competition; (ii) potential competition; (iii) the relationship between market dominance and the “SIEC” test; and (iv) the adequacy of behavioral rather than structural remedies in merger control.
Background
Following an in-depth Phase II investigation, the Commission cleared Vodafone’s acquisition of Liberty Global’s cable business assets and telecommunications activities in Germany, Romania, Hungary, and the Czech Republic under Article 8(2) EU Merger Regulation (“EUMR”), subject to cable network access remedies.[2]
During its in-depth investigation, the Commission identified two major competition concerns in Germany:
- the acquisition would eliminate the important competitive constraints exerted by the merging parties on each other on the German market for the retail supply of fixed broadband services; and
- the acquisition would strengthen the merged entity’s position on the German market for the wholesale supply of signal for the transmission of TV channels.
Vodafone’s three German competitors – Deutsche Telekom AG, Tele Columbus AG, and NetCologne Gesellschaft für Telekommunikation AG brought appeals before the General Court, seeking to have the clearance decision annulled. The appellants argued that the Commission had committed manifest errors of assessment in examining the acquisition’s effects on competition in Germany.
Direct competition
The General Court held that undertakings are direct competitors if they “compete for the same customers.”[3] In this case, the cable networks of Vodafone and Liberty Global did not geographically overlap.[4] The Commission explained that the majority of retail TV households in Germany are located in so-called “multi-dwelling units” (“MDU”). MDUs are owned by housing associations or private landlords—these were referred to by the General Court and the Commission as the “MDU customers.” Single-dwelling units (“SDU”) customers are typically those who choose their own TV distributor and pay directly for their subscription.[5]
The General Court considered that a MDU customer could only choose either Vodafone or Liberty Global as a TV signal provider because Vodafone and Liberty Global were each limited to their own cable footprint and could not compete for customers outside their cable footprint. The General Court concluded that the Commission was correct in finding that Vodafone and Liberty Global were therefore not direct actual competitors.[6]
Indirect competition and benchmarking
The General Court recalled that undertakings that do not directly compete can still be indirect competitors.[7] Undertakings are indirect competitors:
- if they are “subject to similar competitive pressures from other undertakings, which with each of them competes directly,” or
- “where other factors, such as requirements imposed by customers, comparably limit their ability to set their prices and commercial conditions.”[8]
Deutsche Telekom argued that Vodafone and Liberty Global monitored and compared their product offerings, which was an indication that they were indirect competitors.[9] The Commission disagreed and maintained that Vodafone and Liberty Global engaged in “simple commercial benchmarking aimed at monitoring and possibly imitating best practices in the industry.”[10] The General Court found that the Commission was correct to conclude that this form of comparison, which consists of an analysis of market performance or best practices in the industry, cannot be classified as indirect competitive pressure.[11]
The Commission explained¾in response to a General Court question to be answered in writing¾that benchmarking can indicate an indirect competitive constraint if there is evidence that a party gathering information about the other party through benchmarking takes that information into account in making its commercial decisions so the information actually constrains that party by triggering a competitive reaction on its part.[12] That was not the case in the present scenario.
Potential competition
The General Court concluded that the Commission did not manifestly err in concluding that Vodafone and Liberty Global were not potential competitors.[13] The General Court explained that to determine whether an undertaking is a potential competitor, the Commission must determine if, in the absence of the transaction, there would have been “real concrete possibilities” for that undertaking to enter the market and compete with the established competitors.[14]
The Commission found that there was no potential competition between Vodafone and Liberty Global, because, among other things, neither: (i) had taken steps to enter the market of the other within a sufficiently short period of time (based on market characteristics); (ii) believed that it was economically rational or attractive to enter the market; or (iii) intended to pursue a significant market entry in the future.[15]
Prior tacit collusion
Deutsche Telekom claimed that tacit collusion and the resulting position of collective dominance was the reason why Vodafone and Liberty Global did not directly geographically overlap and compete prior to the acquisition.[16] In support of its allegation, Deutsche Telekom referred to a number of decisions of the Federal Cartel Office which found that the parties were in a collectively dominant position.[17]
The General Court dismissed this ground of appeal, explaining that:
- Deutsche Telekom did not claim that the acquisition would have caused or strengthened a collective dominant position on the MDU market, but that the parties were¾before the transaction¾in a collective dominant position as a result of tacit collusion. These claims did not relate to the subject-matter of the contested merger clearance decision, but conduct potentially violating Article 101 TFEU (and/or Article 102 TFEU).[18]
- Even if the merging parties colluded prior to the acquisition, this would not alter the Commission’s correct conclusion that there was no competition between Vodafone and Liberty Global on the MDU market resulting principally from the lack of overlap between their respective cable footprints.
- Third parties’ allegations of tacit collusion between Vodafone and Liberty Global prior to the acquisition were not confirmed by the parties’ internal documents. In addition, the Commission had found there was another more probable and plausible explanation for the merging parties’ decision to not geographically expand their cable network and directly compete—i.e., the lack of economic profitability.[19]
Relationship between dominance and SIEC test
Deutsche Telekom argued that the Commission failed to conclude that the creation of Vodafone’s dominant position amounted to a merger-specific structural change in market conditions and gave rise to a SIEC. It considered that the creation of a dominant position is, in itself, the prime example of a SIEC.[20]
The General Court recalled that the essential legal test under Article 2(2) and Article 2(3) of the EUMR is whether a concentration creates a SIEC.[21] Finding that a planned concentration would result in anticompetitive effects is not sufficient in itself for that concentration to be regarded as incompatible with the internal market.[22] On this basis, the General Court clarifies the relationship between dominance and the SIEC test by saying that “the fact that a concentration would create or strengthen a dominant position is not, in itself, sufficient for that concentration to be regarded as incompatible with the internal market, provided that it would not significantly impede effective competition in the internal market or in a substantial part of it” (emphasis added).[23]
The General Court therefore concluded that Deutsche Telekom’s argument that“if a dominant position is created or strengthened, that is sufficient for a finding of a SIEC – cannot succeed.”[24]
Adequacy of behavioral remedies
Deutsche Telekom claimed that the Commission had manifestly erred in accepting the various behavioral commitments the merging parties had offered. The behavioral remedy package was “manifestly inappropriate and insufficient” to remedy the SIEC found on the market for wholesale TV transmission.[25] Deutsche Telekom also contended that behavioral remedies are never adequate to address horizontal competition concerns.[26]
The General Court rejected this argument and held that the Commission had notapplied the wrong legal standard in assessing the suitability of behavioral remedies.
The General Court acknowledged that, in the Remedies Notice,[27] the Commission has a preference for structural remedies mainly because it is simple to implement them.[28] In paragraph 17 of its Remedies Notice, the Commission explains that behavioral commitments “may be acceptable only exceptionally in very specific circumstances.”[29]
Paragraph 15 of the Commission’s Remedies Notice, however, states that commitments other than structural commitments may also be capable of preventing the SIEC. So the suitability of behavioral remedies is not automatically ruled out by the Remedies Notice.[30]
The Commission can accept behavioral remedies, if: (i) the commitments offered “are appropriate and sufficient to resolve the competition problem identified”[31] and (ii) if there is “certainty that those commitments will be able to be implemented.”[32]
Key takeaways
The General Court judgment contains useful definitions and restatements of key concepts in merger control—including direct, indirect, and potential competition.
The General Court reaffirms and recalls that the SIEC test under the EUMR is an autonomous legal concept distinct from dominance. In particular, the General Court held that the creation or strengthening of a dominant position does not necessarily and automatically lead to a SIEC.[33] It is therefore possible for the Commission to find that a planned transaction would create a dominant position, without simultaneously concluding that there would also be a SIEC.[34] It follows that the creation or strengthening of a dominant position is not automatically sufficient to prohibit a planned concentration under the EUMR.
The General Court’s interpretation in Deutsche Telekom is not novel, but consistent with a long line of case law that defines the SIEC test as an autonomous legal concept distinct from dominance.[35]
The 2004 EUMR liberated EU merger control from the “legal corset” of the dominance test, and introduced the SIEC test as “the one and only substantive test applicable to all concentrations.”[36] Articles 2(2) and 2(3) of the 2004 EUMR now exclusively refer to the SIEC test, making it the sole legal test for the substantive appraisal of concentrations. The creation or strengthening of dominance is now neither necessary nor sufficient to prohibit a concentration under Article 2 EUMR. The recitals of the 2004 EUMR make clear that the notion of a SIEC “should be interpreted as extending, beyond the concept of dominance”[37] (emphasis added). The recitals also leave no doubt that the SIEC test is the only decisive substantive test by which the compatibility of concentrations with the internal market is assessed: “in the interests of legal certainty, it should be made clear that [the EUMR] permits effective control of all such concentrations by providing that any concentration which would significantly impede effective competition, in the common market or in a substantial part of it, should be declared incompatible with the common market”[38] (emphasis added).
However, the 2004 EUMR did retain a specific reference to dominance as one possible theory of harm under the SIEC test. This explicit reference to dominance was retained to “maintain the sizeable body of case law and case practice which has been built up over the years” [39] under the old EUMR’s substantive test. The Council’s intention was that the large majority of transactions should continue to be assessed by reference to the dominance standard and that “most cases of incompatibility of a concentration with the common market will continue to be based upon a finding of dominance”[40] (emphasis added). The 2004 EUMR states that “a significant impediment to effective competition [will] generally result from the creation or strengthening of a dominant position” [41] (emphasis added).
While it is clear from the text, history, and legislative intent (purpose underlying the 2004 EUMR), that the SIEC constitutes an independent legal test distinct from dominance, the General Court in Deutsche Telekom explicitlyreaffirms the conceptual autonomy of the SIEC test. Even though the reference to “dominance” as one possible instance in which a SIEC may arise was maintained, Deutsche Telekom clarifies that this does not imply that the creation or strengthening of dominance is automatically sufficient to find a SIEC.
Finally, the General Court reaffirms that behavioral remedies are not inherently inferior or necessarily inadequate in addressing horizontal merger concerns. The judgment leaves the Commission with significant discretion in accepting behavioral—instead of structural—remedies as long as the Commission is satisfied that the behavioral commitments fully address the SIEC identified.
[1] NetCologne v. Commission (Case T-58/20) EU:T:2024:813; Deutsche Telekom v. Commission (Case T-64/20) EU:T:2024:815; and Tele Columbus v. Commission (Case T-69/20) EU:T:2024:816.
[2] See Vodafone/Certain Liberty Global Assets (Case COMP/M.8864), Commission decision of July 18, 2019.
[3] Deutsche Telekom AG v. Commission (Case T‑64/20) EU:T:2024:815, para. 80.
[4] Ibid., para. 81. The General Court held that whether the MDU market was, prior to the transaction, national in scope or whether it was limited to the cable footprints of the merging parties, changed nothing since, in both cases, that observation holds true.
[5] Ibid., para. 18.
[6] Ibid., paras. 81–82.
[7] Ibid., para. 102.
[8] Ibid., para. 102.
[9] Ibid., para. 91.
[10] Ibid., para. 104.
[11] Ibid., para. 106.
[12] Deutsche Telekom AG v. Commission (Case T‑64/20) EU:T:2024:815, para. 105.
[13] Ibid., para. 156.
[14] Ibid., para. 135.
[15] Ibid., para. 137.
[16] Ibid., para. 157.
[17] Ibid., para. 158.
[18] Ibid., paras. 160–162.
[19] Ibid., para. 163.
[20] Ibid., para. 187.
[21] Ibid., para. 191.
[22] Ibid., para. 192.
[23] Ibid., para. 193.
[24] Ibid., para. 193.
[25] Ibid., para. 361.
[26] Ibid., para. 370.
[27] Commission notice on remedies acceptable under Council Regulation (EC) No 139/2004 and under Commission Regulation (EC) No 802/2004, 2008/C 267/01 (“Remedies Notice”).
[28] Ibid., para. 375.
[29] Ibid., para. 370, referring to para. 17 of the Remedies Notice.
[30] Ibid., para. 374.
[31] Ibid., para. 375.
[32] Ibid., para. 375.
[33] Ibid., para. 192–193.
[34] Ibid., para. 192–193.
[35] Air France v. Commission (Case T-2/93) ECLI:EU:T:1994:55, paras. 79–79; EDP v. Commission (Case T-87/05) ECLI:EU:T:2005:333, para. 45–46, and 49; Kaysersberg v. Commission (Case T-290/94) ECLI:EU:T:1997:186, para. 184; Airtours v. Commission (Case T-342/99) ECLI:EU:T:2002:146, para. 58; Tetra Laval v. Commission (Case C-12/03 P) ECLI:EU:C:2005:87, para. 153; Sony and Bertelsmann AG v. Impala (Case C‑413/06 P) ECLI:EU:C:2007:790, para. 120; Gencor ν. Commission (Case T-102/96) ECLI:EU:T:1999:65, paras. 94, 162, 170, 180, and 193; French Republic and Société commerciale des potasses et de l’azote (SCPA) and Entreprise minière et chimique (EMC) v. Commission (“Kali und Salz”) (Joined Cases C-68/94 and C-30/95) ECLI:EU:C:1998:148, para. 221.
[36] Francisco Enrique González Díaz, The Reform of European Merger Control: Quid Novi Sub Sole?, [2004] 27(2) World Competition, 177–199.
[37] Recital 26, EUMR.
[38] Recital 25, EUMR.
[39] See Explanatory Memorandum to Draft Merger Regulation, para. 56.
[40] See Horizontal Mergers Guidelines, para. 4, available here.
[41] Recital 26, EUMR.