Last month the EU General Court annulled the EU Commission’s decision to block the proposed merger of Telefónica UK by Hutchison 3G UK.
It what could be seen as a rebuke of the Directorate-General for Competition (DG COMP), the court clarified the proof required to block a merger, which could have a significant effect on future merger enforcement:
In the context of an analysis of a significant impediment to effective competition the existence of which is inferred from a body of evidence and indicia, and which is based on several theories of harm, the Commission is required to produce sufficient evidence to demonstrate with a strong probability the existence of significant impediments following the concentration. Thus, the standard of proof applicable in the present case is therefore stricter than that under which a significant impediment to effective competition is “more likely than not,” on the basis of a “balance of probabilities,” as the Commission maintains. By contrast, it is less strict than a standard of proof based on “being beyond all reasonable doubt.”
Over the relevant time period, there were four retail mobile network operators in the United Kingdom: (1) EE Ltd, (2) O2, (3) Hutchison 3G UK Ltd (“Three”), and (4) Vodafone. The merger would have combined O2 and Three, which would account for 30-40% of the retail market.
The Commission argued that Three’s growth in market share over time and its classification as a “maverick” demonstrated that Three was an “important competitive force” that would be eliminated with the merger. The court was not convinced:
The mere growth in gross add shares over several consecutive years of the smallest mobile network operator in an oligopolistic market, namely Three, which has in the past been classified as a “maverick” by the Commission (Case COMP/M.5650 — T-Mobile/Orange) and in the Statement of Objections in the present case, does not in itself constitute sufficient evidence of that operator’s power on the market or of the elimination of the important competitive constraints that the parties to the concentration exert upon each other.
While the Commission classified Three as a maverick, it also claimed that maverick status was not necessary to be an important competitive force. Nevertheless, the Commission pointed to Three’s history of maverick-y behavior by launching its “One Plan” as well as free international roaming and offering 4G at no additional cost. The court, however, noted that those initiatives were “historical in nature,” and provided no evidence of future conduct:
The Commission’s reasoning in that regard seems to imply that an undertaking which has historically played a disruptive role will necessarily play the same role in the future and cannot reposition itself on the market by adopting a different pricing policy.
The EU General Court appears to express the same frustration with mavericks as the court in in H&R Block/TaxACT: “The arguments over whether TaxACT is or is not a ‘maverick’ — or whether perhaps it once was a maverick but has not been a maverick recently — have not been particularly helpful to the Court’s analysis.”
With the General Court’s recent decision raising the bar of proof required to block a merger, it also provided a “strong probability” that the days of maverick madness may soon be over.
