New developments in the competition rules applicable to network sharing agreements

Introduction

Cooperation agreements between competitors has always been a complex area of Competition law where undertakings had to navigate for some time without complete certainty on the pitfalls they might encounter, the precautions that had to be implemented to avoid risks and the assessment of the balance between the potential benefits and risks to effective competition.

We are obviously not referring here to prima facie potentially collusive agreements which have elements to suspect that a potential restrictive object might be the cause or the reason behind reaching an agreement with competitors (which is by itself a difficult area). We refer here to those instances where competitors genuinely seek to collaborate to increase effectiveness, efficiency, costs reductions in their economic activities and to offer better and cheaper products and services to their customers and, nevertheless, feel the need for some legal certainty on whether that kind of collaboration may be subject to strict and implacable scrutiny by competition authorities (and potential complaints by customers or competing players).

This situation began to change with the adoption by the European Institutions, in particular, the EU Commission, of several Regulations and Communications regarding certain categories of agreements between competitors which provided rules and guidance on the way to assure that these agreements did not breach applicable rules. Usually, the guidance provided in the various updated versions of such Regulations and Communications did not in principle refer to specific sectors but to agreements between competitors in general.

The telecommunications sector has certain features, in particular, concerning the huge investments in infrastructures required as a general rule to enter any of the various markets for the provision of telecommunication services that this kind or rules certainly should help in assessing the validity of agreements between competitors in this context. This is despite those rules not having been specifically designed to apply to agreements intended to share telecommunication infrastructures. In particular, among the agreements that could benefit from these rules, it could be mentioned those concerning contracts to share tower infrastructures for the transmission of the audiovisual (TV, radio) signals, mobile telecommunication infrastructure such as Radio Access Networks, the Fibre-to-the-Home (“FTTH”) networks or even the submarine cable infrastructure for the transmission of broadband between continents.  

Against this background, the publication on the Official Journal on 21 July 2023 of the new EU Commission Guidelines on the applicability of Article 101 of the Treaty on the Functioning of the European Union to horizontal co-operation agreements (“Horizontal Guidelines”), represent a huge step forward in the direction of increasing certainty in this area of law. Indeed, for the first time these new guidelines include a specific chapter to address the potential issues and benefits arising from the agreements between competitors to share mobile telecommunications infrastructure. These Network Sharing Agreements (“NSAs”, following the nomenclature of the EU Commission) are examples of agreements between competitors which may have – provided certain circumstances concur – a clear pro-competitive effect on the market and improve the quality, variety and price of the telecommunications services provided to businesses and, ultimately, to end consumers. Nevertheless, the collaboration reached between competitors in this kind of agreements may be particularly deep and involve the joint development and construction of telecommunication networks, the sharing thereof and sometimes also sharing frequency bands by Mobile Network Operators (“MNOs”) and, therefore, legal certainty is required to adequately structure and design these agreements.

Hence, as is the case with many other cooperation agreements between competitors, a careful assessment must be carried out by the undertakings which decide to enter into an NSA to avoid potential competition law risks. Here is where the Horizontal Guidelines try to provide guidance to clarify and facilitate the understanding of the factors and elements that the EU Commission will consider when analysing the potential restrictive effects of these very specific type of agreements in the telecoms sector. It is expected that the guidance provided will foster the increased number of this kind of agreements.  

In the following sections, we will put into context the guidance on NSAs in the overall rules on horizontal production agreements with competitors and discuss the main features of the new rules, as well as the points that are subject to further improvement.

Possible scope of NSAs, benefits and risks for competition

This section deals with the various categories of elements of the network infrastructure that can be shared in the context of NSAs as well as with the advantages for the market, clients and end users of this kind of horizontal cooperation and potential risks arising from NSAs.

a) Different categories of NSAs

Network Sharing Agreements may range from the sharing of basic infrastructure to more complex forms of cooperation. 6 Paragraph 259 of the Horizontal Guidelines.  Thus, for instance, sharing may:

1.  be limited to the so-called “passive” infrastructure of the network, such as the masts, cabinets, antennas or power supplies (“passive sharing”). This is also referred to as ‘site sharing’ since the main focus of the sharing refers to less relevant elements within the location, sites (towers, rooftops) where the main network infrastructure is located.
2. also involve additional infrastructure elements such as the equipment of the Radio Access Network (“RAN”) which could include base transceiver stations, controller nodes, base-band units, radios, etc. This is usually known as “active sharing”.
3. even cover the band frequencies owned by the MNOs to provide mobile telecommunication services, which involves a deeper level in the cooperation (and a higher level of scrutiny and rules to fulfil by the relevant operators).

The shared use of these networks may typically involve sharing operating costs, the cost arising from improvements and upgrades made to the networks and the maintenance thereof. 7 Paragraph 258 of the Horizontal Guidelines.

Additionally, the NSAs may cover an even deeper level of collaboration by means of the joint deployment of the network infrastructure, that is, the joint building of the infrastructure. 

This would involve a particularly high level of collaboration, similar to that of the joint production agreements where two or more competitors jointly manufacture a given good.

Depending on the specific level of infrastructure sharing covered by the NSA the approach on the assessment of potential competition issues generated by the NSA, as well as the guidance provided by the Horizontal Guidelines, will be different, as described in section 4 below.

Additionally, the new Horizontal Guidelines also mention the possibility by competitors to proceed to a geographic split of their responsibilities regarding the deployment, maintenance and operation of the network infrastructure and equipment depending on the territory where each of them is mainly located. This is a novelty included in the final version of the Guidelines and not in the draft version of the guidelines prepared by the European Commission for public consultation, which can be certainly considered positive and a step forward in the regulation of NSAs.

b) Major benefits and pro-competitive effects of NSAs

Among the potential benefits arising from this form of cooperation between competitors, the EU Commission mentions among others, the following: 8 Paragraph 260 of the Horizontal Guidelines.

• Costs savings since operators will not be required to duplicate and deploy their own networks in all parts of the relevant territories (or to be forced to acquire other operators through M&A transactions) but will be able to rely on other operators’ networks by jointly sharing their networks.
• This will, in turn, involve lower maintenance costs of the networks.
• The above cost reductions will be invested in better quality of the existing (non-duplicated) networks which will ultimately benefit customers and end consumers through lower prices of telecommunication services and
• Similarly, those savings may allow to invest in faster deployment of new networks and advanced technologies which will benefit customers with a wider territorial coverage, broader and better services.
• Allow (or increase) competition at the retail level.

The Horizontal Guidelines also recognize that NSAs may sometimes be so pro-competitive that national regulators of Member States have the capacity to even impose on operators specific sharing (and joint deploying/roll-out) obligations of telecommunication networks on specific circumstances. For example, in order to reach certain isolated or complex geographic areas where duplication of networks may be extremely cost-intensive and inefficient so that a better network coverage may be better achieved through NSAs. 9 Footnote 181 of the Horizontal Guidelines refer to the benefits of NSAs in relation to their possible contribution for an adequate deployment of very high-capacity networks such as 5G networks to improve connectivity which has a direct impact on economic development.

c) Potential competition law risks

As a counterbalance to the above benefits, the EU Commission also identifies certain potential restrictive effects of NSAs on effective competition. In particular, the Horizontal Guidelines anticipate that NSAs could give rise to: 10 Paragraph 262-263 of the Horizontal Guidelines.

• A reduction of competition in relation to the infrastructure, that is, the market operators could allegedly stop competing with each other in order to improve, increase, extend their networks in the assumption that they could always enter into an NSA.
• This could also have an impact on a reduced level of innovation in new technologies to improve the existing networks.
• As a consequence, this may lead to a decrease of the supply of telecommunication services both at the wholesale and retail level due to the reduced existing infrastructure.
• All of the above could ultimately affect negatively to the quality and price of the retail services provided.
• Additionally, and regarding the specific clauses and obligations included in a given NSA, there may be technical, contractual and financial restrictions that should be carefully assessed before entering into an NSA (see section 4 below) since they could weaken the pro-competitive effects of an NSA and render it anticompetitive.
• Finally, as is the case with any other horizontal cooperation agreement between competitors, the exchanges of information that take place in the context of the agreement may have unwanted collusive effects and therefore, they must be restricted to what is strictly necessary for the purposes of achieving the objectives of the NSA.

Relevant factors to assess NSAs according to the new rules

The EU Commission has relied on its recent (and older) decisional practice and EU Courts case-law to design the new chapter on NSAs of the Horizontal Guidelines. In particular, there have been certain investigations (in particular, a ‘Commitments Decision’ in Case AT.40305 Network sharing – Czech Republic) where the parties to this kind of agreements have been asked to modify the terms thereof to avoid an infringement decision. 11 This is the case that served the EU Commission to consider as a relevant factor in the assessment the absence of technical, financial and contractual restrictions in NSAs (see section 3.c) above).  These cases have helped the EU Commission to prepare the rules included in the new chapter. 12 See also EU merger Case M.9674 Vodafone Italia/TIM/Inwit JV.

a) NSAs are not deemed by-object restrictions

One of the key conclusions and take-aways derived from the Horizontal Guidelines on NSAs is that this kind of collaboration between competing MNOs would, in principle, be more beneficial than harmful for effective competition.

More in particular, the main presumption in this respect is that the Horizontal Guidelines state that, in principle, NSAs do not restrict competition by object as per Article 101(1) TFEU, that is, that they have not been designed or conceived with the main or sole objective of restricting competition. In other words, this presumption is based on the understanding, and under the assumption, that NSAs are not executed or reached for the purposes of serving as a means or an instrument to implement or facilitate a cartel. 13 Paragraph 261 of the Horizontal Guidelines.  This applies to all categories of NSAs including those that involve sharing band frequencies (spectrum).

Obviously, this is a general statement that will need to be qualified depending on the facts of the case, the specific clauses included in the agreements, obligations of the parties and circumstances of the particular product and geographic market.

In any event, this is good starting point from the telecoms sector and industry since it provides comfort to operators that, as long as certain conditions are met, there are high chances that their NSAs will not be subject to a potential investigation and eventually to the imposition of fines by Competition Authorities. Nevertheless, the absence prima facie of a by-object restriction does not prevent companies from carrying out an effects-based assessment to assure that the NSA does not amount to a by-effects restriction. Indeed, the Horizontal Guidelines expressly state that NSAs will always require 14 Quoting for these purposes the judgment of the European Court of Justice (“ECJ”) of 2 May 2006 O2 (Germany) v Commission, T-328/03, EU:T:2006:116, paragraphs 65-71.  a case-by-case individual assessment on the basis of a series of factors in order to rule out that the agreement has restrictive effects on the market.

b) Relevant factors in the assessment of NSAs

The new chapter on NSAs include a set of factors and elements that Competition Authorities should consider when evaluating the potential effects of NSAs, in particular: 15 Paragraph 264 of the Horizontal Guidelines.

• The type and depth of sharing and the independence retained by the operators that take part in an NSA;
• The scope of the services shared: as already mentioned (see section 3.a) above), the type of sharing (whether it refers to “active” or “passive” infrastructure and whether it also includes “spectrum” will be a significant factor in the assessment.
• The geographic scope and market coverage of the agreement: this involves assessing the size of the territory covered by the agreement and on the population included therein, in particular, whether it involves densely populated areas since the impact of the agreement on competition (and on the provision of telecommunication services at the retail level) may be higher in such areas.
• The features of the relevant market: as is the case in the context of other cooperation agreements between competitors, this involves assessing a variety of factors such as the market shares of the parties, the market shares of other competitors and their capacity to exert competitive pressure over the parties, closeness of competition between the parties (the closer the competitors, the higher the potential restrictive effects), market entry barriers and other relevant agreements reached with other market stakeholders, such as tower companies.
• The number and significance of similar NSAs in the market and of the parties which take part in such NSAs.

These factors, as is the rule in most areas of competition law, must be considered as a whole and assessed depending on the specific circumstances which means that the relevance of each of them may change. There is no specific weight to be given to each of them, which is not perfect from a legal certainty perspective and involves conducting a comprehensive analysis thereof. The draft Horizontal Guidelines gave even more weight to the first factor, that is, the distinction between on the one hand (i) active and on the other (ii) passive and (iii) spectrum sharing. While this is still relevant in the definitive version of the Horizontal Guidelines (see section c) below), it has not been given the same pre-eminence as in the draft version.

Further to the above factors, the Horizontal Guidelines also provide a list of additional minimum conditions which should help undertakings assure that the specific NSA will be within the ‘safe harbour’ of a sort of a block exemption (even if this is not qualified as such) and to confirm that the NSA is not deemed either as a by-effects restriction:

• The companies must retain control of their own core networks. This means that the terms of the NSA cannot prevent them for adopting individual independent decisions to improve, extend the existing networks or deploy additional networks.
• Operators should maintain independent retail and wholesale operations.
• They should also be free – and not conditioned or forced by the other party to the NSA – to have and maintain its own strategy regarding the spectrum and band frequencies (which refers to the capacity to acquire, dispose of spectrum, the way to use it and whether the new spectrum acquired will also be subject to sharing).
• Finally, as anticipated above, and is customary in any other types of horizontal agreements (joint purchasing, R&D, joint commercialisation, etc.), exchanges of sensitive information between the participating companies must be limited to what is strictly necessary for the purposes of the agreement (necessity principle).

c) Additional guidance depending on the scope of the infrastructure sharing

On top of the guidance provided and the conditions to be met, the Horizontal Guidelines offer additional advice to the various modalities of mobile infrastructure sharing agreements:

• Passive sharing: it remains as the lightest form of cooperation which is unlikely to give rise to restrictive competition effects if the parties retain sufficient commercial independence to determine their own individual strategies in the market and .
• Active sharing: it involves higher potential risks due to the increased level of cooperation and elements shared .
• Spectrum sharing: may have a deeper impact on competition if they restrict the capacity of the parties to the NSA to differentiate their own telecommunication services and lead to a reduced competitive tension between them. Therefore, they require a more in-depth assessment of the potential risks and benefits for competition. In addition, in case of high market shares of the parties and where the NSA covers a significant part of the territory, a thorough analysis should be performed.