By Pierre Turrettini Swiss Lawyer
This week, the Swiss Competition Commission (COMCO) imposed a fine of 71.8 million Swiss Francs on Swisscom AG, the main telecommunications provider in Switzerland!
The Swisscom group and its subsidiaries (CT Cinetrade AG and Teleclub AG) are accused of having a dominant market position and abusing it with respect to live broadcasting of Swiss football and ice hockey championship games, as well as certain foreign football leagues on pay TV.
In its media release of 24 May, 2016, COMCO indicated that Swisscom has a dominant market position, because its subsidiary, CT Cinetrade AG, owns long-term and comprehensive exclusive rights to broadcast sports content on Swiss pay TV.
According to COMCO, Swisscom refused to supply some competitors with broadcasts of live sports for their platforms and only granted access to a reduced range of sports content to other competitors. In addition, Swisscom required some competitors to offer only their customers the sports content in combination with the basic package of Teleclub, which is a property of CT Cinetrade AG. From such illicit practices, Swisscom gained an unfair competitive advantage in the TV platform market.
On the very same day, Swisscom denied these allegations through its own press release, maintaining that the sanction is unjustified.
According to Swisscom, Swiss broadcasting rights are periodically awarded in an open and transparent manner, so that other cable operators can participate, as in many other countries. The high levels of investment that Swisscom made in recent years in order to increase the attractiveness of sports broadcasts for pay TV justified and expanded sports offering via the Swisscom TV platform. This is the only way in which the investments can be sufficiently protected in Swisscom’s opinion.
Competition Law in Switzerland is regulated by the Federal Act on Cartels and other Restraints of Competition (Cartel Act - CartA).
Regarding unlawful practices by dominant undertakings, Article 7 par. 1 of CartA provides that dominant undertakings behave unlawfully if they, by abusing their position in the market, hinder other undertakings from starting or continuing to compete, or disadvantage trading partners. Refusing to deal (e.g. to supply broadcasts); imposing unfair trade conditions; or limiting supply all constitute unlawful behaviour under Article 7 par. 2 of CartA and, according to COMCO’s media release, Swisscom engaged in every one of these practices.
Under Article 49a par. 1 of CartA, an undertaking found to have abused its dominant market position will be fined up to 10% of the turnover that the undertaking made in Switzerland in the preceding three financial years. The exact amount is calculated, taking into account the duration and severity of the unlawful behaviour and the likely profit resulting from it. However, if the undertaking assists in the discovery and elimination of the restraint of competition, the charge may be waived in whole or in part (Article 49a par. 2 of CartA).
Civil measures may also be requested by a third party. A person hindered by the unlawful restraint of competition is entitled to request
- a) the elimination of or cessation of the hindrance;
- b) damages; or
- c) the return of the unlawfully earned profits (Article 12 par. 1 of CartA).
To date, the media have not revealed whether any competitors have requested any such measures.
That being said, Article 7 par. 1 of CartA (coupled with Article 49a par. 1 of CartA) can apply only in a situation where the four (4) following conditions are met :
- It must concern an undertaking, which is defined as « all consumers or suppliers of goods or services active in commerce regardless of their legal or organisational form » (Article 2 par. 1bis of CartA) ;
- The undertaking must have a dominant market position, which happens when one or more undertakings in a specific market are able, as suppliers or consumers, to behave - to an appreciable extent - independently of the other participants in the market (i.e. competitors, suppliers or consumers) (Article 4 par. 2 of CartA) ;
- An unlawful practice must have occurred (Article 7 par. 2 of CartA gives a non-exhaustive list of such practices) ; and
- If the three above-mentioned conditions are met, there must be no legitimate business reasons for the undertaking’s practices.
The last condition is not included in the Cartel Act, but results from its interpretation.
In such dominant position cases, the undertaking has the burden of proving that its practice has a legitimate business reason.
In the present case, it seems relatively clear that the three first conditions are met. Swisscom is an undertaking with a market share of more than 60% and its practices regarding live sports broadcasting on pay TV are at least controversial, if not unlawful. However, if Swisscom can prove that its practices have legitimate business reasons, its planned appeal of the decision before the Federal Administrative Court, and, if necessary, the Federal Supreme Court, might be successful.
What is interesting is that the COMCO’s decision comes at a time when broadcasting rights for the 2017/2018 football and ice hockey seasons are currently being auctioned. This decision (even if not yet final) could have an impact on the amount paid for the new broadcasting rights, as parties may decide to reduce their offers in the light of the decision.
Instead of acting as it did and, in order to prevent such repercussions, COMCO could have collaborated with all the competitors of the particular market to eliminate the current restraints and thus create an amicable settlement.
This is allowed by Article 29 par. 1 of CartA and would have certainly benefited both the broadcasters and the sports fans!