July 11, 2013

European Union Launches Surprise Investigations of ISPs over Antitrust Concerns


If nothing else, you have to recognize the European Union (EU) for its aggressive posture on antitrust matters. While the catalog of industries being looked at is extensive, all things involving tech industry market behaviors—from search to operating systems to service provider practices—are increasingly under the microscope. That gaze got close and personal with the revelation that the European Commission’s (EC’s) antitrust arm launched surprise investigations early this week of several telecoms firms suspected of abusing their Internet Service Provider (ISP) positions, with heavyweights Orange, Deutsche Telekom and Telefonica identified as those being looked at.

The EC said in a statement that its anti-trust officials had made the "unannounced inspections" on July 9 to determine if companies are illegally leveraging their dominant roles as wholesale ISPs to the detriment of smaller competitors.  While the EC did not name names, the companies rumored to be under investigation either directly or inadvertently confirmed that they are targets.

  • France’s Orange said it was "currently the target of a probe by European Commission services" whose staff had visited several Orange sites. The investigation "could last several days", according to a company spokesperson. They also said that they had been cleared of previous accusations of wrongdoing in a national investigation.
  • Spain's Telefonica stated that "in relation to the inspections announced today by the European Commission, Telefonica is closely cooperating with the Commission as it is common practice in the company."
  • German Deutsche Telekom said it was "very surprised by these new probes into Internet communications." The company went on to say that, like Orange, previous allegations of abuse had “proved to be without foundation” during previous national investigations.

On its part, the EC said it "has concerns" the companies "may have violated EU anti-trust rules that prohibit the abuse of a dominant market position". However, they were careful to state that the surprise inspections are only a preliminary look into suspicions of anticompetitive practices and do not imply that companies are guilty of such possible antitrust activities.

At issue are the sharing arrangements on traffic exchange. While the exchange of wholesale peer-to-peer traffic historically has been free, due to instances of asymmetric traffic, ISPs have asked for compensation when large imbalances occur. This is about cost causers being cost bearers, but there has been growing contention regarding these payments in general and their use/abuse to deter competition specifically.    

As widely cited, the EC did note that the length of the investigations will depend on the complexity of each case, the degree of cooperation from each party and the extent to which the companies exercise the rights of defense.

Where all of this eventually leads is problematic. While the parties that have been indentified are certainly major players and fall under the jurisdiction of the EC, the Internet is a global network, and there are many non-European entities, notably ISPs in the US, who are beyond the EC’s reach. Punishing just those in Europe is sure to raise more than a few eye-brows on both sides of the Atlantic. 

What the investigations do highlight is the challenge that regulators face when major companies are big in both the wholesale and retail sectors and how to police their behavior so they are not showing favoritism or using market power in terms of pricing to significantly disadvantage competitors. It is also why national probes, even transborder ones involving a region like Europe, tend to have more bark than bite, since this literally is a global issue. In fact, it will be interesting to see what the investigations reveal in terms of not just individual behavior but also if, and to what extent, there is collusion amongst wholesalers. Stay tuned.




Edited by Blaise McNamee



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