R (T-Mobile (UK) Ltd) v Competition Commission
| Jurisdiction | England & Wales |
| Judge | MR JUSTICE MOSES,‘MR JUSTICE MOSES’ |
| Judgment Date | 27 June 2003 |
| Neutral Citation | [2003] EWHC 1566 (Admin) |
| Court | Queen's Bench Division (Administrative Court) |
| Docket Number | Case No: CO/1192/03 CO/1308/03 CO/1536/03 |
| Date | 27 June 2003 |
[2003] EWHC 1566 (Admin)
IN THE HIGH COURT OF JUSTICE
QUEENS BENCH DIVISION
ADMINISTRATIVE COURT
Royal Courts of Justice
Strand, London, WC2A 2LL
The Honourable Mr Justice Moses
Case No: CO/1192/03 CO/1308/03 CO/1536/03
The Queen On The Application Of
Mr John Swift QC, Mr Michael Fordham and Mr Meredith Pickford (instructed by Allen & Overy) for T-Mobile (UK) Ltd
Mr Ian Glick QC, Mr Javan Herberg and Mr Andrew George (instructed by Herbert Smith) for Vodafone Ltd
Mr Mark Brealey QC and Marie Demetriou (instructed by Field Fisher Waterhouse) for Orange Personal Communications Services Ltd
Mr Thomas Sharpe QC and Mr Matthew Cook (instructed by The Treasury Solicitor) for the Competition Commission
Mr Richard Fowler QC, Jemima Stratford and Kelyn Bacon (instructed by The Treasury Solicitor) for The Director General of Telecommunications
Mr David Pievsky (instructed by Freshfields) for 02
Mr Philip Sales and Mr Ben Hooper (instructed by Treasury Solicitor) for The Department of Trade and Industry
Introduction
1. Call termination, at issue in the present case, is a form of interconnection provided by each mobile network operator (“MNO”) on a wholesale basis to other network operators (both fixed and mobile). This allows customers of the other networks to call customers of the MNO's network. About 70% of such calls are from a fixed network.
2. The Director General of Telecommunications (“the Director”) proposed price controls on the charges for terminating calls made by all four operators. On its reference to the Competition Commission (“the Commission”), the Commission took the view that the charges exceeded its assessment of a fair charge and recommended a cap.
3. T-Mobile (formerly One2One), Vodafone and Orange challenge the Commission's recommendations. They also challenge the Director's imposition of such caps by way of licence modifications and proposal to continue such regulation after the new European regime falls to be implemented on 25 July 200That new regime came into force on 24 April 2002, in the period between the Director's reference and the publication of the Commission's Report in December 2002 (“the Report”). The Director's actions were based upon the Commission's recommendations.
4. At the heart of the dispute between the Commission, the Director and the three claimant operators lay a difference of approach as to the use of revenue derived from termination charges. The rate charged by the operators enables them to use the revenue to attract new subscribers to their networks by, for example, offering cheap or free handsets. The Commission takes the view that such subsidies should not be raised at the expense of the users of fixed networks. But it accepts that there is some social benefit in expanding the mobile network as a whole.
5. I am most grateful to all the parties for drafting, with some minor exceptions, the following factual and legislative introduction.
Legislative framework
6. The telecommunications sector is highly regulated, both at national level and at EU level – in the latter case primarily by a number of Directives, which have been transposed into domestic law. The regulatory regime is, however, in a state of transition. On 24 April 2002, a number of Directives were published in the Official Journal of the European Communities which set out a wholly new, harmonised regime for the telecommunications sector in the EU. The new Directives entered into force on their date of publication (24 April 2002), but require their significant changes to be implemented and applied no later than 25 July 2003.
Current legislative regime – basic provisions
7. Under the current legislative framework, every telecommunications network operator requires a licence under the Telecommunications Act 1984 (“the 1984 Act”). The conditions of each licence are set by the Secretary of State and the Director pursuant to the duties imposed upon them by the 1984 Act.
8. The overriding duties of the Secretary of State and the Director, in exercising their functions under the 1984 Act, are set out in Section 3 of the Act. These consist of a primary duty in Section 3(1) to ensure that services satisfy all reasonable demand, and that the operators are able to finance the provision of the services, and a secondary duty in Section 3(2) to take into account specific public interest considerations.
9. Section 7(3) of the 1984 Act provides that a licence may be granted either to all persons, to persons of a particular class, or to a particular person (known as an “individual licence”). All four MNOs operate their networks under individual licences.
10. Section 7(5)(a) of the 1984 Act permits licences to be granted subject to conditions imposed by the Secretary of State or the Director, having regard to the Section 3 duties and specified EU legislative provisions. The relevant UK statutory provisions have been adjusted, where necessary, to implement EU legislation. Since the 1990s, various Directives have been adopted to establish common principles for the licensing regimes in the individual Member States. For present purposes, the most important are Directives 97/13 and 97/33.
11. Directive 97/13, known as the “Licensing Directive”, sought to provide a common framework for telecommunications services licensing in the EU. Recognising the different types of licensing systems in the various Member States, it set out provisions governing both the grant of individual licences (such as those held by the MNOs), and general authorisations, which permit the provision of services and/or the establishment of networks without an explicit decision by the national regulatory authority (“NRA”).
12. Pursuant to Article 3(2), the conditions which may be attached to authorisations are those listed in the Annex to the Licensing Directive. These include conditions which may be attached to all authorisations, conditions which may be attached to general authorisations, and conditions which may be attached to individual licences. Article 8(1) provides that individual licences may, where justified, include all three types of conditions.
13. Directive 97/33, known as the “Interconnection Directive”, sets out specific principles designed to promote interconnection of public telecommunications networks. These include, in particular, provisions concerning the pricing for interconnection, and the responsibilities (both rights and duties) of NRAs. The Interconnection Directive provides in Article 4(3) that an organisation is presumed to have SMP (“SMP”) if it has a share of more than 25% of a particular telecommunications market in the geographical area in a Member State within which it is authorised to operate. The Interconnection Directive governs the specific conditions under which the Director may regulate call termination charges.
Current legislative regime – licence modifications
14. Article 8(4) of the Licensing Directive makes clear that Member States may amend the conditions attached to an individual licence in objectively justified cases and in a proportionate manner.
15. The specific UK provisions for modification of licences are set out in Sections 12–15 of the 1984 Act. Sections 12 and 12A provide for the case where a modification is agreed by the licensee.
16. In the absence of agreement, a modification may be made following a reference to the Commission under Sections 13. Section 14(1) sets out the duties of the Commission in making a report following a Section 13 reference. Finally, Section 15 sets out the duties of the Director following a Commission report.
17. Pursuant to these provisions, the Director has implemented the proposals of the Commission by modifications to the MNOs' individual licences, which were made on 4 April 2003. The modifications require that, by 24 July 2003, the MNOs must reduce their “Average Interconnection Charge” so that it does not exceed a defined “Target Average Charge”.
New legislative regime
18. The current EU legislative regime is to be replaced from 25 July 2003 by a package of measures designed to harmonise and, to a certain extent, deregulate the authorisation of telecommunications networks and services. The relevant provisions for present purposes are contained in Directive 2002/21 – the “Framework Directive”, Directive 2002/20 – the “Authorisation Directive” and Directive 2002/19 – the “Access Directive”.
19. The most significant change is the structure of regulation – under the new regime, Member States are no longer permitted to grant individual licences, but are required to grant general authorisations for telecommunications networks and services (Article 3(2) of the Authorisation Directive).
20. Member States may continue to impose obligations and controls upon undertakings providing telecommunications services, including price controls (Article 13 of the Access Directive). However, the imposition of price controls under that Article is subject to two key conditions.
21. First, the NRAs must designate the relevant undertakings as having SMP (Article 8(3) of the Access Directive). SMP under the new regime equates to the concept of dominance in Article 82 EC (see Article 14(2) of the Framework Directive). Articles 15–16 of the Framework Directive set out the procedure for the determination of SMP. In essence:
a. The European Commission must adopt a Recommendation identifying product and service markets whose characteristics...
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