The Spanish Competition Authority imposes a €1.74 million fine on Nokia in respect of “margin squeeze” practices
- 12/06/2017
- Articles
On 8 June 2017, the Spanish Competition Authority (“CNMC”) imposed a €1.74 million fine on Nokia Solutions and Networks Spain (“Nokia”) for abusing its dominant position by engaging in margin squeeze during a tender process organised by the national railway operator Administrador de Infraestructuras Ferroviarias (“ADIF”). The infringement was found to be in violation of Article 2 of the Spanish Competition Act and Article 102 TFEU.
In July 2014, ADIF organised a tender process for the renewal and maintenance of GSM-R facilities on Spain’s high-speed rail tracks. GSM-R facilities consist of equipment installed on trains and tracks to provide a digital communication system between train and railway control centres.
Prior to the tender, all maintenance of installed GSM-R facilities was directly carried out by the manufacturer. In this context, Nokia had manufactured and been responsible for the maintenance of the vast majority of GSM-R facilities installed in Spain, holding a market share of 85%. Conversely, Kapsch was found to have manufactured and maintained the remaining 15%.
The terms of the tender required bidders to present a commitment letter from manufacturers of the installed GSM-R facilities, guaranteeing that they would assist with additional technical support in their maintenance. As an alternative to presenting the letter, the bidder could replace the installed GSM-R facilities with its own equipment, but assuming its own costs.
Nokia and Kapsch were the only two companies to compete in ADIF’s tender process. Neither of them provided each other with the commitment letter that would enable its rival to bid for the tender. Instead, they sent each other a proposal with the prices that they would charge as subcontractor for the supply of technical support. Nokia charged a very high price for its sub-contracting services, and as a consequence, in October 2014, Kapsh withdrew from the tender process because it was unable to compete with Nokia’s low priced tender for maintenance services. After the contract was awarded to Nokia in December 2014, Kapsch brought a complaint to the CNMC.
The CNMC found that Nokia had taken advantage of its dominant position by fixing a very high wholesale price in the upstream market for the supply of technical support and spare parts to assist in the maintenance of Nokia’s GSM-R facilities. At the same time, it charged competitive retail prices in the down-stream market for the maintenance of GSM-R facilities. The CNMC used the “as efficient competitor test” to establish that Nokia’s strategy rendered it uneconomic for other competitors, including Kapsch, to enter the tender process.