Ofcom recommends part separation of Openreach and BT

Ofcom has issued a progress report recommending a partial separation of BT Group from its internet infrastructure business, Openreach.  But this measure is short of the full unbundling that BT’s competitors have been pushing for.

Ofcom began its review of digital connection capacity in March last year.  Early in 2016 it said that Openreach should be more independent from BT so as to deliver necessary investment in high-speed broadband infrastructure over the next decade.

Ofcom is seeking to open up Openreach’s ducts and poles to allow competitors to connect their own systems.

Current regulations require Openreach to allow access to all customers on non-discriminatory terms.  Ofcom believes that BT still has the ability and incentive to make investment decisions that favour its own retail operations, rather than the network as a whole.

Under the proposal Openreach would be a separate company with its own board but the size of its budget would ultimately be controlled by BT.

This semi-separation might be seen as a cautious move by Ofcom.  A full divestment would take time and create potential for market disruption.  But the proposed approach will leave many disappointed by leaving investment decisions in the hands of BT, albeit, such decisions would need to be made in the interests of all Openreach customers.  If Ofcom is not satisfied that it can hold BT accountable under the new model or roll-out, speeds and service fall short of expectations, a full separation might need to be considered.

Ofcom press release and progress update: supporting investment in ultrafast broadband networks, 26 July 2016

Google faces new and renewed EU antitrust objections

The European Commission has sent two further Statements of Objections to Google. In a supplementary Statement of Objections, the Commission has supported its preliminary conclusion that Google has abused its dominant position by systematically favouring its comparison shopping service in its search result pages.

In a separate set of objections, the Commission has set out its preliminary view that Google has abused its dominant position by artificially restricting the possibility of third party websites to display search advertisements from Google's competitors.

EU Commissioner Vestager has stated that Google has developed “incredible and innovative products” but that this does not give it the right to deny others the opportunity to innovate and compete. 

In the shopping comparison search case the Commission has rejected Google’s argument that websites such as Amazon and eBay compete with Google’s shopping service and it views these players more as customers than competitors.  Commissioner Vestager maintains that even if the Commission accepted Google’s market definition, its practices would still have restricted competition.

In the new advertising objections the Commission claims that Google has an 80 per cent share of the EEA search advertising market through its AdSense platform.  The Commission is concerned that Google has restricted how third parties obtain and use advertising from its competitors through a range of practices: requiring third parties not to source search ads from Google's competitors; requiring third parties to take a minimum number of search ads from Google and reserve the most prominent space on their search results pages to Google search ads; and requiring third parties to obtain Google's approval before making any change to the display of competing search ads.

The Commission has not provided a timeline for conclusion of these cases.

Scene set for UK’s largest opt-out collective action

MasterCard faces a £19 billion action for damages on behalf of consumers who were overcharged as a result of its interchange fees on payment transactions.  Press reports suggest that a claim is about to be brought by Quinn Emanuel in the Competition Appeal Tribunal which would be the second opt-out collective action to be brought under the UK’s new competition law damages regime introduced with effect from 1 October 2015.

The proceedings have a long administrative history dating back at least to the December 2007 European Commission infringement decision against MasterCard in relation to its cross-border multilateral interchange fees (MIF).  The Commission found that MasterCard had infringed Article 101 TFEU in that the MIF arrangements restricted competition between acquiring banks and increased the costs of accepting cards without leading to efficiencies within the meaning of Article 101(3) TFEU.  On 11 September 2014, the Court of Justice dismissed the appeal and cross-appeals challenging a General Court judgment that upheld the Commission’s original decision.

Assuming that the CAT grants a collective proceedings order, the case would test the boundaries of the new regime. The affected class is potentially extensive comprising all consumers and, conceivably, not only MasterCard holders who paid increased prices for their goods and services as a result of the practices.  This is also an indirect purchaser action for a huge sum of money. 

On paper, it appears to be just the type of case that the new regime was expected to encourage.  However, it can be expected that the case will be fiercely contested as the administrative proceedings have been.  While the trial is not expected to begin until 2018, potential claimants and class representatives in other cases will be watching developments closely.