CMA gives provisional clearance to SSE-Npower merger

The Competition and Markets Authority has provisionally cleared the combination of SSE and Npower, unconditionally and following a Phase II review.

The merger combines the supply activities of SSE Retail and Npower but does not extend to other aspects such as energy and distribution.

The second stage probe was launched on the basis of concerns that the transaction would lead to price increases in standard variable tariffs.  However, the CMA does not consider that such concerns are substantiated as the parties are not closest competitors.  This finding is interesting in light of the CMA’s 2014-2016 energy market reference which found that customers on standard variable tariffs were less likely to switch.  During the merger review the CMA found that the proportion of customers on such tariffs has now decreased. Those that do switch were found not to switch between the merging parties.

In the 2017-2018 period the CMA has cleared five transactions at Phase II without remedies.  Two transactions have been cleared with structural commitments. 

Against this background, merging parties in high value more complex deals may well consider that it is in their interests to fast-track to Phase II where the issues can be looked at more closely.  They will have to weigh up the costs and the benefits of trying to secure faster clearance at Phase I potentially subject to remedies against taking their chances with Phase II, where they may come through without remedies.  The CMA is expected to issue its final report by 22 October 2018.

Ofcom fines Royal Mail £50 million for abuse of dominance

Ofcom fines Royal Mail £50 million for abuse of dominance

Ofcom has found that Royal Mail has breached the Chapter II prohibition of the Competition Act and Article 102 TFEU through unlawful discrimination against rival postal delivery operators.

Ofcom launched its investigation in 2014 after a complaint from Whistl, a provider of bulk mail services, concerning a proposed change in Royal Mail’s wholesale access prices.  Whistl was planning to build its own delivery network but relied on Royal Mail to deliver business letters that it collected and sorted.

The proposed pricing structure meant that if the firm wanted to begin bulk delivery itself in certain regions, it would have to pay Royal Mail 1.2 per cent more per letter than those firms who used Royal Mail to deliver mail across the UK.  Ofcom considered that Royal Mail had used its quasi-monopoly position as a provider of delivery services to sanction operators who entered into competition with it.

Royal Mail and Whistl had asked Ofcom to consider the case using Ofcom’s sector regulatory powers but Ofcom instead decided to use its competition powers.

The £50 million fine is the largest fine to be imposed by Ofcom.

Royal Mail has said that it will appeal against the decision.

Meanwhile, Royal Mail is embroiled in antitrust litigation itself through a follow-on action arising out of the European Commission’s July 2016 decision against the EEA trucks cartel.  It is seeking some £270 million in damages against DAF Trucks undertakings as a result of the overcharge it allegedly paid for trucks.

Ofcom press release, 14 August 2018

Public interest immunity material cannot be disclosed on an application to challenge a warrant

The Court of Appeal has allowed an appeal by the Competition and Markets Authority (CMA) against a High Court ruling that required the CMA to disclose evidence that was not protected by public interest immunity (PII) to a party seeking to vary a warrant granted to the CMA under section 28 of the Competition Act 1998.

The warrant in question relates to the CMA’s investigation of possible infringements of competition law by Concordia International RX.

The High Court had held that a judge on an application to challenge a warrant could not take into account material protected by PII even where the judge who issued the warrant had properly taken it into account.  The High Court ruled that PII issues should be addressed at the initial ex parte hearing and that a confidentiality ring could not be used to disclose PII material.

In light of the Supreme Court judgment in Haralambous in January 2018, Concordia accepted that the CMA can use PII material to support its case for a warrant. 

The Court of Appeal departed from the High Court and ruled that the appropriate time for the court to rule definitively on PII is when the application is made by the subject of the warrant for it to be set aside or varied.  The Court of Appeal confirmed that the use of a confidentiality ring in relation to the challenging of warrants in competition cases has no place in relation to PII material.

It is now for the CMA to make submissions to the High Court that the evidence it relied on to obtain the warrant qualifies for PII protection.  The High Court will decide whether the grant of the warrant was correct.  This will determine whether the CMA can continue to rely on the material in its ongoing investigation without disclosing it.

The Competition and Markets Authority v Concordia International RX (UK) [2018] EWCA Civ 1881

High Court refuses judicial review of Ofcom’s ‘fit and proper’ decision in Fox-Sky merger

 

The High Court has dismissed an application for judicial review of Ofcom’s decision that a proposed merger between Fox and Sky would result in Sky not being a fit and proper person to hold its broadcasting licences.

The transaction would result in Fox obtaining 100% of Sky and takes place against allegations of impropriety against Fox. Ofcom found that the conduct alleged of Fox represented a significant corporate failure but that there was insufficient evidence to conclude that, after the merger, Sky would be unfit to hold its broadcasting licences.

The High Court found no error of law in applying the fit and proper test, which was a matter for Ofcom’s judgment. Ofcom must be satisfied that its decision was necessary and proportionate to the interference with freedom of speech that would be a consequence of licence revocation. This is a high threshold and the High Court ruled that it was not irrational to adopt such a standard when deciding whether to revoke a licence of a broadcaster whose businesses depended on the statutory permission.

The High Court also found that it would not lightly interfere with Ofcom’s regulatory judgment. Sky and Fox had shown that they were fit and proper to hold broadcasting licences for several years and Ofcom was not satisfied that there was sufficient evidence to show that Sky would not comply with broadcasting regulation after the merger. The High Court rejected the claim that Ofcom did not give sufficient weight to Fox’s corporate failures as a predicator of future failings. It also dismissed the claim that Ofcom had taken insufficient account of findings while James Murdoch was chairman of Sky in 2012.

The decision is a reminder of the high threshold for judicial review and where significant latitude is afforded to the specialist regulator.

Avaaz Foundation, R (On the Application Of) v The Office of Communications (Ofcom) [2018] EWHC 1973 (Admin), 27 July 2018. (Supperstone J)