## Facts

- Deutsche Telekom AG (DT) was Germany’s incumbent fixed-line operator, vertically integrated and controlling the local access network (local loop).
- After liberalization, DT was required to provide competitors wholesale access to the local loop while also competing downstream in retail fixed-line access for end-users.
- DT’s wholesale and retail tariffs were subject to ex ante national regulation (approvals, caps, and/or tariff setting by the German regulator).
- The European Commission found DT dominant in (1) wholesale local loop access and (2) retail access services, and concluded that from 1998 to 2003 DT implemented an abusive margin squeeze.
- The Commission determined the spread between DT’s wholesale access charges and its retail access prices was negative or insufficient to cover DT’s own downstream, product-specific retail costs, preventing an as-efficient rival from competing profitably.
- The Commission imposed a €12.6 million fine; DT sought annulment or, alternatively, reduction of the fine before the General Court.

## Issues

1. Whether a dominant firm can be held liable under Article 82 EC for a margin squeeze when wholesale and retail tariffs are regulated or approved by a national regulator.
2. Whether margin squeeze constitutes a stand-alone abuse of dominance distinct from predatory or excessive pricing.
3. Whether the Commission had to prove actual or likely foreclosure effects beyond showing an insufficient wholesale-retail margin, and whether using DT’s own costs for an “as-efficient competitor” test was lawful.
4. Whether DT acted intentionally or negligently and whether the fine was proportionate given the regulatory setting and asserted legal uncertainty.

## Decision

- The General Court dismissed DT’s action and upheld the Commission decision and the €12.6 million fine.
- Regulation did not preclude liability because Article 82 EC remains applicable unless national rules require the anticompetitive conduct or eliminate all scope for autonomous conduct; DT retained sufficient discretion, particularly over retail pricing, to avoid or reduce the squeeze.
- Margin squeeze was confirmed as a distinct form of abuse: an unfair wholesale-retail spread can be abusive even if wholesale prices are not excessive and retail prices are not predatory when assessed separately.
- The Commission lawfully applied an as-efficient competitor analysis using DT’s own downstream costs and upheld the Commission’s margin calculations and cost allocation choices.
- The Commission was not required to show additional concrete evidence of downstream foreclosure once the established margin squeeze was inherently capable of restricting competition.
- DT was at least negligent because it could reasonably foresee that its pricing structure risked infringing Article 82 EC despite regulatory involvement.

## Legal Principles

- EU competition rules do not yield to sector regulation unless national measures require the anticompetitive conduct or leave no room for independent commercial behavior.
- A margin squeeze occurs where the difference between a dominant firm’s retail prices and its wholesale access charges is negative or insufficient to cover the firm’s product-specific downstream costs.
- Margin squeeze is a stand-alone abuse under Article 82 EC and does not depend on showing predatory retail pricing or excessive wholesale pricing in isolation.
- In assessing margin squeeze, it is permissible to use the dominant firm’s own costs to test whether an as-efficient competitor could compete profitably.
- Where a margin squeeze is established in circumstances indicating it is capable by its nature of restricting competition, additional proof of actual foreclosure effects is not required.
- Regulatory approval of tariffs does not negate fault where the undertaking retains discretion and remains independently obligated to comply with EU competition law.

## Conclusion

The General Court held DT liable for an abusive margin squeeze under Article 82 EC notwithstanding tariff regulation, confirmed margin squeeze as an independent abuse assessed via an as-efficient competitor test using the dominant firm’s costs, and sustained the Commission’s finding of at least negligence and the €12.6 million fine.


Deutsche Telekom AG v. Commission, Case T-271/03, 2008 E.C.R. II-477 (Gen. Ct. 2008)