Turkey: The Turkish Competition Board Published Its Reasoned Decision on the Preliminary Investigation Conducted against Türk Telekomünikasyon A.Ş. and TTNET A.Ş.

The Turkish Competition Board ("Board") recently published its reasoned decision^[1] on the preliminary investigation conducted against Türk Telekomünikasyon A.Ş. ("Türk Telekom") and TTNET A.Ş. ("TTNET"). This investigation was based on Ankanet Ses Veri İletişim Ticaret Ltd. Şti.'s ("Ankanet") allegations that TTNET had extended its subscribers' effective subscription periods by up to 48 months, by allowing customers who were in the last 6 months of a subscription package to switch to a different TTNET package without paying any early termination fees through its campaigns (particularly through one campaign titled, "Hafifleten Internet Kampanyası"). According to Ankanet, such campaigns led to an increase in TTNET's competitors' costs for gaining new subscribers from TTNET, as they would have to bear their potential customers' early termination fees. Ankanet also alleged that the relevant campaigns would result in below-cost prices for TTNET.

Türk Telekom is a commercial undertaking which offers fixed phone, mobile phone, data and internet-related and value-added services in Turkey. TTNET is established as the internet service provider ("ISP") of Türk Telekom Group. It is also authorized by the Information and Communication Technologies Authority ("ICTA") to operate within the fields of infrastructure operation services, cable-TV services, fixed phone services, virtual mobile network services, satellite communication services, and satellite platform services. Moreover, Türk Telekom is authorized by the Radio and Television Supreme Council ("RTSC") to provide services in the fields of cable broadcast platform operation and satellite broadcast platform operation. TTNET also provides pay-TV services through OTT (Over The Top), IPTV (Internet Protocol Television), and satellite technologies. Ankanet is also an ISP company, which offers fixed broadband internet services in Ankara through fixed wireless broadband access infrastructure.

In its assessment, the Board started out by defining the relevant product markets related to the wholesale and retail levels of the broadband internet services market. In this regard, and by referring to one of its previous decisions^[2], the Board stated that, even though mobile internet speeds and the related data consumption rates had increased due to the introduction of 4.5G technology, the mobile internet network still could not be considered as a substitute for fixed broadband internet services, and that the characteristics of the subscription packages for mobile and fixed broadband services are quite different from one another. In light of the above, the Board defined the retail level of the relevant market as "retail fixed broadband internet access services market," comprising DSL, cable, and fiber technologies. Furthermore, by once again making reference to its past decisions^[3], the Board defined the relevant product market related to the wholesale level as "wholesale fixed broadband internet access services.". Finally, the Board defined the relevant geographical market as "Turkey."

Subsequently, the Board evaluated the allegations put forth in the case file, and indicated that the relevant allegations should be assessed within the scope of Article 6(a) of the Law No. 4054 on the Protection of Competition ("Law No. 4054") (prohibiting abuse of dominance), which defines abuse of dominance as follows: "Preventing, directly or indirectly, another undertaking from entering into the area of commercial activity, or actions aimed at complicating the activities of competitors in the market." In this regard, the Board began its investigation by assessing whether Türk Telekom and TTNET were in a dominant position in the "wholesale fixed broadband internet access services market" and in the "retail fixed broadband internet access services market."

With regards to its assessment on the wholesale level, the Board made reference to its decision No. 13-71/992-423 and dated 19 December 2013, in which it had indicated that, due to Türk Telekom's significantly high level of market share, as well as several other factors, including (i) considerably high and costly investments made with respect to the access networks, which constitute sunk investments, (ii) the existence of significant administrative and legal barriers to network investments, (iii) the existence of high levels of economies of scope and scale, (iv) the lack of other ISPs' buyer power compared to Türk Telekom, and (v) Türk Telekom being deemed as an undertaking with efficient market power by ICTA, Türk Telekom was ultimately determined to be in a dominant position within the wholesale fixed broadband internet access services market. The Board found that since the date of its earlier decision (i.e., 19 December 2013), there had not been any developments in the sector that could alter the Board's assessment as summarized above. Accordingly, the Board decided that Türk Telekom was still in a dominant position within the "wholesale fixed broadband internet access services market." With regards to the retail level, due to several factors such as, (i) TTNET's disproportionately high market share compared to its competitors, (ii) barriers to entry within the relevant market, (iii) low level of buyer power, and (iv) the evaluations and assessments made in previous Board decisions^[4], the Board decided that TTNET was in a dominant position within the "retail fixed broadband internet access services market."

Consequently, the Board proceeded to carry out its assessment regarding TTNET's campaigns that involve subscription durations and commitment periods. First, the Board indicated that, since ICTA had not declared TTNET to be an undertaking with efficient market power, TTNET's campaigns similar to the campaign titled "Hafifleten Internet Kampanyası" were, thus, not subject to ICTA's regulatory activities. However, the content, commitment periods, and prices of the campaigns in question were determined according to the competitive conditions within the relevant market. In this respect, the Board stated that, even though TTNET's competitors also offer campaigns and subscription packages similar to those offered by TTNET, since TTNET is in a dominant position within the "retail fixed broadband internet access services market," it is entrusted and encumbered with a set of obligations deriving from its dominant position within the framework of competition law. The Board asserted that, due to TTNET's vertically integrated structure, it may have the opportunity to use the wholesale internet service that it procures from the undertaking with which it is vertically integrated within the upstream market, for the purpose of selling the relevant service in the downstream market below cost or subsidizing its damages in the downstream market with its revenues from the upstream market (i.e., margin squeeze theory). Moreover, the Board assessed the argument that lengthy commitment periods (such as the 48-month commitment period of the TTNET campaign in this case) may give rise to competition law concerns by way of increasing the costs imposed on its competitors in their pursuit of new customers and, therefore, lead to market foreclosure. In this regard, the Board indicated that, in line with the allegations under review in this case, its dual assessment would consist of evaluating the following: (i) TTNET's increasing its subscription commitment period to 48 months, and (ii) whether these campaigns gave rise to below-cost price applications in the retail internet services market.

With regards to the lengthy commitment periods and exclusivity terms, the Board carefully assessed the previous Commission decisions, as well as the Guidelines on the Assessment of Abusive Conduct by Undertakings with Dominant Position ("Guidelines"), and came to the conclusion that the following criteria had been taken into consideration, by both earlier decisions and the Guidelines, for the purposes of evauating long-term exclusivity agreements in terms of market foreclosure: (i) the ratio of the dominant undertakings' sales that is derived from exclusivity agreements to the total sales in the market, (ii) the duration of the exclusivity agreement, (iii) the general competitive outlook in the relevant market, particularly with regards to entry barriers, and (iv) the existence of efficiency justifications which contribute to the welfare of the consumers.

With regards to the question of whether the TTNET campaigns under review gave rise to below-cost pricing in the retail internet services market, the Board indicated that the relevant analysis can be performed within the framework of margin squeeze theory (that is, a kind of below-cost pricing), in light of the fact that TTNET, which is in a dominant position within the downstream market, belongs to the same economic entity as Türk Telekom, which is itself in a dominant position within the upstream market. Furthermore, the Board declared that, in its decisional practice and literature, the common competition law concern regarding long-term agreements with exclusivity and margin squeezing features is whether a large portion of the market is foreclosed to the competitors due to the foreclosure effects of such agreements on the customers. Therefore, in order to determine whether or not TTNET had engaged in a margin squeeze maneuver through the relevant campaigns, the Board conducted a revenue- cost analysis for the campaign in question and examined the effects of this campaign on the relevant market. Following its analysis, the Board stated that it had found no evidence suggesting that TTNET had applied below- cost prices by taking advantage of either (i) its dominant position in the retail fixed broadband internet access services market, or (ii) the fact that it is part of the same economic entity as Türk Telekom. The Board further stated that it had found no evidence suggesting that TTNET had applied margin squeezing between the downstream and upstream markets, which could not be matched by its competitors. As a result of its analysis regarding the effects of TTNET's campaign in the relevant market, the Board determined that the number of subscribers who had switched their subscription packages as a result of the "Hafifleten Internet Kampanyası" campaign (and other proactive campaigns) was limited during the period under review, and that the portion of the market that was closed to competition as a result was not broad or extensive enough to arouse competition law concerns. Therefore, the Board concluded that the lengthy commitment periods in the TTNET campaign under review did not lead to market foreclosure.

In light of the evaluations above, the Board did not find it necessary to initiate a full- fledged investigation concerning the allegations against TTNET.

This article was first published in Legal Insights Quarterly by ELIG, Attorneys-at-Law in September 2017. A link to the full Legal Insight Quarterly may be found here

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