Investigations
Commission investigates into cooperations in the fiber-optic sector
On January 4 2011, the competition commission announced that it has launched a preliminary investigation into a cooperation agreement between Swisscom and the city of St Gallen to extend the city's fibre-optic network. The cooperation agreement was submitted to the commission, which now plans to examine the agreement in more detail amid concerns that it could reduce competition for broadband internet access. In recent months, the commission has received several notifications regarding similar cooperation in the fibre-optic sector.
The contemplated cooperation between the city of St Gallen and Swisscom provides for the construction of the fibre-optic network in that city. The intention is to lay many fibres in each area of use (ie, flats, houses and commercial premises), with the hope of guaranteeing effective competition by providing other operators with non-discriminatory access to the fibre-optic network (the so-called "multi-fibre optic model"). The agreement will guarantee Swisscom long-term access to up to two fibres per business and household. In return, Swisscom will assume around 60 % of the required investment costs as well as the maintenance and operating costs. Swisscom has claimed that the agreement will guarantee the construction of an open-access infrastructure and enable real competition while avoiding the need to lay parallel networks.
The investigation must ascertain whether the contemplated cooperation might lead to the creation of a monopoly for Swisscom in relation to the fiber-optic network in St. Gallen and, if so, whether remedies could be provided for the alternative operators – many of which are alarmed at Swisscom's rapid dominance of the fibre-optic sector in St. Gallen. Analysts estimate that Swisscom still holds a 55% share of the total broadband market in Switzerland, chiefly through its asymmetrical digital subscriber line offerings, while cable operators represent the largest portion of the competition, with a market share of just under 30%. However, while the fibre-optic sector is nascent and commands only a minor market share, Swisscom has dominated all investment and roll-out in this area.
Swiss competition law provides for a system of non-mandatory preliminary notification of potentially unlawful agreements and practices. Undertakings have the option formally to notify the commission of agreements or practices which may restrain competition before they become effective. Once such a filing is made, the undertaking may carry out the notified agreement or practice without risk of being penalised, provided that the commission does not inform the undertaking that it has opened an investigation. It is particularly advisable to file such a notification where the agreement or practice in question entails significant investment.
In recent months, the commission has received several notifications regarding cooperation arrangements between electricity distributors and Swisscom in the fibre-optic sector. The city of St Gallen is the first to have notified certain terms of its cooperation agreement with Swisscom. The Commission intends to establish, in the context of this investigation, standards for all cooperation agreements regarding the establishment and development of fibre-optic networks.
On January 27 2011, the competition commission also launched a preliminary investigation into a cooperation agreement between Swisscom and the public utility of Geneva to extend the fibre-optic network in that city and on March 3 2011, launched a similar investigation into a similar agreement between Swisscom and the public utility of Zurich. On April 15 2011, preliminary investigations were also launched into cooperation agreements between Swisscom and the cities of Basel, Bern and Luzern.
Legislation
Switzerland adopts legislation on fixed book prices
On March 18 2011, the Swiss Parliament adopted a fixed book price act. This act, which also applies to online book sales, requires in particular the publisher or importer to set the final retail price of books it publishes in, or imports into, Switzerland, retailers being then compelled to resell the books at the price so determined. The act being at the moment subject to optional referendum, the Competition Commission decided, on March 24 2011, to temporarily suspend the investigation that it had opened in parallel to the legislative process. The purpose of this investigation is to determine whether the distributors and marketers of French-language books in Switzerland hold a dominant position and, if so, whether they set their prices at an excessively high level.
In France the retail price of books is set by publishers; booksellers cannot deviate from it by more than 5 %, by virtue of the "loi Lang". When a publisher decides to sell a French-language book in Switzerland, it generally resorts to the services of a distributor or marketer who distributes or markets the books of the relevant publisher on an exclusive basis. The distributor applies a conversion rate (which he sets freely) to the French price, the price resulting therefrom being the gross price applied to the distributors and marketers (also called "Swiss recommended public price"). Such a markup is supposed to cover the expenses of book distribution and marketing in Switzerland. The distributor then grants a discount on the Swiss public recommended price to the booksellers. Contrary to French booksellers, Swiss booksellers are presently free to depart from retail prices determined by publishers or distributors.
In July 2007, the Secretariat of the Competition Commission opened a preliminary investigation into the French-language book market in Switzerland. This preliminary investigation was intended to determine whether or not the retail price differences observed between books sold in Switzerland and those sold in France (which amounted to 25-35 % at the time) was the consequence of a possible restriction on competition as defined in the Federal Act on Cartels and other Restraints of Competition ("ACart").
On March 13 2008, the Competition Commission decided to open an investigation against the distributors of French-language books operating in Switzerland. Considering that the distributors have exclusive rights to the books of the publishers by which they are contracted, books of a particular publisher cannot be purchased from another distributor or marketer operating in Switzerland. In view of this exclusivity, the Competition Commission considered that there were indications according to which the distributors of French-language books might hold, on an individual basis, a dominant position on the Swiss market and that the level of prices charged for distribution services might be regarded as abusive pursuant to Article 7 para. 2 let. c ACart. Afterwards the Commission widened its investigation to include the Swiss recommended public prices set by distributors, in order to examine whether such practices (as well as the juxtaposition of vertical agreements between distributors and booksellers) could be regarded as an illegal cartel within the meaning of Article 5 ACart.
The investigation of the Commission was opened after a parliamentary initiative had been lodged in 2004, asking the Federal Council (i.e. the Swiss government) to prepare a draft federal act regulating book prices. This parliamentary initiative resulted in the adoption, on March 18 2011, of the Federal Act regulating book prices. The purpose of the act is notably to promote the variety and quality of books, considered as cultural assets. For that purpose, the act provides that the publisher or the importer have the right to determine the final retail price of the books that it publishes or imports. Booksellers are then compelled to sell the books at the final retail price so determined. However, the act allows booksellers to grant a general discount of up to 5% on the final retail price; the act also authorises booksellers to grant discounts in a number of specific cases (sales to public libraries, sales of several copies of the same book, sales by a book sales clubs, etc.). The act entrusts the Price Supervisor with observing the evolution of book prices, conferring upon him the power to propose to the Federal Council to set by way of ordinance the maximum authorised price differences compared to prices charged abroad, taking into account the specificities of the Swiss linguistic regions (the German, French or Italian parts of Switzerland). Besides, the act provides that publishers, importers and wholesalers shall not be allowed to supply retailers, whose product range does not mainly consist of books, at lower prices or under more favourable terms than those offered to the booksellers. The act also applies to the sale of books on the Internet (but not to digital books).
Being subject to optional referendum, the act regulating book prices has not yet entered into force. The creation of a referendum committee with a view to putting the project to a public vote has already been reported in the media. The Secretariat of the Competition Commission took good note of this, and decided, on March 24 2011, to suspend the investigation procedure until the end of the referendum deadline. Thus, it cannot be ruled out that the Competition Commission wish to take account of the regime introduced by the new act on book prices in the conclusions of its investigation.
Tavernier Tschanz – April 2011
For more information, please contact Silvio Venturi (venturi@taverniertschanz.com) or Pascal G. Favre (favre@taverniertschanz.com), tel. +41 (0) 22 704 37 00.
The content of this article does not constitute legal advice and should not be relied on in that way. Specific advice should be sought about your specific circumstances.
