T-Mobile (UK) Ltd & Ors, R (on the application of) v Competition Commission & Anor

Under the telecommunications directives then in force, price controls could be imposed on mobile operators without a prior designation of significant market power where the statutory conditions for intervention were met. During the transition to the new regulatory regime, Member States were not prohibited from introducing new controls, provided that they did not seriously compromise the objectives of that regime.

A short-term licence modification could be lawful where it formed part of a proposed continuing regulatory process. The statutory expression “all reasonable demands” required an objective, fact-sensitive judgment. It did not prescribe maximisation of economic efficiency or a Ramsey-pricing approach. The court also held that the Commission’s assessment of termination charges was not irrational in the respects challenged.

The three mobile network operators challenged recommendations of the Competition Commission and licence modifications made by the Director General of Telecommunications controlling mobile call-termination charges. They also challenged the proposed continuation of those controls after the new European telecommunications regime took effect on 25 July 2003.

The challenges concerned significant market power, the transitional interaction between the old and new directives, the legality and proportionality of a one-day licence modification, the proposed Continuation Notice, the meaning of section 3(1) of the Telecommunications Act 1984, and alleged irrationality in the Commission’s economic calculations and treatment of financing, 3G investment and pass-through to consumers.

1. The applications for judicial review were dismissed. Permission to appeal was granted on the principal legal issues identified by the court, including significant market power, the transitional price controls, the one-day price cut, the Continuation Notice, the construction of section 3(1)(a), the externality-surcharge targeting issue and the relationship between sections 3(1)(a) and 3(1)(b).

2. The Licensing Directive and Interconnection Directive did not confine price regulation to operators designated as having significant market power. Article 7(2) of the Interconnection Directive imposed obligations concerning transparency and cost orientation on operators with significant market power, while Article 9(3), read with paragraph 2 of the Annex to the Licensing Directive, provided a wider power to impose tariff conditions in exceptional cases. The operator-specific restrictions did not exhaust the regulatory powers available to the national regulatory authority.

3. The new directives, which entered into force on 24 April 2002, did not prohibit new regulation between that date and 25 July 2003. The principle in Inter-Environnement Wallonie ASBL v Région Wallonne required measures not seriously to compromise the future regime, but it did not create a regulatory vacuum.

4. The excessive termination charges, found to be 30–40 per cent above a fair charge and adverse to the public interest, constituted exceptional circumstances for the purposes of Article 9(3). The Commission could recommend a licence modification lasting for a few months, although the existing licences would cease on 25 July 2003. The Director could lawfully impose the modification for one day where it was the first step in a proposed lawful continuation of control under the new regime.

5. Article 7(6) of the Framework Directive permitted proportionate and provisional price regulation in exceptional circumstances where there was an urgent need to safeguard competition and protect users. The power was not limited to operators already designated as having significant market power. The proposed Continuation Notice was therefore consistent with the directives.

6. Section 3(1)(a) of the Telecommunications Act 1984 imposed an objective requirement that all reasonable demands be satisfied, while leaving the choice of means to the Director. Whether a demand was reasonable depended on all the circumstances and was not determined by a fixed definition of maximum economic efficiency. Equity, fairness, competition and efficiency could all be relevant.

7. The Commission’s approach to the externality surcharge was not irrational. Although it had recognised difficulties concerning the commercial incentive to target subsidies at marginal subscribers, it had considered and rejected the available alternatives. The remaining challenges to cost allocation, welfare modelling, financing, 3G investment and the expected passing-on of reductions were challenges to the merits rather than demonstrations of unlawfulness.

8. Section 3(1)(a) prevailed in the event of conflict with section 3(1)(b). Section 3(1)(b) did not provide a lifeline for an operator that was not prospering in the regulated sector. The Commission had nevertheless considered T-Mobile’s financing position consistently with the statutory duty.

The costs of the Competition Commission and the Director were ordered to be paid by the claimants. No separate costs order was made in favour of the Secretary of State.

This was a first-instance judicial review decision in the Administrative Court. The court granted permission to appeal on specified issues but dismissed all three applications.