Irish Competition Authority Decisions

1. Notification was made on 20 August 1998 with a request for a certificate under Section 4(4) of the Competition Act, 1991, as amended or, in the event of a decision by the Authority to refuse a certificate, a licence under Section 4(2) in respect of an agreement whereby CIÉ and Iarnród Éireann have granted to Esat Telecommunications Ltd. a non-exclusive licence to lay fibre optic cable along the railway lines operated by Iarnród Éireann for 20 years, with a possibility of renewal for a further 10 years. Notice of intention to issue a certificate in respect of the agreement was published in the Irish Times on 10 December 1999. No submissions were received from interested parties.

2. CIÉ and its subsidiary, Iarnród Éireann have granted Esat Telecommunications Ltd. a non-exclusive licence to lay fibre optic cable on their property along the railway lines operated by Iarnród Éireann. The duration of this licence is for twenty years with the possibility of renewal for another ten years. Esat Telecommunications Ltd. intends to create a national fibre optic cable network in Ireland and has subcontracted to Iarnród Éireann the construction and maintenance of this network. As part consideration for this licence, Esat Telecom has granted CIÉ six fibre pairs, one of which CIÉ can use for its own internal communications needs and the remainder of which CIÉ can lease or sell to third parties, subject to a right of first refusal for Esat Telecommunications Ltd.

3. Esat Telecommunications Limited (“Esat Telecom”) is a wholly-owned subsidiary of the Esat Telecom Group plc, which was formed to combine shareholdings in two telecommunications businesses - Esat Telecom and Esat Digifone Limited (“Esat Digifone”). Esat Telecom has its registered office at The Malt House, Grand Canal Quay, Dublin 2. It provides telephony services for businesses, including broadband data services and long distance services, and had a turnover of IR£16, 794,274 for the year ended 31 December, 1997. The Esat Telecom Group plc also owns 45% of Esat Digifone Ltd., which operates a national cellular mobile telephony system using the GSM (digital) standard. The Esat Telecom Group plc had a turnover of IR£17,040,000 for the year ended 31 December, 1997, and for the year ended 31 December 1998 had a turnover of IR£ 37,483,000.

4. Córas Iompar Éireann (CIÉ) is a state-owned holding company whose purpose is to provide public transport services in Ireland. It has three subsidiary companies:

- Iarnród Éireann (Iarnród Éireann), which provides railway services throughout Ireland;

- Bus Éireann, which provides bus services throughout Ireland; and

- Bus Átha Cliath (Dublin Bus), which provides bus services in Dublin.

CIÉ has its registered offices at Heuston Station, Dublin. It had a turnover of IR£341,200,000 for the year ended 31 December, 1997. Iarnród Éireann has its registered offices at Connolly Station, Dublin. It had a turnover of IR£129,026,000 for the year ended 31 December, 1997.

5. The relevant product or service market is that for the provision of terrestrial transmission capacity for telecommunications services. The network is intended and designed for national traffic; it will link switched locations between Irish cities based on the existing railways infrastructure. The relevant geographic market is therefore the State.

6. Until 1 July 1997, Telecom Eireann (now Eircom) was the only entity authorised to provide domestic transmission facilities in Ireland. All competing telecom operators, including Esat Telecom, have had to lease their domestic transmission capacity from Telecom Eireann in order, for instance, to provide connection to customers and among their regional switches. Liberalisation of alternative infrastructure for certain telecommunications services in Ireland occurred on July 1, 1997, thus enabling Esat Telecom to build and operate its own national infrastructure. In this respect, Esat Telecom was granted a licence by the Director of Telecommunications Regulation on December 23, 1997. In February 1998, BT announced plans to enter into a joint venture (named “Ocean”) with the Irish Electricity Supply Board (“ESB”) to operate a national broadband network using ESB’s surplus bandwidth. Full competition on the Irish telecommunications market, including voice telephony services, was introduced on 1 December 1998. On 30 November 1998, Esat Telecom Group plc surrendered the licence granted to it on 23 December 1997, and was granted a General Telecommunications Licence by the Director of Telecommunications Regulation, which, inter alia , allows it to operate a network.

7. The size of the market is difficult to estimate. The notifying party states that Telecom Eireann’s turnover from private circuits was, for the year ended 2 April 1998, around IR£75.3 million and, for the year ended 2 April 1997, around IR£58.8 million. Because the construction of alternative infrastructure is still at a relatively early stage, it is impossible to estimate market shares in the relevant product market. However, it is expected that Telecom Eireann, Esat Telecom and Ocean will be the major providers of transmission capacity in Ireland.

Regulatory issues

8. The construction of alternative infrastructure requires a licence under Section 111 (2) of the Postal and Telecommunications (Services) Act 1983. Licences are granted by the Office of the Director of Telecommunications Regulation. Applicants are required to give basic elements of their network construction up to 1999, but are not obliged to make investments on foot of those representations. The construction of alternative telecommunications networks takes place pursuant to the Telegraph Act of 1863 as amended and the Local Government Planning and Development Act 1963. In general, where public property is being traversed, the consent of the relevant municipal authority is required. The 1863 Act provides for a system whereby upon notification an authorised company is permitted to install telecommunications infrastructure.

9. In order to roll out a national network, the necessary rights of way must be obtained. In the case of Esat Telecom’s arrangements with CIÉ, neither party needs to negotiate rights of way as CIÉ/Iarnród Éireann control most of the property on which the railways operate and they have licensed Esat Telecom directly to lay cable on their property. On the other hand ESB’s physical infrastructure is based on wayleaves, which need to be carefully negotiated.

10. CIÉ and Iarnród Éireann concluded with Esat Telecom on 31 July 1998 a Licence Agreement whereby the former grants Esat Telecom a non-exclusive licence to lay over 2 000 km of fibre optic cable on their property along the railway lines operated by Telecom Eireann. The licence is granted for a period of 20 years, renewable for another 10 years. The intended cable will contain either 48 fibres, 96 fibres or 160 fibres armoured, depending on Esat technical specifications. The choice of routes for laying the cable would take account of existing cable routes and the requirement to allow for additional cable routes in the future. In consideration of the grant of the licence, Esat Telecom is to pay CIÉ a fixed annual licence fee and a variable performance fee, and to grant CIÉ six pairs of dark fibre.

11. The construction of Esat Telecom’s fibre optic cable network along the railway will be made by Iarnród Éireann according to a Construction Agreement. Iarnród Éireann will also ensure the maintenance, servicing and updating of the network according to a Maintenance Agreement.

12. Under Clause 3.5, Esat Telecom is obliged to grant CIÉ six pairs of optical fibres. These pairs are divided into A fibres, which consist of one fibre pair, and B fibres, which consist of the remaining five pairs of fibres. Pursuant to clauses 3.5.6.1 and 3.5.6.2, the CIÉ “A fibres” may be used by CIÉ and Iarnród Éireann only for their own internal communications, and between them and their customers in respect of the road and rail transportation businesses of CIÉ and its subsidiaries. The CIÉ A fibres may not be used by CIÉ or Iarnród Éireann for the commercial provision of leased lines and data services to end users. The use of B fibres by CIÉ for the commercial provision of leased lines and data services to end users is restricted under a number of conditions (clause 3.5.7.1), including a preferential right in favour of Esat Telecom: before activating those fibres, CIÉ must offer them first to Esat Telecom at the then prevailing market rate in Ireland for a pair of dark fibres. The parties have agreed on a schedule of events, linked to the status of deployment of the network, which trigger Esat’s right of first refusal to lease one pair of B fibres at a time over a period of time extending 17 years.

13. To the extent that these fibre pairs have not been offered pursuant to the above schedule, Esat Telecom also enjoys a right of first refusal respectively upon the tenth, fourteenth, fifteenth, sixteenth and seventeenth anniversary of the Licence Agreement for the lease of one B fibre pair at a time. If Esat Telecom does not exercise its right of first refusal within 60 days, then CIÉ is free to lease or sell these fibre pairs to third parties

Under Clause 6.10, on termination of the agreement, CIÉ retains the ownership of the cable. However, CIÉ is not free to place the cable in service on its own account or to offer it to third parties without offering first to Esat Telecom the lease of the entire cable network for the remaining useful life. This provision does not apply if the agreement is terminated because of Esat (clause 5 defines the events of default).

14. Finally, pursuant to Annex 8 of the agreement as originally notified, CIÉ could not install or permit the installation of any other telecommunications cable on its property prior to the conclusion of the works relating to the construction of Esat Telecom’s network pursuant to the Construction Agreement. Thereafter, it had to give notice to Esat Telecom before it allows the installation of any other cables. The period of notice decreased in accordance with the degree to which Esat Telecom’s network had already been installed, tested, debugged and had its spur lines and customer connections installed. The minimum notice period required was to be twenty months at its greatest, that is if the other cable were laid within a year of the conclusion of the works. At its least, the minimum notice would be seven days, if the other cable were laid five years or more after the conclusion of the works.

15. The Construction and Maintenance Agreements do not contain any restrictions on the parties in relation to their freedom to take independent commercial decisions and are simply straightforward subcontracting and service arrangements.

The Supplemental Agreement

16. This agreement was also notified to DGIV of the European Commission. In the course of the notification procedure, the parties, according to the Commission, clarified the formulation contained in the original agreement in order to address possible concerns about the nature of the access rights granted to Esat. Consequently the parties entered into a Supplemental Agreement. This involved the deletion of the original Annex 8 to the agreement, and its replacement by a new version. Under the new version of Annex 8, CIÉ may install or permit the installation of other telecommunications cables for third parties provided that, in the period from the date of conclusion of the agreement to 31 March 2001 (the priority period) Esat Telecom will be granted priority access over CIÉ infrastructure for the purposes of deploying and putting into service of its network.

17. On making a determination to install or permit the installation of cable for third parties, CIÉ is to give Esat Telecom two months’ written notice of its intentions. If Esat Telecom determines on reasonable grounds that such an installation is likely to hinder or delay the completion of its own network, the installation of the third party cable shall be postponed until the end of the priority period.

18. Notwithstanding the foregoing provisions, CIÉ is entitled:

- to permit the installation of telecommunications cable merely for the purposes of crossing its infrastructure;

- to maintain and permit the maintenance of telecommunications cables in place, of the kinds and to the extent to which it is obliged pursuant to the agreements to which it is already party;

- to permit the installation of other cable if and to the extent that the installation thereof on CIÉ’s infrastructure is the only possible means whereby a telecommunications network can be constructed.

Submissions in support of the issue of a certificate

19. The parties submitted that the arrangements did not have the object and would not have the effect of preventing, restricting or distorting competition. They were a direct response to the liberalisation of alternative infrastructure in Ireland. By enabling Esat Telecom to construct its own high-capacity network, the arrangements would allow it to compete more effectively on the market by ending its dependency on the incumbent operator for its backbone network. Moreover, Esat Telecom would now be able to meet the increasing demand for high speed broadband digital communications in Ireland.

20. The parties submitted that the arrangements would not affect the competitive position of third parties, as the market for bandwidth in Ireland was still in its infancy and there was enough room for the development of alternative networks. Moreover, CIÉ was not precluded from granting further similar licences to other operators, as the licence it had granted to Esat Telecom was non-exclusive. In addition, third party operators would be able to benefit from an alternative source of bandwidth from Esat Telecom and would no longer have to rely only on Telecom Eireann.

21. The parties also made submissions in support of their request for a licence. As these are not considered relevant to the decision, they are not reproduced here.

22. OCEAN, a telecommunications joint venture between British Telecom and the Electricity Supply Board of Ireland, submitted that the effect of the agreement would be to prevent, restrict or distort competition in the telecommunications market in Ireland. OCEAN understood that the first cable (“the CIÉ cable”) was wholly owned by CIÉ, and that the other (“the Esat cable”) was the subject of an agreement between Esat and CIÉ, although CIÉ did have access to capacity on six fibres of that cable.

23. OCEAN stated that in June 1998 it had opened discussions with CIÉ concerning business arrangements for leasing fibre capacity on CIÉ’s telecommunications infrastructure. No substantive progress had been made since then in engaging CIÉ in meaningful negotiations. CIÉ had now communicated to OCEAN that for “operational and engineering reasons” it was not in a position to proceed with these discussions. OCEAN understood that these perceived difficulties related to the utilisation of the CIÉ cable for railway signalling purposes and for carrying the traffic of external telecommunications operators. Given the capacity of fibre cable, OCEAN could not understand the basis for these objections. While OCEAN accepted that there might possibly be operational reasons for CIÉ’s refusal to negotiate at that time in relation to the CIÉ cable, it could only conclude that there was some form of exclusivity in the agreement with Esat which prevented CIÉ from utilising the spare capacity on the Esat cable.

24. OCEAN believed that the Competition Authority should take into account the concerns of the European Commission in a similar case relating to an agreement between Cegetel, SNCF and Telecom Développement. It appeared that following the intervention of the Commission, the clauses governing guarantees of “priority right of access” to SNCF land for the purposes of installation of the network were clarified to ensure that SNCF would be able to make any remaining capacity available to other network operators. OCEAN argued that the concerns of the European Commission in that case were equally applicable in this instance, and that any clause with a similar effect in the agreement between CIÉ and Esat fell within the prohibition in section 4(1) of the Competition Act and was not eligible for a licence. One of the main obstacles to full competition in the telecommunications sector was the lack of infrastructure which was not controlled by the incumbent. A nation-wide network such as that which had been constructed on CIÉ’s network should not be reserved for the use of a single telecommunications operator. OCEAN believed that the fact that CIÉ controlled nation-wide wayleave rights meant that it was in a unique position from the point of view of a network operator who wished to achieve rollout of a national network in as short a time as possible. Theoretically, there were other entities in Ireland which had alternative networks which could be used for network rollout by telecommunications operators. This fact had been alluded to in the Commission decision IV/M.1132 BT/ESB/AIG in which the Commission gave its approval to the joint venture agreement between OCEAN’s parent companies. OCEAN quoted paragraph 17 of that decision which stated that:

“The necessary infrastructure made available to Newco [OCEAN] by the ESB is equally available from other sources as demonstrated by Esat Telecom’s joint venture with CIÉ, or the availability of the infrastructure of Bord Gáis.”

25. OCEAN argued that the infrastructure made available to it under the agreement with the ESB was not equivalent to CIÉ’s rail network. Firstly, the ESB did not have the ability to grant wayleave rights as CIÉ did, and therefore the rollout of a network on the ESB lines was subject to obtaining prior agreement from a very large number of landowners. OCEAN had no legal powers to compel these landowners to grant it any necessary wayleaves. Secondly, the agreement between Esat and CIÉ had now been in operation for some time and a large amount of fibre had already been laid. Hence, capacity on this telecommunications infrastructure would be immediately available to OCEAN, and other licensed operators, but for the restrictions which OCEAN believed to have been placed on CIÉ by Esat by virtue of their agreement.

26. For the above reasons, OCEAN argued that CIÉ was in a dominant position in the provision of telecommunications infrastructure in Ireland of the type defined in the Commission’s decision on BT/ESB/AIG, as quoted above, and that its effective refusal to negotiate with OCEAN for the use of that cable network was an abuse of that dominant position. OCEAN believed that any clause of the agreement which gave any form of exclusivity to Esat in relation to the Esat cable was not eligible for a licence under Section 4(1) of the Competition Act, 1991, that any spare capacity on this type of cable should be made available, on an open and transparent basis, to other telecommunications operators, and that exclusive agreements such as that between Esat and CIÉ should not be permitted to inhibit the rollout of network in the telecommunications industry.

27. In its 1998 “Report of Investigation of the Eircell proposal to locate antennas at Garda sites/masts”, the Authority stated its views on the practice to be adopted in granting competing utility operators access to State owned facilities as follows:

- State organisations should be free to enter into commercial transactions with any/all entrants, subject to general principles of competition law;

- State organisations should award access to their facilities to the entrant who offers them the most advantageous terms and therefore these organisations should encourage competitive bidding for access to facilities;

- State organisations should avoid entering into any arrangements with an entrant which would have the effect of restricting their ability to fully exploit the commercial potential of their facilities; therefore, for example, they should not enter into any agreement that prevents them from selling available capacity to any potential bidder or prevents them from making that potential capacity available.

28. The Authority therefore concluded that the essential facilities doctrine should not be applied to the Garda masts and that a key element in the Eircell proposal, that provides for equal access to every Garda site, should be opposed. The Authority formed the view that access to Garda sites should be determined by the Garda Síochána, who should be free to enter into profit maximising commercial transactions with any/all entrants, subject to general principles of competition law.

29. In a Decision of June 1999 (IV/36.581 - Télécom Développement), the Commission found that it had no grounds for action under Article 81(1) of the EC Treaty in respect of notified agreements relating to the co-operation between Société Nationale des Chemins de Fer and Cégétel through their joint subsidiary Télécom Développement. Under the agreements, Cégétel, a new telecommunications operator in France, and SNCF, the French national railroad company, co-operated through a jointly-owned subsidiary, Télécom Développement (TD), to develop and run a national long-distance telecommunications network along the French national railway network. In an agreement concluded on 22 November 1996, SNCF granted TD a non-exclusive right to occupy public railway land for a period of thirty years, to allow it to deploy a telecommunications network. In order to enable TD to complete the installation of its network in the shortest possible time, SNCF also granted it a “priority right of access” to SNCF’s land, guaranteed by a penalty clause applicable for a period of three and a half years, from 1997 to 2000.

30. On 18 March 1998, the Commission informed the parties that it considered the clause governing the priority usage of railway premises by TD as falling within the scope of Article 81(1) of the EC Treaty and that, as it stood, it was not eligible for an exemption under Article 81(3). On 20 April 1998, the parties proposed amending the clause in question in order to clarify the scope and practical application of the priority access granted to TD, and thus to spell out clearly the conditions under which the penalties provided for in the agreement would be applicable. Taking into account the Commission’s observations, the parties introduced on 31 July 1998 an amendment to the original agreements by means of which they foresaw (i) an equal treatment for third parties in those exceptional cases where the railway infrastructures in question were the only possibility for putting in cables (narrow valley structures) and (ii) that SNCF or its successor organisation, RFF, remained free to give access to the railway infrastructures to other telecommunications operators, provided that this could be done without interfering with the development of TD’s own network.

31. The Commission considered that these amendments allowed SNCF to give access to its infrastructures to other operators, provided that this could be done without interfering with the development of TD’s own network. Furthermore, the Commission considered that the priority period was limited to the minimum period required to implement the network (1997 - 2000), and there was an explicit understanding that the priority rights would not apply in the event of other companies seeking access to specific portions of railway-owned land if the installation of cables on these sites was the only way of creating a telecommunications network.

32. On 12 October 1999 the Commission issued a comfort letter in respect of the Esat/CIÉ agreement, as amended by the Supplemental Agreement.

33. Section 4(1) of the Competition Act, 1991, as amended, states that ‘All agreements between undertakings, decisions by associations of undertakings and concerted practices, which have as their object or effect the prevention, restriction or distortion of competition in trade in any goods or services in the State or in any part of the State are prohibited and void.’

34. Section 3(1) of the Competition Act defines an undertaking as ‘a person, being an individual, a body corporate or an unincorporated body engaged for gain in the production, supply or distribution of goods or the provision of a service.’ CIÉ and its subsidiary, Iarnród Éireann are engaged for gain in the provision of passenger and freight transport services within the State and are undertakings. Esat Telecom is engaged for gain in the provision of telecommunications services within the State and is an undertaking. The agreement is an agreement between undertakings and has effect within the State.

35. In relation to the general principles to be followed in granting competing utility operators access to State-owned facilities, the Authority’s views have been set out in paragraphs 27-28. In line with this reasoning, the Competition Authority would not regard access to CIÉ/Iarnród Éireann’s property in order to lay cable as an essential facility. The Authority would, however, take the view that CIÉ/Iarnród Éireann should not grant exclusive access to its infrastructure and thereby limit its freedom to enter into profit-maximising commercial transactions with other operators. The Authority considers that Annex 8 of the contract as originally notified, which required CIÉ to give up to 20 months’ notice to Esat before allowing the installation of any other cables, would in effect have limited CIÉ’s freedom in this respect and would have contravened Section 4(1).

36. The amendments proposed by Esat in its letter to the Commission of 30 November 1998 would appear to meet the concerns about third parties’ access to Iarnród Éireann premises which arose from the restrictive clauses of the original contract. They are also in line with the Commission’s decision in the Telecom Dévéloppement case in that they allow CIÉ to give access to its infrastructures to other operators, provided that this can be done without interfering with the development of Esat’s own network. Furthermore, the Authority considers that the priority period is limited to the minimum period required to implement the network (from the conclusion of the agreement to 31 March 2001). The revised version of Annex 8 also makes clear that the priority rights would not apply in the event of other companies seeking access to CIÉ’s infrastructure if the installation of cables on these sites was the only way of creating a telecommunications network.

37. Clause 3.5 of the agreement concerns Esat’s right of first refusal over the “B” fibres, and clause 6.10 concerns the post-termination rights of Esat Telecom (i.e. the requirement on CIÉ not to place the cable in service on its own account or to offer it to third parties without offering first to Esat Telecom the lease of the entire cable network for the remaining useful life). The Competition Authority’s view is that both these arrangements are an integral part of the commercial transaction between Esat Telecom and CIÉ/Iarnród Éireann, and one which does not prevent, restrict or distort competition in the market for the terrestrial provision of long-distance transmission services. Effectively, Esat and CIÉ have negotiated a payment in kind - access to cable pairs - for the services provided by CIÉ to Esat. Since Annex 8 has been amended, other operators are not precluded from laying cables on CIÉ’s infrastructure. The Authority therefore considers that these clauses do not contravene Section 4(1).

38. The Authority has therefore concluded that the arrangements do not have as their object or effect the prevention, restriction or distortion of competition in trade in goods or services in the State or in any part of the State, and do not contravene Section 4(1).

39. In the Authority’s opinion, CIÉ, Iarnród Éireann and Esat Telecommunications Ltd. are undertakings within the meaning of Section 3(1) of the Competition Act, 1991, as amended, and the notified agreement is an agreement between undertakings. In the Authority’s opinion, the notified agreement does not have the object or effect of preventing, restricting or distorting competition and thus does not contravene Section 4(1) of the Competition Act.

The Competition Authority has issued the following certificate:

The Competition Authority certifies that, in its opinion, on the basis of the facts in its possession, the non-exclusive licence agreement and supplementary Construction and Maintenance agreements dated 31 July 1998 between CIÉ, Iarnród Éireann and Esat Telecom, notified under Section 7 of the Competition Act on 20 August 1998 (notification no. CA/8/98) does not contravene Section 4(1) of the Competition Act, 1991, as amended.