On 16 December 2013, the Bosnian Competition Council issued a decision finding that the company IKO Balkan, registered in Romania, abused its dominant position on the relevant market in Bosnia and Herzegovina. The violations established by the Council concerned conditions under which IKO Balkan offered its channel Sport Klub, which exclusively broadcasts the English Premier League (EPL) in Bosnia, to cable operators in the country. The Council imposed a fine on IKO Balkan in the amount of BAM 125,000 (approx. EUR 64,000).
Background of the case
IKO Balkan belongs to a group of companies which consists of some of the leading cable TV/DTH/IPTV operators in the countries of the former Yugoslavia, including the leading Serbian cable TV operator, Serbia Broadband (SBB). In Bosnia, IKO Balkan’s related companies involved in the distribution of TV signal are Telemach and Total TV.
Sport Klub is a sports TV channel owned by IKO Balkan. IKO Balkan buys broadcasting rights concerning various sport events (football, tennis, basketball, etc.) and packs them into this channel, which is then distributed through cable TV/DTH/IPTV operators.
The proceedings before the Council were initiated upon joint request of the company Elta Kabel (Telemach’s/Total TV’s competitor in Bosnia and Herzegovina) and the Association of Cable Operators of Bosnia and Herzegovina (AKOP). The initial request for initiation of proceedings was filed in February 2013, with the proceedings being officially launched by the Council in May that year. The complaint was lodged against IKO Balkan and certain of its related companies, including SBB, Telemach, and Total TV. The complaint also pertained to the company Sport Klub doo Sarajevo, an entity not related to IKO Balkan, which acts as IKO Balkan’s sales agent in Bosnia and Herzegovina.
The request submitted to the Council alleged that, by not allowing the distribution of Sport Klub to cable operators competing with Telemach/Total TV, IKO Balkan and its related companies wanted to establish control over the market of cable TV distribution in Bosnia by taking over subscribers from other cable operators. Infringement both in the form of abuse of dominance and restrictive agreement was alleged.
The Council dismissed all allegations concerning the existence of restrictive agreement between IKO Balkan and its related companies, referring to the relevant case-law of the ECJ holding that there can be no restrictive agreement between related undertakings (cases Beguelin and Viho).
The Council further found that the relationship between IKO Balkan and the company Sport Klub doo was one of genuine agency and that consequently the relationship between these two undertakings could not amount to restrictive agreement either. The Council cited the relevant provisions of the EU Guidelines on Vertical Restraints to support such conclusion.
Accordingly, the focus of the Commission’s analysis was on abuse of dominance allegations.
Abuse of dominance
The relevant market definition was a subject-matter of fierce debate between the parties.
According to the complainants, Sport Klub is irreplaceable as it is the only TV channel broadcasting the EPL in Bosnia and Herzegovina, which is very popular with cable TV subscribers in the country and is therefore in the interest of every cable operator to have such channel in its offer. In line with this argument, Elta Kabel and AKOP suggested that the Council adopt a relevant market definition which would recognize the uniqueness of the EPL and establish IKO Balkan as dominant undertaking.
In its defense, IKO Balkan submitted that the relevant product market cannot be defined so as to encompass only one football league, since viewers follow high quality football events regardless of the competition concerned – for instance, the English league, the Italian league, the Champions’ League, as well as local competitions. As support for its suggested market definition of high quality football events (not limited to individual competitions), IKO Balkan cited certain European Commission decision (COMP/C.2-37.398 and COMP/C-2/38.173) where the relevant product market was determined as the acquisition of TV broadcasting rights for football events played regularly throughout the season. IKO Balkan disputed it was dominant on such relevant product market, since some other channels in Bosnia (before all Arena Sport) offer live coverage of prestigious football events, such as the Champions’ League, Italian Serie A, French Ligue 1, as well as local football competitions.
The Council in this respect sided with the complainants and dismissed IKO Balkan’s arguments, noting that the cited European decisions were based on different facts – they pertained to the acquisition of broadcasting rights for sports events, while the case at hand is about the sale of rights for distribution/retransmission of TV channels offering sports content. The Council found that premium quality football contents represent a highly differentiated product, which either does not have a substitute at all or does not have an adequate substitute – the viewer who follows the German league would not consider the English league as an adequate substitute, and vice versa. Consequently, the Council established that end-consumers would not find matches of individual exclusive football league (English, German, Italian, Spanish, and French) or other exclusive football competition (Champions’ League, Europa League) interchangeable one with another.
Considering the above, the Council defined the relevant product market as “distribution of sport channels with high quality football contents which include live packages of the EPL.” In essence, the Council declared the EPL as a separate market.
The Council defined the relevant geographic market as the territory of Bosnia and Herzegovina on grounds that the parties in the proceedings operate or have the possibility of operating on the entire territory of the country and the contracts regulating the right of distribution of TV channels were concluded for the territory of Bosnia and Herzegovina.
Pursuant to the Bosnian Law on Competition, it is presumed that an undertaking is dominant if its share of the relevant market exceeds 40%. In the present case, the Council found that IKO Balkan’s market share was 100%, as in the territory of Bosnia and Herzegovina “Sport Klub is the only sports channel offering high quality football contents which include live packages of the EPL.”
The relevant market definition led the Council to dismiss allegations against other members of the group as they did not belong to the relevant market.
The complainants alleged that the cable operators had agreements with IKO Balkan for the distribution of Sport Klub until 1 December 2012, that all of these agreements were concluded on the same terms, and that the cable operators were prevented from extending them. According to the allegations, when in October 2012 individual AKOP members asked for a contract extension, IKO Balkan either did not reply or offered Sport Klub at a price much higher than the one charged under the contracts about to expire.
It was also alleged that, as part of the design to terminate the existing contracts with cable operators in Bosnia, IKO Balkan asked the cable operators to allow an audit into the number of their respective subscribers. Some of the operators refused to comply arguing that this would enable their competitors (IKO Balkan’s related companies were active in the market of distribution of TV signal) to obtain sensitive commercial information. IKO Balkan used refusal as a pre-text to terminating the agreements, alleging that the audit was necessary in order to determine the price for distribution of Sport Klub as the price was based on the number of subscribers.
Accordingly, Elta Kabel and AKOP alleged that IKO Balkan abused its dominant position by granting the distribution of Sport Klub only to its related companies and to smaller cable operators who did not pose a significant competitive threat to Telemach/Total TV group.
The claimants also alleged that IKO Balkan committed abuse of dominance in the form of discrimination by sending offers to customers which differed as to price and collateral requested, by requesting audit only from some customers and by allowing only some but not all operators who did not extend the contract to continue to broadcast Sport Klub under the old terms.
IKO Balkan denied these allegations, arguing that it has a strong financial impetus to sell Sport Klub to as many cable operators as possible – the more viewers Sport Klub had, the more revenue would IKO Balkan collect, both from the broadcasting fee and from advertising. Concerning the difference in prices at which Sport Klub was offered to different cable operators, IKO Balkan argued there was no discrimination, as different prices applied in different period of time, while all offers sent at the same time contained identical terms.
IKO Balkan also noted that the audit was necessary in order to establish the true number of subscribers, as it suspected that certain operators were delivering false data on the number of viewers. Consequently, IKO Balkan argued that the refusal of audit by some cable operators was a justified reason for contract termination.
With respect to the allegation of refusal to deal, IKO Balkan further submitted that the complainants did not in any way prove that the EPL was an “essential facility” which each operator must have in its offer. IKO Balkan also submitted that there were no harmful effects on competition arising out of termination of distribution of Sport Klub with certain operators, since very few subscribers would switch from one operator to the other just because of one TV channel. In relation to this, IKO pointed out that the complainants did not submit any evidence showing that the operators which stopped broadcasting Sport Klub were actually losing subscribers.
Through a questionnaire sent to cable TV/DTH/IPTV operators active on the Bosnian market, the Council established that, with respect to a majority of cable operators, IKO Balkan either did not deliver an offer for extension of the agreement for the distribution of Sport Klub, or delivered an offer that was unacceptable. The Council also established that there were instances where a cable operator would expressly ask IKO Balkan for an offer, but IKO Balkan did not respond.
The Council found that IKO Balkan delivered offers to and concluded agreements with only those cable operators which did not represent significant competition to Telemach and Total TV. According to the Council, had IKO Balkan’s interest been to allow the distribution of Sport Klub to as many cable operators as possible, it would have been logical to offer the contract to all cable operators, or at least to the largest ones, which was not the case.
Concerning the price at which IKO Balkan offered Sport Klub to cable operators, the Council acknowledged IKO Balkan’s high fixed costs stemming from license fee for the EPL. However, the Council noted that this did not justify the price hike that occurred in 2012, as the contract for the broadcasting of the EPL was concluded before that and at the relevant time there were no changes on the price of broadcasting Sport Klub. The Council concluded that refusal to deal can be effected not only through direct refusal, but also by offering terms which the other party cannot reasonably accept. However, the Council did not expound on whether Sport Klub represents an essential facility, nor did it formulate any alternative theory supporting its conclusion that IKO Balkan as a dominant player has a duty to deal with all interested distributors.
The Council established that IKO Balkan committed two types of competition law violations – direct or indirect imposition of unfair purchase or selling prices or other unfair trading conditions from Article 10, paragraph 2, item a) of the Law on Competition (equivalent of Article 102, paragraph 2, item (a) TFEU) and application of dissimilar conditions to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage from Article 10, paragraph 2, item c) of the Law on Competition (equivalent of Article 102, paragraph 2, item (c) TFEU).
Having established that some agreements for the distribution of Sport Klub contained the condition of minimum number of subscribers the cable operator had to secure, while some other agreements did not contain such condition, the Council found that this amounted to both the imposition unfair trading conditions (Article 10, paragraph 2, item a) of the Law) and application of dissimilar conditions to equivalent transactions (Article 10, paragraph 2, item c) of the Law).
Apart from the condition concerning the minimum number of subscribers, the Council also found discrimination in IKO Balkan’s practices of charging different prices to different cable operators during the same period and requiring collateral only from some customers. Finally, another instance of discriminatory abuse was found in the action of IKO Balkan whereby it switched off the channel only to some but not to all of the operators whose contracts had expired.
Fine and other measures imposed
The Council imposed a fine on IKO Balkan in the amount of BAM 125,000 (approx. EUR 64,000). In addition, the Council ordered IKO Balkan to adjust the provisions of its agreements with cable operators to ensure compliance with the Council’s decision. The Council also ordered IKO Balkan to establish criteria which will ensure that all cable operators in Bosnia can enter into an agreement for the distribution of Sport Klub on transparent and equal terms.
This decision confirms the Council’s recent focus on refusal to deal – see our previous posts on the decision from November 2013 concerning a brewery’s refusal to conclude a distribution agreement with a former distributor and the decision from December 2013 concerning the refusal of the Agency for Financial, IT and Intermediary Services (AFIP) to sell its services to a company engaged in the creation and management of databases containing information on the business of undertakings from the territory of Bosnia and Herzegovina. It is, regrettable, though, that in none of these decisions did the Council explain the legal theory behind its findings that the dominant undertakings have a duty to deal.