Spain | a national competition authority in crisis

Written on 27 Nov 2017

The creation of the CNMC

In 2013 there was a trend in Europe for the creation of ‘super-regulators’. In April of that year, the Netherlands had launched its Consumer and Markets Authority which joined together three independent regulators, and Ireland was already considering doing the same. In that atmosphere, the Spanish government announced the creation of the Spanish super-regulator, which joined together eight independent authorities, one of which was the competition authority.

The government argued that this was beneficial for both tax payers and for a seamless enforcement of regulation and competition rules, and that a super-regulator would benefit from integration while delivering legal certainty to market operators and optimizing human and economic resources.

First internal problems

Leaving the politics to one side, the intended benefits did not materialize; present in the formation of the CNMC, were the roots of what later became the two main problems for the super-regulator.

Firstly, the former heads of some of the eight independent authorities believed that the extinction of their agencies and their subsequent dismissal was an attack on the principle of independent regulation in their economic sectors and brought the matter before the courts.

Secondly, from the beginning, the members of the two chambers of the CNMC (one chamber for regulation and the other chamber for competition) had could not reach an understanding on the basic policy. In addition, the members of the competition chamber have never come to an agreement on the way that the chamber should apply competition rules, which has affected both the proceedings and the legal quality of the sanctioning decisions of the CNMC. One of the consequences of this lack of agreement was the resignation of the head of competition advocacy.

These two problems had the following consequences.

Judgement of the Court of Justice of the European Union

The creation of the CNMC meant that the members of the predecessor agencies had to be dismissed well before the expiry of their terms and in a manner which did not respect the independent authorities’ internal rules on dismissal. Consequently, the ex-president and a member of the council of the extinct telecommunications authority appealed their dismissals before the Spanish Supreme Court.

Subsequently, the Spanish Supreme Court raised a question to the Court of Justice of the European Union, asking i) if the creation of the CNMC was in breach of EU Law, and ii) if the untimely dismissal of the heads of an independent authority was contrary to EU Law.

The Court of Justice of the European Union responded that i) the creation of a super regulator was not contrary to EU law, but, ii) that EU law was breached by the dismissal of the two members before their terms, since the applicable directives expressly mentioned that to guarantee the independence of the regulator, its members could only be ceased by the application of the provisions that regulated their authorities, The relevant provisions to be applied are those sanctioned before the member’s appointment, but not after,  such as the law that created the CNMC.

Judgements of Spanish courts overruling many of the CNMC’s recent decisions

The crisis of the CNMC also affected its decisions and their legal quality. Almost all the decisions of the CNMC contained one or two dissenting votes on matters that ranged from procedural rights to the way the fines were calculated.

Among many other consequences, this situation resulted in the overruling of several CNMC decisions by Spanish courts, including decisions relating to the following topics:

  • Incorrect definition of the relevant market: The CNMC used an old market definition when it fined Telefónica, Vodafone and Orange for a total amount of 120 million euros for an abuse of dominance in the short SMS messages market. As a consequence, in a rare judgment, the Spanish High Court annulled the decision of the CNMC on the grounds of an incorrect market definition.
  • Incorrect application of the law on vertical restraints: The CNMC incorrectly sanctioned Telefónica when it considered that a contractual clause on retroactive rebates imposed on final consumers was a vertical restraint. The High Court clarified that the parties of the agreement must be present at different levels of the distribution process to apply the law on vertical restraints, but not when one of the parties is a final consumer, thereby annulling the sanction.
  • Rights of defence: In two different decisions, the competition chamber of the CNMC changed the qualification of the conducts without giving the sanctioned parties the opportunity to make representations. The investigative body of the CNMC originally qualified these as autonomous conducts. In contrast, the competition chamber requalified the conducts as a single and continuous infringement. The High Court overruled the decisions, not due to the change in the qualification, but because the CNMC did not respect the rights of defence of the undertakings.
  • Dawn-raids: The Supreme Court has accepted several applications for annulment related to the way that the CNMC issued and drafted inspection orders when no formal investigation was opened. The future judgements will probably focus on whether or not the orders were legal, and/or how the CNMC needs to draft its orders in the future to respect legality when no investigation is open.
  • Single Economic Entity Doctrine: As we examined previously, the Spanish High Court considered that the CNMC incorrectly applied the doctrine when it only sanctioned the parent company of the branch that committed the infringement.

These are only a few examples of the many judgments which have challenged the way that the CNMC has been applying competition rules since its creation in 2013.

Imminent separation of the CNMC?

As a consequence of this institutional malaise, the judgment of the CJEU and some criticism from the European Commission, at the beginning of 2017 the Spanish Government announced that the CNMC is likely to be separated into two independent regulators. The white paper and the public consultation procedures are finished and now the only remaining step will be the drafting of the law creating the new authorities and its sanction by the Congress.

This comes in anticipation of the ECN+ Directive, which is aimed at guaranteeing the independence of competition regulators. Members of the current competition chamber, at a recent CNMC conference, said that they will fight for more independence, even in the controversial issue of the representation of the CNMC before the courts. Until now, this representation was in the hands of the Abogados del Estado (body of lawyers of the State).

We will be tracking the progress of this in the future, whether it ends with the establishment of new regulators, or the continuity of the CNMC, with reforms.