Recently, documents emerged showing that the state-owned company Telekom intends to merge with the private company Telenor in order to reduce the share of the cable television company Serbian Broadband (SBB) in the Serbian market, which broadcasts channels such as N1 and Nova S, one of the few in Serbia which are not characterized as regime ones.
This plan, which N1 had an insight into, was presented to the management of the state-owned Telekom at the end of last year, and on December 1, the Executive Board confirmed the draft contract with Telenor.
After this document appeared in public, Telekom issued a statement pointing out that “SBB is afraid and, judging by the reaction, estimates that due to the development of Telekom, it will have a drop in market share to below 30 percent.”
“This is the best proof of the growth and development of Telekom in the last two years,” it was highlighted in the statement in which the existence of the contract with Telenor was not denied.
Telenor also said that “by providing innovative and quality services to our customers, we want to continue to develop the market, and always look for opportunities to further expand the offer.”
“We always act and will continue to operate in accordance with the laws and positive regulations of the Republic of Serbia and the highest standards on the market,” Telenor said.
Experts in Serbia have warned that if the agreement is approved, it threatens to become a monopoly agreement.
However, does the joining of Telenor and Telekom represent disputed cooperation in the context of protection of competition?
Doctor of the University of Strasbourg and an expert in EU law Uroš Ćemalović told EWB that, in general, free competition in the market can be endangered in three basic ways: through restrictive agreements, abuse of a dominant position and through concentration of market participants.
“In the case of Telekom-Telenor, we are faced with the possibility that there is the first of these three situations – a restrictive agreement,” says Ćemalović.
Namely, according to Article 10 of Serbian Law on Protection of Competition, “restrictive agreements are agreements between market participants that have the goal or consequence of significantly restricting, distorting or preventing competition on the territory of the Republic of Serbia.”
“However, not all restrictive agreements are necessarily illegal. According to Article 11 of this Law, ‘restrictive agreements can be exempted from the ban if they contribute to the improvement of production and trade, i.e. encourage technical or economic progress, and provide consumers with a fair share of benefits'”, says Ćemalović.
He explains that the condition for these agreements to be exempted from the ban is that “they do not impose on market participants restrictions that are not necessary to achieve the goal of the agreement, i.e. not to exclude competition in the relevant market or its essential part.”
“An independent body, called the Commission for Protection of Competition, decides on whether an individual agreement will be exempted from the ban or not. Therefore, two or more market participants are aware that the agreement between them is restrictive, but if they believe that the legal conditions are met, they can contact the Commission for Protection of Competition, with a request to exempt their individual agreement from the ban,” Ćemalović said.
Can we expect reactions from the Commission for Protection of Competition?
According to the official press release published on the website of the Commission for Protection of Competition on January 27, 2021, the companies Telekom and Telenor addressed this body with a request for an individual exemption.
Ćelamović explains that if it is determined that it is competent to act upon the request of these two companies, the Commission should start checking the legal conditions whether (or not) the conditions are met to allow individual exemption from the ban.
“As in any other case, the Commission is obliged, on the basis of the evidence submitted to them by Telekom and Telenor, to thoroughly examine whether these conditions have been met. In its statement from January 27, the Commission pointed out that ‘this is not a concentration (merger) of two or more market participants, but an exemption from the ban on agreement on limited and defined business cooperation in a particular business segment’, adding that ‘in its previous practice (Exempted agreements) it has already acted on requests for individual exemption of contracts concluded between participants active in the electronic communications market Telenor – VIP mobile, Telenor – SBB, etc.”, states Ćemalović.
Dušan Protić, Program Manager for Internal Market and Competitiveness at the Center for European Policies, agrees with this, however, he states that the problem that arises in the Telenor-Telekom case is now a notorious circumstance that the very goal of the agreement is to squeeze out or even eliminate the competition in the relevant market.
“The fact that these allegations are contained in an internal document of Telekom does not make them irrelevant, but on the contrary, they are given precisely in the context of the reasons for concluding the agreement with Telenor and thus explicitly indicated the impermissible aim of the agreement, so it is not possible to avoid the assessment of these allegations in the proceedings before the Commission. Therefore, such an agreement could not be the subject of an individual exemption, and its implementation in practice could be sanctioned by large fines, which can be up to 10% of the total annual income of those companies in the Republic of Serbia,” said Protić.
He states that in the past period, the Commission for Protection of Competition gradually built the reputation of an independent control institution and practice that became relevant, both for market participants in Serbia and a reference point and model for other bodies for protection of competition in the region.
“The Commission’s action in the Telenor-Telecom case will be a very important institutional stress test, which will answer the question of whether it has achieved the necessary level of capacity and independence in work that meets the reputation and needs of our market, and especially its position and competencies prescribed by law”, states Protić.
However, Dejan Šoškić, professor at the Faculty of Economics and former governor of the National Bank of Serbia, points out that his impression is that Serbia is entering a group of countries that is weakening its state institutions over time and that it is realistically further away from European standards.
“Therefore, I do not think that the situation is better with a specific Commission for Protection of Competition. I would like to be wrong, but I do not expect that it will do the job for which it was initially formed independently and professionally”, explains Šoškić who says that in this case, it is especially disputable that the state company is involved in activities aimed at distorting free competition as the foundation of a market economy, because free competition is one of the fundamental principles and a necessary precondition for the efficiency of a market economy.
What message is being sent to foreign investors?
On this occasion, the President of Serbia Aleksandar Vučić stated that Telekom should not be criticized because Telekom wants to survive on the market and wants to fight to exist and prosper, take a bigger share in the market. When asked what message is being sent to foreign investors, he emphasized the ownership structure of N1.
“Regardless of the fact that there are numerous objections from different people about how your owner runs the company, where from, why is it not ‘Serbian’ but ‘Luxembourgish’, we have no problem with that. I would like to have even more such investors and every other investor”, said Vučić, N1 reports.
That a bad message is being sent to foreign investors, points out Šoškić, who states that if the state or a state-owned company is actively working to suppress competition, especially if it is a foreign company that aims to squeeze out of the market, then it is a clear negative message to all foreign investors.
“A country that has very low investments in relation to GDP, such as Serbia, and which wants to attract foreign investments for the economic development of the country, should certainly not allow such actions,” said Šoškič.
Protić explains that the question of whether competition in the market is protected is one of the key ones that arises in the analysis of the situation conducted by each foreign investor before entering that market, especially in the case of investors who otherwise operate in an area where the same rules on competition protection apply, such as the European Union.
“What will be the message to investors about the implementation of rules on competition protection, in this case, encouraging or dissuasive, depends on the decision of the competent body in charge of implementing these rules,” Šoškić emphasized.
Ćemalović estimates that the actions of the Commission for Protection of Competition, in this case, will be under strong scrutiny of the domestic public, but will undoubtedly be analyzed by the relevant EU bodies, and especially the European Commission.
“In addition, numerous domestic and foreign economic entities, and especially those operating in the electronic communications market (including potential domestic and foreign investors), will follow the further development of events in this case very carefully. In all countries of the world that meet at least the minimum standards when it comes to democratic institutions and market economy, the electronic communications sector is extremely competitive, with a strong struggle of market participants for every consumer. If there is no (or significantly endangered) free competition in this sector, great damage can occur not only to consumers, but also to the entire economy of the country,” says Ćemalović.
Consequences for Serbia’s European path in the context of Chapter 8 (Competition)
On its European path, Serbia must harmonize legislation in this area with the European Union, which in the context of Chapter 8, which deals with competition, means that Serbia must ensure free competition as one of the basic postulates of the modern economy.
Ćemalović states that when it comes to the place of competition law in the process of European integration of Serbia, our legal system is, globally, well harmonized with the EU acquis in this area, but further harmonization is needed.
“The European Commission, in its latest report on Serbia (October 6, 2020), emphasizes that ‘the established credibility and image of the Commission for Protection of Competition should be confirmed by the new administration through good results in law enforcement’. Deciding on the Telekom-Telenor agreement will be an opportunity to see how the Commission for Protection of Competition will respond to such high expectations,” Ćemalović pointed out.
However, the agreement between Telekom and Telenor does not only call into question free competition between market participants, but also freedom of expression, which is an obstacle on the European path that was noted in the reports of the European Commission and other international bodies.
Šoškić states that all activities that weaken the capacity and independence of institutions and the power of rule of law, stifle free expression and freedom of the media, disrupt functional democracy, hamper the free market and competition, should be an insurmountable obstacle for any country on the “European path”.
“The same should apply to Serbia. I do not think it should be surprising that Serbia stagnates on its ‘European path’, because it seems as if for the most part it has been ignoring the reports and positions of the European Commission for years,” concluded Šoškić.
Concerns about media pluralism in Serbia and the current development of the situation with Telenor and Telekom are a cause for concern for the international organization Reporters Without Borders (RSF).
“We are concerned that the agreement between the state company Telekom Srbija and the private mobile operator Telenor, owned by the PPF investment fund PPF, could negatively affect media pluralism and further increase state influence in the media sphere. There is a risk that Telekom-Telenor agreement could prevent the cable SBB operator from reaching a wider audience,“ Pavol Salaj, the RSF representative for the Western Balkans, told Radio Free Europe.
He added that media like N1 and Nova S provide the public with information that could not be heard in the state-controlled outlets.
The Commission for Protection of Competition remained the only barrier to the agreement, which many actors assess as an attempt to illegally narrow competition in order to further capture the media in Serbia. However, given the trend of narrowing the independence of “independent” institutions in Serbia in recent years, the probability that this commission will present an exception is not high.
This article was published as part of the project “Civil society for good governance and anti-corruption in southeast Europe: Capacity building for monitoring, advocacy and awareness-raising (SELDI)” funded by the European Union.