The European Commission defines a price squeeze as “an insufficient spread between a vertically integrated dominant operator’s wholesale and retail charges … especially where other providers are excluded from competition on the downstream market even if they are at least as efficient as the established operator.” In 2003, Deutsche Telekom was found, under Article 82 of the European Commission Treaty, to have abused its dominant position by committing a price squeeze. The European Commission decided that the margin between Deutsche Telekom’s wholesale access prices and the weighted average price of its corresponding retail services, being smaller than Deutsche Telekom’s own downstream product-specific costs, was insufficient for its competitors to compete with Deutsche Telekom and, therefore, anti-competitive.
The European Commission rejected Deutsche Telekom’s argument that, at the retail level, call charges should be aggregated with subscription charges. The European Commission claimed instead that Deutsche Telekom should have rebalanced its tariffs to ensure that all underlying wholesale costs (including those of the local loop) were recovered fully by monthly subscription charges. As a result, the European Commission fined Deutsche Telekom for an Article 82 violation (case COMP/C-1/37.451, Decision of May 21, 2003). Editor's Note: this note draws on the paper: On the Law and Economics of Price Squeeze in Telecommunications Markets: A Project for KPN by Gert Brunekreeft, Eric van Damme, Pierre Larouche, and Valter Sorana