The Spanish Comisión Nacional de los Mercados y la Competencia (CNMC) is facing a deep institutional, political and technical crisis, and it is about to end the same way it began
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 launched its Consumer and Markets Authority, that joined together 3 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 8 independent authorities, one of which was the competition authority.
The Government argued that this was beneficial for tax payers and for a seamless enforcement of regulation and competition rules, that such a super-regulator would benefit from integration and would deliver legal certainty to market operators, optimizing human and economic resources at the same time.
First internal problems
Leaving the politics to one side, the alleged benefits did not materialize; the creation of the CNMC, in its roots, contained what later became the two main problems of the super regulator.
Firstly, the former heads of some of the eight independent authorities believed that the extinction of their agencies’ and, subsequently, their dismissal was an attack on the principle of independent regulation in their economic sectors and brought the matter to justice.
Secondly, from the beginning, the members of the two chambers of the CNMC (one for regulation and the other for competition) had never reached an understanding on the basic policy. In addition, the members of the competition chamber had never agreed on the way the chamber had to apply competition rules, which affected the proceedings and legal quality of the sanctioning decisions of the CNMC. One of the consequences of this outlook 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 precedent agencies had to be dismissed well before their terms without respecting the rules on dismissal of their independent authorities 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 unduly 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, provisions sanctioned before their appointment, but not after, like 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 related 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 € for an abuse of dominance in the short SMS messages market. As a consequence, in a rare judgement 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 defense: In 2 different decisions the competition chamber of the CNMC changed the qualification of the conducts without giving the sanctioned parties the possibility to make allegations. 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 defense of the undertakings.
- Dawn-raids: The Supreme Court has accepted several applications for annulment related to the way 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 stated 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 many judgements against the way the CNMC has been applying competition rules since its creation in 2013.
Imminent separation of the CNMC?
As a consequence of the aforementioned institutional malaise, the judgement of the CJEC and some criticism from the European Commission, at the beginning of 2017 the Spanish Government announced that the CNMC will probably 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 the dawn of the ECN+ Directive, which is aimed to guarantee the independence of competition regulators. Members of the current competition chamber, at a recent CNMC conference, mentioned that they will fight for more independence, even in a controversial field which is 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).
By: J. Nicolás Otegui Nieto