Gun jumping: record fine imposed by the CNMC

On December 21, 2022, the CNMC imposed a fine of €1.5 million on XFERA MÓVILES for implementing a notifiable concentration without authorization. It is the highest fine imposed by the CNMC for a gun jumping case since its creation in 2013 and the sixth decision imposing fines for gun jumping in 2022 —also a record—.

The obligation to notify a concentration in Spain and the risk of fines for non-compliance

Under the merger control rules in Spain and elsewhere corporate transactions which involve a change of control on a lasting basis over a business may need to be notified and authorized prior to completion if they exceed certain thresholds.

In Spain a transaction should be notified if either: the combined annual turnover of all the parties to the transaction exceeds €240 million in Spain, and at least two parties individually have Spanish turnover exceeding €60 million; or if a market share equal or higher than 30% is acquired or increased in a relevant market in Spain or within Spain (a threshold which is increased to 50% if the turnover of the target in Spain is below €10 million).

Failure to comply with the notification obligation or implementing the transaction before obtaining clearance —commonly known as “gun jumping”— may lead in Spain to the imposition of fines of up to 5% of the annual turnover of the infringing entity.

The case against XFERA MÓVILES: preliminary investigation, notification, authorization and fine

In January 2021, the CNMC became aware that XFERA had acquired sole control of GRUPO AHÍ+ in December 2020. As a result the CNMC began an in-depth investigation during which it sent no less than five information requests to MASMOVIL (XFERA’s parent company) between October 2021 and March 2022. Based on the information provided, the CNMC concluded that XFERA had acquired, among others, a company that was active in the wholesale market for call termination upon its own fixed network, and that on that specific market the target had a 100% market share.

The market of wholesale call termination refers to the service whereby a telecommunications operator terminates on its fixed network a voice call originated from another operator’s network, usually charging a price per call to the originating operator. The European Commission and the CNMC have considered that for termination services of this kind each individual network is a separate product market for call termination purposes. On that basis, every network operator has a 100% market share in call termination services upon its own network.

Since the CNMC concluded that the transaction involved the acquisition of a business with a 100% share of a relevant market and therefore exceeded the market share threshold, the CNMC required MASMOVIL to notify the transaction.

The transaction was duly notified in April 2022 and the CNMC authorized it in phase I without commitments in May 2022, concluding that the transaction would not have any effect on the competitive dynamics of the affected markets (as evidenced in the analysis carried out by the Competition Directorate and the decision of the Council of the CNMC). Indeed, the lack of impact on competition can be inferred from the fact that the acquired company had a 0.5% market share in Spain in the retail markets for fixed telephone services and internet access from a fixed location, and the parties together well below 10%.

Despite the absence of competitive effect, and despite the fact that the parties did not come close to the 30% threshold in the retail markets, the CNMC opened a disciplinary case which found that XFERA had implemented a concentration that should have been previously notified and authorized. As a result, the CNMC imposed XFERA a fine of €1.5 million, the highest fine imposed by the CNMC for a gun jumping case since its creation in 2013. (It is possible that the amount of the fine was influenced by the fact that MASMOVIL had already been sanctioned by the CNMC for a really similar case in 2015 in Case SNC/DC/0038/15 MASMOVIL).

An increasingly significant risk in Spain

The XFERA case stands out for the amount of the fine imposed —five times higher than the second highest to date— but also as an example of an increasingly significant risk for companies involved in corporate transactions in Spain, where the CNMC is highly active in monitoring non-compliance with the filing obligation and increasingly prepared to impose high fines.

The CNMC and its predecessors have imposed fines for implementing transactions that should have been previously notified and authorized in more than 20 cases, and a review of those cases reveals that the CNMC has become aware of these infringements in from a range of sources, including press reports; communications from the companies involved; complaints from competitors; notifications of later transactions; other regulatory authorities (or the CNMC’s own directorates); or communications from other national competition authorities (specially, in the EU, through the so-called European Competition Network or “ECN”).

Both the number of cases and the amount of fines appear to be on the rise. Out of the 23 cases of gun jumping since 2010, nine (39%) were issued in 2021 and 2022 alone. The six cases issued in 2022 represent an all-time high for a calendar year, double the three cases of 2021, 2012 and 2010. As to the amount of the fine, three of the four highest fines were imposed in 2021 and 2022, while the average fine has risen from 75,000 euros in 2010-2019 to more than 250,000 euros in 2021-2022.

It should also be noted that the fine itself is not the end of the story, with significant added costs of the proceeding in terms of legal counsel and the time and resources spent by the company’s management. CNMC investigations are increasingly demanding and this was again a good example: the investigation of XFERA lasted almost two years (January 2021 to December 2022) and, besides the work involved in the notification itself, there were five requests for information to MASMOVIL and two rounds of pleadings.

The need for specialist advice

The message of the CNMC could not be clearer: it will be vigilant in detecting these infringements and will not hesitate to impose significant fines in justified cases. As such, the XFERA case highlights the need for specialist merger control advice for corporate transactions involving companies active in Spain.

In the case of XFERA, the assessment seems to have been particularly complicated. The clearance decision noted that MASMOVIL and AHÍ+ achieved a combined market share in the retail markets below 10% in all cases (specifically, 6.68% in fixed networks), which is far below the 30% threshold foreseen in the Spanish regulation (and the share added by AHÍ+ was negligible). Additionally, although precedents have indeed identified a specific wholesale termination market, even the conclusion that AHÍ+ was active in such a market (which was denied by MASMOVIL) depended on technically complex arguments.

But even in less complex situations, the duty to notify the transaction will depend on the market share of the parties. Calculating such market shares requires, in turn, an analysis of the market definition and determining the corresponding market shares, both of which require knowledge of the practice of the CNMC and other national competition authorities.