By Susan Ning, Sun Yiming, Liu Jia and Yin Ranran
On 2 December 2011, China Telecom and China Unicom announced that they have applied to the National Development and Reform Commission (NDRC) for suspension of its antitrust investigation into their internet access pricing practices, by promising to adjust the internet access prices and overhaul their broadband services.
According to their announcements 1, China Telecom and China Unicom stated that they have proactively cooperated with the NDRC’s investigation and have engaged in "self-evaluation" of the challenged pricing practices. Both companies acknowledged "room for improvement" for their interconnection services and pricing practices.
Both companies disclosed that they have submitted to the NDRC "proposal(s) for enhancement initiatives" and applications for suspension of investigation. They both committed to improve the internet interconnection quality, adjust the pricing management of internet dedicated leased line access service and continue to invest and upgrade construction of broadband network in China. China Telecom particularly mentioned that it would reduce the price for direct interconnection with China Tietong (a smaller backbone operator who also competes in the internet access retail area) and promised to lower the internet access unit price for public customers by approximately 35% within 5 years with higher access speed.
Later the same day, the NDRC confirmed that it has received and is reviewing the applications from the two companies.
China Telecom and China Unicom are the two largest backbone network operators in China. On November 9, the NDRC announced that it had launched investigations into the two companies’ broadband access businesses. Ms. Li Qing, the Deputy General Director of the Price Supervision and Anti-monopoly Bureau of the NDRC, commented that by charging their competitors much higher prices than non-competitors, the two companies could constitute "price discrimination" (one of the abusive conducts) under the AML (for details, please check out our previous articles entitled "Chinese Antitrust Enforcement Agencies Ready to Show Teeth to Large State-owned Enterprises?" and "Earlier Rumor Confirmed: China Telecom and China Unicom under Antitrust Investigation".
China Telecom and China Unicom filed the application for suspension of investigation pursuant to Article 45 of the AML. According to Article 45, if a company under antitrust investigation undertakes to take timely measures to eliminate the consequences of its alleged monopolistic practices, the AML enforcement agencies may decide to suspend the investigation. Upon fulfillment of such commitments, the AML enforcement agency may make a decision to terminate the antitrust investigation. Investigation may nevertheless be resumed if (a) the company fails to perform its commitments, (b) the facts based on which the suspension decision was made changed materially or (c) the information provided by the company based on which the suspension decision was made was incomplete or unauthentic.
Both the NDRC and the State Administration for Industry and Commerce have provided similar procedural guidance relating to suspension of antitrust investigation.
If an application is successful, the company that applied for suspension can benefit from relatively speedy closing (at least temporarily) of the investigation. Moreover, we understand it would be reasonable to infer that once an application is granted, the company will not be imposed antitrust fines that could have ranged from 1-10% of its turnover for the previous year. Nevertheless, it is not entirely clear under the AML what implications the company’s undertakings may have in an AML private litigation. We however notice that the draft rules governing AML private actions released by the Supreme People’s Court in April expressly provided that such commitments made by a company cannot be used in support of direct presumption of monopolistic conducts.
Will NDRC accept the commitments and decide to suspend the investigation? We will keep a close watch on this milestone antitrust investigation.
1For China Telecom’s announcement in HKEx, please refer to http://www.chinatelecom-h.com/eng/announcements/announcements/a111202.pdf. For China Unicom’s announcement in HKEx, please refer to http://www.chinaunicom.com.hk/files/doc/News-2011/a120200-tc.pdf.