China Law Vision : China Insurance & Anti-Trust Lawyer : Dr. Zhan Hao : Grandall Legal Group : Anti-Monopoly & Competition Law : China Law Vision Blog

The fact that the case was ultimately settled and that the uncertainty as to how the AML will be applied in practice remains, is of great importance to individual consumers with private actions against prominent business operators in China, and to other parties who have made claims under the AML (including those who have brought similar discriminatory pricing cases against state-owned enterprises).

One should attempt to understand the reasoning behind the settlement of the case. It is likely that in making such a decision, China Mobile took into account of the uncertainties in the application of the AML. Moreover, as a state-owned enterprise (SOE), while certain Articles of the AML has been interpreted to exempt state-owned enterprises (SOEs), it may be argued that the AML may be interpreted as exempting China Mobile from the AML prohibitions. Therefore, China Mobile’s willingness to settle the case may indicate that it considers its consumer pricing activities to be outside the scope of such exemptions. Hence, the consequences of a defeat for such a prominent company was likely to have been considered by China Mobile, namely that it could lead to a regulatory investigation and a fine of up to 10 per cent of its business turnover, and more importantly, potential major damage to its brand and ‘floodgate’ opening for similar claims.

Going forward, it is hoped that such cases may urge the Chinese courts and regulatory authorities to finalize and implement certain AML procedural rules to increase the transparency in the application of the law, and the certainty in the hearing and investigation of AML claims.

In regard to service, China Mobile offers three packages and different charging standards are employed for each. Mr. Zhou subscribed to the “Go-tone” package for which he is charged a 50RMB "monthly rental fee". In a recent interview he stated:

"I've bought the mobile myself and have also been paying monthly fees for receiving and making calls. There is no such thing as a 'leasing relationship' between China Mobile and I. What is more, there is no such charge to other package subscribers. It's unfair to charge users differently for the same services under different service packages."

Within China' s telecommunications market, China Mobile retains a dominant position. This can be said with certainty. Mr. Zhou has based his arguments upon abuse of DMP. Whether Mr. Zhou’s arguments will succeed remains to be seen.

Chapter 3 of the China' Anti-monopoly Law (AML) contains the rules applicable to abuse of DMP. Article 17 states that the concept of DMP refers to "a market position where an undertaking is able to control the price, the quantity or other trading conditions in the relevant market, or is able to restrict or affect the ability of another undertaking to enter into the relevant market." Article 17 also provides examples of what is prohibited under abuse of DMP in the relevant market. Two examples include: selling products at unfairly high prices or purchasing goods at an unfair low price; and discriminating treating without justifiable cause. However, the AML does not prohibit the existence of DMP in general. Differently put, when a company gains a dominant position in the relevant market through fair competition, the position is outside the AML's scope. What is regulated by the AML is the way in which a DMP is acquired and maintained by a corporation, for example, concentration and abuse of DMP.

Article 18 of the AML sets out factors that will be taken into account in establishment of a DMP, these include; the market share and the state of competition in the relevant market; the ability to control the purchase market or distribution market; the financial and technical capacity of the undertaking; the dependence on it by other undertakings; and the access to the relevant market by other undertakings. In order to trigger the AML, the undertakings must concern a DMP, otherwise the undertaking holds a right to make their business judgment. That is to say, when corporations without DMP fairly employ a competition strategy, little, if any, negative influence is exerted on the relevant market. Therefore, such undertakings are outside the scope of the AML.

In Mr. Zhou's case, the first step is to establish that China Mobile holds a DMP in the telecommunication market. In theory, this should not be difficult. The label may then trigger the AML. Yet whether the conduct of China Mobile will be prohibited under the AML remains uncertain at best.