Czech Competition Authority Fines O2 & Sherlog $13.6 Million Over Cartel Agreement

Key Takeaways

• Nearly a Decade of Coordination: Czech competition authorities found that O2 Czech Republic and Sherlog Technology allocated customers and coordinated commercial activity from at least December 2012 to June 2022.
• More Than $13.6 Million in Fines: O2 was fined approximately $12.7 million (CZK 262.32 million), while Sherlog received a roughly $890,000 (CZK 18.357 million) penalty.
• A Legitimate Partnership Went Too Far: The companies were not sanctioned for their cooperation on O2 Car Control. The violation arose from arrangements that restricted when Sherlog could offer its competing Sherlog Trace service and allowed the companies to determine which would pursue particular customers.
• Public Procurement Was Part of the Conduct: The Office found that the coordination extended to public contracts, including opportunities involving Prague Airport and the Service Facilities of the Ministry of the Interior. Sherlog was consequently banned from performing public contracts for six months.

Deep Dive

For nearly a decade, O2 Czech Republic and Sherlog Technology sold competing vehicle-monitoring services in a market where, according to Czech competition authorities, the competition between them was not quite what it appeared to be. The Office for the Protection of Competition said that the companies had divided customers and coordinated sales of vehicle and other transport-monitoring services and electronic logbooks from at least December 2012 to June 2022. The arrangement reached into public procurement as well, with the companies exchanging information and coordinating their approaches to government contracts.

The Office fined O2 approximately $12.7 million (CZK 262.32 million) and Sherlog about $890,000 (CZK 18.357 million). Sherlog was also barred from performing public contracts for six months. The first-instance decision is not final and can be appealed to the chairman of the Office.

At the center of the case was a commercial relationship that was not, by itself, unlawful. O2 and Sherlog had worked together for years to provide O2 Car Control, a vehicle-monitoring service. The Office did not sanction the companies for developing or selling that product together.

What drew the regulator's attention was an arrangement governing what Sherlog could do with Sherlog Trace, its own competing service.

Under contractual terms agreed in December 2012, Sherlog faced significant restrictions on offering Sherlog Trace to customers. In many cases, it could not make an offer without first communicating with O2 and obtaining its approval. The result, according to the Office, was a system in which the companies could decide between themselves which customers would be offered O2 Car Control and when Sherlog would be permitted to put forward its alternative.

That distinction matters. Commercial partners routinely make agreements about the products they sell together. Here, the Office concluded that the companies had gone further, using their relationship to determine how and when they would compete against one another. It classified the arrangement as a prohibited customer-allocation agreement under Czech and European Union competition law.

Nor did the restriction remain tucked away in a contract. Emails examined during the investigation showed the companies putting the arrangement to work, the Office said, sharing information about prospective business and coordinating which of them would pursue particular customers or public contracts.

The regulator identified examples involving Nové Město na Moravě, Prague Airport and the Service Facilities of the Ministry of the Interior. Taken together with the contractual arrangements, those communications led the Office to conclude that the companies had deliberately reduced the uncertainty that ordinarily comes with competing for the same business. Each could know, at least in the cases they coordinated, what the other intended to do.

The Office traced that conduct from Dec. 7, 2012, until June 9, 2022. It opened its investigation that year and carried out on-site inspections at both companies, eventually finding that the coordination had persisted for almost a decade.

That duration mattered when the fines were calculated. The Office said it found no mitigating circumstances, and Sherlog's involvement in conduct connected with public procurement brought an additional consequence: a six-month ban on performing public contracts.

O2 did not receive the same ban, but not because the Office regarded its conduct as less serious. The regulator concluded that excluding O2 from public contracting could itself have significant adverse effects on competition in telecommunications, a market in which the company holds substantial shares. Rather than impose the prohibition, the Office increased O2's financial penalty by more than $3.6 million (CZK 75 million), bringing its fine to approximately $12.7 million (CZK 262.32 million).

That leaves the two companies facing combined penalties of roughly $13.6 million (CZK 280.677 million), with Sherlog temporarily shut out of public contracts. Whether those sanctions survive unchanged will depend on what comes next. The companies can still appeal, and the decision will not become final until that process has run its course or the opportunity to challenge it has passed.

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