Czech Competition Authority Imposes Record $89.7 Million Fine Over Cable Cartel

Key Takeaways

• Record Cartel Fine: The Czech competition authority imposed approximately $89.7 million (CZK 1.942 billion) in fines over coordinated cable pricing practices.
• Metal Surcharge Coordinated: Six manufacturers agreed on a common method for calculating the copper and aluminum component of cable prices, reducing the scope for independent price competition.
• Conduct Stretched Back to 2010: NKT, PRAKAB and Prysmian participated from at least 2010, with other companies joining later. The conduct ended in February 2022.
• Leniency Spared PRAKAB: PRAKAB reported the cartel and received complete immunity from a fine, while PRECON was not fined because of its insolvency and lack of assets.
• Decision Remains Appealable: The Office’s decision is not yet final, and the parties may appeal to its Chairman.

Deep Dive

The Czech Office for the Protection of Competition has imposed fines totaling approximately $89.7 million (CZK 1.942 billion) on four companies after finding that six cable manufacturers coordinated the calculation of a “metal surcharge” used in the pricing of telecommunications and power cables containing copper or aluminum. It is a record fine for the Office. The decision, announced Oct. 1, is not yet final, and the parties can appeal to the Chairman of the Office.

The companies involved were Kablo Vrchlabí, NKT, PRAKAB Pražská Kabelovna, PRECON, Prysmian Kabely and Tele-Fonika Kabely CZ. Four received financial penalties. PRAKAB received complete immunity after reporting the cartel through a leniency application, while PRECON was not fined because it is undergoing insolvency proceedings and has no assets at its disposal.

Prysmian received the largest penalty at approximately $44.1 million (CZK 955 million). NKT was fined approximately $42 million (CZK 910.071 million), Tele-Fonika approximately $2.29 million (CZK 49.581 million) and Kablo Vrchlabí approximately $1.27 million (CZK 27.528 million). Those are large numbers, but the conduct behind them came down to one particular part of the price of a cable.

The Metal Surcharge

Cable pricing includes a base price covering plastic insulation, manufacturing and overhead costs, a margin and a deposit for metal. Then there is the price of the copper or aluminum contained in the cable. Depending on the type of cable, that metal component can represent a significant share of the total price. It was here that the Office found the companies had stopped acting independently.

The cartel participants jointly established a formula for calculating the price of the metal. They cross-checked the resulting metal surcharges, determined how long particular values would remain valid and, when changes were necessary, adjusted them after consulting one another. The surcharge values were then published through the Association of Cable and Wire Manufacturers of the Czech Republic and the Slovak Republic and in the Czech business newspaper Hospodářské noviny.

The Office’s case is therefore more specific than a finding that six companies simply agreed on a final price for their cables. What they coordinated was the method used to calculate an important component of that price. Instead of each manufacturer deciding for itself how movements in copper and aluminum prices should be reflected in what it charged customers, the companies agreed on a common approach.

Kamil Nejezchleb, Vice-Chair of the Office, said that arrangement replaced individual decision-making with coordinated practice and reduced the scope for price competition. For NKT, PRAKAB and Prysmian, the prohibited coordination had been in place since at least 2010. Tele-Fonika participated from 2011. PRECON and Kablo Vrchlabí joined in 2020.

The conduct ended in February 2022. Months later, in June, the Office carried out unannounced inspections at the companies’ premises. Investigators ultimately concluded that the agreement distorted competition in the Czech market for metallic telecommunications and power cables and affected trade between European Union member states.

PRAKAB Goes to the Office

The investigation began not with those inspections, but with one of the cartel participants coming forward. PRAKAB submitted a leniency application that provided the Office with basic information about the existence and operation of the agreement. Its cooperation meant the company completely avoided a financial penalty for the anticompetitive conduct.

PRECON also received no fine, though for an entirely different reason. The company is undergoing insolvency proceedings and, according to the Office, has no assets at its disposal. That left four companies facing penalties. In determining those amounts, the Office said it considered, in particular, the gravity and duration of the anticompetitive conduct.

The result is approximately $89.7 million (CZK 1.942 billion) in fines over a pricing practice that survived, in some cases, for more than a decade. The arrangement did not require the companies to agree on every number appearing on an invoice. They only had to remove independent decision-making from a part of the price important enough to matter.

The GRC Report is your premier destination for the latest in governance, risk, and compliance news. As your reliable source for comprehensive coverage, we ensure you stay informed and ready to navigate the dynamic landscape of GRC. Beyond being a news source, the GRC Report represents a thriving community of professionals who, like you, are dedicated to GRC excellence. Explore our insightful articles and breaking news, and actively participate in the conversation to enhance your GRC journey.