Airwave Solutions Ltd & Ors v Competition and Markets Authority & Anor

Factual and Procedural Background

This opinion addresses an application for permission to appeal a judgment of the Competition Appeal Tribunal ("the CAT") dated 22nd December 2023, which upheld a decision of the Competition and Markets Authority ("CMA") contained in a Final Report on "Mobile radio network services" dated 5th April 2023 ("the Decision"). The Decision concerned the supply of communications network services under a long-term Private Finance Initiative Framework Agreement ("the PFI Agreement") by Company A, a subsidiary of Company B, to a government department on behalf of public sector users.

The core issue related to pricing and profitability during an extension period following expiry of the initial fixed term of the PFI Agreement. The CMA found that features of the relevant market caused an adverse effect on competition ("AEC") under section 134 of the Enterprise Act 2002 ("EA 2002"), allowing Company B to earn supernormal profits compared to a hypothetical competitive market. Central to the analysis were provisions for asset transfer at "fair market value" upon termination.

Following the Decision, the CMA imposed a charge control order limiting revenue during the extension period, reducing prices payable by the government below contractual levels. Company B sought judicial review under section 179 EA 2002, which was refused by the CAT. Permission to appeal was also refused by the CAT. Company B then applied to the Court of Appeal for permission to appeal, focusing on alleged errors in the CMA's reasoning. The Court ordered a full oral hearing on the application and substantive appeal, held on 11th November 2024.

Legal Issues Presented

1. Whether the CAT erred in law by failing to find that the CMA did not take account of dynamic, long-term competition between the existing network and its intended replacement in assessing adverse effects on competition.
2. Whether the CAT erred in law by failing to find that the CMA's profitability analysis was irrational, failed to take account of a material consideration, or was internally inconsistent.

Arguments of the Parties

Appellant's Arguments

• The CMA failed to consider dynamic long-term competition from the replacement network (ESN), despite having found both networks were in the same market, leading to an inconsistent conclusion of a "virtually unconstrained monopoly position".
• The CMA's valuation of assets as having zero value during the extension period was irrational and inconsistent with the contractual framework and real value to the government.
• The CMA erred by not applying the logic of the original PFI Agreement pricing and asset transfer provisions to the extension period, thereby failing to respect the contract's reflection of a well-functioning market.
• The CMA wrongly treated assets as "scrap" despite their continuing importance and value to public safety communications during the extension period.

Respondent's and Intervener's Arguments

• The CAT correctly distinguished between market definition (where dynamic competition was a theoretical possibility) and competitive assessment (where it found no material constraint from the replacement network).
• The CMA's assessment that the position post-expiry of the initial term was materially different, with Company B holding monopoly power and superior bargaining strength, was rational and justified.
• The asset transfer provisions were uncertain and ineffective, preventing the transfer of assets at zero value, which contributed to the adverse effect on competition.
• The CMA's valuation approach reflected established government policy on PFI contracts, where assets are fully amortised over the contract term and should transfer at zero cost thereafter.
• The CMA's approach was a legitimate economic judgment within its discretion and not irrational or inconsistent.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
Office of Fair Trading and others v IBA Healthcare Limited [2004] EWCA 142	Principles of judicial review and margin of appreciation in economic regulatory decisions	The Court emphasized the CAT's role in scrutinizing facts while allowing an appropriate margin of appreciation for economic judgments.
Cerelia Group Holding SAS and others v CMA [2024] EWCA Civ 352	Application of judicial review principles to CMA decisions	Confirmed the approach to deference in economic assessments and the CAT's discretion in reviewing CMA decisions.
Société Coopérative de Production SeaFrance SA v The Competition and Markets Authority & Anor [2015] UKSC 75	Requirement of caution in appellate review of economic judgments by regulatory bodies	The Supreme Court's guidance informed the Court's deferential approach to the CMA's economic evaluation.
BGL (Holdings) Limited & Others v CMA [2022] CAT 36	Market definition and competitive assessment are distinct and overlapping processes	The Court relied on this precedent to support the CMA's distinction between market definition and competitive constraint.

Court's Reasoning and Analysis

The Court undertook a detailed examination of the CMA's Decision and the CAT's Judgment, assessing the legal and economic reasoning applied to the issues raised.

Regarding Ground I, the Court found no error in the CAT's approach distinguishing market definition from competitive assessment. The CMA acknowledged potential for dynamic competition in market definition but found no actual material constraint from the replacement network during negotiations. The Court noted that theoretical competition does not necessarily translate into effective constraint, especially given the monopoly supplier's position and the government's knowledge of delays in the replacement network's deployment. The Court concluded that the CMA's findings on market power and lack of competitive constraint were rational and supported by evidence.

On Ground II, the Court rejected the argument that the CMA's asset valuation was irrational or internally inconsistent. The CMA found the asset transfer provisions uncertain and ineffective, preventing transfer of assets at zero value, which contributed to the adverse effect on competition. The Court emphasized that the CMA's valuation approach aligned with established government policy on PFI contracts, which expects assets to be fully amortised during the contract term and transferred at no cost thereafter. The Court distinguished this from "scrap" value, clarifying that the assets had continuing use for the government but little value to third parties. The Court found the CMA's economic judgment to be within its discretion and rational, and the CAT was correct to uphold it.

The Court also addressed additional arguments concerning economic literature and analogies with other market types, finding them unpersuasive given the statutory framework and facts of the case.

Overall, the Court held that the CMA and CAT had properly applied legal principles and economic analysis, and that the grounds of appeal lacked merit.

Holding and Implications

The Court REFUSED PERMISSION TO APPEAL.

The direct effect of this decision is that the CAT's judgment upholding the CMA's Decision stands, including the imposition of the charge control remedy limiting prices during the extension period of the PFI Agreement. The ruling confirms the CMA's authority to intervene in long-term government contracts where market power leads to supernormal profits and adverse effects on competition. No new precedent beyond the facts and statutory framework of this case was established.