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DONG's agreements about maintenance of gas fired furnaces

27. august 2003

Journal nr. 3/1120-0100-0895/kl/ISA The Council meeting 27. August 2003

1. DS Håndværk & Industri (DS)1 has complained about DONG’s subcontractor agreement with plumbers. This agreement was concluded in connection with a nationwide maintenance agreement made for natural gas customers and came into force on 1 July 2003. The agreement contains an exclusive agreement binding plumbers to work only for DONG in the area of maintenance of gas fired furnaces. On the date of the agreement DONG terminated the existing subcontractor agreement which did not contain any similar terms of exclusivity.

2. The subcontractor agreement requires the existence of the maintenance agreement with gas customers. Therefore the two contracts must be considered as connected.

3. The relevant product market is defined as the market for maintenance of gas fired furnaces. On the supply-side all plumbers with employees holding an A-certificate are included in the definition. The relevant geographical areas are the regions covered by DONG i.e. Southern Jutland and Zealand.

4. DONG’s market share on Zealand is so low that the subcontractor agreement is affected by the block exemption for vertical agreements.

5. In Southern Jutland DONG has made agreements with more than 30 per cent of all plumbers with employees holding an A-certificate. DONG holds a strong position in the market since they have concluded maintenance agreements with more than 70 per cent of the subscribed customers in the area. This equals more than 50 % of all households with a gas fired furnace. Most of the maintenance agreements run for several years.

6. DONG’s subcontractors in Southern Jutland probably felt compelled to accept the new terms in the agreement if they wanted to keep the maintenance service. In the short run they are unable to compensate for the loss on maintenance service with increased sales of other plumbing services.

7. There is a risk that the exclusivity provisions in the subcontractor agreement will lead to a foreclosure of the market. There is also a risk that the liberalisation of the natural gas market which will be effected the 1 January 2004 not will affect the market for maintenance of gas fired furnace. Thus the competition in Southern Jutland is hampered.

8. The exclusivity provisions are comprehended by section 6 in the Competition Act though the calculation of market shares is uncertain. Even though DONG disagree with certain parts of the analysis the company has informed the Competition Authority that they will contribute to making the strongest possible competition environment. DONG has suggested that some terms be removed or changed. This will remove barriers for competition.